Philadelphia Indem. Ins. Co. v. Barerra

• Decision Date: 16 April 2001
• Docket Number: No. CV-99-0388-PR.,CV-99-0388-PR.
• Parties: PHILADELPHIA INDEMNITY INSURANCE COMPANY, Plaintiff-Counterdefendant-Appellee. v. Ana BARERRA, individually and as Personal Representative of the Estate of Melvin Sanchez, deceased; Mario Huerta and Lucia Huerta, husband and wife, individually and as the natural parents of Pedro Huerta, a minor child; Juan Eduardo Quintero-Lopez and Michelle Quintero-Lopez, husband wife, Defendants-Counterclaimants-Appellants.
• Court: Arizona Supreme Court

21 P.3d 395

200 Ariz. 9

PHILADELPHIA INDEMNITY INSURANCE COMPANY, Plaintiff-Counterdefendant-Appellee. v. Ana BARERRA, individually and as Personal Representative of the Estate of Melvin Sanchez, deceased; Mario Huerta and Lucia Huerta, husband and wife, individually and as the natural parents of Pedro Huerta, a minor child; Juan Eduardo Quintero-Lopez and Michelle Quintero-Lopez, husband wife, Defendants-Counterclaimants-Appellants.

No. CV-99-0388-PR.

Supreme Court of Arizona, En Banc.

April 16, 2001.

Warner, Angle, Roper & Hallam, P.C., by Charles R. Hallam, Jerome K. Elwell, Phoenix, Attorneys for Plaintiff-Counterdefendant-Appellee.

Goldberg & Osborne, by John E. Osborne, Michael E. Medina, Jr., Tucson, Attorneys for Defendants-Counterclaimants-Appellants.

OPINION

FELDMAN, Justice.

¶ 1 In this declaratory judgment action, we are asked to review a court of appeals opinion affirming the trial court's grant of summary judgment to Philadelphia Indemnity Insurance Company (Philadelphia). Philadelphia Indem. Ins. Co. v. Barerra, 196 Ariz. 391, 998 P.2d 1064 (App.1999). We granted review to determine the validity of a driving-under-the-influence (DUI) exclusion from the insurance coverage obtained as part of a car rental transaction. We have jurisdiction pursuant to Arizona Constitution article 6, § 5.3 and A.R.S. § 12-120.24.

FACTS AND PROCEDURAL HISTORY

¶ 2 The trial court granted summary judgment in favor of Philadelphia. Therefore, we view the facts in the light most favorable to Petitioners. Martinez v. Woodmar IV Condominiums Homeowners Ass'n, Inc., 189 Ariz. 206, 211, 941 P.2d 218, 223 (1997).

¶ 3 On April 22, 1993, Juan Eduardo Quintero-Lopez rented a car from Value Rent-A-Car (Value) for a one-week period. This rental was one in a series of at least eight weekly leases that Quintero-Lopez had made with Value since late February 1993. As was his habit for all of the previous rentals, Quintero-Lopez purchased both the "Loss Damage Waiver" (LDW) and "Supplemental Liability Insurance" (SLI) optional insurance coverages offered by Value at a rate of $9.95 and $5.95 a day, respectively.¹ This additional insurance, underwritten by Philadelphia, increased the basic minimum liability insurance limits required by A.R.S. § 28-2166.B and provided by Value as part of its rental agreement.

¶ 4 To obtain his rental car, Quintero-Lopez signed the front side of Value's two-sided rental agreement, which on the first page includes boxes where a renter must either decline or accept the LDW and SLI coverages. See Appendix A(1). When actually purchasing the optional insurance coverages, however, Quintero-Lopez was asked to both initial and sign a one-page "Optional Services & Equipment" addendum to the rental contract. See Appendix B. To help sell the options, Value provided Quintero-Lopez with a colorful, tri-fold brochure titled "Relax You're On a Value Vacation" summarily explaining the SLI coverage he purchased. See Appendix C. In response to its own query of "What exactly does supplemental liability insurance cover?" the brochure explains:

SLI provides you with up to a maximum of $1 million of liability protection. Say you run a red light while driving on unfamiliar roads during your vacation, and hit another car with your rental car. In the event of a lawsuit, SLI covers damage to the other (the claimant's) car, their medical costs, and their personal and property damage up to a maximum $1 million.

The additional SLI coverage issued by Philadelphia and accepted by Quintero-Lopez has policy limits equal to the difference between the $15,000/$30,000 statutory minimum limits provided by Value and $1,000,000.

