Consolidated Enterprises, Inc. v. Schwindt

• Decision Date: 28 February 1991
• Docket Number: CA-CV,A-C,No. 2,2
• Citation: 171 Ariz. 452,831 P.2d 828
• Parties: CONSOLIDATED ENTERPRISES, INC., an Arizona corporation, dba Budget Rent-ar, Plaintiff/Appellant, v. Herbert SCHWINDT and Renee Y. Schwindt, husband and wife, Defendants/Appellees. CV 90-0244.
• Court: Arizona Court of Appeals

Page 828

831 P.2d 828

171 Ariz. 452

CONSOLIDATED ENTERPRISES, INC., an Arizona corporation, dba Budget Rent-A-Car, Plaintiff/Appellant, v. Herbert SCHWINDT and Renee Y. Schwindt, husband and wife, Defendants/Appellees.

No. 2 CA-CV 90-0244.

Court of Appeals of Arizona Division 2, Department A.

Feb. 28, 1991.

As Corrected March 5, 1991.

Review Granted June 11, 1991.

Baker Sipe, Campoy and Newman by Ronald J. Newman, Tucson, for plaintiff/appellant.

Chandler, Tullar, Udall & Redhair by D.B. Udall, Tucson, for defendants/appellees.

OPINION

LACAGNINA, Judge.

The question raised in this appeal is whether a self-insured car rental agency which pays damages suffered by third persons resulting from the negligent act of the driver of a rented motor vehicle, loses its right to recover damages from the renter for breach of the rental agreement. We believe the provisions of A.R.S. § 28-324(A) and (B) do not abolish the owner/rental agency's right to sue its customer for breach of contract, and that the measure of damages may include money paid as damages to injured third parties.

FACTS

The following stipulated facts were presented to the arbitrator and adopted by the trial court. Plaintiff Consolidated Enterprises, Inc., dba Budget Rent-A-Car of Tucson (Budget) rented a car to Herbert Schwindt (Schwindt) in Pima County on March 31, 1988. Schwindt was specifically advised that he could not allow his daughter, a driver under the age of 21, to drive the rented car. He agreed. A short distance from the car rental agency Schwindt allowed his 17-year-old daughter, Kimberly, to take control of the car. Shortly thereafter, an accident was caused by Kimberly's negligent driving. The parties agree that Budget is in compliance with A.R.S. § 28-324 as a self-insurer, having met the relevant standards.

PROCEDURAL HISTORY

Budget claimed damages in the amount of $10,340.81 for property loss, towing expenses, and for property and personal injuries paid to the third party. Budget filed suit against Schwindt, claiming he breached the rental contract by allowing his daughter to drive the vehicle and seeking reimbursement for all damages. The matter was transferred to arbitration, and the arbitrator awarded judgment in favor of Schwindt, finding that "the primary purpose of the statute [A.R.S. § 28-324] is to make certain parties who are injured by the driver of a rented vehicle are protected by liability insurance.... The public policy as identified in A.R.S. § 28-324 mandates coverage for persons operating a motor vehicle with the permission of the person who has rented it."

On appeal from arbitration, the superior court adopted the arbitrator's findings and conclusions and in addition stated:

It is clear that through A.R.S. § 28-324, the legislature of this state has sought to protect the public from possible economic hardship that might result from injury, death or damage to property caused by persons driving rented vehicles, who may not have the financial assets to compensate for such damage. State Farm Mutual Auto v. Agency, 139 Ariz. 201, 203, 677 P.2d 1309 [1311 (App.1983) ]. The legislature has written this statute mandating the coverage as primary, obligating the insurer or the rental agency itself, if a self-insurer, to pay for damages caused by the renter's negligence and preventing the agency or its carrier from seeking indemnification from the renter for losses caused by his or her negligence.

BREACH OF CONTRACT ACTION NOT BARRED BY STATUTE

A.R.S. § 28-324(A) and (B) provide, in pertinent part, as follows:

§ 28-324. Registration of vehicles rented without drivers; liability insurance; joint liability of owner and renter; definition; violation; classification

A. No owner engaged in the business of renting, ... a motor vehicle ... shall be permitted to register the motor vehicle until he has procured public liability insurance ... or until the owner has furnished to the motor vehicle division satisfactory proof of his ability to respond in damages....

B. The owner of a motor vehicle who rents it to another ... without having procured the required public liability insurance or without qualifying as a self-insurer pursuant to § 28-1222 ..., shall be jointly and severally liable with the renter for damage caused by the negligence of the renter operating the motor vehicle.

Thus, under the statute, Budget could not rent the car without the required showing of its ability to respond to damages in lieu of providing the driver with liability insurance coverage. It was required by subsection (A) of the statute to pay for the damages caused by its customer or anyone driving with his permission. The daughter had Schwindt's permission to drive; therefore, Budget had no defense to the third-party's claim for damages. However, Budget argues that the payment to the third party and other damages shown are included as the measure of its total damages which resulted from Schwindt's breach of the express terms of their agreement which prohibited his 17-year-old daughter from driving the car. Budget argues the rental agreement is a contract and must be given full force and effect, citing, Isaak v. Massachusetts Indemnity Life Ins. Co., 127 Ariz. 581, 623 P.2d 11 (1981).

Schwindt argued successfully to the arbitrator and to the trial court that Budget's breach of contract action is barred because Budget, as the primary insurer, cannot seek indemnification from Schwindt, its insured, for payments made to a third party. We disagree. The claim for damages for breach of contract is not equivalent to a claim for indemnification for the owner's payment of damages suffered by a third party due to the renter's negligence and other damages sustained by the owner. Schwindt argues that the holding of State Farm Mutual Automobile Ins. Co. v. Agency Rent-A-Car, Inc., 139 Ariz. 201, 677 P.2d 1309 (App.1983),...