In Martin v. Powers, No. M2014-00647-SC-R11-CV (Tenn. Oct. 24, 2016), the Tennessee Supreme Court analyzed the issue of whether a rental car being driven by a renter qualified as an “uninsured motor vehicle” under the plaintiff’s car insurance policy.
Plaintiff owned a bar, and he refused to serve alcohol to the defendant. When plaintiff followed defendant out to the parking lot, defendant got into a rental car that he had rented from Enterprise and intentionally drove into plaintiff, causing a knee injury.
During the course of the litigation, plaintiff “served [his insurance] with a copy of the summons and complaint for the purpose of bringing a claim under his uninsured motorist coverage.” The insurance company argued that Enterprise was a self-insurer under certain Tennessee statutes, and that the accident thus “did not arise out of the ownership or use of an uninsured vehicle.” The trial court granted the insurance company’s motion for summary judgment, but the Supreme Court reversed.
In considering this issue, the Supreme Court went through a series of steps to interpret and analyze the policy language at issue here. Plaintiff’s insurance policy stated that “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 “the language of an insurance contract must be read as a layman would read it,” but also that if the language is unclear or disputed, it should be “strictly construed in favor of the insured.” (internal citations and quotations omitted). The Court’s task, then, was to determine whether the rental car being driven by defendant would fall under this policy exception.
First, the Court looked at what “self-insurer” meant in the context of this policy. Because the policy itself did not define the term, the Court determined that “a reasonable person insured under an insurance policy containing the language at issue in this case would conclude that the term self-insurer is a person or entity able to cover the risk of a liability through their own assets.” (citation omitted). Importantly, though, the Court noted that “if the entity is immune from judgments for a particular liability, there is no cause to prove an ability to pay and no reason to be considered self-insured.”
Next, the Court looked at the portion of the policy that pointed to “applicable motor laws.” The Court determined that, as it was written, this policy language was “so broad and vague as to encompass both Tennessee and federal law, and both statutory and common law.” Because of the vast amount of law that would fall within this description, the Court found that it would be “unreasonable to expect an insured to discern the meaning of the Policy language at issue.” The Court reasoned:
The Policy’s failure to define ‘self-insurer’ and its broad reference to ‘any applicable motor vehicle law’ renders the provision under consideration both vague and indefinite. Relying on the Policy alone, it would be impossible for an insured to understand the precise meaning or scope of this exclusion from uninsured motorist coverage. Accordingly, we hold that the provision at issue is ambiguous. Where provisions that purport to limit insurance are ambiguous…they must be construed against the insurance company and in favor of the insured.
(internal quotation and citation omitted).
After concluding that the policy language was ambiguous, the Court then turned to applicable statutes. The Court noted that Tennessee’s Uninsured Motorist Act, Tenn. Code Ann. §§ 56-7-1201 to -1206, “is designed for the protection of injured persons, not for the benefit of insurance companies or motorists who cause damage to others.” (internal citation and quotation omitted). In support of its argument, the insurance company in this case relied on a portion of Tennessee’s Financial Responsibility Law. Tenn. Code Ann. § 55-12-111 states that the commissioner can issue a “certificate of self-insurance when satisfied that the person…is possessed and will continue to be possessed of an ability to pay any judgments that might be rendered against the person.” Enterprise had been issued one of these certificates, and the insurance company argued that that meant the Enterprise vehicle fell within the policy exception.
The Supreme Court, however, pointed out the significance of the Graves Amendment, a piece of federal legislation. “The Graves Amendment was intended to stop states from imposing vicarious liability on a car rental company arising from the operation of its vehicles by its rental customers.” (citation omitted). In light of the Graves Amendment, the Court stated:
Enterprise was not subject to vicarious liability for the actions of its rental customers at the time the commissioner was considering whether to issue the certificate of self-insurance that pertains to this case. …Accordingly, we conclude that, by issuing the Certificate, the commissioner was satisfied that Enterprise had the ability to pay ‘any judgments that might be rendered against it,’ Tenn. Code Ann. § 55-12-111(c), which did not—indeed, could not—include judgments based on vicarious liability for the actions of Enterprise’s rental customers. More to the point, the Certificate does not establish that Enterprise was self-insured as to vicarious liability arising from the operation of its vehicles by its rental customers because the commissioner was not considering Enterprise’s ability to pay judgments from which it was statutorily immune when deciding whether to issue the Certificate.
The Court determined that Enterprise was only self-insured for “owner risks,” which included “those accidents that may occur from the operation of an Enterprise vehicle by an Enterprise employee while in the course of her employment, or that may occur from the negligent maintenance of its vehicles.” Because Enterprise could not be self-insured for a liability that could never arise, i.e., vicarious liability due to the renter’s actions, the Court held that Enterprise was not self-insured for the purpose of this action that the rental car thus “[met] the definition of an uninsured motor vehicle under the Policy.”*
Justice Kirby wrote a dissenting opinion in this matter. She wrote that it was “undisputed that Enterprise is certified as a self-insurer,” and that the car clearly fell within the policy exception. She stated that she was “sympathetic to the plaintiff, and [that] the result reached by the majority is consonant with the overall aim of the UM statutes,” but she determined that there was a “hole” in the statutes that should be left to the legislature to rectify.
The majority reached the correct opinion in this case. As even the dissenting justice recognized, finding uninsured motorist coverage here was in line with the purpose of the uninsured motorist statutes. It will be interesting to see whether the legislature reacts to the “hole” pointed out by the dissent here, as well as how insurance companies react to this opinion and what changes they make to their policy language in reaction to this case. It is unclear from the opinion how much the finding of ambiguity in the policy language affected the final result. If the policy language had been more clear regarding definitions, would the result have been the same? Based on the analysis that one cannot be self-insured for a risk for which they are statutorily immune, it seems that the result should not change.
*Note: The driver’s insurance was granted summary judgment on liability because its policy excluded any intentional acts by the driver, and the accident at issue was intentional