Academic journal article Journal of Risk and Insurance

Minnesota Holds That Car Rental Company May Not by Contract Make Renter's Auto Insurance Policy Primarily Responsible for Accident Coverage. Rental Company Policy or Self-Insurance Is

Academic journal article Journal of Risk and Insurance

Minnesota Holds That Car Rental Company May Not by Contract Make Renter's Auto Insurance Policy Primarily Responsible for Accident Coverage. Rental Company Policy or Self-Insurance Is

Article excerpt

MINNESOTA HOLDS THAT CAR RENTAL COMPANY MAY NOT BY CONTRACT MAKE RENTER'S AUTO INSURANCE POLICY PRIMARILY RESPONSIBLE FOR ACCIDENT COVERAGE. RENTAL COMPANY POLICY OR SELF-INSURANCE IS PRIMARY AS IT IS "CLOSEST TO THE RISK" OF RENTAL AUTO MISHAP

Hertz Corporation v. State Farm Mutual Insurance Co., 573 N.W. 2d 686 (Minnesota Supreme Court, Jan. 28,1998).

Hertz's rental car operations in Minnesota sought to provide pursuant to the car rental agreement that Hertz would be liable for auto liability claims arising out of the rental only to the extent that the renter or operator of the rented vehicle does not have other automobile liability insurance. Hertz had earlier obtained authorization to operate as a self-insurer pursuant to the terms of the Minnesota No-Fault Automobile Insurance

Act, Minn. Stat. 65B.41-.71 (1996). State Farm challenged the Hertz contract as violative of the Act and prevailed before the state Supreme Court. Said the Court:

A self-insured car rental agency does not meet its obligations as an automobile owner under the No-Fault Act by thrusting upon the renter its responsibility to provide liability coverage -- that is, by providing liability coverage only in the event that the renter is without liability coverage.

[The Act's provisions] do not on their face require that an automobile owner maintain coverage that is not contingent upon the presence of other coverage. Nevertheless, it is inconsistent with the general purpose of the No-Fault Act to read the statute in a manner advocated by Hertz. Hertz's interpretation of the Act would create a practical exemption to the broad statutory mandate that all automobile owners carry liability insurance, an exemption nowhere evident in the language of the statute.

573 N.W. 2d at 688.

The Court thus interpreted the state no-fault statute to require that all users of automobiles provide primary coverage through either purchase of a policy or approved self-insurance, rejecting Hertz's argument that this requirement violated Hertz's freedom of contract to structure its rental agreements to place the burden of insurance upon the renter.

In addition, the Court required that the Hertz self-insurance program must provide primary coverage and that the renter's policy would provide secondary liability coverage. Minnesota law requires that the insurance policy "closest to the risk" be primary for purposes of coordination of benefits. If the policy closest to the risk is insufficient to satisfy the liability claim, the secondary policy is triggered for additional coverage. See Interstate Fire & Cas. Co. v. Auto-Owners Ins. Co., 433 N.W. 2d 82 (Minn. 1988). In making this determination, Hertz v. State Farm and other Minnesota cases examine which policy most specifically describes or contemplates the "accident-causing instrumentality" and "[w]hich premium is reflective of the greater contemplated exposure". 573 N.W. 2d at 689.

Applying these factors to this case, the Hertz self-insurance policy specifically describes the rental vehicle involved in the accident because Hertz is the owner and its self-insurance is specifically available to cover the vehicle at issue, while Powers' [the renter] State Farm policy only describes Powers' personal automobile. …

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