July 2007

Automobile/Rental Law Bulletin

The Automobile/Rental Law Bulletin is published by the Automobile Law Practice Group at Arthur, Chapman, Kettering, Smetak & Pikala, P.A. to keep our clients informed of the ever-changing complexities of Minnesota rental law.  In this issue:

Minnesota Shift In Rental Vehicle Defense Priority
As Of August 1, 2007

As of August 1, 2007, the rental vehicle accident defense and indemnity priority will shift from the rental vehicle owner being primary to the renter/driver policy being primary.  Also, the Minnesota law, as written, purports to rewrite every auto policy issued in any state such that the out-of-state insurer must rewrite the out-of-state policy to provide all Minnesota coverages, including writing up the property damage liability coverage to pay for damages to the rental car itself. 

What does this mean?

For Rental Vehicle Owners:

The renter/driver’s personal insurance policy will provide the primary defense and indemnity for rental vehicle accident claims arising out of the driver’s negligent operation of a rental vehicle.  (Note that the claims for negligent entrustment and direct negligence by the rental vehicle owner, such as inadequate maintenance, involve direct claims against the rental vehicle owner and this statutory change will not affect those direct claims.)

If the renter/driver does not have any insurance, it is likely that the rental vehicle owner will continue to be required to provide minimum financial responsibility limits (30/60) to the driver and provide the primary defense. 

Will this shift in priority go further so as to eliminate the rental vehicle owner’s minimum limits obligation whenever the renter/driver has “Minnesota minimum” liability limits?  That is an argument we can expect to see made.  The statutory language and history of the bill is a bit vague.  It will require a “rental friendly” reading of the law to reach that result.  Unless that happens, the rental vehicle owner’s minimum financial responsibility limits (30/60) will be required protection for the renter/driver after the renter/driver’s limits are exhausted.  This potential exposure for the rental vehicle owner is not a vicarious liability obligation, but rather, the minimum financial responsibility obligation. 

What about sums above those limits?  Under current federal law, the rental vehicle owner is also protected and immune from any vicarious liability claims based on the negligence of the renter/driver.  (See Paul J. Rocheford article entitled, "Federal Law Eliminates Vicarious Liability for Rental Vehicle Companies," Automobile Law Update, March 2006.)  Nothing in the new law “caps” the exposure of the renter/driver.

For Personal/Commercial Auto Insurers:

As of August 1, 2007, whenever an insured drives a rental vehicle – at least in Minnesota – your company will become primary, obligated to defend and indemnify.  That much is clear and within the legislature’s province to so declare for Minnesota insurance policies.

The law also appears to require that any out-of-state insurer must rewrite its policy to provide all coverage just as though the policy had been issued in Minnesota, including writing up the property damage liability coverage to pay for damage to the rental vehicle itself.  This may mean that an out-of-state insurer, in theory, would be required to provide Minnesota PIP and other insurance benefits that are otherwise not specified in the policy.  This legislative action, attempting to rewrite out-of-state policies, will no doubt be contested in the court system.  Personal and commercial insurers may argue that the Minnesota legislature has no authority to rewrite an out-of-state policy, at least when the insured vehicle is not present in the state, and the courts will have to review the new statute and compare it to the policy language and the laws regarding compulsory insurance in Minnesota. 

Minnesota auto insurers should also consider the effect of this law when presented with first party claims by their insureds.  At what dollar figure is a rental vehicle “underinsured,” for example, may depend upon whether the out-of-state renter’s policy limits are “written up” to Minnesota limits.

In summary, the order of the primary/secondary obligation for defense and indemnity has been reversed by the statutory change. The renter/driver’s policy is primary and the rental vehicle owner’s minimum financial responsibility protection, unless it is extinguished altogether, is secondary.

If you have any questions at all regarding the new law and its effect on your company or its customers, please feel free to call of the lawyers in the Arthur Chapman Automobile Law Practice Group.