Chambers v. Agency Rent-A-Car, Inc.

• Decision Date: 15 July 1994
• Docket Number: INC,RENT-A-CA,No. 920820-CA,920820-CA
• Citation: 878 P.2d 1164
• Parties: Jorgina CHAMBERS and Farmers Insurance Exchange, Plaintiffs and Appellees, v. AGENCYand Royal Indemnity Company, Defendants and Appellant.
• Court: Utah Court of Appeals

Page 1164

878 P.2d 1164

Jorgina CHAMBERS and Farmers Insurance Exchange, Plaintiffs and Appellees, v. AGENCY RENT-A-CAR, INC. and Royal Indemnity Company Defendants and Appellant.

No. 920820-CA.

Court of Appeals of Utah.

July 15, 1994.

Robert K. Hilder and Wesley M. Lang, Salt Lake City, for appellant.

John M. Chipman and Andrea C. Alcabes, Salt Lake City, for appellees.

Before BENCH, BILLINGS and ORME, JJ.

OPINION

GREGORY K. ORME, Associate Presiding Judge:

Agency Rent-A-Car appeals the trial court's summary judgment ruling that Agency, who is self-insured, was primarily responsible for claims arising from an accident involving a vehicle owned by Agency and driven by Jorgina Chambers. Agency also appeals the amount of its liability as determined by the court. We affirm the court's ruling imposing primary responsibility on Agency, but reduce the amount of its liability.

FACTS

The facts are not in dispute. Agency Rent-A-Car, as its name suggests, is in the business of renting automobiles. On December 13, 1989, Jorgina Chambers rented a vehicle from Agency in Utah. Upon renting the car, Jorgina Chambers signed a rental agreement that included the following provision:

Customer represents and warrants that [she] has a valid policy of automobile liability, collision and comprehensive insurance in force at the time of this rental and further represents and warrants that [she] shall maintain said policy of automobile insurance in force during the time of the rental. Lessor, relying on said warranty and representation, is not providing automobile liability, collision, comprehensive and/or medical expense insurance to the Customer or any person operating, using or otherwise occupying the said vehicle. ¹

At the time Jorgina Chambers rented the car from Agency, she owned a car which was insured by Farmers Insurance Exchange with policy limits of $20,000 for injury to one person, $40,000 for injuries per occurrence, and $10,000 for medical expenses. The Farmers policy included coverage for any other car driven by Chambers to the extent such car was not covered by "other valid and collectable insurance." For its part, Agency is a qualified self-insurer under Utah law and was certified as such by the Utah Department of Public Safety.

On December 14, 1989, a collision occurred between the car owned by Agency and driven by Jorgina Chambers and a vehicle driven by another individual. At the time of the collision, Morgan Chambers was a passenger in the Agency car driven by her mother. As a result of the accident, Morgan Chambers sustained catastrophic injuries, resulting in medical expenses that, as of March of 1992, exceeded $70,000. This lawsuit followed.

Before the trial court, Farmers Insurance acknowledged its obligation to pay its policy limits to settle the claims of Morgan Chambers, but maintained that Agency was responsible for primary coverage on this claim and must pay its limits first. Farmers Insurance had paid no-fault personal injury protection (PIP) benefits to or on behalf of Morgan Chambers and Jorgina Chambers, but claimed that Agency was primarily liable for those benefits as well. Farmers also contended that applicable law required Agency to make $80,000 available to settle any liability claims. Agency denied that it owed primary coverage for liability, that its exposure was $80,000, and that it was responsible for PIP claims.

The trial court adopted Farmers' position that a self-insurer becomes the primary "insurer" for liability and PIP claims resulting from permissive use of its vehicles. By so holding, the trial court recognized Agency's certificate of self-funded coverage as constituting "other insurance" within the meaning of Farmers' liability policy, making Farmers' coverage secondary to Agency's self-insurance responsibility. The trial court also adopted Farmers' view that Agency's liability exposure was $80,000.

Agency, which concedes that if it had regular insurance the insurance would indeed be primary to the Farmers policy in this case, argues that the trial court erred in failing to distinguish between insurance and self-funded coverage, and thus erroneously concluded that Agency was primarily liable for the benefits at issue. Agency also argues that even if it is primarily responsible for liability coverage, its exposure is limited to $40,000.

STANDARD OF REVIEW

As indicated, the facts of this case are not in dispute. Rather, the parties dispute the trial court's interpretation of the controlling statutes. This presents a question of law which we review for correctness, according no particular deference to the trial court's view. Country Oaks Condominium Management Comm. v. Jones, 851 P.2d 640, 641 (Utah 1993).

