Present: Hassell, C.J., Lacy, Keenan, Koontz, Kinser, and
Lemons, JJ., and Carrico, S.J.
USAA CASUALTY INSURANCE COMPANY
OPINION BY
v. Record No. 021659 JUSTICE LAWRENCE L. KOONTZ, JR.
April 17, 2003
THE HERTZ CORPORATION
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
M. Langhorne Keith, Judge
In this appeal, we consider whether a rental car company
that maintains liability insurance coverage on its rental fleet
by self-insuring under the provisions of Code § 46.2-368 is
required to provide primary liability coverage to its customer
on a motor vehicle rented in Virginia.
BACKGROUND
The parties stipulated to the relevant facts. On March 6,
2000, Daniel E. Hess (Hess), a resident of Illinois, rented an
automobile owned by The Hertz Corporation (Hertz) from Hertz’s
rental office at Dulles International Airport in Loudoun County.
Hertz had qualified as a self-insurer in 1961 and remains so
under the statutory scheme presently set out in Code § 46.2-368.
Under its certificate of self-insurance, Hertz provides primary
liability insurance for the vehicles in its rental fleet while
those vehicles are under its control. In its standard rental
agreement, Hertz offers an optional liability insurance
supplement to its customers for an additional daily charge.
Hertz’s standard rental agreement specifically addresses
the primary responsibility for liability arising out of the use
of the rental vehicle when a customer declines to purchase the
optional liability insurance supplement coverage. Preprinted
language in the rental agreement states that if the customer
does not purchase the liability insurance supplement (LIS),
“YOUR INSURANCE AND THE INSURANCE OF THE OPERATOR OF THE CAR
WILL BE PRIMARY. THIS MEANS THAT HERTZ WILL NOT GRANT ANY
DEFENSE OR INDEMNITY PROTECTION UNDER THIS PARAGRAPH IF EITHER
YOU OR THE OPERATOR OF THE CAR ARE COVERED UNDER ANY VALID AND
COLLECTIBLE AUTOMOBILE LIABILITY INSURANCE, WHETHER PRIMARY,
EXCESS OR CONTINGENT.”
Hess declined to purchase Hertz’s optional LIS coverage.
Because Hess declined the LIS coverage, the cover page of the
rental agreement included the statement that “HERTZ LIABILITY
PROTECTION IS SECONDARY.” A preprinted statement at the bottom
of the cover page also stated that Hess “agree[d] that any
insurance that provides coverage to You . . . shall be primary.”
Hess was insured under an automobile insurance policy
providing liability coverage issued to him in Illinois by USAA
Casualty Insurance Company (USAA). The liability coverage of
Hess’s policy with USAA expressly applied to his “use of any
auto,” but included the following provision:
OTHER INSURANCE
2
If there is other applicable liability insurance we
will pay only our share of the loss. Our share is the
proportion that our limit of liability bears to the
total applicable limits. However, any insurance we
provide for a vehicle you do not own shall be excess
over any other collectible insurance.
Hess’s policy with USAA further provided that if the liability
arose as the result of an accident outside of Illinois, the
“policy will provide at least the minimum amounts and types of
coverages required by law.”
On March 9, 2000, while driving the Hertz rental car in
Fairfax County, Hess was involved in an accident with a vehicle
driven by Albert Ng (Ng). Ng was also insured under a policy
with USAA. USAA subsequently paid Ng $6,200 in settlement of a
claim for property damage to Ng’s vehicle under his policy’s
collision coverage. By subrogation to Ng’s rights, USAA made
demand on Hertz to provide primary liability coverage to Hess
and to reimburse USAA for its payment of Ng’s claim. Hertz
refused to reimburse USAA. Relying on the terms of its rental
agreement with Hess, Hertz denied that it was obligated to
provide primary liability coverage to Hess.
