Superior Court Rejects Violations of Rental Car Agreement as Support for Carrier to Deny Coverage

In the recent case of Viking Insurance Company of Wisconsin v. Spells, No. 809 WDA 2009 (Pa.Super. May 28, 2010), marked by the court as a "non-precedential decision," the Superior Court rejected attempts by an insurance company to utilize violations of a rental car agreement to avoid coverage to its insured for liability arising out of a motor vehicle accident involving the rental car.

In the Viking case, the Viking Insurance Company insured a man by the name of Ned Spells and his vehicle. Mr. Spells rented another vehicle from Enterprise under a contract that stated "no other driver permitted."

Thereafter, Mr. Spells let another individual drive the Enterprise rental car and that person became involved in a high speed chase with the police and crashed into another vehicle, injuring the driver of that vehicle.

The injured party went on to sue Mr. Spells and the individual he let drive the rental car. Neither defendant reported the lawsuit to Viking Insurance until after a default judgment was entered against them.

When they were notified of the suit later, Viking Insurance defended the defendants under a reservation of rights and pursued a declaratory judgment action on the coverage issue, which gave rise to this decision.

The primary issue addressed by the Superior Court was Viking Insurance's position that, by allowing the other individual to drive the rental vehicle, Mr. Spells no longer had permission to use the rental vehicle and, therefore, could not be considered an "insured person" under his own policy with Viking. The insurance company relied upon its own policy language and the rental agreement with Enterprise in its position.

More specifically, the Viking insurance policy provided that "No person shall be considered an insured person if the person uses a car...without the permission of the owner."

The Enterprise rental agreement additionally provided that a person who violates any provision in the rental agreement causes an automatic termination of the renter's right to use the vehicle.

The court noted that Viking Insurance Company was basically arguing that Mr. Spells stole the rental vehicle by permitting the other person to operate the vehicle and, as a result, Viking should be excused from providing coverage.

The court rejected this argument as an impermissible attempt against public policy to utilize a rental agreement's terms to preclude insurance coverage under the driver's personal policy.

The Viking court also emphasized that, while the policy of insurance did not cover the rental vehicle it did cover Mr. Nells himself for his actions.

The court also found that public policy did not preclude a finding of coverage for liability imposed under 75 Pa.C.S.A. Section 1574, which mandates that the owner of a vehicle shall be jointly and severally liable with any unlicensed driver the owner lets drive the vehicle if that driver is involved in an accident.

Ultimately, this case is another example of a decision establishing that the courts will not be reluctant to let carriers avoid coverage to its insureds with respect to rental vehicles on the basis of violations of a rental car agreement.



I send thanks to fellow Pennsylvania Defense Institute Board Member, Attorney Tom McDonnell of the Pittsburgh law firm of Summers, McDonnell, Hudock, Guthrie & Skeel for bringing this case to my attention.



Anyone desiring a copy of this (non-precedential) Opinion may contact me at dancummins@comcast.net.