Robinson v. Coia

The opinion of the court was delivered by

WEISSBARD, J.A.D.

Defendant, Avis Rent A Car Systems, Inc. (Avis) appeals from a judgment requiring it to provide primary insurance coverage to defendant, Richard Brown, Jr., and, as a result, to reimburse Brown’s personal auto insurance carrier, Farmers Insurance Company (Farmers) for legal fees and settlement monies that it paid on Brown’s behalf. We conclude that as a self-insurer, Avis is required to provide primary coverage despite a provision in its rental contract with Brown that made its coverage secondary to that of Farmers.

This appeal arises out of a multiple vehicle accident on April 12, 1999. A car being operated by Dominick N. Coia, Jr., and owned by James O’Connell, was traveling west on the Atlantic City Expressway when Coia, having missed his intended exit, attempted to execute a u-turn from the left lane through a cut-thru on the Expressway. As Coia slowed to make his illegal turn, his vehicle was struck from behind by a car owned by Avis and operated by Brown. Patricia Robinson was a passenger in Brown’s car. Two other cars following behind Brown then became involved in the collision. The details of their ownership and operation are not pertinent to the issues that confront us.

Robinson thereafter initiated suit against Coia, Brown and Avis. The law firm of Sachs, Maitlin, Fleming, Green, Wilson and Marotte (Sachs) filed an answer on behalf of Brown on assignment from Farmers, Brown’s personal automobile insurance carrier. A separate law firm filed an answer on behalf of Avis. Thereafter, Brown filed a cross-claim against Avis seeking a declaration that Avis, as a self-insured, was required to provide primary coverage to Brown, to assume his defense and reimburse him for counsel fees already incurred. Avis and Brown filed summary judgment motions on the cross-claim, with Avis contending that its insurance was only secondary to that of Farmers and that, accordingly, no defense of Brown was required.

The Avis car had been rented by Brown’s wife at an Avis facility in New Jersey. However, the car was registered in Pennsylvania where Avis is self-insured.2 Brown declined Avis’ offer of optional insurance. The rental agreement between Avis and Brown contained the following provision:

[Ajnyone driving the car as permitted by this agreement will be protected against liability for causing bodily injury or death to others or damaging the property of someone other than the driver and/or the renter up to the minimum financial responsibility limits required by applicable law.

The coverage provided by you [Avis] shall be excess over any applicable insurance available to me [renter] or any other driver, from any other source, whether primary, excess, secondary or contingent in anyway.

As noted, Brown had a personal automobile policy with Farmers that contained liability coverage limits of $100,000 per occurrence and $300,000 per accident. That policy had an excess insurance clause governing Brown’s use of a rental car, that provided that “any insurance we provide for a vehicle you do not own shall be excess over any other collectible insurance.”

In ruling upon the cross motions for summary judgment, Judge Donaldson determined that Avis’ self-insurance certificate was the equivalent of an insurance policy, with the result that Avis became the primary insurer, with Farmers providing excess coverage only. Central to that ruling was the judge’s conclusion that the rental agreement between Brown and Avis was not part of Avis’ self-insurance and the terms of that agreement did not apply to render the Avis coverage excess. Subsequently, the judge ruled that the extent of Avis’ liability under its certificate was $15,000/$30,000, the minimum required under New Jersey law, rejecting Brown’s argument that the coverage was limited only by the extent of Avis’ assets. Avis was also required to assume the defense of Brown in the pending action.

Upon the substitution of new counsel for Brown, the Sachs law firm filed an application for reimbursement from Avis of its attorneys’ fees and costs in both the cross-claim coverage action and in defense of the underlying personal injury suit. The judge awarded the firm $9585 as reimbursement for defense of the Robinson case and $16,300 for its work on the coverage aspect of the litigation, together with $496.96 in costs.

Subsequently, the underlying personal injury case was concluded, and this appeal by Avis followed.3 Avis contends here, as it did below, that its coverage is only excess to that of Brown’s personal insurer, Farmers, and that it should be reimbursed for all fees and costs paid to Sachs as well as being reimbursed for the work of its attorneys and for settlement money paid on Brown’s behalf. Avis argues that by virtue of the quoted provision in its rental agreement with Brown, the coverage provided by its self-insurance certificate was only secondary to that of Brown’s personal auto insurance carrier. We disagree.

