Hertz Corp. v. State Farm Mutual Insurance Co.

Citations: 560 N.W.2d 741; 1997 Minn. App. LEXIS 367; 1997 WL 144269Docket: No. C3-96-2050

Court: Court of Appeals of Minnesota; March 31, 1997; Minnesota; State Appellate Court

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The court affirmed the district court's summary judgment favoring Hertz Corporation, the car rental company, in its declaratory judgment action against State Farm Mutual Insurance Company regarding liability coverage for an accident involving a rented vehicle. On August 2, 1994, Jeffrey Powers rented a car from Hertz and subsequently had an accident on August 3, 1994. The rental agreement stated that if the renter did not purchase liability insurance supplement (LIS), the renter's insurance would be primary. Powers did not buy the LIS but had a State Farm policy that provided non-owned vehicle coverage, indicating that any liability coverage from a rented vehicle would be considered excess if other coverage existed.

The district court ruled that State Farm was responsible for all liability coverage related to the accident, and Hertz had no obligation to defend Powers against claims. State Farm contended that Hertz's rental agreement violated the Minnesota no-fault automobile insurance act by not providing liability insurance for its vehicles, as required under the act. The act mandates vehicle owners to maintain liability insurance or an approved self-insurance plan that meets specified minimum coverage amounts.

On appeal, the court examined whether any genuine issues of material fact existed and whether the lower court erred in its legal conclusions. The case primarily involved statutory construction and insurance contract interpretation, both of which are reviewed de novo on appeal. The court's analysis concluded that Hertz's rental agreement did not violate the no-fault act, thereby affirming the lower court's judgment.

Hertz held a certificate of self-insurance at the time of the accident, issued under Minn. Stat. 65B.48, subd. 3. State Farm contended that Hertz breached the no-fault act by transferring its insurance responsibilities in the rental agreement, particularly since Powers had other applicable insurance (the State Farm policy). State Farm cited McClain v. Begley, which addressed liability in a rental car accident where the rental agreement improperly placed all insurance responsibility on the renter. The Minnesota Supreme Court ruled that the rental company was liable for the amount it had represented in its self-insurance application, but it did not establish that rental companies must cover all liability claims against renters. The no-fault act aims to protect accident victims rather than specifically regulate rental companies. In this case, the rental agreement stipulated that if the renter lacked collectible insurance, Hertz would provide coverage as required by the act, ensuring that the accident victim would not be left without insurance coverage.

Regarding coverage priority, State Farm argued that Hertz's self-insurance should be considered primary, with State Farm's policy as excess, based on Minn. Stat. 65B.49, subd. 3(3)(d) and the closeness-to-the-risk doctrine. However, since the rental agreement was deemed valid and not in violation of the act, the court found no grounds for addressing the priority issue. The court affirmed that the rental agreement is enforceable and that State Farm's policy provides exclusive coverage for the accident. Additionally, it noted that the Department of Commerce had already ruled the rental agreement illegal for eliminating the rental company’s insurance responsibilities.