88 Hawai'i 274, Bowers v. Alamo Rent-A-Car, Inc.

• Decision Date: 17 June 1998
• Docket Number: No. 20273,RENT-A-CA,INC,20273
• Citation: 965 P.2d 1274
• Parties: 88 Hawai'i 274 Charles D. BOWERS and State Farm Mutual Automobile Insurance Company, an Illinois corporation, Plaintiffs-Appellees, v. ALAMO, a Florida corporation, John Does 1-5; Jane Does 1-5; and Doe Entities 1-5, Defendant-Appellant.
• Court: Hawaii Supreme Court

Page 1274

965 P.2d 1274

88 Hawai'i 274

Charles D. BOWERS and State Farm Mutual Automobile Insurance Company, an Illinois corporation, Plaintiffs-Appellees, v. ALAMO RENT-A-CAR, INC., a Florida corporation, John Does 1-5; Jane Does 1-5; and Doe Entities 1-5 Defendant-Appellant.

No. 20273.

Supreme Court of Hawai'i.

June 17, 1998.

Wayne M. Sakai and Judy Y. Chung of Burke, Sakai, McPheeters, Bordner, Iwanaga & Estes, on the briefs, for defendant-appellant.

Thomas L.H. Yeh, Stephen J.Menezes and Michael W. Moore of Menezes Tsukazaki Yeh & Moore, on the briefs for plaintiffs-appellees.

Before MOON, C.J., and KLEIN, LEVINSON, NAKAYAMA and RAMIL, JJ.

NAKAYAMA, Justice.

Defendant-appellant Alamo Rent-a-car, Inc. appeals from a ruling of the circuit court granting partial summary judgment in favor of plaintiffs-appellees Charles Bowers and State Farm Mutual Automobile Insurance Company in this declaratory judgment action. The circuit court ruled that: (1) the escape clause contained in the Alamo rental agreement was void; (2) Alamo has the primary obligation to defend and indemnify Bowers against claims for personal injury and property damage incurred while driving an Alamo vehicle; and (3) State Farm's obligation was limited to providing excess liability coverage to Bowers. For the reasons set forth below, we affirm the judgment of the circuit court. In doing so, it is necessary to address the effect of the 1997 amendments to the Hawai'i Motor Vehicle Insurance Law.

I. BACKGROUND

The facts of this case are uncontested. On February 26, 1994, Bowers rented a motor vehicle from Alamo. Bowers is a resident of Anchorage, Alaska. Bowers declined to purchase excess liability coverage offered by Alamo through its policy with Continental Insurance Company, although he did purchase collision coverage. The rental agreement which Bowers signed contained the following language:

If there is no other valid and collectible insurance, whether primary, excess, or contingent, available to the renter or any authorized driver while operating the car, then Alamo's vehicle liability policy shall pay damages not to exceed minimum limits required by applicable law.

This contractual language is commonly referred to as an "escape clause." 8A Appleman, Insurance Law and Practice § 4906 (1981).

At the time Bowers rented the vehicle from Alamo, he was insured by a personal automobile policy issued by State Farm. This policy contained an "excess insurance" clause, which provided that: "If a temporary substitute car, a non-owned car or a trailer designed for use with a private passenger car or utility vehicle has other vehicle liability coverage on it, then this coverage is excess."

On March 8, 1994, while operating the rental vehicle, Bowers was involved in an accident. As a result of the accident, the driver of another automobile allegedly sustained bodily injuries. This driver gave notice to Alamo and State Farm of a claim against Bowers for personal injury resulting from the collision. In response, Alamo asserted that Bowers's policy with State Farm was the primary liability insurance provider under the terms of the rental agreement. Alamo thus denied any duty to defend or indemnify Bowers. Although State Farm disagreed with Alamo's attempt to disavow responsibility for coverage, it adjusted and settled the other driver's claim against Bowers. ¹

On March 30, 1995, Bowers and State Farm filed a complaint for declaratory relief in circuit court seeking a declaration that Alamo, as the owner of the vehicle, had an obligation pursuant to the Hawai'i Motor Vehicle Insurance Law, Hawai'i Revised Statutes (HRS) Chapter 431:10C, to provide mandatory minimum coverage for its vehicles and that the attempt to shift primary liability coverage to the renter's personal automobile insurance policy was void as violative of the statute and against public policy. On March 27, 1996, plaintiffs moved for summary judgment. On April 19, 1996, Alamo filed a motion for summary judgment. On May 24, 1996, after hearing on both motions for summary judgment, the circuit court granted summary judgment in favor of Bowers and State Farm, declaring that Alamo had the primary duty to defend Bowers.

Alamo moved for Hawai'i Rules of Civil Procedure (HRCP) Rule 54(b) certification of the declaratory judgment. Plaintiffs did not oppose this motion. The circuit court granted Alamo's motion for Rule 54(b) certification and filed a judgment on October 28, 1996, ruling that:

1. The escape clause of the automobile rental agreement issued by Defendant Alamo Rent-a-car to Plaintiff Charles Bowers is declared to be void.