On December 29, 2000, USAA filed a motion for declaratory
judgment in the Circuit Court of Fairfax County contending that
Code § 46.2-108(D) required Hertz to provide primary liability
coverage on the automobiles it rented and, thus, asked the
chancellor to determine that Hertz was the primary insurer for
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both the property damage claim already paid as well as for any
potential personal injury claim Ng might have against Hess.
USAA sought a further declaration that Hertz is “obligated to
reimburse USAA for amounts paid in satisfaction of the collision
coverage afforded the claimant Ng.” Hertz filed an answer on
February 5, 2001 admitting the facts alleged in USAA’s pleading,
but denying the legal conclusion that Code § 46.2-108(D)
required it to provide primary liability insurance coverage to
all automobiles it rented.
On February 13, 2002, USAA filed a motion for summary
judgment along with a supporting brief. The following day,
Hertz filed its own motion for summary judgment and supporting
brief. Thereafter, the parties jointly submitted stipulations
of fact and agreed exhibits. On February 21, 2002, Hertz filed
an amended motion for summary judgment, and the chancellor heard
argument from the parties on their respective motions.
In an opinion letter dated April 8, 2002, the chancellor,
while recognizing that Code § 46.2-108(D) required rental car
companies to rent only “insured motor vehicle[s],” opined that
“nothing in § 46.2-108 or § 46.2-368 prohibits a self[-]insurer
from contracting with their customers as to whose insurance will
4
provide primary coverage.” 1 The chancellor concluded that Hertz
was not required to provide primary liability coverage to Hess
because Hess had declined such coverage from Hertz in the rental
agreement.
In a final order dated April 18, 2002 and incorporating by
reference the prior opinion letter, the chancellor entered
judgment in favor of Hertz and dismissed USAA’s motion for
declaratory judgment. Noting a conflict in the judgments of
various circuit courts on the central issue of this case, we
awarded USAA an appeal.
DISCUSSION
The chancellor based his judgment upon stipulated facts
rather than upon an ore tenus hearing. Therefore, the
chancellor’s conclusions drawn from the stipulated facts,
although highly persuasive and entitled to great weight, are not
binding on appeal. See, e.g., Johnson v. Insurance Company of
1
The chancellor also addressed the alternative theory
raised by USAA that Code § 38.2-2204(A), commonly referred to as
the “Omnibus Clause,” should be applied to a self-insurer such
as Hertz and, thus, prohibit Hertz from reducing or shifting its
burden of providing the minimum level of liability coverage
required by that statute. Relying on Yellow Cab Company of
Virginia, Inc. v. Adinolfi, 204 Va. 815, 819, 134 S.E.2d 308,
311 (1964), the chancellor concluded that the Omnibus Clause did
not apply to self-insurers. Although USAA also assigns error to
this aspect of the chancellor’s judgment, as will become
apparent, consideration of the application of the Omnibus Clause
to self-insurers is not a factor in our resolution of this
appeal. Accordingly, we express no opinion on that issue.
5
North America, 232 Va. 340, 345, 350 S.E.2d 616, 619 (1986).
However, we will not reverse the chancellor’s judgment on appeal
unless it is plainly wrong or without evidence to support it.
See, e.g., State Farm Mutual Automobile Insurance Co. v.
Weisman, 247 Va. 199, 202, 441 S.E.2d 16, 18 (1994). See also
Code § 8.01-680.
We begin our analysis in this case with a review of the
statutory scheme applicable to self-insurers of motor vehicles
under the provisions of Code § 46.2-368 and related Code
sections. There is no dispute that Hertz is engaged in the
business of renting motor vehicles and that it has been issued a
certificate of self-insurance pursuant to, and in full
compliance with, the provisions of Code § 46.2-368(B). Code
§ 46.2-108(D) provides that “[n]o person engaged in the business
of renting automobiles and trucks without drivers shall rent any
vehicle without a driver unless the vehicle is an insured motor
vehicle as defined in § 46.2-705. A violation of this
subsection shall constitute a Class I misdemeanor.” Code
§ 46.2-705, in relevant part, defines an “[i]nsured motor
vehicle” as “a motor vehicle as to which there is bodily injury
liability insurance and property damage liability insurance,
both in the amounts specified in § 46.2-472 . . . or as to which
the owner has qualified as a self-insurer in accordance with the
provisions of § 46.2-368.”
