Diaz v. National Car Rental Systems, Inc.

Becker, J.

(dissenting) — I respectfully disagree with the disposition reached by the majority in this case. National Car Rental sold the renters primary liability coverage with limits of $1 million. By law, National must make available underinsured motorist coverage in the same amount.

The underinsured motorist statute is to be liberally construed in order to provide broad protection against *148financially irresponsible motorists.17 The statute requires insurers of automobiles to offer UIM coverage with the same limits as liability coverage.18 UIM coverage becomes part of every automobile coverage by operation of law unless the insured party rejects it in a written waiver that is affirmative, conscious, specific, and unequivocal.19

National took $8.95 per day from the renter in this case in exchange for a promise of primary liability insurance coverage with limits up to $1 million. At no time did National ask her if she wanted to reject UIM coverage. Now, in order to avoid paying out on a UIM claim, National relies on the statutory exception for excess or umbrella policies. The coverage required to be offered under the UIM statute is “not applicable, to general liability policies, commonly known as umbrella policies, or other policies which apply only as excess to the insurance directly applicable to the vehicle insured.”20 National contends that its SLI coverage, underwritten by Philadelphia in a separate contract between National and Philadelphia, is excess to the coverage provided in the National rental agreement.

The majority offers three reasons for agreeing with the insurers that the statutory exception applies. The first is that the word “excess” appears in the title of the Philadelphia policy and in its definition section.21 This is not a satisfactory reason. Whether coverage can accurately be described as excess must depend not on its label but on *149how it operates in relationship to some other kind of coverage.22

Second, the majority mentions that the SLI folder that was given to the renter specifically excludes UIM coverage.23 This is circular reasoning because it assumes the result. An underinsured motorist exclusion is effective only if the liability coverage is first determined to be excess. Otherwise, the exclusion is void.24

Third, the majority states, “Under the rental agreement, National’s minimum limits liability policy is primary whenever the renter opts to purchase the SLI coverage. The SLI coverage, then, is excess to National’s coverage whenever it is in existence.”25 But if National’s minimum limits liability policy becomes “primary” only when the insured opts to accept SLI, then it is not truly primary coverage, and the SLI coverage is not excess.26 Instead, it is all one coverage.

Primary insurance coverage is coverage whereby, under the terms of the policy, liability, attaches immediately upon the happening of the occurrence that gives rise to liability.27 Primary coverage, in the words of the UIM statute, is insurance “directly applicable” to the vehicle insured. Excess coverage is not “directly applicable” because the liability of an excess insurer does not arise until after the limits of the *150coverage under the primary policy have been exceeded.28 To be exempt from the requirement to offer UIM coverage, a policy must operate “only as excess” to primary coverage.

Coverage that operates as a “continuation”29 of the primary policy may fit the statutory exception as an excess policy. For example, an insurer may designate its first $50,000 in liability coverage as primary, with the attendant obligation to offer UIM coverage, and then designate optional liability coverage from $50,000 up to $1 million as excess, without the obligation to offer UIM coverage. In such a case, the excess liability coverage does not arise immediately or directly when an accident happens. If the primary coverage is adequate to pay all the damages, the excess coverage never attaches. It operates only as excess to the insurance directly applicable to the vehicle insured.

National’s “supplemental” liability insurance (SLI) is not excess to National’s minimum limits liability policy as a continuation of a primary policy. National’s minimum limits liability policy did not become primary until the renter purchased SLI. The renter did not obtain primary coverage for the first $50,000 from National simply by signing the rental agreement. She obtained primary coverage from National for the first $50,000 only by agreeing to pay National an additional $8.95 per day. This was not a transaction where the renter first purchased basic primary coverage of $50,000 and then purchased “inherently different”30 excess coverage. This was a transaction where the renter made a single purchase of basic primary coverage from National, with limits of up to $1 million.

The terms of the rental agreement explain that National will not provide primary liability coverage unless the renter purchases supplemental insurance:

An automobile liability insurance policy or qualified self-*151insurance arrangement provides the Authorized Driver with the minimum limits required by the automobile financial responsibility or compulsory insurance laws of the state in which the Vehicle is rented. I understand and agree that the liability protection provided in this section will be withdrawn and will not apply if there is any other applicable insurance. However, the Company [National] will provide primary liability insurance protection regardless of other applicable insurance available if:
a. I accept optional Supplemental Liability Insurance at the beginning of rental; or
b. Primary liability protection is provided pursuant to a separate commercial account agreement; or
c. If, by operation of law, the Company [National] is required to provide primary liability protection.
If a, b or c above do not apply, but by operation of law, the Company [National] is not entitled to withdraw its coverage and is required to provide liability protection for the Vehicle, the protection provided under this Agreement shall be in excess of all other insurance available to the Authorized Driver.[31]

