Enterprise Rent-A-Car Co. v. Workmen's Auto Ins. Co.

• Decision Date: 07 November 1997
• Docket Number: No. A076034,RENT-A-CAR,A076034
• Citation: 58 Cal.App.4th 1543,68 Cal.Rptr.2d 725
• Court: California Court of Appeals Court of Appeals
• Parties: , 97 Cal. Daily Op. Serv. 8557, 97 Daily Journal D.A.R. 13,823 ENTERPRISECOMPANY OF SAN FRANCISCO, Plaintiff and Respondent, v. WORKMEN'S AUTO INSURANCE COMPANY, Defendant and Appellant.

Page 725

68 Cal.Rptr.2d 725

58 Cal.App.4th 1543, 97 Cal. Daily Op. Serv. 8557,

97 Daily Journal D.A.R. 13,823

ENTERPRISE RENT-A-CAR COMPANY OF SAN FRANCISCO, Plaintiff and Respondent, v. WORKMEN'S AUTO INSURANCE COMPANY, Defendant and Appellant.

No. A076034.

Court of Appeal, First District, Division 4, California.

Nov. 7, 1997.

Rehearing Denied Dec. 4, 1997.

Review Denied Jan. 28, 1998.

James L. English, Paula K. Bauer, Leach & English, San Francisco, for Defendant and Appellant Workman's Auto Insurance Company.

John M. Boyko, Law Offices of John M. Boyko, Torrance, for Plaintiff and Respondent Enterprise Rent-A-Car Company of San Francisco.

Chris P. Lavdiotis, Marshall A. Johnson, Hardin, Cook, Loper, Engel & Bergez, Oakland, for Amicus Curiae The Hertz Corporation and Dollar Rent-A-Car Systems, Inc.

G. Andrew Lundberg, Los Angeles, Charles S. Treat, San Francisco, Latham & Watkins, for Amicus Curiae The Hertz Corporation and Dollar Rent-A-Car Systems, Inc.

Robert D. Brugge, Richard C. Turner, Spray, Gould & Bowers, for Amicus Curiae State Farm Mutual Automobile Insurance Company.

David B. Epstein, Los Angeles, Michael R. Weiss, Garfield, Tepper, Epstein & Turner, for Amicus Curiae Alamo Rent-A-Car, Inc. and National Car Rental System, Inc.

HANLON, Associate Justice.

Defendant Workmen's Auto Insurance Company (appellant) appeals from judgment in an action for declaratory relief and reimbursement of defense costs brought by plaintiff Enterprise Rent-A-Car Company of San Francisco (respondent). The judgment declared that appellant provided primary coverage for Daniel Mitchell, its insured, in the underlying third party action brought in the Solano County Municipal Court, and that respondent, owner and lessor of the vehicle Mitchell was operating at the time of the accident, provided secondary coverage. It also awarded respondent reasonable defense costs in that action, entitled Payne v. Mitchell, (Mun.Ct. Solano County). Appellant contends that a car rental company may not avoid responsibility of providing primary liability insurance coverage by depositing cash pursuant to Vehicle Code section 16054.2, subdivision (a), in lieu of purchasing insurance, and disclaiming coverage in the rental agreement. We disagree with that contention and affirm.

STATEMENT OF FACTS

The case was tried on stipulated facts which we adopt. Respondent is a duly authorized California corporation engaged in the business of short term car rentals to the public. Respondent meets its California automobile insurance obligations by compliance with Vehicle Code section 16054.2. ¹

Appellant is a duly authorized California corporation doing business as an insurance company which provided a third party liability automobile insurance policy to Daniel Mitchell.

On November 29, 1994, respondent rented an automobile to Daniel Mitchell. On the same date, while he was driving the rental vehicle, Daniel Mitchell was involved in a traffic accident resulting in injuries to Kelley and Katherine Payne. The Paynes presented a claim for injuries and damages arising out of the alleged negligent operation of the rental vehicle by Mitchell. The Paynes also commenced an action in the Solano County Municipal Court. The sole basis of liability asserted against respondent in that lawsuit is its vicarious liability pursuant to Vehicle Code section 17150 as the owner of the rental vehicle, for the alleged negligent acts of Mitchell as the permissive user thereof.

A. Issue

The task before us is to determine the priority of automobile liability insurance coverage as between an insured short term lessor-owner and the insured lessee-driver. Appellant contends that the case of Grand Rent A Car Corp. v. 20th Century Ins. Co. (1994) 25 Cal.App.4th 1242, 31 Cal.Rptr.2d 88 (Grand) holds that Insurance Code section 11580.9, subdivision (d) requires that all car rental companies be primarily liable for injuries and damages sustained by third parties. Respondent contends that under the holding of Interinsurance Exchange v. Spectrum Investment Corp. (1989) 209 Cal.App.3d 1243 258 Cal.Rptr. 43 (Spectrum), Insurance Code section 11580.9 does not resolve the priority dispute and that we must look to the Vehicle Code and the rental contract between the parties to determine primacy.

