Consolidated Enterprises, Inc. v. Schwindt
| Decision Date | 16 July 1992 |
| Docket Number | No. CV-91-0171-PR,CV-91-0171-PR |
| Citation | 172 Ariz. 35,833 P.2d 706 |
| Parties | 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. |
| Court | Arizona Supreme Court |
Defendants Herbert and Rene Schwindt (Schwindt) petition for review of the court of appeals' opinion holding that Ariz.Rev.Stat.Ann. (A.R.S.) § 28-324 does not prevent a self-insured car rental agency from seeking indemnification for payments made to a third party for damages caused by the negligence of a person not authorized to drive under the rental agreement. Consolidated Enterprises, Inc. v. Schwindt, 171 Ariz. 452, 831 P.2d 828 (Ct.App.1991). We have jurisdiction pursuant to Ariz. Const. art. 6, § 5(3), and A.R.S. § 12-120.24.
This court granted review on three issues:
1. Does A.R.S. § 28-324 establish different liability standards for car rental agencies that self-insure than for those that procure insurance through an insurance company?
2. May a self-insurer, under A.R.S. § 28-324, insulate itself from liability by restricting the use of a rented vehicle to a certain class of individuals in the rental agreement when the statute provides that the term "renter" includes any person operating a motor vehicle with permission of the contractual renter?
3. If a car rental agency restricts the individuals authorized to drive the rental car and an accident occurs, may it recover from the renter the amount it paid to the third persons?
Plaintiff Consolidated Enterprises, Inc., dba Budget Rent-a-Car of Tucson (Budget), rented a car to Herbert Schwindt in Pima County on March 31, 1988. Budget's agent specifically advised Schwindt that his daughter, who was under 21, was not authorized to drive the car under the rental contract. The rental agreement, however, contains no such provision. Shortly after leaving Budget, Schwindt allowed his daughter to take the car to visit a cousin. She negligently ran a red light and collided with a third party. The parties agree that Budget, a "self-insurer," complied with A.R.S. § 28-324, which requires the rental car agency to insure its vehicles for damages caused to third parties by negligent renters. Budget paid the third party $10,340.81 for its property loss, towing expenses and personal injuries.
Budget then sued Schwindt, seeking reimbursement for the $10,340.81. Budget maintained that it was entitled to reimbursement because Schwindt had breached the rental contract by allowing his daughter to drive the car. The contract contains no agreement for reimbursement or indemnification. The matter was transferred to arbitration and the arbitrator ruled in favor of Schwindt, finding that "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." Arbitration Order at 5 (Feb. 28, 1990).
Budget appealed to the superior court, which adopted the arbitrator's findings of fact and conclusions of law. Relying on State Farm Mut. Auto. Ins. Co. v. Agency Rent-a-Car, 139 Ariz. 201, 677 P.2d 1309 (Ct.App.1983), the court held that the insurance procured by a rental agency pursuant to A.R.S. § 28-324 is primary and, therefore, a self-insured rental agency must pay for the damages caused by a renter's negligence and is not entitled to indemnification.
The court of appeals reversed, holding that A.R.S. § 28-324 does not bar a breach of contract action. Schwindt, 171 Ariz. at 453, 831 P.2d at 829. The court held that a "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...." Id. The court of appeals also found that the Agency decision, on which the trial court relied, was factually distinguishable because in Agency the rental agency's obligation to the injured third party was for its own liability, and not for the liability of its negligent renter. Id. Before the 1987 amendment to § 28-324(B), the statute made self-insured car rental agencies that had not procured liability insurance jointly and severally liable with the renter for damages caused by the renter's negligence. See id. Under the 1987 amendment, self-insured car rental agencies are no longer jointly and severally liable for damages caused by drivers of its rental cars. The court of appeals thus reasoned that because a self-insured car rental agency is not an insurer and its customer is not an insured, Budget's suit was proper because it was for breach of contract and not for indemnification. Id. The court held that nothing in § 28-324(A) or (B) bars a claim for breach of contract. Id. We disagree and vacate the court of appeals' opinion.
Arizona's rental car insurance statute, A.R.S. § 28-324, requires rental car agencies to procure public liability insurance for all "renters." The statute provides in relevant part as follows:
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 with an insurance company approved by the insurance department of this state insuring the renter thereof against liability arising from his negligence in the operation of the rented vehicle ..., and against the liability of the renter for property damage ..., or until the owner has furnished to the motor vehicle division satisfactory proof of his ability to respond in damages.... The policy of insurance required by this subsection shall cover any liability of the renter to any passenger in the rented motor vehicle unless the owner gives the renter a written notice that the policy does not cover such liability....
B. The owner of a motor vehicle who rents it to another ... without having procured the required public liability insurance or without having qualified 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.
C. "Renter" as used in this section includes any person operating a motor vehicle with permission of the person who has rented it.
(Emphasis added.)
The Arizona Legislature, by enacting this statute, has determined that a rental car agency must provide a minimum amount of insurance to protect the public before it can conduct business in this state. A natural and presumably intended consequence is to provide protection for renters. The rental car agency must ensure that it is primarily responsible to the public up to the minimum amounts stated in subsection (A) for liability arising from its renter's negligence in the operation of its rental vehicles.
A.R.S. § 28-324(C) defines renter as "any person operating a motor vehicle with permission of the person who has rented it." Subsection (C) mandates the statute's application to all permissive drivers, regardless of whether the rental car agency provides otherwise in its contract with the renter. Because Schwindt's daughter was driving the rental car with his permission, Budget was therefore required to insure the renter and all permissive users from liability arising from their negligence. 1
Under A.R.S. § 28-324(A), each car rental agency must insure against the negligence of its renters in one of two ways, either by procuring public liability insurance or qualifying as a self-insurer pursuant to A.R.S. § 28-1222. While the rental agency may elect between these two options, its decision does not alter the nature and purpose of its obligation under the statute.
An examination of our decision in State Farm Mut. Auto. Ins. Co. v. Bogart, 149 Ariz. 145, 717 P.2d 449 (1986), and of the legislature's ensuing amendment to § 28-324(B), will help to illustrate this point and to dispel any confusion regarding the meaning of "self-insurer" in the context of this statute. In Bogart, we noted that Hertz Rental Cars (Hertz) was liable for the first $200,000 in damages incurred by two passengers injured when their car collided with a Hertz rental car. Under the statute as then written, the only way an insurer could avoid statutorily imposed joint and several liability for its renter's negligence was to "procure[ ] public liability insurance" pursuant to § 28-324(A). Consequently, as we explained in Bogart,
Hertz was a self-insurer, certified as such because, pursuant to A.R.S. § 28-1222(B), the director of insurance found that Hertz was financially responsible to pay damages assessed against it. A self-insured car rental agency is treated as primarily responsible for liability arising from the use of its rented cars.... However, a
Bogart, 149 Ariz. at 150, 717 P.2d at 454 (emphasis in original) (citations omitted); see also id. at 150 n. 2, 717 P.2d 454 n. 2 ().
In 1987, following our decision in Bogart, the legislature amended § 28-324(B) to include the phrase "or without qualifying as a self-insurer pursuant to § 28-1222 with at least the minimum limits prescribed in subsection A of this section." Laws 1987, ch. 16, § 1. 2 After the amendment, a rental car agency no longer has any joint or several...
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