National provides coverage in the first sentence but takes it back in the second. The second sentence is an escape clause, in which National’s coverage “is withdrawn and will not apply if there is any other applicable insurance.” The renter who does not check off the SLI option has not purchased primary insurance directly applicable to the rental vehicle and immediately available upon the occurrence of an accident. That renter has purchased a conditional type of insurance that will pay only after it is determined the renter has no other insurance.32

For those renters who do check off the SLI option, on the *152other hand, National unequivocally agrees in the third sentence to provide primary liability coverage “regardless of other applicable insurance.” As stated in National’s explanatory brochure, “National’s Supplemental Liability Insurance (SLI) option provides you . . . with up to $1,000,000 in protection. ... In the event you do have additional liability coverage available, our $1,000,000 of protection would ordinarily have to be completely exhausted before your personal insurance would become involved.”33 This coverage does not operate “only as excess” to a primary policy. It does not pick up after $50,000 in primary coverage is exhausted. It is itself the primary coverage.

Having sold the renter a single primary liability policy, National now attempts to designate only the first $50,000 of its coverage as primary and the rest as excess. But according to Appleman, on whom our courts often rely in discussing excess and primary coverage issues,34 an attempt by a primary insurer to escape responsibility or to limit a portion of its risk by labeling it “excess” does not qualify the coverage as a true umbrella or excess policy.35

The large premium National charges for its SLI option reinforces the position that SLI is not a true excess policy. As noted by Appleman, one characteristic of umbrella policies is that they pick up exceptional hazards at a “small premium.”36 Annualized, the premium collected by National from purchasers of SLI amounts to $3,266.75 per car per year. This is a sizable premium to pay on one car if all it insures against is the risk of liability for damages above $50,000, especially since authorized drivers must be over age 25.

*153When the renter initialed the “accept SLI” line on the rental agreement, she purchased basic primary liability coverage directly applicable to the vehicle she was insuring. In fact, the option to purchase SLI was the only opportunity she had to protect herself with primary liability coverage for the rental vehicle. This is exactly the type of transaction in which, according to the statute, the insured must be given a chance to accept or reject UIM coverage up to the same limits.

Holding National liable for UIM coverage up to $1 million would not violate notions of fundamental fairness.37 The statutory design merely requires National to provide UIM coverage at the same amount as the limits of the liability coverage, unless the renters reject it. National is free to charge higher rates to renters who want UIM coverage.

National could avoid the responsibility of offering UIM coverage for damages over $50,000 by removing the escape clause and restructuring its rental agreement so that a renter need not make a supplemental purchase in order to obtain primary coverage.38 If the rental agreement standing alone provided primary coverage—i.e., coverage that pays the first $50,000 even when there is other applicable insurance—then a supplemental policy picking up damages above $50,000 would be truly excess within the meaning of the statutory exception.

According to Appleman, an escape clause in an automobile rental agency contract is against public policy and should not be enforced in any event: *154is made of collision insurance; a separate premium must be paid for that. But no exception or limitation is called to the renter’s attention so far as liability insurance is concerned. As a matter of fact, advertising calls attention to the fact that one can call in advance for a car, race through an airport, leap over baggage, arrive at the counter, present a credit card, sign one’s name, and pick up the keys. No comment is made about reading the contract form which contains an escape clause pertaining to liability insurance. Such may be tantamount to fraud; certainly it is a concealment, in light of the promised benefits; and it would be in violation of public policy not to grant the protection promised.[39]

*153As one of the inducements to rent automobiles, Hertz, Avis, and other such companies represent that liability insurance in a large sum is afforded, perhaps unlimited in amount. A point

*154The policy concerns identified by Appleman apply with equal force when the escape clause is part of a complex scheme designed to avoid the statutory mandate to provide underinsured motorist coverage.40 The SLI coverage option takes advantage of the haste with which travelers must make insurance choices as they stand, distracted and impatient, at the counter of an airport rental car agency. National offers an appealingly simple choice—primary liability coverage up to $1 million in exchange for a large premium. Then, when the renter who has paid the premium is hit by an underinsured motorist, National attempts to restrict its underinsured motorist coverage to the lower amount it would have to pay if the renter had not paid the large premium. This violates public policy and we should not allow it.

It is clear, in. short, that National must provide UIM coverage to the appellants up to the $1 million limits of its SLI coverage. The picture is less clear with respect to Phil*155adelphia. Philadelphia issued its “Rental Supplemental Liability Insurance Excess Policy” to National, the “policyholder.” The Philadelphia policy incorporates the National rental agreement. National remits a premium to Philadelphia based on days of exposure. The renter becomes an “insured” under the Philadelphia policy by initialing the “accept SLI” line on the National rental agreement. These provisions make the renter’s relationship to Philadelphia very similar to the renter’s relationship to National. On the other hand, the Philadelphia policy makes no representation that it provides basic primary coverage. The Philadelphia policy requires National, not the renter, to maintain underlying insurance.41 Philadelphia agrees to pay only the difference between the “underlying insurance” maintained by National and the $1 million limit identified in the policy that Philadelphia issued to National.42 With these provisions, I believe Philadelphia has sufficiently segregated its own coverage from National’s to be regarded as an excess insurer. If the responsibility to assure compliance with the UIM statute is placed upon National, the statutory purpose will be adequately served.

