Allstate Ins. Co. v. Avis Rent-A-Car System, Inc., RENT-A-CAR

Citation947 P.2d 341
Case DateNovember 10, 1997
CourtSupreme Court of Colorado

Walberg & Dagner, P.C., Deana R. Dagner, Matthew A. Holmes, Englewood, for Petitioner.

Nathan, Bremer, Dumm, & Myers, P.C., Ellis J. Mayer, Denver, for Respondent.

Kennedy & Christopher, P.C., John R. Mann, Denver, for Amicus Curiae Budget Rent-A-Car, Inc. Justice HOBBS delivered the Opinion of the Court.

We granted certiorari to review the court of appeals' decision in Avis Rent-A-Car System, Inc. v. Allstate Insurance Company, 937 P.2d 802 (Colo.App.1996). Allstate Insurance Company (Allstate) requests us to void the excess clause in the Avis Rent-A-Car System, Inc., (Avis) rental agreement and enforce the excess clause in the Allstate policy. We decline. The court of appeals held that Allstate and Avis each had issued liability coverage for the property damage caused by the driver of the rented automobile, that the excess clauses contained in the policies of both companies conflicted with each other and were unenforceable, and that both insurers must respond as co-primary to cover the loss. We affirm the judgment of the court of appeals. We determine that the competing excess clauses violate Colorado public policy and conclude that the loss must be apportioned between the insurers on a co-primary basis.


On July 2, 1994, Chinh Viet Pham (Chinh) was driving a rented Avis 1994 Oldsmobile Achieva when he struck a 1988 Eagle 15 bus head-on, causing property damage. The record before us does not disclose the amount of the loss. In this declaratory judgment action, each insurer attempted to have the other's coverage be declared as primary and its own coverage excess.

The Colorado Auto Accident Reparations Act (CAARA), section 10-4-705(1), 3 C.R.S. (1997), mandates that:

Every owner of a motor vehicle who operates the motor vehicle on the public highways of this state or who knowingly permits the operation of the motor vehicle on the public highways of this state shall have in full force and effect a complying policy under the terms of this part 7 covering the said motor vehicle....

The Avis rental agreement covered Chinh with regard to "liability for ... damaging the property of someone other than the driver and/or the renter up to the minimum financial responsibility limits required by applicable law." Thus, the Avis policy covered Chinh's property damage liability up to $15,000. See § 10-4-706(1)(a), 3 C.R.S. (1997). Chinh's policy with Allstate also covered property damage arising from his liability for operation of a non-owned automobile. The record does not disclose any of the limits of the Allstate policy.

Both coverages contained substantially similar excess insurance clauses which sought to compel the other insurer to respond as the primary insurer. Avis is self-insured under the act; the coverage conferred through its rental agreement provided that:

The coverage provided by [Avis] shall be excess over any applicable insurance available to [the driver], from any other source, whether primary, excess, secondary or contingent in any way.

The Allstate policy contained an excess clause which stated that:

If an insured person is using a substitute auto or non-owned auto, [Allstate's] liability insurance will be excess over other collectible insurance. If more than one policy applies on a primary basis to an accident involving your insured auto, [Allstate] will bear [its] proportionate share with other collectible liability insurance.

In its ruling, the district court relied on 1992 amendments to CAARA to hold that the renter's non-owned automobile liability coverage provided by Allstate must respond as primary. Allstate contended on appeal that Colorado law requires the liability coverage of the car owner always to respond as the primary insurer and forbids Avis from including an excess clause in its rental car liability coverage.

In reversing the district court, the court of appeals concluded that the Avis and Allstate excess clauses canceled each other as mutually repugnant, that both coverages were in effect up to their full policy limits, and that each insurer was required to respond as primary to bear its share of the loss due to the liability of their insured. We agree.


We conclude as a matter of Colorado public policy that the competing excess clauses in the Allstate and Avis policies are unenforceable. Both insurers must bear their share of the actual loss on a dollar-for-dollar basis until the limits of one of the policies is exhausted; the second policy must continue to pay to its limits or until the loss has been fully compensated, whichever occurs first.