B. Interinsurance Exchange v. Spectrum Investment Corporation

The facts in Spectrum are similar to the case at bar. Spectrum Investment Corporation does business as Budget Rent-A-Car. Budget rented a car to Julie Corcoran who was involved in a traffic accident while she was driving the car. The accident resulted in injuries and claims were filed against Ms. Corcoran and Spectrum. Ms. Corcoran was insured under an automobile liability policy issued by Interinsurance Exchange. In order to comply with the financial responsibility law, Spectrum had filed a certificate of deposit with the California Department of Motor Vehicles, pursuant to Vehicle Code section 16054.2. Interinsurance Exchange brought a declaratory relief action against Spectrum to determine who had the primary duty to defend and indemnify Ms. Corcoran against the damage claims.

Interinsurance Exchange contended that the plain language of the Insurance Code established Spectrum's cash deposit as a policy of automobile liability insurance which extended primary coverage to the renters of its automobiles as permissive users. The Spectrum court analyzed the relevant provisions of Article 2, part 3, division 2 of the Insurance Code, and it reviewed the legislative history of Insurance Code section 11580.9. That section states in relevant part under subdivision (d), "[W]here two or more policies affording valid and collectible liability insurance apply to the same motor vehicle or vehicles in an occurrence out of which a liability loss shall arise, it shall be conclusively presumed that the insurance afforded by that policy in which the motor vehicle is described or rated as an owned automobile shall be primary and the insurance afforded by any other policy or policies shall be excess." The Spectrum court concluded that "subdivision d) can be applied only where a cash deposit or other form of financial responsibility specified in subdivision (g) ² describes or rates the vehicle involved in the accident as an owned automobile." (Interinsurance Exchange v. Spectrum Investment Corp., supra, 209 Cal.App.3d at p. 1255, 258 Cal.Rptr. 43.) The automobile involved in the accident was not described nor rated as an owned automobile in the cash deposit. The court relied on Ohio Cas. Ins. Co. v. Aetna Ins. Co. (1978) 85 Cal.App.3d 521, 524, 149 Cal.Rptr. 562, which held that "[d]escription or rating" meant "a particularization of the vehicle."

The Spectrum court then reasoned that if Insurance Code section 11580.9 failed to resolve the issue of primary liability, it must be governed by another law. The court directed its attention to Vehicle Code section 17150, which provides that the owner of a motor vehicle is liable for death or injury caused by the negligent act of a permissive driver. However, the imputed negligence of the owner is limited by Vehicle Code section 17151, while the driver's liability is unlimited. ³ As between owner and driver, the owner is subrogated under Vehicle Code section 17153 to the rights of the injured party and may recover from the driver the amount of judgment against it. Therefore, the court concluded that liability of the permissive driver is primary and that of the owner is secondary. (Interinsurance Exchange v. Spectrum Investment Corp., supra, 209 Cal.App.3d at p. 1255, 258 Cal.Rptr. 43.)

The Spectrum court rejected the contention that Spectrum's cash deposit, as a policy of automobile liability insurance, extends primary coverage to its permissive users, the renters of its automobiles. The court held that the requirements of Insurance Code section 11580.1, subdivision (b)(4), ⁴ do not apply to a car rental company's cash deposit made pursuant to Vehicle Code section 16054.2 because, by its terms, Insurance Code Section 11580.1, subdivision (a) ⁵ "... refers only to policies of automobile liability insurance 'described in SECTION 16054 OF THE VEHICLE CODE⁶.' " (Interinsurance Exchange v. Spectrum Investment Corp., supra, 209 Cal.App.3d at p. 1257, 258 Cal.Rptr. 43.) Thus Section 11580.1 would not apply to cash deposits under Vehicle Code section 16054.2. (Id. at p. 1258, 258 Cal.Rptr. 43.)

C. Grand Rent-A-Car v. 20th Century Ins. Co.

The court in Grand Rent A Car Corp. v. 20th Century Ins. Co., supra, 25 Cal.App.4th 1242, 31 Cal.Rptr.2d 88, was faced with the similar underlying facts that were before the court in Spectrum and the case at bar. Grand rented specific cars, of which it was the registered owner, to three individuals who were involved in separate automobile accidents while driving the rental cars. The third parties suffered personal injuries in these accidents and made claims against Grand. Each of the renters of the Grand automobiles were insured under their own individual automobile liability insurance policies. The issue, as defined by the court, was whether the car rental agreements, together with Grand's certificate of self-insurance, constituted policies of automobile liability insurance providing primary coverage to renters of Grand automobiles pursuant to Insurance Code section 11580.9. The court analyzed the statutory framework consistent with the analysis of Spectrum. It then went on to consider the provisions in the rental policies as creating a policy of liability insurance.

Each of the Grand rental agreements provided in pertinent part: "Liability Insurance. Anyone driving the car as permitted by this Agreement will be protected against liability for causing bodily injury or death to others or damaging the property of someone other than the driver and/or the renter up to the limits stated in box 21 on the other side of this Agreement, but in no event less than the (m...