Lawsuit Highlights Responsibilities of Rental Car Supplemental Insurance
January 27, 2010
An insurance company must pay $500,000 in supplemental liability insurance in
the wake of an automobile accident involving a man who was driving a rental
car. The lawsuit, filed Jan. 22, was an appeal of the case, Vigilant Insurance
Company; Government Employees Insurance Company (GEICO) v. Lincoln General
Insurance Company and DTG Operations. The case was an appeal to the United
States Court of Appeals, Ninth Circuit.
The defendant and appellant, Lincoln General Insurance Co., appealed a district
courts earlier decision that Lincoln was required to reimburse Vigilant and
GEICO for the $250,000 each contributed to settle the lawsuit arising from an
automobile accident involving their insured, Barry Root, while he was driving a
rental car from Dollar Thrifty Group.
Root had purchased the supplemental insurance offered by DTG Operations at a
car rental counter in Las Vegas. The supplemental insurance had two parts:
DTGs primary self-insurance and Lincolns supplemental liability insurance.
The primary protection provided for insurance against third-party personal
injury claims up to Nevadas $15,000 statutory minimum. The Lincoln
supplemental liability insurance policy provided for the same up to $1 million,
less the primary protection.
Lincoln argued that between a rental car drivers personal automobile insurance
(in this case, GEICO) and a rental car agencys self insurance up to the state
statutory minimum (in this case, the primary protection), the drivers personal
automobile insurer bears the primary responsibility for covering losses.
Lincoln claimed that the 1998 case Alamo Rent-A-Car Inc. v. State Farm Mutual
Automobile Insurance Co. supported its position.
But the appeals court ruled that Lincolns argument fails. The court in Alamo
ruled that [a] rental agency offers primary insurance only when the renter
agrees to purchase an extra protection plan. Because Root purchased an extra
protection plan from the rental agency, that extra protection plan provides
primary coverage for losses sustained by Root while he drove the rental car. So
between the Dollar primary protection and GEICO, the district court ruled
earlier, Dollar must pay first. Dollar accepted that outcome, paid the policy
limit, and was not party to this appeal.
The basis of the appeal is whether GEICO or Lincoln pays next, since the
primary protection is only $15,000, and the damages assessed against Root were
$760,000. Lincoln argued that GEICO should pay next because its policy is a
primary type policy whereas the Lincoln SLI policy is an excess type
policy, and that all primary type policies must be exhausted before any
excess type policies become liable for a given loss. But the appeals court
ruled the horizontal exhaustion rule did not apply when the language of the
relevant policies provides specific guidance on payment priority.
The appeals court noted that Lincoln contracted with Dollar to sell insurance
to rental car drivers. If Lincoln has no liability until after a renters
personal insurance is exhausted, Lincolns SLI policy offers only an illusory
benefit, and is potentially putting its contracting partner, Dollar, at risk of
liability for misrepresentation. The court found that once the primary
protection was exhausted, Lincoln became liable for the loss up to the limits
of its policy. The court ruled that Lincoln must reimburse GEICO and Vigilant
each $250,000.
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