Davis v. M.L.G. Corp., A-C

Citation712 P.2d 985
Decision Date21 January 1986
Docket NumberA-C,No. 83SC219,83SC219
PartiesGary James DAVIS, Petitioner, v. M.L.G. CORPORATION, d/b/a American International Rent-ar, Respondent.
CourtSupreme Court of Colorado

DeMoulin, Anderson, Campbell & Laugesen, P.C., Laird Campbell and Thomas M. Schrant, Denver, for petitioner.

Rothgerber, Appel, Powers & Johnson, James R. Everson and Frederick J. Baumann, and Holland & Hart, William C. McClearn and John S. Castellano, Denver, for respondent.

Burns & Figa, P.C., Hugh A. Burns and Phillip S. Figa, Denver, for amicus curiae American Rental Ass'n.

Keller, Dunievitz, Johnson & Wahlberg, Stephen W. Wahlberg, Denver, for amicus curiae Truck Renting and Leasing Ass'n.


We granted certiorari in M.L.G. Corp. v. Davis, 672 P.2d 1019 (Colo.App.1983), to review the court of appeals' decision that a "physical damage waiver" in a car rental agreement was not an insurance contract, and that the waiver provision was voided when the customer violated a provision in the contract prohibiting driving while intoxicated. We announced our original opinion on May 6, 1985. We held that the "physical damage waiver" is a contract of insurance under the Colorado Auto Accident Reparations Act, §§ 10-4-701 to -723, 4 C.R.S. (1973 & 1985 Supp.). Thereafter, we granted the respondent's petition for rehearing. The case was then re-briefed and re-argued. The original opinion is now withdrawn and is of no precedential value.

We conclude that the car rental agency limited the scope of the physical damage waiver in an unconscionable manner. Accordingly, the judgment of the court of appeals is reversed and the case is remanded to that court with directions to affirm the trial court's judgment. Since our decision is based on contract principles, we leave for another day the question of whether a physical damage waiver such as that present in this case constitutes "insurance" within the meaning of the Colorado Auto Accident Reparations Act.


M.L.G. Corporation (MLG), doing business as American International Rent-A-Car, brought suit against Gary Davis to recover damages, attorney's fees, costs and interest which resulted from Davis' alleged breach of a car rental agreement between the parties. The pertinent facts which prompted the litigation are not in dispute.

Davis rented a car from MLG on June 26, 1980. MLG's standard rental agreement consisted of several thin, identical pages separated by sheets of carbon paper. On the face of the agreement, denominated as "page 2," space was provided to enter information concerning the customer, the method of payment, the vehicle rented, and the rental rate.

One factor which determined the rental rate was the "collision responsibility" of the customer. Lessees were asked to select one of three collision responsibility alternatives: $500 physical damage responsibility, $350 physical damage responsibility, or physical damage waiver. Davis initialed the "physical damage waiver" option, for which he was charged an additional $4 per day for the rental of the car. The rental rate was also dependent upon whether a lessee accepted or declined "personal accident insurance." Davis initialed the "declines" alternative, which was located directly below the physical damage waiver provision on the rental form.

The reverse side of the rental agreement, labeled as "page 1," consisted of twelve numbered paragraphs set out in small, light grey type on white paper. The following language applicable to the waiver provision is contained in paragraph 5:

5. PROVIDING THERE IS NO VIOLATION BY CUSTOMER OF ANY OF THE PROVISION[S] OF THIS AGREEMENT, AND NOT OTHERWISE, Customer's responsibility for damages to Vehicle (except theft of Vehicle if keys left in Vehicle or loss or theft of tires, tools or accessories) shall be limited to:


c) Waived if Customer has at the time of rental initialed the box entitled "Physical Damage Waiver (PDW)," and agreed to pay Lessor the additional specified fee.


If Customer permits the use of Vehicle by persons other than Customer or other authorized operators, as described herein or uses or permits use of the Vehicle in violation of Paragraph 3 hereof or if Customer uses Vehicle off a paved road or in a reckless, abusive or wanton manner, Customer shall be liable for all damage to Vehicle, regardless of whether Customer has accepted Physical Damage Waiver.

Paragraph 3 sets out thirteen prohibitions concerning the use of the rental car. That provision states, in part:

3. Vehicle shall NOT be used, operated or driven under any circumstances for the following purposes or under the following conditions and if so used, such use shall be WITHOUT LESSOR'S PERMISSION:


e) By any person under the influence of drugs or intoxicants. 1

On June 27, 1980, Davis was involved in a single car collision in which he struck a utility pole. At trial, Davis stipulated that he was intoxicated at the time of the accident.

