Martin v. Powers, No. M2014-00647-SC-R11-CV (Tenn. Oct. 24, 2016)
The Tennessee Supreme Court recently held that rental cars are uninsured vehicles in the context of uninsured motorist insurance coverage, despite seemingly clear policy language. In Martin v. Powers, Mr. Powers rented a car from Enterprise and drove to a bar. After becoming intoxicated, the bar owner (the plaintiff) asked him to leave and followed him out of the bar. Mr. Powers then intentionally drove the rental car into the plaintiff’s knee. The plaintiff’s auto insurance policy with IDS included uninsured/underinsured (UM/UIM) coverage. Mr. Powers did not purchase the optional liability coverage from Enterprise, but he did have his own liability insurance. Mr. Powers’s insurer, however, denied coverage—and prevailed in a separate declaratory judgment action—because his act of driving into the plaintiff’s knee was intentional.
Enterprise eventually filed an answer and relied on the Graves Amendment at 49 USC § 30106, which provides that rental car companies cannot be vicariously liable for the negligence of its renter. The plaintiff voluntarily dismissed Enterprise. Thus, the central remaining issue was whether his UM/UIM coverage applied. The UM/UIM carrier filed a Motion for Summary Judgment, which the trial court granted, arguing that the insurance policy explicitly excluded coverage because an “’uninsured motor vehicle’ does not mean a vehicle … owned or operated by a self-insurer.” Since Enterprise was a “self-insurer” under Tennessee’s financial responsibility law, the rental car was not uninsured per the policy language.
The court examined the interplay between Tennessee’s financial responsibility laws, the UM statute and the terms of the policy. It noted that the policy did not define “self-insurer,” but a reasonable person would conclude that a “’self-insurer’ is a person or entity able to cover the risk of a liability through their own assets.” This definition is consistent with the applicable statute, Tenn. Code Ann. § 55-12-111. Next, the court reiterated the “underlying purpose of uninsured motorist coverage, which is to pay compensation to the insured policy owner when the liable third party is unable to do so.” Here, the court began its journey into nuance. The court held that insurance, whether by a policy of insurance or by way of assets of the self-insurer, is necessarily tied to the risks of liability. Enterprise’s self-insurance protects it only as to its own liability, not any potential risk for which it is statutorily immune. In other words, since the Graves Amendment precludes vicarious liability against Enterprise for the actions of renters, a rental vehicle is not self-insured with respect to those risks. Accordingly, the Court found that the the policy language that excludes “a vehicle…owned…by a self-insurer” from the definition of an “uninsured motor vehicle” is ambiguous. Ambiguity in an insurance policy is construed against the insurer in favor of coverage. The court thus reversed the granting of summary judgment for the UM/UIM carrier and remanded to the trial court for further proceedings.
Justice Kirby dissented and wrote that the UM/UIM policy was not ambiguous and explicitly excluded vehicles that are owned by a self-insurer like Enterprise. While sympathetic to the plaintiff, she felt that this “hole” in the statutory framework should be filled by the legislature, not the court.
The primary impact of this case will likely be for insurers to amend portions of their UM policies. For rental car companies, this case reinforces the unshakeable Graves Amendment, which had not been examined at length previously by Tennessee appellate courts. While rental car companies are not considered self-insured in Tennessee with respect to renter-caused accidents, they are nonetheless statutorily immune.
Chris is a partner in Spicer Rudstrom’s Memphis office. His practice is concentrated primarily in the areas of premises liability, business and commercial representation, products liability and insurance coverage.