Pursuant to N.J.S.A. 45:21-2, Avis, being in the business of leasing motor vehicles, is required to carry liability insurance insuring it against damages suffered by a third party resulting from the negligent operation of its leased vehicle. The limits of liability must be in the minimum amount of $15,000/$30,000/$5000. Hanco v. Sisoukraj, 364 N.J.Super. 41, 45 n. 1, 834 A.2d 443 (App.Div.2003). The statute further provides that the lessor may be self-insured, as Avis is here. N.J.S.A. 45:21-8. However, as Avis correctly observes, the statute does not explicitly state that the required coverage must always be primary (as opposed to co-primary or excess) but only that there be such coverage. See Cosmopolitan Mut. Ins. Co. v. Continental Cas. Co., 28 N.J. 554, 563, 147 A.2d 529 (1959).

Resolution of this appeal requires us to balance two ostensibly competing lines of authority. On the one hand, Avis stresses the settled principle that agreements not contrary to law, and without ambiguity, should be enforced as written, and not be re-written by the courts. See Christafano v. New Jersey Mfr. Ins., 361 N.J.Super. 228, 234-35, 824 A.2d 1126 (App.Div.2003); Universal Underwriters v. CNA Ins. Co., 308 N.J.Super. 415, 420, 706 A.2d 217 (App.Div.1998). In that regard, Avis is correct in noting that the language contained in its rental agreement with Brown is “plain and unambiguous.” Nevertheless, this general rule has an important caveat; that insurance policies, as well as rental agreements, are contracts of adhesion and subject to special rules of interpretation. Christafano, supra, 361 N.J.Super. at 235, 824 A.2d 1126. Such contracts “will not be enforced to the extent that they conflict with the public policy of this state.” Allstate Ins. Co. v. Royal Globe Ins. Co., 195 N.J.Super. 598, 604, 481 A.2d 298 (App.Div.1984) (citations omitted). Since it complied with the statute, Avis argues that it violated no public policy. Brown contends that Avis’ attempt to avoid providing primary insurance coverage to him by means of the provision in the lease agreement constitutes just such a violation of public policy.

We conclude that Judge Donaldson correctly resolved the competing arguments against Avis. In our view, Avis’ effort to avoid providing insurance coverage through the terms of its rental agreement does violate public policy. First, Avis gains a substantial monetary benefit by being self-insured and cannot rightly be permitted to “have its cake and eat it too.” Under its rental contract, Avis escapes any responsibility for providing insurance coverage if the renter has other liability insurance available to them. Thus, in what must be a significant percentage — if not the vast majority — of instances Avis is relieved of providing any coverage at all.4 Avis thereby shifts the burden of providing the mandatory insurance coverage to the lessee’s insurer. White v. Howard, 240 N.J.Super. 427, 430 n. 1, 573 A.2d 513 (App.Div.), certif. denied, 122 N.J. 339, 585 A.2d 354 (1990). In White, Judge Dreier said:

While Agency [the rental company] may choose to save insurance premiums by self-insuring its vehicles, it should not be permitted to do so partially at the expense of other insurers who normally would look to each other under the “other insurance” provisions of their policies, and who have set their rates accordingly. Since only financially responsible owners of 25 or more vehicles may become certified self insureds ... those best able to pay would be permitted by this device to shift the costs of accidents to the non-fleet owners of other vehicles and their insurers.

[Id. at 433, 573 A.2d 513].

We agree with Avis that White is factually distinguishable because the self-insurer in that case, Agency, sought to avoid any liability coverage through the terms of its rental contract while here, Avis does provide primary coverage if the lessee has no coverage or excess if the lessee does have a policy. Nevertheless, we find Judge Dreier’s comments to be just as applicable in the present context. Avis is in fact seeking to shift the costs of accidents to other car owners and their insurers while itself avoiding the necessity of obtaining insurance coverage. To sanction this course of conduct would exempt Avis from the rules that apply to other automobile owners regarding liability insurance. Those “who choose to self-insure are held to the same duties as those who do not.” Auto Owners Ins. Co. v. Enterprise Rent-A-Car Co.—Midwest, 663 N.W.2d 208, 211 (S.Dak.2003).

