STATE FARM MUT. AUTO. INS. CO. v. KOSHY

• Citation: 995 A.2d 651,2010 ME 44
• Decision Date: 25 May 2010
• Docket Number: Yor-08-555,Docket: Yor-07-683
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY v. Pramodh KOSHY et al. Enterprise Rent-A-Car Company of Boston, Inc. v. Pramodh Koshy et al.
• Court: Supreme Judicial Court of Maine (US)

995 A.2d 651

2010 ME 44

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY v. Pramodh KOSHY et al.

Enterprise Rent-A-Car Company of Boston, Inc. v. Pramodh Koshy et al.

Docket: Yor-07-683, Yor-08-555

Supreme Judicial Court of Maine.

Argued: April 15, 2009.

Decided: May 25, 2010.

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James B. Haddow, Esq. (orally), Laura H. White, Esq., Petruccelli, Martin & Haddow, LLP, Portland, ME, for Pramodh Koshy.

William J. Kelleher, Esq., Daniel I. Billings, Esq. (orally), Marden, Dubord, Bernier & Stevens, Waterville, ME, for State Farm Mutual Automobile Insurance Company.

David P. Silk, Esq. (orally), Susan Rockefeller, Esq., Curtis Thaxter Stevens Broder & Micoleau LLC, Portland, ME, for Enterprise Rent-A-Car Company of Boston, Inc.

James D. Poliquin, Esq. (orally), John R. Veilleux, Esq., Matthew T. Mehalic, Esq., Norman, Hanson & DeTroy, LLC, Portland, ME, for Scandent Group, Inc. and Scandent India.

John J. Wall, Esq., Kenneth D. Pierce, Esq., Erica M. Johanson, Esq. (orally), Monaghan Leahy, LLP, Portland, ME, for Pramodh Koshy.

Panel: SAUFLEY, C.J., and CLIFFORD, ALEXANDER, LEVY, SILVER, and MEAD, JJ.^*

SAUFLEY, C.J.

¶ 1 These related appeals center on a dispute regarding the ultimate responsibility for payment of damages arising out of a serious automobile accident in which the driver of a rented car was at fault. The parties' challenges to several judgments of the Superior Court (York County, Fritzsche, J.) require us to address the varying responsibilities of the rental company, the corporate renter, the individual employee who signed the rental agreement on behalf of the corporate renter but was not in the car at the time of the accident, and the insurer of that employee's personal vehicle. We vacate the judgments and remand for further proceedings.

I. PROCEDURAL HISTORY

¶ 2 The two court proceedings before us today¹ arose from an accident involving a car that was owned by Enterprise Rent-A-Car Company of Boston, Inc., and rented from Enterprise in New Hampshire by Pramodh Koshy for use by other employees of Koshy's employer, Scandent Group, Inc.² A Scandent employee, whose full name is Ranjini, caused the accident when she was driving the car in Maine.

¶ 3 Individuals injured in the accident brought a tort action against Ranjini, Scandent, and Enterprise into which Koshy and several insurers were impleaded. While this tort action was pending, State Farm Mutual Automobile Insurance Company, the insurer of Koshy's personal vehicle, brought an action seeking a declaratory judgment that Koshy's personal automobile insurance policy with State Farm did not cover the accident and State Farm had no duty to indemnify Koshy. State Farm moved for summary judgment before the tort case was concluded, and the parties filed statements of material facts. See M.R. Civ. P. 56(h). State Farm did not challenge its responsibility to defend Koshy. The court denied Koshy's motion to stay the declaratory judgment action pending the outcome of the tort case.

¶ 4 In the tort action, a settlement was reached with the injured individuals, whom Enterprise paid in full. In the same proceeding, Enterprise sought a determination from the court that the automobile rental agreement signed by Koshy required Scandent and Koshy to indemnify Enterprise for the full amount paid on the settlement.

¶ 5 The Superior Court concluded that Scandent was not liable to indemnify Enterprise pursuant to the rental agreement. Enterprise appeals from that summary judgment. As to Koshy, the individual employee who signed the rental agreement on Scandent's behalf, the court concluded that the indemnification provision in the car rental agreement did bind him. Koshy appeals from that summary judgment.

¶ 6 In the separate declaratory judgment action, the court concluded that Koshy's personal automobile insurance through State Farm did not cover the claim at issue. Koshy appeals from that summary judgment in favor of State Farm. Koshy also appeals from the denial of his motion to stay the declaratory judgment proceedings until issues of liability were resolved in the tort action.

