MAPFRE’s Denial of “Loss of Use” For Damaged Rental Car Upheld By Mass. Court

A recent decision of the Appellate Division of the District Court reconciled a claimed ambiguity between Part 4 and Part VII of the standard Massachusetts auto policy (“standard policy”) and G.L. c. 90, § 34O (the property damage statute).

The decision, Tom’s Ashland Auto, Inc. v. MAPFRE Insurance arose out of a claim by a rental car company that it was entitled to loss of use damages after a MAPFRE insured crashed while using a rental car insured as a temporary substitute motor vehicle under MAPFRE’s policy.

A question of policy interpretation since the facts were undisputed

MAPFRE had an insured whose auto was involved in an accident that caused her to lose the use of her vehicle while an auto repair shop conducted repairs. There was no dispute as to coverage for the first loss, and the repair shop provided the insured a rental vehicle through an affiliated auto rental company. The rental charge was $59.99 per day.

During the rental period, the insured was in a single-car accident for which she was entirely at fault while driving the rental car. The damage to the car rental company’s vehicle was substantial, and the repairs to the damaged vehicle took thirty-one days. During that thirty-one-day period, the rental company lost the income from renting the damaged vehicle.

Claims for damage to the rental vehicle and loss of use

The rental company made a claim against MAPFRE for damage to the rental vehicle and the loss of rental income.

Under the standard policy (2008 Edition), the rental car’s collision damage was defined as damage to “Your Auto” since the rental car at the time was a temporary substitute auto. Under

Definition 5. B of the standard policy:

Your Auto—means:

* * *

Any auto while used as a temporary substitute for the [insured auto] while that auto is out of normal use because of…repair, servicing, loss or destruction.

Thus, since the policy defined a covered collision as “…any physical contact of Your Auto with another object” the rental car’s damage was a covered loss under the standard policy. MAPFRE did not dispute coverage for the collision and promptly paid the rental company the cost to repair the physical damage to car rental company’s rental car. However, the rental company also made a loss of use claim for $1,975.89, representing thirty-one (31) days of lost rental at $59.99 per day. The rental car company made its claim under the MAPFRE’s insured’s standard policy.

Although MAPFRE had paid the collision loss under Part 7 of the standard policy, MAPFRE refused to pay the car rental company for, loss of use of the rental car, relying upon exclusion number six of Part 4 (“Damage to Someone Else’s Property”) of the standard policy.

The pertinent provisions of Part 4 of the standard policy in MAPFRE’s denial were :

Under this Part, we will pay damages to someone else whose auto or other property is damaged in an accident. The damages we will pay are the amounts that person is legally entitled to collect for property damage through a court judgment or settlement. We will pay only if you [are] legally responsible for the accident. . .”

The exclusion within Part 4 that MAPFRE relied upon stated “We will not pay for property damage which occurs:

* * *

6. To an auto…owned by you…Similarly, we will not pay for damage to an auto…which you… rent…”

The rental car company dispute MAPFRE’s policy interpretation arguing the exclusion did not apply to any vehicle that is “Your Auto,” as defined in the standard policy and especially where the damaged rental car was Your Auto and covered for collision damage under Part 7. The rental car company also argued that G.L. c. 90, § 340 specifically provides property damage coverage for loss of use to someone else’s property and that the sixth exclusion, in Part 4 of the standard policy was contrary to this provision, and, therefore, invalid.

When MAPFRE would not pay the loss of use claim the car rental company filed suit seeking payment for its damages by asserting claims under G.L. c. 93A, c. 176D, and for quantum meruit.

Appellate Division of the District Court rules on the exclusion for property damage to rented vehicles

After losing before the District Court on MAPFRE’s motion for summary judgment, the car rental company appealed to the Appellate Division of the District Court.

On appeal, a three-judge appellate panel agreed with the rental car company that the rental car was Your Auto when it was damaged because it was being used as a temporary substitute for the described auto while it was out of use for repair. As a result, they also agreed the rental car company was entitled to coverage under both Parts 4 and 7 of the standard policy. However, any coverage was subject to the specific grants of coverage and exclusions contained in each Part.

The appellate court noted that the standard policy’s Part 7 had no exclusion for autos that are within the definition of Your Auto, including those rented by the insured under the circumstances of this case.

While Part 4 did provide that “[MAPFRE] will pay damages to someone else whose auto or other property is damaged in an accident” and “Damages include any…costs resulting from the loss of use of the damaged property.” The court found exclusion number six of Part 4 applied to the car rental company’s claim where it stated, “Similarly, we will not pay for damage to an auto… which you…rent…”

In finding the exclusion applied, the court reasoned the car rental company’s argument for property damage coverage under Part 4, if accepted, “would provide the equivalent of the Collision coverage available under Part 7 on temporary rentals even if the insured had not purchased that coverage…” In this case, the insured had purchased collision coverage. However, if the rental car company could recover for loss of use under Part 4, by the same reasoning any rental car company could recover under Part 4, for an insured damaging any rental car even though they had not purchased collision coverage.

The appellate panel also finds exclusion does not conflict with property damage statute

The court also rejected the car rental company’s argument that exclusion six of Part 4 conflicted with G.L. c. 90, § 34O. The second paragraph of that section does state:

Every policy of property damage liability insurance shall provide that the insurer will pay on behalf of the insured all sums the insured shall become legally obligated to pay as damages because of injury to or destruction of property, including loss of use thereof…” (Emphasis in decision)

The car rental company argued that the italicized phrase was a statutory mandate to pay all claims for loss of use for any damage, to someone else’s property regardless of the circumstances. However, the court pointed out the statute does not define what constitutes “loss of use thereof.”

The court found no ambiguity from the lack of any definition for the term, “loss of use thereof.” Instead, the court looked to the final sentence of the preceding paragraph of § 34O, the car rental company had not addressed. This provision of the statute states:

Property damage liability insurance is insurance containing provisions as prescribed in this section, among such other provisions, including conditions, exclusions, and limitations, as the commissioner of insurance may approve.”

The court focused on this grant of authority to the commissioner and found the exclusion for all damages including “loss of use” damages to vehicles rented by an insured was within the authority of the Commissioner of Insurance to allow when deciding what the terms of a standard policy would be.

Having rejected all arguments made by the car rental company, the three judges denied the car rental company’s appeal.

The uncovered loss for insureds with collision coverage

This decision does have some repercussions for those insureds who wish full coverage for all their auto risks. For those unfortunate insureds who have a second loss with a rented temporary substitute vehicle may find they have to pay the rental company’s loss of use claim out of their own pockets.

Of course, at the time of rental, insureds could avoid liability by purchasing a damage waiver from the rental car company, if offered. However, some insureds might find the daily cost of such waivers for an extended rental prohibitive.

If any readers have any comments on how an agency’s customers might avoid this uncovered risk, I would appreciate the input.

Thank you to MAPFRE’s counsel

I want to thank Kevin Truland, Esq., of Morrison, Mahoney, who represented MAPFRE on this appeal for kindly furnishing the briefs filed in the appeal, so that I could review them and write this article.