Second, we previously faced the same issue, in a slightly different context, in Ambrosio v. Affordable Auto Rental, Incorporated, 307 N.J.Super. 114, 121-22, 704 A.2d 572 (App.Div.1998). In that case, Unity, an insurance carrier, issued a policy to Affordable Auto, a car rental company. Id. at 118, 704 A.2d 572. The policy excluded from the definition of insured the “rentee” or any driver obtaining the car from the “rentee” unless such “rentee”:

(a) has no other available insurance (whether primary, excess, or contingent), he or she is an “insured” but only up to the compulsory or financial responsibility law limits.

(b) has other available insurance (whether primary, excess, or contingent), less than the compulsory or financial responsibility law limits, he or she is an “insured” only for the amount by which the compulsory or financial responsibility law limits exceed the limits of his or her own insurance.

>[Id. at 123-24, 704 A.2d 572],

We held that the Unity policy provision constituted an “illegal escape clause,” since it conflicted with the statutorily required omnibus clause, N.J.S.A. 45:21-3, and was therefore ineffective. Id. at 124, 704 A.2d 572. In reaching that conclusion, we relied on Selective Insurance Company v. Charter Risk Retention Group Insurance Company, 261 N.J.Super. 1, 617 A.2d 664 (App.Div.1992). There, the issue was whether the insurer of an owner of rental or leased vehicles, could restrict the coverage afforded under its liability policy to the “owner interest,” thereby excluding coverage for the rentees of the vehicles. Id. at 2, 617 A.2d 664. We concluded that the Legislature’s intention to mandate minimum levels of insurance on all vehicles operated in this state, including rental/leased vehicles, required that “policies of insurance filed in compliance with N.J.S.A. 45:21-2 and -3 be required to provide the coverage to lessees without exception____[T]o the extent [that the carrier’s policy] endorsement attempted to carve out or restrict required statutory coverage under N.J.S.A. 45-21-3, that it constitutes an illegal escape clause.” Id. at 4, 617 A.2d 664.

The reasoning of Selective and Ambrosio are fully applicable here. In those eases the leasing company actually obtained liability insurance, but with the illegal “escape” provisions. In this case, Avis has no policy, relying instead on the language in its rental agreement. Such language, we conclude, is similarly ineffective to restrict or avoid the mandatory omnibus coverage required by the statute. Allstate Ins. Co.,.supra, 195 N.J.Super. at 602-06, 481 A.2d 298 (provision in rental contract excluding persons under age twenty-one from definition of authorized operators ineffective to avoid coverage for permissive user of ear). Thus, we conclude that Avis’ rental contract with Brown is not effective to the extent that it seeks to render Avis’ self-insurance coverage excess.

Avis also argues, as a fall-back position, that its coverage should be co-primary with Farmers, due to the presence of “excess” provisions in both documents, that is, the Farmers policy and Avis’ lease agreement with Brown. Cosmopolitan Mut. Ins. Co., supra, 28 N.J. at 562, 147 A.2d 529. Brown’s response is that the rule established by Cosmopolitan only comes into play when there are two insurance policies to compare. See Universal Underwriters, supra, 308 N.J.Super. at 418-19, 706 A.2d 217 (where the excess coverage provisions of “two policies are mutually repugnant, they are to be disregarded” and the carriers “stand on an equal footing, each sharing the payment of liability equally until the limit of the smaller policy is exhausted.”). We agree that the rule of Cosmopolitan does not govern in this case. Here, Avis does not present an insurance policy with an excess provision to compare with Brown’s Farmers policy, since Avis only has a certifícate of self-insurance that itself contains no terms of any kind. Nevertheless, Avis says that the Farmers policy should be compared with its rental agreement, which does contain an excess clause. Judge Donaldson rejected that argument, concluding that there are not “two policies here. You cannot read the rental agreement as being an insurance policy.” We agree. The only “policy” possessed by Avis is its self-insurance certificate. As we said in White, supra, 240 N.J.Super. at 431, 573 A.2d 513, the “decision to act as a self-insurer and secure the applicable New Jersey certificate was the functional equivalent of [the rental company] writing a separate insurance policy covering itself.” However, while it is beyond dispute that a self-insurance certificate constitutes a policy, see Ryder/P.I.E. Nationwide, Inc. v. Harbor Bay Corp., 119 N.J. 402, 413, 575 A.2d 416 (1990), there is no support for Avis’ position that the rental contract between it and its lessee becomes a part of that “policy.” As a result, the excess provision in the rental agreement cannot be compared with the Farmers excess provision. The self-insurance certificate/policy being silent, there is only the Farmers provision, making its policy excess and, accordingly, the Avis coverage primary.