¶ 5 The next day, Quintero-Lopez was driving the rented vehicle while under the influence of alcohol and was involved in a collision that injured one of his passengers, Pedro Huerta, and killed the other, Melvin Sanchez. Huerta's parents, on behalf of their minor son,² and Ana Barerra, Sanchez's mother, individually and on behalf of her son's estate, sued Quintero-Lopez in an attempt to recover for the injury and death. In that action, a judgment was entered against Quintero-Lopez in which Huerta was awarded $435,000 for injuries and Barerra $270,000 for the wrongful death of Sanchez. Value tendered its limits of $30,000, but Philadelphia denied coverage. Huerta, Barerra, and Quintero-Lopez then entered into a Morris agreement in which Quintero-Lopez assigned all of his claims against Philadelphia to Huerta and Barerra.³

¶ 6 In June 1995, Philadelphia filed a declaratory action against Ana Barerra, Pedro Huerta, Mario and Lucia Huerta, and Juan and Michelle Quintero-Lopez (Petitioners), seeking a ruling that it was not required to satisfy any judgment arising out of the accident because, according to Philadelphia, Quintero-Lopez voided the additional SLI coverage he purchased from Value by breaching a provision of the rental agreement that prohibited driving under the influence. Petitioners answered and counterclaimed, alleging Philadelphia breached its contract obligations and acted in bad faith. Both sides filed summary judgment motions, with Petitioners claiming the DUI exclusion was unenforceable under the reasonable expectations doctrine and also void as contrary to public policy. Without explanation, the trial court denied Petitioners' motion and granted summary judgment to Philadelphia. Petitioners appealed both rulings, and the court of appeals affirmed, holding that the DUI exclusion from the portion of coverage exceeding the minimum limits required by law was neither void as against public policy, unconscionable, nor against the reasonable expectations of an insured. Philadelphia, 196 Ariz. at 393-94 ¶ 7, ¶ 10, 998 P.2d at 1066-67 ¶ 7, ¶ 10.

¶ 7 We hold that the DUI exclusion in the present policy violates the reasonable expectations doctrine of Darner Motor Sales, Inc. v. Universal Underwriters Insurance Co., 140 Ariz. 383, 682 P.2d 388 (1984), Gordinier v. Aetna Casualty & Surety Co., 154 Ariz. 266, 742 P.2d 277 (1987), and Averett v. Farmers Insurance Co., 177 Ariz. 531, 533, 869 P.2d 505, 507 (1994). We therefore vacate the court of appeals' opinion and reverse the trial court's judgment.

DISCUSSION

A. Primary or excess coverage

¶ 8 Both parties agree that, unless permitted by statute, exclusionary clauses in basic motor vehicle liability policies are void as against public policy with respect to the minimum coverage requirements set by the Financial Responsibility Act (FRA). A.R.S. § 28-4001 et seq.; see also A.R.S. § 28-2166 (requiring car rental companies to provide "public liability insurance" in limits of at least $15,000/$30,000). Exclusionary clauses in policies applicable to coverages in addition to or in excess of the minimum limits required by statute, however, may be valid and enforceable. Arceneaux v. State Farm Mut. Auto. Ins. Co., 113 Ariz. 216, 217-18, 550 P.2d 87, 88-89 (1976).⁴ The parties argue over whether Philadelphia's coverage was primary or excess. Petitioners claim that the SLI provided additional primary liability coverage and the DUI exclusion is void because the FRA does not permit such exclusions in primary coverage. Philadelphia asserts that the coverage it provides is excess and the FRA therefore does not apply over the minimum limits, making the DUI exclusion proper and enforceable.

¶ 9 The addendum that Quintero-Lopez initialed and signed to purchase Philadelphia's SLI coverage states that it

increases liability coverage up to $1,000,000 in primary liability insurance to protect against third-party liability claims made against the renter and authorized drivers for bodily injury or death and property damage caused by the use of a Value vehicle.

(Emphasis added.) The text of the addendum is somewhat similar to a declarations page and sets forth no exclusions from coverage—it simply directs the customer to "ask your rental sales agent for additional information on provisions and exclusions." Directly above the signature line at the bottom of the one-page addendum, the following sentences appear:

I have read this addendum and agree to its terms and conditions. If there are any differences between the rental agreement and this addendum, I understand that this addendum supersedes the rental agreement and will be controlling.

(Emphasis added.)

¶ 10 While the addendum describes the SLI coverage as an "increase in primary liability insurance," the rental contract is silent on this issue, always referring to SLI as "supplemental liability insurance," without specifying whether Philadelphia's coverage is primary or excess. The brochure describing the additional coverages, however, exacerbates the confusion by, in one part, stating that "supplemental liability insurance is excess automobile liability insurance" while, in a different part, describing SLI as "primary coverage, meaning your [own] auto insurance policy will not be called on to contribute unless the loss exceeds the maximum of $1 million."

¶ 11 These provisions make the issue unclear to us and certainly impenetrable to the average consumer. We doubt that the ordinary car rental customer is informed about insurance to the degree that such a distinction, if it could be made, would be either important or meaningful. Complicating the issue is the fact that two insurers are involved. According to a Certificate of Self Insurance filed by Value with the Arizona Department of Insurance, Value was self-insuring the $15,000/$30,000 coverage it was required to provide its renters under A.R.S. § 28-2166. See ¶ 8, supra. Thus, additional coverage was provided by Philadelphia and presented to Value's renters through three documents: the addendum, the brochure, and the rental agreement. As discussed above, the addendum called the coverage "primary," the brochure referred to it as "excess" but then said it was an "increase in primary liability insurance,"⁵ and the rental agreement said nothing. It is only when...