6
Code § 46.2-368(B) requires a self-insurer to provide the
permissive users of its motor vehicles uninsured or underinsured
motorist protection “to the extent required by Code § 38.2-
2206.” However, the subsection limits that protection to the
financial requirements of Code § 46.2-472 (single accident
limits of $25,000 for bodily injury or death of one person,
$50,000 for bodily injury or death of two or more persons, and
$20,000 for property damage) and specifically provides that this
protection “shall be secondary coverage” to any other available
insurance coverage. Code § 46.2-368(C) creates an exception to
the liability of a self-insurer “where the permissive user has
prejudicially failed to cooperate in the defense of the claim
which resulted in the judgment” and the self-insurer has
provided notice of its intent to rely on this exception.
USAA contends that when Code §§ 46.2-368, 46.2-705, and
46.2-108 are construed together, as they must be given the
internal cross-references found within them, it is clear that
the legislature intended a self-insuring rental car company,
such as Hertz, to provide primary liability coverage on vehicles
owned by it at all times, including when a vehicle is under the
control of a customer and even if the customer has declined to
7
pay additionally for such coverage. 2 Stated another way, USAA
contends that a customer is a permissive user of a vehicle owned
by the self-insured rental car company and, thus, entitled to
coverage under the rental company’s certificate of self-
insurance pursuant to Code § 46.2-368(C). USAA maintains that
it would be against public policy to permit a rental car company
in its rental agreement to disclaim or shift the requirement of
providing primary liability coverage to “any insurance” the
customer carries. In support of this assertion, USAA notes that
Code § 46.2-368(B) expressly provides that uninsured or
underinsured coverage provided by a certificate of self-
insurance “shall be secondary coverage to any other valid and
collectible insurance providing the same protection which is
available” to a permissive user, but this statute, nor any
2
USAA further contends that a rental car company that is
not self-insured, but has obtained the insurance required under
Code § 46.2-108(D) through a policy from a licensed insurance
provider, would necessarily be required to have that coverage
extend to its customers because “[t]he Omnibus Clause, . . .
Code § 38.2-2204, would clearly apply and any provision either
in the policy or in the rental agreement purporting to seek to
limit the Omnibus coverage would be void.” Thus, USAA contends
it would be inconsistent for the legislature to permit self-
insurers to receive “superior treatment.” While we agree with
USAA that Code § 46.2-108(D) makes no distinction between rental
car companies that insure under a commercial policy and those
that self-insure, the facts of the case under consideration are
limited to the application of that law with respect to Hertz, a
self-insurer. Accordingly, our discussion is limited in its
application to that circumstance.
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other, contains no similarly express provision for liability
coverage.
Hertz first responds that USAA applies too broad a reading
to Code § 46.2-368(C), contending that “permissive users” could
be read to mean the employees and agents of the self-insurer
using its vehicles in the course of their employment or agency.
Hertz further asserts that even if customers are permissive
users entitled to coverage, the provisions of its rental
agreement that permit a customer to decline its liability
insurance supplement coverage are in keeping with the
requirements of Code § 46.2-108 and public policy. This is so,
Hertz contends, because even when the customer declines such
coverage, the vehicle remains insured by Hertz, while primary
coverage rests with any insurance carried by the customer.
Continuing, Hertz contends that if there is no other coverage
available to the customer, Hertz would still provide coverage in
the event of a claim being made and, thus, the vehicle is not
uninsured. We disagree with Hertz.
