Insureds may run a big uninsured risk in letting a spouse, son, daughter, friend, or neighbor use a rental car. Find out why they could all very easily end up uninsured if an accident were to occur
The Case: Mahoney v. American Automobile Ins. Co.
Why we featured this case:
Where an insured has optional bodily injury under Part 5, of the standard Massachusetts automobile policy, they have additional protection for liability arising out of the use of a non-owned automobile. This liability protection “arising out of the use” of a motor vehicle ordinarily will even cover that insured for claims arising out of the negligent entrustment of their motor vehicle to an unqualified or unlicensed driver.
This case, Mahoney v. AAIC, creates an exception for rental vehicles where the insured negligently entrusts a rented vehicle to someone who is not listed on the rental contract. The insured’s optional bodily injury carrier does not have to defend or indemnify that insured if they are sued for an accident allegedly arising out of negligently entrusting the vehicle to a driver not authorized by the rental car company.
A further legal consequence of the Mahoney decision is that anyone using a rental vehicle who is not a listed driver on the rental contract has no optional bodily injury coverage for any accident involving that rental vehicle.
What You Should Know About This Case:
When an insured lets someone drive a car that she either owns or does not own, she runs the risk that if there is an accident, she might be sued for the tort of negligent entrustment. The tort of negligent entrustment makes the person who allowed an unlicensed or unqualified driver to operate a vehicle that was subsequently in an accident caused by that driver. Where negligent entrustment is alleged an insured can be held liable for an accident where they were neither personally operating nor a guest in the involved vehicle at the time of the accident. Ordinarily, Massachusetts court have accepted that negligent entrustment of a motor vehicle is a form of “use” that is covered under the standard Massachusetts auto policy.
In the Mahoney case, one Jennifer Hill was a household member of two named insureds who had a standard Massachusetts automobile insurance policy issued by AAIC. These insureds had purchased additional liability limits of $250 thousand per person and $500 thousand per accident under Part 5, “Optional Bodily Injury to Others”. As a result, their household member, Ms. Hill, was an insured person for these same limits of liability under Part 5, for the use of other motor vehicles.
During the policy period, Ms. Hill had rented a motor vehicle from Hertz. The rental contract only listed Ms. Hill as a driver. However, she let a Ms. Teague use the vehicle. Ms. Teague was not a listed operator on the Hertz rental contract and she also had no license to drive. While using the rental vehicle she negligently drove the rental car over a center line and struck Mr. Mahoney’s vehicle, seriously injuring him.
After the accident, Mr. Mahoney sued the unlicensed operator, Ms. Teague, for negligent operation and Ms. Hill for negligent entrustment of the vehicle to an unlicensed driver.
Ms. Hill’s insurer, AAIC, denied all liability.
Pursuant to a settlement agreement, Hertz’s compulsory liability coverage of $20 thousand was paid to Mr. Mahoney and Ms. Teague admitted liability for the accident while Ms. Hill did not contest liability for the accident arising out of her negligently entrusting the Hertz vehicle to an unlicensed driver. After an assessment of damages hearing, judgment entered in favor of Mahoney against Teague and Hill in the amount of $78,000. Mr. Mahoney as part of the settlement acquired the rights that Ms. Hill had to indemnity as an insured under the AAIC optional bodily injury liability limits.
On summary judgment, the Superior Court ruled against AAIC having to indemnify Ms. Hill or pay Mr. Mahoney’s remaining $58 thousand in damages. The Superior Court concluded that AAIC had no contractual obligation to indemnify Hill (or her assignee, Mr. Mahoney) because the plain language of Part 5 of the standard Massachusetts automobile insurance policy unambiguously provided that “this Part does not pay for the benefit of anyone using an auto without the consent of the owner.” Since Hertz had not consented to allow any driver other than Ms. Hill to use the vehicle Part 5 offered no coverage to Ms. Hill for the negligent entrustment claim and therefore no indemnity to her judgment creditor, Mr. Mahoney.
The Superior Court decision meant that Mr. Mahoney had no insurance company to pay his remaining $58 thousand in damages and he appealed to the Appeals Court,
What the Court said:
Part 5 of the Massachusetts automobile insurance policy provides for optional bodily injury insurance. This part of the policy extends the liability limits of the insured auto, covers guests in the insured vehicle and provides extended limits of liability when an insured is “using a non-owned vehicle.”
In this case, the Hertz rental contract only gave Ms. Hill permission to operate the vehicle. When Ms. Hill subsequently entrusted the rental car to Ms. Teague, Ms. Teague effectively operated the vehicle without the consent of the owner. The Appeals Court also ruled that Ms. Hill’s negligent entrustment of the rental vehicle to Ms. Teague was also without the “consent of the owner,” and therefore she, (and her assignee, Mr. Mahoney) had no coverage under Part 5 of the automobile policy for negligent entrustment. The court affirmed the judgment in favor of AAIC, concurring that the insurer was entitled to judgment. Its motion for summary judgment was subsequently allowed.
Had Ms. Hill been the owner of the vehicle the court would have viewed the question of the availability of Part 5 optional bodily injury insurance to indemnify Ms. Hill’s negligent entrustment of the vehicle to Teague quite differently. In that case the court implied that it would have found coverage as negligent entrustment being not something distinct from but rather arising from the ownership, operation, or use of a motor vehicle” and thus covered under the standard Massachusetts automobile policy.
Agent Takeaways:
- Based on this case, rental car contracts present a real risk beyond negligent entrustment claims. Any non-listed driver who uses a rental car runs the risk that they have no insurance protection. For example, a husband rents a car and lets his wife who is not listed on the rental agreement use the vehicle. For insurance purposes her optional liability coverage is based upon the rental contract. Since she is not listed as an operator on the rental contract, she does not have permission of the vehicle’s owner to use the vehicle. If there were a serious accident, the marital assets of the couple would be at risk because Part 5 of the couple’s automobile policy would not provide her coverage because of her lack of permission from the rental company to use the rental vehicle.
- This case related to rental cars. But the same situation can occur in a household. For example, if parents allow a household member to drive a car they own but admonish the person: “not to let anyone else drive the car.” If they disobeyed and there was a serious accident, an insurance company would be within its rights under this case to deny defense and indemnity for any suit against the household member, including, but not limited to, negligent entrustment of the motor vehicle to the driver who was actually involved in the accident. Also, in that case, the unauthorized driver is completely out of luck as to coverage on the vehicle and on his own optional insurance, if any.
- When insureds report an accident and hire a replacement rental vehicles it would be good advice to insureds that they should follow the rental contract to the letter and only allow the drivers identified on the rental agreement use the vehicle.