¶ 7 The end result of the settlement and rulings of the court is as follows. The injured parties at issue here³ have received full payment for their damages. The driver at fault has not been made responsible for payment of those damages in the proceedings. The corporation that rented the car for its employees' use, Scandent, has been held not to be responsible for any part of the damages. Koshy, who rented the car on behalf of Scandent, has been held to be personally responsible to fully indemnify the car rental company, and the court ordered him to pay $1,096,438.50 plus interest to Enterprise pursuant to the indemnification provisions of the rental agreement. Koshy's personal automobile insurance, provided by State Farm, has been held not to cover the event in question.

II. SUMMARY OF THE OUTCOME OF THE APPEALS

¶ 8 After considering the issues raised on appeal, we conclude that Scandent was not entitled to summary judgment on the indemnification claim because the rental agreement bound Scandent as an undisclosed principal acting through its agent, Koshy, in executing the agreement. We also conclude that the unconscionability provisions of New Hampshire's Uniform Commercial Code, N.H.Rev.Stat. Ann. § 382-A:2A-108 (1994), may govern the enforceability of the indemnification provisions of the car rental agreement and that the question of unconscionability must be decided on remand. We therefore vacate the summary judgment for Scandent against Enterprise and for Enterprise against Koshy, and we remand for further proceedings.

¶ 9 We also vacate the denial of Koshy's motion to stay the declaratory judgment proceeding and remand with instructions that the matter be decided only after a final judgment has been entered in the dispute between Enterprise, Koshy, and Scandent.

III. FACTUAL BACKGROUND

¶ 10 The basic facts are not in dispute. An automobile accident occurred in Saco in 2003, involving a car that was owned by Enterprise, rented by Koshy, and driven at the time by Ranjini, who eventually pleaded guilty to a charge of driving to endanger.

¶ 11 Koshy had rented the car at the behest of his employer, Scandent, for purposes of providing a means of transportation to Ranjini and other temporary employees of Scandent who were temporarily living in Portsmouth, New Hampshire. The car was rented for the temporary employees' personal and business use, and Scandent Group reimbursed Koshy for the cost of renting the car. Scandent agrees that Koshy was acting upon Scandent's request.

¶ 12 The rental agreement was executed at Enterprise's Portsmouth, New Hampshire, rental office. The back page of the agreement contained a provision that the renter would indemnify the owner, Enterprise, for liabilities arising from use of the vehicle:

BODILY INJURY AND PROPERTY DAMAGE RESPONSIBILITY: Owner provides no BODILY INJURY or PROPERTY DAMAGE LIABILITY INSURANCE or coverage to renter or any other operator or user for bodily injury or property damage to renter, operator, user, passengers, or any third party. Renter's insurance applies. Renter represents and warrants that they have and will maintain in force during the term of this rental agreement, BODILY INJURY and PROPERTY DAMAGE LIABILITY INSURANCE for renter, other operators, users, passengers and third parties equal to the financial responsibility limits required by the applicable Motor Vehicle Financial Responsibility Laws of the state in where the vehicle is operated or used. Renter agrees to defend, indemnify and hold Owner harmless from any claims, liabilities, costs and expenses arising from renter's use, operation or possession of the rented vehicle. Renter assumes full responsibility for any damage to or destruction of property transported by and in the rented vehicle. If there is other valid and collectible automobile liability protection or insurance on any basis available to renter or any other person, and such protection or insurance on any basis available to renter or any other person, and such protection or insurance satisfies the financial responsibility laws, then no liability protection is afforded by owner. However, if renter is in compliance with the terms and conditions of this agreement, and if owner is determined by law to provide liability protection to any renter or authorized driver, such liability protection shall be limited to the minimum financial responsibility limits of the state in which the vehicle is operated.

The agreement also contained a separate indemnification provision that made the renter responsible for indemnifying Enterprise from liabilities incurred as a result of the operation of the rental car:

RENTER'S INDEMNITY PROVISION: Upon demand from Owner, Renter agrees to defend, indemnify and hold Owner harmless from all losses, liabilities, damages, injuries, claims, demands, costs, and expenses incurred by Owner in any manner from this rental transaction or from the use, or operation of the rental car by any party, including claims of, or liabilities to, third parties, and, agrees to present a claim to their insurance carrier for all such expenses. If Renter has no insurance to cover such events or losses, Renter agrees to pay Owner for such losses.

Although Koshy had the option to obtain personal accident insurance and supplemental liability protection from Enterprise, he signed his initials on the front of the contract to decline those options. Koshy did contract to pay an additional sum to waive responsibility for all damage to the vehicle.

¶ 13 On the front of the contract, Ranjini was listed as an additional authorized driver. The contract also stated on its front page that Enterprise permitted the car to be used throughout New England. At the time of the accident, Ranjini was on a personal errand in...