ANALYSIS

The major issue presented is whether qualified self-insurance is distinguishable from insurance issued in accordance with Utah's Motor Vehicle Financial Responsibility Act. See Utah Code Ann. §§ 41-12a-101 to -606 (1993). Stated another way, is a self-insurer treated the same way as its insurance carrier would be if it had opted to comply with the financial responsibility laws by purchasing insurance rather than by self-insuring?

A. Responsibility of Self-Insurers

The trial court held that Agency's status as a self-insurer did not relieve it of primary responsibility for claims involving the permissive use, operation, or maintenance of its vehicles. This conclusion necessitates an examination of the duties imposed on self-insurers. In Utah, "[e]very resident owner of a motor vehicle shall maintain owner's or operator's security in effect throughout the registration period of the motor vehicle." Utah Code Ann. § 41-12a-301(2)(a) (1993). Proof of such security is required by law and may be satisfied by any of the following:

(a) a certificate of insurance under Section 41-12a-402 or 41-12a-403;

(b) a copy of a surety bond under Section 41-12a-405;

(c) a certificate of deposit of money or securities issued by the state treasurer under Section 41-12a-406; or

(d) a certificate of self-funded coverage under Section 41-12a-407.

Id. § 41-12a-401(1).

Of the available methods for complying with Utah's motor vehicle financial responsibility laws, Agency chose to obtain a certificate of self-funded coverage for its fleet of cars. By so choosing, Agency subjected itself to the requirements set forth in section 41-12a-407. The version of that section in effect at the time of the accident stated, in pertinent part, as follows:

The department may upon the application of any person, issue a certificate of self-funded coverage when it is satisfied that the person has and will continue to have the ability to pay judgments in an amount equal to twice the single limit amount under Subsection 31A-22-304(2). Persons holding a certificate of self-funded coverage under this subsection shall pay benefits to persons injured from the self-funded person's operation, maintenance, and use of motor vehicles as would an insurer issuing a policy to the self-funded person containing the coverages under Section 31A-22-302. ²

Utah Code Ann. § 41-12a-407(1) (1988) (emphasis added).

As previously mentioned, Agency concedes that if it chose to obtain insurance for its fleet of cars, the insurer issuing such a policy would be primarily responsible in connection with accidents involving the permissive operation, maintenance, and use of its vehicles, even in situations, as here, where the driver has her own insurance. Agency contends, however, that its choice to self-insure insulates it from primary responsibility. Specifically, Agency contends that self-funded coverage is not insurance and that this distinction relieves a self-insurer of primary responsibility when an actual policy of insurance is available from which a claim may be paid.

Agency argues that the statutory definition of "insurance" supports its contention that self-funded coverage is not insurance. The Utah Code defines insurance as "any arrangement, contract, or plan for the transfer of risk or risks from one or more persons to one or more other persons." Utah Code Ann. § 31A-1-301(40) (Supp.1993). Typically, in exchange for a premium, a customer receives an insurance policy that shifts the financial responsibility to the insurer. Agency argues that because it did not receive a premium it was not providing insurance. ³ Moreover, it required Chambers to sign an acknowledgement that she had a valid automobile insurance policy in full force and effect. Therefore, Agency claims it did not issue Chambers a policy of "insurance" as that term is defined by statute.

However, the fact that Agency did not issue Chambers a policy of "insurance" is immaterial because Agency accepted the obligations that flow from self-insurance of its vehicles. Section 41-12a-407, which allows an owner to self-insure, also "expressly requires [a self-insurer] to assume certain obligations of an 'insurer.' " Neel v. State, 854 P.2d 581, 584 (Utah App.1993). In Neel, we held that "the State, as a self-insured owner, must pay PIP benefits just as if it were an independent insurer of those benefits." Id. The same rationale applies to liability coverage, as the requirements of section 41-12a-407 are not limited to PIP benefits. Rather, that statute requires that "anyone holding a certificate of self-funded insurance under this chapter shall pay benefits ... as would an insurer." Utah Code Ann. § 41-12a-407(2) (1993) (emphasis added). "Benefits," as we read the statute, include both PIP and liability coverage. See Utah Code Ann. § 31A-22-302(2) (Supp.1993). Thus, the Neel rationale applies equally to both PIP benefits and liability coverage.

It is well settled that the duties, obligations, and liabilities of self-insurers arise by operation of statute. Foster v. Salt Lake County, 712 P.2d 224, 226-27 (Utah 1985). The express language of and the purpose behind Utah's Motor Vehicle Financial Responsibility Act places liability on the self-insurer, as an...