Farmers Ins. Exch. v. Enter. Leasing Co.

• Decision Date: 21 April 2011
• Docket Number: Record No. 100082.
• Citation: 708 S.E.2d 852,281 Va. 612
• Parties: FARMERS INSURANCE EXCHANGEv.ENTERPRISE LEASING COMPANY, et al.
• Court: Virginia Supreme Court

281 Va. 612

708 S.E.2d 852

FARMERS INSURANCE EXCHANGE

v.ENTERPRISE LEASING COMPANY, et al.

Record No. 100082.

Supreme Court of Virginia.

April 21, 2011.

Alan B. Rashkind (Furniss, Davis, Rashkind and Saunders, on briefs), Norfolk, for appellant.Edward H. Starr, Jr. (Troutman Sanders, on brief), Richmond, for appellee Enterprise Leasing Company.Present: KINSER, C.J., LEMONS, GOODWYN, MILLETTE, and MIMS, JJ., and KOONTZ, S.J.OPINION BY Justice LEROY F. MILLETTE, JR.

In this appeal, we consider whether a self-insured rental car company may seek indemnification from its renter for damages the company paid to a third party due to the renter's negligence in an automobile accident. We also consider whether the renter's insurer is required, under the terms of its policy, to reimburse the rental car company for damages it satisfied on behalf of the insured. We answer these questions affirmatively.

I. BACKGROUND

The relevant facts of this case are not in dispute. Bataa Baasanjav rented an automobile from Enterprise Leasing Company (Enterprise), a self-insured rental car company. Enterprise's lease agreement (lease agreement) with Baasanjav provided him the option of purchasing supplemental liability protection (SLP) for an additional cost. The SLP provides liability protection to renters and is issued by a separate insurance company. Baasanjav declined to purchase the SLP. The lease agreement also contained an indemnification provision, which stated in part:

Indemnification by Renter. Renter shall defend, indemnify and hold Owner harmless from all losses, liabilities, damages, injuries, claims, demands, costs, attorney fees, and other expenses incurred by Owner in any manner from this rental transaction, or from the use of Vehicle by any person, including claims of, or liabilities to, third parties. Renter may present a claim to Renter's insurance carrier for such events or losses; but in any event, Renter shall have final responsibility to Owner for all such losses.

Baasanjav was insured under an automobile insurance policy (the Farmers policy) issued by Farmers Insurance Exchange (Farmers). The Farmers policy provided that Farmers would “pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of ... injury to or destruction of property ... arising out of the ownership, maintenance or use of the owned automobile.” Under the terms of the policy, the definition of an “owned automobile” includes a “temporary substitute automobile,” which is defined as “any automobile ... not owned by the named insured, while temporarily used with the permission of the owner as a substitute for the owned automobile ... when withdrawn from normal use because of its ... repair.” The vehicle Baasanjav rented from Enterprise qualified as a “temporary substitute automobile,” and thus was an “owned automobile,” because Baasanjav rented the vehicle from Enterprise as a temporary substitute while his vehicle was being repaired due to an accident.

The Farmers policy also contained an “Other Insurance” clause, which stated in relevant part:

[T]he insurance [provided by Farmers] with respect to a temporary substitute automobile or non-owned automobile shall be excess insurance over any other and collectible insurance.

(Emphasis added).

Baasanjav was involved in an accident with another driver while driving the Enterprise rental car. The parties stipulated that Baasanjav was liable for the damages to the other driver's car, which totaled $5,000.34. Enterprise paid this sum to the other driver. Enterprise then sent a letter to Baasanjav notifying him that it claimed a right of indemnity from him for the payment made to the other driver. Baasanjav refused to indemnify Enterprise.

Farmers filed a complaint for declaratory relief asking the circuit court to determine whether Enterprise had a right to recover from Farmers or Baasanjav, or both, under the terms of the Farmers policy and the lease agreement. Farmers sought a declaration that Enterprise had no right to recover from Farmers or Baasanjav. Farmers also asked the court to declare that Enterprise must provide primary liability coverage for the damages. Enterprise filed an answer and a counterclaim for declaratory relief, asking the court to declare that Baasanjav must indemnify Enterprise pursuant to the indemnification provision of the lease agreement. Enterprise also asked the circuit court to declare that Farmers must reimburse Enterprise for the sum that Enterprise paid to the third party on behalf of Baasanjav.