To the extent that Agency Rentr-A-Car, Inc. v. Indemnity Insurance Company of North America, 268 N.J.Super. 319, 324-25, 633 A.2d 975 (App.Div.1993), relied upon by our dissenting colleague, suggests otherwise, we do not agree. Agency states that “plaintiff is entitled to establish and abide by contractual limitations for indemnification to the extent they are not inimical with the law,” citing Allstate Insurance Company, supra, 195 N.J.Super. at 606, 481 A.2d 298. 268 N.J.Super. at 324, 633 A.2d 975. In fact, the holding of Allstate, to which we have referred earlier, was only that a provision in the rental contract that did operate to restrict or lessen the omnibus statutory coverage was ineffective. 195 N.J.Super. at 604-05, 481 A.2d 298. Such a holding does not support the opposite conclusion, that any rental contract provisions that are not “inimical with the law” must be given effect.

Further, Brown argues that to accept Avis’ position that the rental agreement is itself a form of insurance policy would place Avis’ rental agents in the position of selling insurance without being licensed to do so. That argument has some merit. Indeed, it would appear that by offering the lessee optional coverages for an additional fee, which Avis admits is routinely the case,5 the agents may even now be engaging in a prohibited activity. N.J.S.A. 17:22A-29,-30; N.J.A.C. 11:17-2.2(a)4.6 In any event, we need not resolve that question in order to decide this case.

We hold that Avis must, when acting as a self-insurer, in the circumstances presented here, provide primary coverage to its lessee, Brown, and cannot avoid doing so by relying upon terms contained in its rental contract, which does not constitute an insurance policy for purposes of comparison with a policy covering its lessee personally that contains an excess provision.

We need not decide the limits of Avis’ responsibility, that is whether, as Avis argues, it is only to the limit of the mínimums required by statute, N.J.S.A. 45:21-3, or is unlimited, as Brown contends, citing Ryder/P.I.E. Nationwide. Here, the total amount for which Avis was held responsible fell within the statutory minimum.

Having found Avis’ coverage to be primary, the reimbursement for attorneys’ fees and costs, including the amount paid in settlement of the Robinson claim, were properly awarded and require no discussion. R. 2:ll-3(e)(l)(E). Finally, in light of our conclusion, there is no merit to Avis’ cross-appeal that was predicated upon a finding in its favor on the main appeal.

Affirmed.

2 Avis cars registered in New Jersey are covered by an insurance policy with CNA providing liability limits of $15,000/$30,000.

3 We reject as without merit, Brown’s contention that Avis' appeal must be dismissed because it was filed out of time. R. 2:11 — 3(e)(1)(E).

4 Indeed, in this case the underlying suit was settled for $2000, well below the minimum coverage, and thereby not implicating any excess coverage. As a result, if Avis’ position were accepted, it would have paid nothing.

5 The rental agreement indicates that both "personal accident insurance” and "personal effects protection” insurance is made available to the renter for a stated per diem charge.

6 The necessity for a licensed professional to sell insurance is quite apparent. Could a rental car agent respond accurately if the customer inquired whether additional insurance was needed in light of other policies available? We have substantial doubt on that score.