State Farm Mut. Auto. Ins. Co. v. Enterprise Leasing Co., A-C
| Decision Date | 25 June 1996 |
| Docket Number | Nos. 3-5,102396,100033,101473,A-C,Docket Nos. 100032,s. 3-5 |
| Citation | 549 N.W.2d 345,452 Mich. 25 |
| Parties | STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff-Appellant, v. ENTERPRISE LEASING COMPANY, Defendant-Appellee. ENTERPRISE LEASING COMPANY OF DETROIT, d/b/a Enterprise Rent-ar, and the Travelers Insurance Company, Plaintiffs-Appellees, v. Majid SAKO, Defendant-Appellee, and State Farm Mutual Automobile Insurance Company, Defendant-Appellant. AUTO CLUB INSURANCE ASSOCIATION, Plaintiff-Appellant, v. SNAPPY CAR RENTAL, INC., an Ohio Corporation, Hattie Francis, Robert Daniel and Ruth Stephens, Defendants-Appellees. Calendar |
| Court | Michigan Supreme Court |
Romain, Donofrio, Kuck & Egerer, P.C. by Ernst W. Kuck and Pat M. Donofrio, Southfield, for State Farm Mutual Automobile Insurance Company.
Gofrank & Kelman by Thomas M. Douglas, Southfield, for plaintiffs-appellees Enterprise Leasing Company.
Barnett & Rich, P.C. by Gordon J. Barnett, Jr., Ann Arbor, for plaintiff-appellant Auto Club Insurance Association.
Gofrank & Kelman by Thomas M. Douglas, Southfield, for defendant-appellee Enterprise Leasing Company.
Draugelis & Ashton by John A. Ashton and Richard Haynes, Plymouth, for defendant-appellant State Farm Mutual Automobile Insurance Company.
Siemion, Huckabay, Bodary, Padilla, Morganti & Bowerman, P.C. by Charles A. Huckabay, Southfield, for defendant-appellee Snappy Car Rental, Inc.
BEFORE THE ENTIRE BENCH.
In these three cases, we are called upon to determine whether Michigan's no-fault insurance act is violated by a car rental agreement purporting to shift the responsibility for providing primary residual liability coverage on the vehicle from the owner to the driver and the driver's insurer. We conclude that any such shifting provision is void. Vehicle owners, including the car rental companies in these cases, are required to provide primary coverage for their vehicles and all permissive users of their vehicles.
These cases involve the liability insurance coverage of rental cars. The disputes center on whether the car driver's insurer or the car owner's insurer is primarily responsible for the payment of liability benefits resulting from damages caused by the driver of a rented car.
In State Farm Mut. Automobile Ins. Co. v. Enterprise Leasing Co., 206 Mich.App. 7, 520 N.W.2d 663 (1994), State Farm insured Ladonna Teasley under a personal automobile insurance policy. When her vehicle was damaged and in the repair shop, she rented a car from the self-insured Enterprise Leasing Company. Enterprise has a policy of not renting cars to persons under twenty-five unless they have their own insurance. Because Teasley was less than twenty-five years old, Enterprise confirmed the existence of her policy with State Farm before renting a vehicle to her.
The rental agreement signed by Teasley contained the following provision:
By renter's and owner's representatives signature, this provision is made a part of the rental agreement. No insurance or protection is provided by owner---renter provides all insurance. Renter warrants that he has a valid policy of auto insurance covering rental vehicle for collision, comprehensive, and liability; and is not an assigned risk.
Both parties signed the agreement directly below this provision. Teasley was then involved in an accident while driving the rental car. State Farm and Enterprise paid the settled claims resulting from the accident, and State Farm brought suit to determine which of them was responsible for providing residual liability insurance.
In Enterprise Leasing Co. v. Sako, 207 Mich.App. 422, 526 N.W.2d 21 (1994), State Farm Mutual Automobile Insurance Company insured Majid Sako's personal automobile. When his car was inoperable because of a collision, he rented a vehicle from Enterprise Leasing Company. Enterprise is self-insured, with an excess liability policy for damages over $500,000 from an outside insurer, Travelers Insurance Company. The rental agreement executed by Enterprise and Sako included a provision reading:
If Renter or other authorized driver is in compliance with all provisions of this agreement, and is between 25 and 70 years old, Owner's financial responsibility extends to Renter and other drivers named on this agreement and approved by Owner for third party claims arising from the use of the car as required by Motor Vehicle Minimum Financial Responsibility Laws of the state where the car is operated, unless this agreement requires Renter to provide such coverage. Renter is responsible for damage or loss to property transported by or in the car.