2. Under the remaining terms of said rental agreement, and pursuant to Hawai'i insurance law, HRS Chapter 431:10C, [Alamo] had the primary obligation to provide [Bowers] with liability insurance coverage and to defend and indemnify [Bowers] against claims for personal injury and property damage arising out of the automobile accident which occurred on March 4, 1994, up to the minimum limits required by HRS Chapter 431:10C at the time of said accident.

3. [State Farm's] obligation was to provide excess liability insurance coverage to [Bowers] to the extent that the minimum limits of liability coverage required to be provided by [Alamo] by HRS Chapter 431:10C was insufficient.

Alamo then appealed the declaratory judgment. On appeal, Alamo argues that: (1) the rental agreement does not violate public policy; (2) Hawai'i law does not require that the owner's insurance be primary at all times; (3) the rental agreement was a valid contract under which Bowers agreed to have his own insurance be primary; and (4) Alamo is not trying to avoid the requirements of the Hawai'i insurance code because, under the terms of the agreement, minimum liability insurance would always be in effect.

Subsequent to the filing of this appeal, the legislature enacted changes to HRS Chapter 431:10C. The following statutory section was added to the HRS:

(a) A U-drive motor vehicle insurance policy shall be primary; provided that its bodily injury liability coverage shall be secondary to the operator's or renter's motor vehicle insurance policy if:

(1) The U-drive rental business provides any claimant or person sustaining accidental harm or damages, as a result of the operation of the rental vehicle, the identity and address of the operator or renter, along with any information available to the U-drive rental business as to the identity and address of any insurer under any liability policies applicable to the operator or renter; provided that the U-drive rental business shall make reasonable efforts to obtain such information;

(2) A suit may be filed and service upon the responsible operator or renter can be effectuated; and

(3) An insurer responds on behalf of the operator or renter to a claim or suit.[ ²

HRS § 431:10C-303.5(a) (Supp.1997). This section became effective on January 1, 1998. We ordered supplemental briefing to address the effect of the enactment of this statutory section on the outcome of the instant appeal. Alamo asserts that the enactment of this section indicates that the circuit court was erroneous in holding that its contract was against public policy. Plaintiffs assert that this amendment has prospective effect only and that the enactment of this statute recognizes that, under prior law, Alamo's attempt to shift primary responsibility for providing insurance coverage was unlawful.

II. DISCUSSION

A. Public policy, as expressed by the Hawai'i Motor Vehicle Insurance Law, does not allow an owner to contractually shift primary responsibility for providing minimum insurance coverage.

This case presents an issue of first impression in Hawai'i. We must determine whether the owner of a vehicle may satisfy the minimum requirements of HRS Chapter 431:10C by contracting that the owner's insurance policy will not have any responsibility for providing liability coverage unless a permissive user's personal insurance policy is insufficient to meet the statutorily required minimum amount of liability insurance. This question has generated diametrically opposed holdings in courts of other jurisdictions. ³ We hold that the owner of a vehicle has the primary obligation to provide minimum coverage for the owned vehicle and that this obligation may not be avoided through a unilateral contract with a permissive user of the vehicle.

We review statutes de novo. Shimabuku v. Montgomery Elevator Co., 79 Hawai'i 352, 357, 903 P.2d 48, 52 (1995). "The starting point in statutory construction is to determine the legislative intent from the language of the statute itself." State v. Kaakimaka, 84 Hawai'i 280, 289, 933 P.2d 617, 626, reconsideration denied, 84 Hawai'i 496, 936 P.2d 191 (1997) (quoting State v. Ortiz, 74 Haw. 343, 351-52, 845 P.2d 547, 551-52, reconsideration denied, 74 Haw. 650, 849 P.2d 81 (1993)). "[O]ur foremost obligation [when interpreting a statute] is to ascertain and give effect to the intention of the legislature, which is obtained primarily from the language contained in the statute itself." State v. Aluli, 78 Hawai'i 317, 320, 893 P.2d 168, 171 (1995) (citation omitted). We read statutory language in the context of the entire statute, "and construe it in a manner consistent with its purpose." Mathewson v. Aloha Airlines, Inc., 82 Hawai'i 57, 71, 919 P.2d 969, 983 (1996) (citation and internal quotation marks omitted). "A rational, sensible and practicable interpretation [of a statute] is preferred to one which is unreasonable or impracticable." State v. Lobendahn, 71 Haw. 111, 112, 784 P.2d 872, 873 (1989) (citations and internal quotation marks omitted) (brackets in original). "The legislature is presumed not to intend an absurd result, and legislation will be construed to avoid, if possible, inconsistency, contradiction[,] and illogicality." State v. Arceo, 84 Hawai'i 1, 19, 928 P.2d 843, 861 (1996) (citation and internal quotation marks omitted).

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