Supreme Court Requires Uninsured Motorist Carrier to Cover Insured Hit by Self-Insured Rental Car

By: Robert D. Martin, Esq.

November 11, 2016

The Tennessee Supreme Court held in a split decision that a rental car was an “uninsured motor vehicle” under an insurance policy, when that vehicle was used to intentionally run over the Uninsured Motorist (UM) carrier’s insured. The majority reasoned that because the rental company was exempt from liability by a federal statute for the tortious acts of its customers, the rental vehicle was uninsured specifically in the context of tort actions arising out of the vehicle’s use.

In Martin v. Powers, the plaintiff was the insured at issue. He owned a bar, and refused to serve alcohol to the defendant who he believed to be intoxicated. The defendant left the bar, and the plaintiff followed him outside. The defendant then got in his rented car and purposefully ran over the plaintiff, who was standing on the sidewalk and was not in his vehicle. The plaintiff brought a lawsuit against the defendant driver, the rental car company, and his UM carrier. The rental car was self-insured by the rental company.

The UM policy provided, as most do, that an “uninsured motor vehicle does not mean a vehicle. . . owned or operated by a self-insurer under any applicable motor vehicle law, except a self-insurer which is or becomes insolvent.”

The Court noted that when a vehicle is self-insured, it is for all intents and purposes insured. The Court made a distinction, however, for instances in which a self-insured vehicle is not insured. Under a federal law passed in 2005, rental car companies are not subject to vicarious liability for the actions of their rental customers. Because of this law, the rental car company was dismissed early from the lawsuit here. The Court reasoned that because the rental company was immune from vicarious liability lawsuits arising from the acts of its customers, the company was not self-insured against those specific types of lawsuits arising from the acts of its customers. Because it was not self-insured in that context, and the company held no separate policy on the cars, the vehicle was uninsured with respect to vicarious liability claims.

Additionally, the Court held that the qualifier “any applicable motor vehicle law” in the policy, was ambiguous and therefore interpreted it against the insurer in favor of the insured. The Court believed that because there are many different motor vehicle state, local, and federal laws that may have different definitions of what a self-insurer is, there was no way to determine which specific definition of “self-insured” the policy intended.

Justice Kirby dissented from the majority opinion, stating her belief that the case exposes a hole in Tennessee law. The Legislature did not contemplate a scenario in which a vehicle can be considered insured if owned by a self-insurer, even though the owner/self-insurer cannot legally be held liable for the damages caused by the vehicle, she reasoned.

The case leaves open all sorts of questions for insurers, namely, what can an insurer do to ensure that it will not be held liable for accidents arising out of the use of a rental car?

If you have any questions about UM coverage in the rental car context, contact the attorneys at Meridian Law, PLLC, at (615) 229-7499 today for a free consultation.