The back of the contract also contained a separate provision, which was not executed by the parties, stating:
By renter's and owner's representatives signature, this provision is made a part of the rental agreement. No insurance or protection is provided by owner---renter provides all insurance. Renter warrants that he has a valid policy of auto insurance covering rental vehicle for collision, comprehensive, and liability; and is not an assigned risk.
Sako was then involved in an accident while driving the rental car. Enterprise and Travelers paid $593,321.79 to settle the resulting three lawsuits. They then brought suit against State Farm and Sako to recover their losses, claiming that State Farm was obligated to indemnify Enterprise and provide primary coverage.
In Auto Club Ins Ass'n v. Snappy Car Rental (hereinafter Snappy II ), ACIA insured Robert Daniel's personal vehicle. While it was being repaired as a result of vandalism, he rented a vehicle from Snappy Car Rental, which is self-insured. The rental agreement required the renter to select between two choices regarding insurance coverage:
[X][ 1] This vehicle is not covered for bodily injury or property damage insurance by Snappy and coverage shall be provided by renter or renter's existing insurance.
Renter's Initials R E D [ 2
[ ] This vehicle is covered for bodily injury and property damage insurance by Snappy with limits of coverage equal to the minimum statutory requirements for financial responsibility for the state of rental.
Renter's Initials _______
Daniel was then involved in an accident while driving the rental car, resulting in two tort actions against him and Snappy. Snappy refused to defend, and tendered the defense of the actions to ACIA. ACIA filed a declaratory action, seeking a determination that Snappy was the primary insurer.
In deciding these cases, we turn to Michigan's no-fault insurance act, M.C.L. § 500.3101 et seq.; M.S.A. § 24.13101 et seq. This Court's interpretation of the no-fault act as it relates to whether an owner or driver must provide coverage is contained in Citizens Ins. Co. v. Federated Mut. Ins. Co., 448 Mich. 225, 227, 531 N.W.2d 138 (1995). In Citizens, we were called upon to determine "the validity of a vehicle owner's policy of liability insurance that denies coverage to any permissive user who is otherwise insured for an amount equal to that specified by the no-fault act."
In Citizens, the driver insured a personal automobile. When that car was out of service, the driver was provided a "loaner" vehicle by the dealership servicing the car. The dealership was insured by Federated Mutual Insurance Company. The driver was involved in an accident while driving the loaner car and a judgment for damages was entered. Federated claimed that the driver's personal insurer was required to pay the requisite residual liability benefits. This Court disagreed.
The no-fault act provides in pertinent part:
The owner or registrant of a motor vehicle required to be registered in this state shall maintain security for payment of benefits under personal protection insurance, property protection insurance, and residual liability insurance. Security shall only be required to be in effect during the period the motor vehicle is driven or moved upon a highway. [M.C.L. § 500.3101(1); M.S.A. § 24.13101(1).]
In Citizens, this Court stressed that it is the "owner or registrant of a motor vehicle" who must provide residual liability insurance under the act. 448 Mich. at 228, 531 N.W.2d 138 (emphasis in the original). Further, this Court noted that the requisite residual liability insurance must provide coverage for loss arising from the use of a motor vehicle. M.C.L. §§ 500.3131, 500.3135; M.S.A. §§ 24.13131, 24.13135, cited at 448 Mich. at 229, 531 N.W.2d 138. This reading of the statute was the basis for this Court's decision that the owner's insurer was primarily responsible for paying residual liability benefits.
This Court determined that Federated's policy violated the no-fault act because it purported to deny coverage to the driver of the car:
In a sentence, Federated's insurance policy provides primary residual liability coverage only if the driver of a "covered" vehicle is uninsured or underinsured. In all other circumstances, Federated completely denies residual liability coverage for losses arising from the use of a "covered" vehicle. This Federated cannot lawfully do because the no-fault act clearly directs that a policy sold pursuant to the act must provide residual liability coverage for use of the vehicle insured. [448 Mich. at 231, 531 N.W.2d 138].
Because the vehicle owner was required to actually provide coverage of the vehicle and its permissive use, Federated could not issue an insurance policy that did not provide that coverage. In the instant cases, the owner of each vehicle is a car rental company, not a service dealership. Also, the drivers in these cases signed rental agreements purporting to make their own insurance primary. Although we acknowledge these factual distinctions, we hold that the car rental companies must provide primary insurance coverage for liability arising out of the use of their vehicles. We are no longer convinced that a distinction between a "loaner" car and a rental car can ...
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