When read in pari materia, Code §§ 46.2-108, 46.2-368, and
46.2-705, evince a clear legislative intent that a company
renting a motor vehicle without a driver in Virginia must assure
that the vehicle has the statutory minimum liability insurance
coverage. Such intent is in keeping with the long-standing
public policy to assure that motor vehicles driven on the
9
highways of Virginia are subject to a minimum level of primary
liability insurance in order to provide for the protection and
compensation of innocent parties injured in motor vehicle
accidents. And, we will construe the statutory language at
issue here liberally to accomplish the intended purpose of the
statutes. See, e.g., Virginia Farm Bureau Mutual Insurance Co.
v. Gile, 259 Va. 164, 168, 524 S.E.2d 642, 644 (2000); Tudor v.
Allstate Insurance Co., 216 Va. 918, 921, 224 S.E.2d 156, 158
(1976); Rose v. Travelers Indemnity Co., 209 Va. 755, 758, 167
S.E.2d 339, 342 (1969).
It is then clear that Hertz, a self-insurer engaged “in the
business of renting automobiles and trucks without drivers,” may
not lawfully rent one of its vehicles unless that vehicle is
insured with the statutorily mandated amount of primary bodily
injury and property damage liability coverage. Moreover, it is
equally clear that no portion of the statutory scheme related to
the insurance requirements for a self-insuring rental car
company permits such a company by contract with its customer to
avoid its obligation to assure primary liability coverage by
purporting to alter or expand the insurance coverage provided by
the customer’s own carrier.
Here, Hertz’s contract with Hess improperly attempted to
expand the coverage that USAA had agreed by contract to provide
to Hess. Hess’s contract with USAA, which was not issued or
10
delivered in Virginia, restricted its liability coverage for
Hess’s operation of a non-owned vehicle by stating that such
coverage shall be “excess over any other collectible insurance.”
The parties do not contest the validity of this insurance
contract provision. 3
Manifestly, because USAA was not a party to Hertz’s
contract with Hess, Hertz could not expand USAA’s obligations to
Hess under that separate contract by attempting to require USAA
to provide primary liability coverage for Hess’s use of Hertz’s
rental vehicle. Thus, because Hess’s policy with USAA provides
only excess coverage, the motor vehicle Hertz rented to Hess
remained an insured vehicle as required by Code § 46.2-108(D)
only if primary coverage was afforded by Hertz through its
certificate of self-insurance.
For these reasons, we hold that Hertz is required to
provide Hess with primary bodily injury and property damage
liability insurance coverage in the amounts specified in Code
§ 46.2-472, and that this obligation could not be delegated to
USAA through Hertz’s rental agreement with him. Thus, we
3
USAA’s policy was not issued or delivered in Virginia
within the meaning of Virginia’s Omnibus Clause, Code § 38.2-
2204. Therefore, the enforceability under this Code section of
the USAA policy provision, that its liability coverage would be
excess when its insured was driving a non-owned motor vehicle,
is not an issue in this case.
11
conclude that the chancellor erred in granting summary judgment
for Hertz and dismissing USAA’s motion for declaratory judgment.
Our determination that Hertz is the primary liability
insurer for any suit or judgment against Hess arising out of
Hess’s operation of Hertz’s rental vehicle does not end our
analysis of this case. USAA also sought a declaration that
Hertz is “obligated to reimburse USAA for any amounts paid in
satisfaction of the collision coverage afforded claimant Ng.”
The parties stipulated that amount was $6,200. However, at the
time of the proceedings before the chancellor, Ng had not filed
suit against Hess to recover his asserted damages, Hess’s
liability for such had not been admitted or established, and
there is no evidence or stipulation that either Hess or Hertz
was given prior notice of USAA’s payment to Ng. In addition, we
are not able to determine from the record whether Hess and Hertz
may be able to assert either factual or legal defenses that
would bar any reimbursement to USAA. Under these circumstances,
our judgment in favor of USAA must be limited to a declaration
that Hertz is required to provide primary liability coverage and
a defense to Hess in the event that Ng makes a claim against him
for bodily injury. USAA’s claim for reimbursement will be left
to resolution in a separate proceeding if that becomes
necessary.
