Fidelity General Ins. Co. v. Nelsen Steel & Wire Co.

• Decision Date: 08 April 1971
• Docket Number: Gen. No. 54348
• Citation: 132 Ill.App.2d 635,270 N.E.2d 616
• Parties: FIDELITY GENERAL INSURANCE COMPANY, a corporation, Plaintiff-Appellee, v. NELSEN STEEL & WIRE COMPANY, Inc., a corporation, Defendant-Appellant.
• Court: United States Appellate Court of Illinois

Page 616

270 N.E.2d 616

132 Ill.App.2d 635

FIDELITY GENERAL INSURANCE COMPANY, a corporation, Plaintiff-Appellee, v. NELSEN STEEL & WIRE COMPANY, Inc., a corporation, Defendant-Appellant.

Gen. No. 54348.

Appellate Court of Illinois, First District.

April 8, 1971.

Rehearing Denied June 2, 1971.

Price, Cushman, Keck & Mahin, Chicago, for defendant-appellant; Thaddeus S. Snell, James T. Otis, John R. F. Baer, Chicago, of counsel.

Sydney W. Hollander and Branko M. Steiner, Chicago, for plaintiff-appellee; Branko M. Steiner, Chicago, of counsel.

GEORGE J. MORAN, Justice.

Plaintiff Fidelity General Insurance Company brought this action to recover from defendant Nelsen Steel and Wire Company an amount paid by plaintiff to an injured third party under a contract of insurance covering a motor vehicle rented by defendant from plaintiff's insured, Pearson's Car Service. On motions for summary judgments by both parties, the trial court entered judgment for plaintiff and defendant appeals.

Pearson's was engaged in the business of renting motor vehicles to be operated by its customers. While Robert Duffy, an employee of defendant, was driving a truck rented by defendant from Pearson's, admittedly on a personal errand with defendant's express consent and outside the scope of his employment and outside the usual course of defendant's business, he was involved in a collision with an automobile owned and operated by Sidney L. Peterson, Sr. Peterson sued Duffy to recover for personal injuries allegedly sustained in the accident. Pursuant to a written memorandum of agreement between plaintiff and defendant, plaintiff paid to Peterson $19,000.00 in settlement of his claim. Plaintiff had determined that notwithstanding any attempted limitation of its liability under the policy or rental contract, there was a substantial possibility that it could be liable to Peterson by reason of the statutory omnibus clauses of Ill.Rev.Stat.1965, Chap. 95 1/2, Secs. 8--114 and 8--118, requiring a motor vehicle liability policy for owners of for-rent motor vehicles to provide coverage for customers and any person operating the motor vehicle with the customer's express or implied consent. Such statutory omnibus clauses had been incorporated into liability policies in analogous cases. See Landis, for Use of Talley v. New Amsterdam Casualty Company, 347 Ill.App. 560, 107 N.E.2d 187.

In this action plaintiff seeks to recover from defendant the $19,000.00 plus interest paid to Peterson by virtue of a reimbursement provision contained in the vehicle rental agreement which provides in part:

'The insurance policy referred to below has adequate limits of liability and property damage in compliance with the law of the state of Illinois for all injuries and damages other than to the rented vehicle, resulting from one accident arising from the operation of the vehicle described hereon. * * *

The vehicle described hereon shall not be operated:

(i) Outside of the scope of the driver's employment in the usual course of the trade, business, profession or occupation of the renter. * * *

4. Renter being one of the assured under the insurance policy covering said vehicle agrees to comply with all the terms and conditions of said policy, which by reference thereto are incorporated herein and made a part hereof, and to comply with the terms and conditions thereon.

5. Renter further expressly agrees to indemnify the insurance company for any and all loss, damage, cost and expense paid or incurred by the insurance company because of injuries or damage sustained by occupants of said vehicle in states where the law makes Pearson's or its insurance carrier liable for injuries to occupants of said vehicle, or because of injuries or damages resulting from the operation of said vehicle in violation of any of the terms and conditions appearing above.'