I would hold that for purposes of the analysis required by the UIM statute, the renter purchased primary liability coverage from National with limits up to $1 million. Because the renter did not reject UIM coverage, National must now provide her and her passengers with UIM coverage up to the same limit. I would reverse and remand for entry of summary judgment against National.

Review granted at 139 Wn.2d 1008 (1999).

Van Vonno v. Hertz Corp., 120 Wn.2d 416, 420, 841 P.2d 1244 (1992) (citing Finney v. Farmers Ins. Co., 92 Wn.2d 748, 751, 600 P.2d 1272 (1979)).

Johnson v. Farmers Ins. Co., 117 Wn.2d 558, 575, 817 P.2d 841 (1991).

Clements v. Travelers Indem., 121 Wn.2d 243, 255, 850 P.2d 1298 (1993); Corley v. Hertz Corp., 76 Wn. App. 687, 693, 887 P.2d 401 (1994), review denied, 128 Wn.2d 1007, 910 P.2d 481 (1996).

RCW 48.22.030(2).

Majority at 145-46. The word “excess” does not appear in the summary brochure about SLI that National provides to renters. The hack of the brochure notes in small print that it is not intended to act as a substitute for the actual policy, a copy of which with its complete terms and conditions “is available for your inspection.”

See MacKenzie v. Empire Ins. Co., 113 Wn.2d 754, 756-57, 782 P.2d 1063 (1989) (“by whatever name such policy may be designated, in order for the automobile liability coverage contained in the policy to be exempt from Washington’s UIM statute, the policy must by its terms only provide coverage in excess of the primary automobile coverage applicable to the vehicle in question.”).

Majority at 146.

See Clements v. Travelers Indem. Co., 121 Wn.2d 243, 251, 850 P.2d 1298 (1993) (courts will void any provision in an insurance policy “which is inconsistent with the statute, which is not authorized by the statute, or which thwarts the broad purpose of the statute.”).

Majority at 146.

See Transport Indem. Ins. Co. v. Rollins Leasing Corp., 14 Wn. App. 360, 360, 541 P.2d 1226 (1975) (“[I]t is obvious that there can be no ‘excess’ insurance in the absence of ‘primary’ insurance.”), overruled on other grounds by Mission Ins. Co. v. Allendale Mut. Ins. Co., 95 Wn.2d 464, 626 P.2d 505 (1981).

Black’s Law Dictionary (citing Olympic Ins. Co. v. Employers Surplus Lines Ins. Co., 126 Cal. App. 3d 593, 178 Cal. Rptr. 908, 910 (1981)).

See Millers Cas. Ins. Co. v. Briggs, 100 Wn.2d 9, 13, 665 P.2d 887 (1983).

See Thompson v. Grange Ins. Ass’n, 34 Wn. App. 151, 157, 660 P.2d 307, review denied, 99 Wn.2d 1011 (1983).

See MacKenzie, 113 Wn.2d at 758, n.5 (citing Trinity Universal Ins. Co. v. Metzger, 360 So. 2d 960, 962 (Ala. 1978)).

Terms and Conditions of Rental Agreement, section 9. Subsection (c) does not apply. A policy filed to satisfy the Financial Responsibility Act, RCW 46.29, does not thereby become primary. Federated American Ins. Co. v. Hansen, 17 Wn. App. 456, 458-59, 563 P.2d 1303 (1977).

See 8A John Alan Appleman & Jean Afpleman, Insurance Law and Practice § 4906 at 350 (rev. vol. 1981).

“Supplemental Liability Insurance Renter Option Purchased At Time Of Rental” brochure. National’s reference to “our $1,000,000 of protection” contradicts its claim that SLI is not part of its contract with the renter (emphasis added).

See, e.g., MacKenzie, 113 Wn.2d at 757.

8A Appleman, supra § 4909.85 at 453-54.

MacKenzie, 113 Wn.2d at 757 (quoting 8C Appleman, supra § 5071.65 at 107).

See Van Vonno, 120 Wn.2d at 426.

Compare the nonprimary liability coverage in the National rental agreement to the Hertz rental agreement described in Corley, 76 Wn. App. at 689, warranting “that the protection described in this paragraph is primary with respect to any insurance coverage You or an Authorized Operator may have.”

8A Appleman, supra § 4906, at 351 (contrasting rental agency policies to garage policies where no representation is made concerning insurance and the insured’s use of a garage car is permitted only as an accommodation).

See generally, id. § 4906 (the problem of overlapping insurance); § 4910 at 457-458 (1981) (“Escape Clauses . . . Rental agencies occasionally use such a clause which well could violate public policy, since organizations use, as part of their appeal, the fact that insurance is provided. If such representations are made, there should be no undisclosed strings attached.”).

Rental Supplemental Liability Insurance Excess Policy, Item 3.

Id. Item 4.