The parties filed a stipulation of facts, and Enterprise filed a motion for summary judgment. In a letter opinion, the circuit court, citing our decision in USAA Cas. Ins. Co. v. Hertz Corp., 265 Va. 450, 578 S.E.2d 775 (2003), noted that “the Virginia Supreme Court unambiguously stated that a rental car company, such as Enterprise, is required to lease cars that carry primary liability insurance coverage.” Continuing, the circuit court stated that “ Hertz, however, did not answer the question presented in this case which is whether a rental car company, such as Enterprise, which leases cars under a certificate of self-insurance, may seek indemnification from its renters for losses incurred when the renter's negligence causes damage to a third party.” The court concluded that enforcement of the indemnity provision does not contravene the holding in Hertz and that Enterprise may seek indemnification from Baasanjav.

The court also ruled that, under the terms of its policy, Farmers is liable for the amount Enterprise paid to the other driver. The court noted that the rental car qualified as an “owned automobile,” contractually obligating Farmers to pay the damages caused by Baasanjav in the accident. The court rejected Farmers' argument that the policy's “Other Insurance” clause applied, ruling that self-insurance is not “collectible insurance” under that clause. The circuit court entered a final order granting Enterprise's motion for summary judgment for the reasons set forth in its letter opinion. We granted Farmers this appeal.

II. DISCUSSION

A. Standard of Review

In this case, the circuit court granted Enterprise's motion for summary judgment relying on stipulated facts. We review de novo the circuit court's application of the law to the undisputed facts. Johnson v. Hart, 279 Va. 617, 623, 692 S.E.2d 239, 242 (2010).

B. Indemnity Provision

Farmers argues that the circuit court's ruling contravenes our decision in Hertz. According to Farmers, Hertz holds that a self-insured rental car company, such as Enterprise, must provide primary bodily injury and property damage liability insurance coverage to its renters. Farmers contends that the circuit court ignored this requirement by ruling that Enterprise could seek indemnity from Baasanjav, and ultimately from Farmers, as Baasanjav's insurer. This ruling, Farmers maintains, renders Enterprise's coverage “tertiary,” rather than primary, as required by Hertz. Farmers also asserts the circuit court's ruling violates the anti-subrogation rule because it allows an insurer to seek indemnity from its insured.

In response, Enterprise argues that the circuit court's decision is consistent with our decision in Hertz. Enterprise contends that it complied with the directive in Hertz—that a self-insured rental car company provide primary coverage to its renters—by promptly paying the third party's damages for which Baasanjav was liable. According to Enterprise, Hertz does not bar a self-insured rental car company from seeking indemnity from its renters for damages caused by the renters' negligence. We agree with Enterprise.

In Hertz, we considered whether a self-insured rental car company must provide primary liability coverage to its renters. After analyzing the relevant statutory provisions applicable to self-insured rental car companies, we held that those provisions

evince a clear legislative intent that a company renting a motor vehicle without a driver in Virginia must assure that the vehicle has the statutory minimum liability insurance coverage. Such intent is in keeping with the long-standing public policy to assure that motor vehicles driven on the highways of Virginia are subject to a minimum level of primary liability insurance in order to provide for the protection and compensation of innocent parties injured in motor vehicle accidents.

265 Va. at 457, 578 S.E.2d at 778–79. Thus, we concluded that “a self-insurer engaged ‘in the business of renting automobiles and trucks without drivers,’ may not lawfully rent one of its vehicles unless that vehicle is insured with the statutorily mandated amount of primary bodily injury and property damages liability coverage.” Id. at 458, 578 S.E.2d at 779 (quoting Code § 46.2–108(D)) (emphasis in original).

Our decision in Hertz was based on the public policy to assure that innocent parties injured in automobile accidents in Virginia are afforded a minimum level of protection. To give effect to this policy, we held that self-insured rental car companies must provide primary bodily and property damage liability coverage in the amounts statutorily mandated. In this case, Enterprise fulfilled that obligation by promptly paying the damages incurred by the third party driver as a result of Baasanjav's negligence.

It is Farmers' contention that in Hertz, in addition to requiring self-insured rental car companies to provide primary liability insurance coverage, we also resolved issues of priority between self-insured rental car companies and renters' insurers. Farmers points to our language in Hertz that the obligation to provide primary liability insurance coverage imposed on the self-insured rental car company “could not be delegated to [the renter's insurer] through [the self-insured rental car company's] rental car agreement.” Id. at 458, 578 S.E.2d at 779. Thus, it is Farmers' position that the interpretation of the...