Defendant contends that the coverage requirements of Sections 8--114 and 8--118 of the Illinois Vehicle Law (Ill.Rev.Stat.1965, Chap. 95 1/2, Sec. 8--114 and Sec. 8--118) must be read into the insurance policy, and the reimbursement clause in the rental contract is contrary to public policy to the extent that it requires a renter to indemnify insurer for risks required by these sections.

Section 8--114 provides:

'Owner of for-rent motor vehicle to give proof of financial responsibility. It is unlawful for the owner of any motor vehicle to engage in the business, or to hold himself out to the public generally as being engaged in the business of renting out such motor vehicle, to be operated by the customer, unless the owner has given, and there is in full force and effect and on file with the Secretary of State proof of financial responsibility as hereinafter provided.'

Section 8--118 provides:

'Insurance policy as proof--requirements. A motor vehicle liability policy in a solvent and responsible company, authorized to do business in the State of Illinois, providing that the insurance carrier will pay any judgment within thirty days after it becomes final, recovered against the customer or against any person operating the motor vehicle with the customer's express or implied consent, for damage to property other than to the rented motor vehicles, or for an injury to, or for the death of any person, not an occupant of the rented motor vehicle, resulting from the operation of the motor vehicle, provided, however, every such policy provides insurance insuring the operator of the rented motor vehicle against liability imposed by law upon such insured for bodily injury to, or death of any person or damage to property to the amounts and limits as provided under Section 7--317 of this Act.'

Plaintiff concedes for the purpose of this appeal that by virtue of these sections any person other than an occupant injured by the negligent use of the rented vehicle by the customer or any person operating the vehicle with the customer's express or implied consent, would be entitled to recover from the insurer the amount of a judgment rendered against the insured.

A motor vehicle liability policy submitted to the Department of Insurance for approval is reviewed by the standards provided in Section 143 of the Insurance Code (Ill.Rev.Stat., 1969, Chap 73, Sec. 755(2)). That section provides in part:

'If the Director shall find from an examination of any such policy form, rider, endorsement, application blank or other matter incorporated by reference in any such policy so filed that it violates any provision of this Code, contains inconsistent, ambiguous or misleading clauses, or contains exceptions and conditions that will unreasonably or deceptively affect the risks that are purported to be assumed by the policy, he shall order the company or companies issuing such forms to discontinue the use of the same.'

A policy containing the sweeping provisions of this rental agreement is contrary to the statutes relating to insurance and therefore against public policy. Although plaintiff relies only on the restriction in the rental agreement that the vehicle may be used only within the course of the renter's business, which plaintiff contends to be reasonable, there are in addition other provisions for the violation of which the renter would have to reimburse plaintiff for any amounts paid to an injured third party. These provisions in the rental agreement include the following:

'The vehicle described hereon shall not be operated:

(a) By any person in violation of law as to age or by any person under the age of twenty-one (21) years in any event.

(d) By any person other than the renter who signed the rental agreement of his employer or by a person regularly employed by such renter in the usual course of his business.

(e) In violation of any of the terms of the rental agreement.

(i) Outside of the scope of the drivers' employment in the usual course of the trade, business, profession or occupation of the renter.

3. Renter agrees not to use said vehicle for the transportation of persons or property for hire, nor to use it in violation of any Federal, State or municipal law, ordinance, rule or regulation governing the use or return thereof; nor to remove it from this state without the written consent thereto of Pearson's.

4. Renter being one of the assured under the insurance policy covering said vehicle agrees to comply with all the terms and conditions of said policy, which by reference thereto are incorporated herein and made a part hereof, and to comply with the terms and conditions hereon.'

and are so broad as to make the renter a self-insured in virtually every claim situation. For example, for the insurer to receive reimbursement the renter must be liable for injuries occurring when (1) driven out of the ordinary course of business, (2) driven by one under 21 years of age, (3) when Any federal, state or municipal law, ordinance, rule or regulation governing the use of the vehicle is violated, (4) when there is compensation of any kind for transportation of person or property, (5) when driven outside of the State without anticipating a diversion of such unconsequential nature and requesting and receiving written consent for it, and (6) the allembracing, driven in violation of Any of the terms of the rental agreement. How often is the operator of a motor vehicle liable for negligence without having violated some traffic law? These...