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CONCLUSION
For these reasons, we will reverse the judgment of the
chancellor awarding summary judgment to Hertz and dismissing
USAA’s motion for declaratory judgment. We will enter final
judgment for USAA declaring that Hertz is required to provide
primary liability coverage and a defense to Hess for any bodily
injury claim arising out of his operation of Hertz’s rental car
that may be asserted by Ng.
Reversed.
JUSTICE LACY, with whom JUSTICE KINSER and JUSTICE LEMONS join,
dissenting.
I agree with the majority's holding that, while a vehicle
rented by Hertz must have liability coverage equal to the
statutorily prescribed limits, that coverage need not always be
provided by Hertz. However, I disagree with the majority's
conclusion that Hertz, through its self-insurance certificate,
must provide primary coverage in this case because the "excess
insurance" language of the USAA policy precludes application of
that policy as primary coverage.
The USAA policy contains the following provision:
If there is other applicable liability insurance we
will pay only our share of the loss. . . . However,
any insurance we provide for a vehicle you do not own
shall be excess over any other collectible insurance.
13
Under the plain language of this provision, if there is no
other collectible insurance, the coverage provided by the USAA
policy for non-owned vehicles is not restricted to excess
coverage. To determine what constitutes "collectible
insurance," we apply Illinois law, the law of the jurisdiction
in which the contract was made. Woodson v. Celina Mut. Ins.
Co., 211 Va. 423, 426, 177 S.E.2d 610, 613 (1970). Under
Illinois law, self-insurance is not "insurance" for purposes of
assigning liability between commercial insurance providers and
self-insurers. Chicago Hosp. Risk Pooling Program v. Illinois
State Med. Inter-Insurance Exch., 758 N.E.2d 353, 362 (Ill. App.
2001); USX Corp. v. Liberty Mut. Ins. Co., 645 N.E.2d 396, 403
(Ill. App. 1994); Aetna Cas. & Sur. Co. of Illinois v. James J.
Benes & Assocs., 593 N.E.2d 1087, 1090 (Ill. App.), appeal
denied, 602 N.E.2d 445 (1992). * Therefore, the coverage
available in this case, self-insurance, is not insurance for
purposes of invoking the excess coverage restriction in the USAA
*
I note that while this precise issue has not been
considered in Virginia, it is consistent with our cases that
have preserved the distinction between policies of insurance and
self-insurance. See e.g. Yellow Cab Co. of Virginia v.
Adinolfi, 204 Va. 815, 134 S.E.2d 308 (1964).
14
policy. Consequently, USAA's liability insurance is available
as the primary coverage.
This conclusion necessarily implicates the argument made by
USAA that the rental contract conflicts with Code § 38.2-2204,
the omnibus clause, because subsection D of that statute
prohibits a policy of insurance from containing any provision
that "purports or seeks to limit or reduce the coverage"
required by that section, and provisions in liability insurance
policies covering motor vehicles that render coverage under such
policy secondary or excess violate subsection D of Code § 38.2-
2204. Continental Ins. Co. v. State Farm Fire and Cas. Co., 238
Va. 209, 211-12, 380 S.E.2d 661, 663 (1989). However, as Hertz
argues, Code § 38.2-2204, by its terms, applies only to
contracts or policies of insurance; it does not apply to
coverage provided through self-insurance. The statute is not
ambiguous in this regard and does not require interpretation.
Regardless of whether we believe the public policy unwise or
inequitable, imposing different requirements on policies of
insurance and self-insurance is a matter for consideration by
the legislative branch. See Yellow Cab Co. of Virginia v.
Adinolfi, 204 Va. 815, 134 S.E.2d 308 (1964).
Based on this analysis, I conclude that the trial court was
correct and that the USAA contract of insurance is primary in
15
this case. Therefore, I respectfully dissent from the holding
of the majority.
16