MLG sought to recover the following contractual damages: The value of the 1980 Ford Pinto that was totally demolished in the accident in the amount of $6,100; the sum of $568.42 which MLG paid to Public Service Company to compensate it for the damage that Davis caused to the company's utility pole; 2 towing and appraisal charges of $154; attorney's fees; and costs and interest. In its complaint, MLG alleged that Davis breached the provision in the rental agreement requiring him to return the car to the agency in the "same condition as received, ordinary wear and tear excepted." Davis raised the physical damage waiver as a defense to MLG's claim. MLG argued that the waiver Davis purchased was conditioned on his adherence to all of the provisions of the rental agreement, including paragraph 3(e).

The trial court dismissed MLG's complaint, finding that the rental agreement was a contract for insurance which should be construed against MLG as the insurer because it was ambiguous, unconscionable, and contrary to public policy. The court held that by conditioning its collision protection on factors such as sobriety, MLG had attempted to inject a fault element into its insurance coverage, which is contrary to public policy as expressed in the Colorado Auto Accident Reparations Act, §§ 10-4-701 to -723, 4 C.R.S. (1973 & 1985 Supp.), commonly known as the No-Fault Act.

The court of appeals reversed and held that the rental agreement was not a contract for insurance, but rather a bailment contract for the parties' mutual benefit which was neither ambiguous nor unconscionable. The court of appeals remanded the case to the trial court with directions to enter judgment for MLG.


Leasing a vehicle from a car rental agency creates a bailment contract for the mutual benefit of the parties. See generally Universal Indemnity Insurance Co. v. Tenery, 96 Colo. 10, 39 P.2d 776 (1934); 14 Blashfield Automobile Law and Practice § 475.13 (F. Lewis 3d ed. 1969). The general rule is that the bailee/lessee is liable to the bailor/lessor for any damage to the loaned vehicle caused by the bailee/lessee's fault or negligence. 14 Blashfield Automobile Law and Practice § 476.21 (F. Lewis 3d ed. 1969); see also Christensen v. Hoover, 643 P.2d 525 (Colo.1982). However, the parties are free to alter their common law obligations by contract, provided their agreement does not contravene public policy or violate a statute. See, e.g., O'Connor v. Proprietors Insurance Co., 696 P.2d 282 (Colo.1985) (parties to an insurance contract may agree to exclude certain risks, unless the provisions limiting coverage violate public policy); Allied Van Lines, Inc. v. Smith, 28 Colo.App. 85, 470 P.2d 926 (1970) (the Carmack Amendment to the Interstate Commerce Act codified the common law rules of carrier liability; any contract provisions purporting to limit those rules are void).

MLG contends that because the car rental agreement, particularly the provisions concerning collision responsibility, altered the parties' common law liability, the agreement should govern their relationship. Specifically, MLG maintains that the contract is neither ambiguous nor unconscionable and thus should be enforced as written.


A number of courts have construed vehicle leasing agreements containing provisions which are virtually identical to the physical damage waiver (more commonly known as a collision damage waiver) in the automobile rental agreement at issue here in connection with provisions limiting that coverage. PaR Truck Leasing, Inc. v. Bonanza, Inc., 425 F.2d 695 (10th Cir.1970); National Car Rental System, Inc. v. Council Wholesale Distributors, Inc., 393 F.Supp. 1128 (M.D.Ga.1974); Red Top Drive-Ur Self Co. v. Munger, 229 Ark. 998, 320 S.W.2d 97 (1959); Automobile Leasing & Rental, Inc. v. Thomas, 679 P.2d 1269 (Nev.1984); Union County U-Drive It v. Blomeley, 46 N.J.Super. 92, 133 A.2d 714 (Ct.Law Div.1957), aff'd, 48 N.J.Super. 252, 137 A.2d 428 (Ct.App.Div.1958); Elliott Leases Cars, Inc. v. Quigley, 118 R.I. 321, 373 A.2d 810 (1977). In most of these cases courts have given effect to the collision damage waiver; disregarded the attempted exclusions; and held the lessor, rather than the lessee, financially responsible for damage to the rented automobile. Bonanza, 425 F.2d 695; National, 393 F.Supp. 1128; Thomas, 679 P.2d 1269; Blomeley, 137 A.2d 428; Quigley, 373 A.2d 810. A number of the appellate courts reached this result by identifying an ambiguity of doubtful legal significance, 3 applying the rule that an ambiguity should be resolved against the drafter of the agreement, and then interpreting the questionable ambiguity contrary to the plainly expressed terms of the contract document. National, 393 F.Supp. 1128; Blomeley, 137 A.2d 428; Quigley, 373 A.2d 810.

One court arrived at a similar outcome without resorting to the ambiguity analysis. In Thomas, 679 P.2d 1269, the Nevada Supreme Court addressed the enforceability of a...

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