Liability Coverage Under CAARA

The Colorado General Assembly adopted CAARA in 1973 as part of a sweeping reform requiring minimum no-fault insurance and mandatory minimum liability insurance for automobiles. See Committee on Automobile Insurance, Colorado Legislative Council, Report to the Colorado General Assembly, Res.Pub. No. 190 (1972) (Committee Report). CAARA'S purpose is to: (1) avoid inadequate compensation to victims of automobile accidents; (2) require registrants of motor vehicles in the state to procure insurance covering liability arising out of ownership or use of such vehicles; and (3) provide benefits to persons occupying such vehicles and to persons injured in accidents involving such vehicles. See § 10-4-702, 3 C.R.S. (1997).

To achieve these goals, CAARA changed the state's compensation scheme by replacing parts of the common law tort liability system with minimum required no-fault insurance. This coverage, known as Personal Injury Protection (PIP), is provided to the injured party by his or her own insurance company regardless of "fault." Committee Report at 5. PIP coverage applies not only to the named insured, but also to members of the automobile owner's family, passengers of the owner's automobile, and pedestrians in accidents involving the automobile. See § 10-4-707(1)(a)-(c), 3 C.R.S. (1997). PIP coverage includes compensation for medical, rehabilitative, income loss, and death benefits. See § 10-4-706(1)(b)-(e), 3 C.R.S. (1997).

While PIP coverage was a primary focus of the statutory reform, the General Assembly also intended to retain features of pre-existing tort liability law while prescribing minimum liability coverage. Committee Report at 5, 8. It chose in CAARA to mandate minimum coverages not only for PIP benefits but also for tort liability for bodily injury or death and for property damage arising from the use of a motor vehicle. See § 10-4-706(1)(a), 3 C.R.S. (1997). The liability coverage mandated by CAARA provides personal injury compensation based on the fault of the tortfeasor when PIP benefits are inadequate to compensate for the loss. Committee Report at 5. For bodily injury or death, the mandatory coverages are $25,000 for any one person in any one accident and $50,000 for all persons in any one accident; for property damage, the coverage must be at least $15,000 for any one accident. See § 10-4-706(1)(a), 3 C.R.S. (1997). Because PIP coverage does not include property damage, CAARA retains a fault-based liability coverage compensation system for all property damage claims. See id.; Committee Report at 15.

Though the legislature in CAARA instituted mandatory coverage for both no-fault PIP insurance and legal liability insurance, it treated these coverages separately under the act. In Travelers Indemnity Co. v. Barnes, 191 Colo. 278, 552 P.2d 300 (1976), we ruled that CAARA section 10-4-707(4) 1 required the operator's PIP coverage always to be primary regardless of the existence of any other coverage.

The statutory language which is in question here is the extent of "all coverages" as it relates to primary coverage by the operator's policy.... The reasonable construction of section [10-4-707(4) ] is that the phrase "all coverages" is limited to those coverages providing PIP benefits under subsections [10-4-706(1)(b) to 10-4-706(1)(e) ]. Subsection (4) cannot be extended by implication to every coverage that may be included in the policies. The contrary construction contained in the offending regulation does not conform to the stated legislative purpose of the Act, is not consistent with all other portions of the Act, and changes longstanding insurance practices.

Id. at 283-84, 552 P.2d at 304. The legislature has not chosen explicitly or by clear implication to change this construction of CAARA in the twenty years since we announced Barnes.

Thus, when an accident involves a driver who is not the owner of the vehicle nor an employee of the owner, the operator's policy is primary with regard to PIP benefits only. Our analysis in Barnes was supported by the legislative history of the act, which expressly indicated that the legislature intended that first-party PIP coverage be primary but contained no corresponding requirement for liability coverage. See Committee Report at 7 ("First Party Coverages ... if a person who has a complying policy is operating a vehicle other than his own or his employer's, the operator's policy is primary.").

Contrary to Avis' successful argument in the district court, Colorado law does not require Allstate's liability coverage for non-owned automobiles to respond as primary. The court of appeals correctly held that nothing in the plain language of section 10-4-707, as amended in 1992, contains a provision overruling Barnes. The amendments to subsection (1) and subsection (5) make no reference to subsection (4) and contain no identifiable language altering Barnes. See ch. 20, sec. 3, § 10-4-707, 1992 Colo.Sess.Laws, 1781, 1784. The district court determined that the 1992 amendments may have overruled Barnes inadvertently. We will not infer that the General Assembly...

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