Rental Car Insurance Can Shift Depending On The Election Of The Renter
Rental car agencies and drivers may contractually agree that the driver’s policy will provide primary coverage. Neither the Illinois Vehicle Code nor the public policy of the State of Illinois requires rental car owners’ insurers to provide primary coverage on a rental vehicle.
In State Farm Mutual Automobile Ins. Co. v. Hertz Claim Management Corp., No. 5-01-0694 (May 1, 2003), the State Farm insured rented a vehicle from Hertz and was involved in an accident which resulted in a claim against the driver of the Hertz vehicle. State Farm sought a determination that the Hertz’ coverage was primary to the State Farm policy of insurance.
When the State Farm insured rented the vehicle, the contract provided that if he did not purchase a liability insurance supplement from the rental agency at an additional charge, his car insurance would provide primary coverage. The drive did not purchase the liability insurance supplement. The rental vehicle was insured by National Union and a certificate of financial responsibility filed with the Illinois Secretary of State pursuant to the Illinois Vehicle Code (625 ILCS 5/9-101(2000)) stated that the coverage provided under the National Union was secondary. The National Union policy itself did not contain this limitation.
The driver was insured by State Farm under a policy that provided coverage for liability arising from his use of “temporary substitute vehicles,” including rental cars. The State Farm policy provided that its coverage was secondary if the temporary substitute vehicle had other liability insurance.
State Farm argued that Illinois law required a vehicle owner’s insurance to provide primary coverage in all cases. Hertz argued that the Illinois Safety and Family Financial Responsibility Law (Financial, Responsibility, Law) 625 ILCS 5/7-100 through 7-708 (West 2000)) inapplicable to rental vehicles because their insurance is governed by statute specific to the issuance of rental cars (Rental Car Insurance Law) 625 ILCS 7/9-101 through 9-110 (West 2000)). The Rental Car Insurance Law does not contain a requirement that a vehicle owner’s insurance provide primary coverage as does the Financial Responsibility Law.
§7-601(a) of the Illinois Vehicle Code provides that no one may operate a motor vehicle or allow a vehicle to be operated without obtaining sufficient insurance. §7-317(b)(2) requires that insurance cover any person driving the insured vehicle with the express or implied permission of the insured. Pursuant to the Supreme Court Decision of State Farm Mutual Automobile Insurance Company v. Universal Underwriters Group, 182 Ill.2d 204, 244, 695 N.E.2d 848, 850 (1998) if the policy does not expressly provide this “omnibus coverage,” the policy would be interpreted as providing it.
The Illinois Vehicle Code contains an exemption for vehicles in compliance with other statutes that require insurance in amounts meeting or exceeding the amounts established under the Financial Responsibility Law. 625 ILCS 5/7-601(b)(6) (West 2000). Section 9-101 of the Illinois Vehicle Code requires the owners of rental vehicles to provide proof of financial responsibility to the Secretary of State. This section requires rental cars to be insured in amounts exceeding those required under the Financial Responsibility Law and contains an omnibus clause identical to that found within the Responsibility Law. The court found that rental cars fell within the exception provided by §7-601(b)(6).
Although the statute contains an omnibus provision, the court found that this provision was to protect the public and not other insurance agencies. The court recognized the general rule that where two insurance policies offer only secondary coverage, the insurance of the vehicle’s owner is primary while that of the driver is secondary. However, the court found that the decision in
Farm Bureau Mutual Ins. Co. v. Alamo Rent A Car, Inc., 319 Ill. App. 3d 382, 386, 744 N.E.2d 300, 302 (2000) considered the situation in the context of rental cars and concluded that the general rule does not apply. The court noted that the general practice among rental car agencies was to provide customers with the option of purchasing insurance from the rental agency or providing their own coverage. Pursuant to the decision in Farm Bureau, rental car agencies and drivers may contractually agree that the driver’s policy will provide primary coverage. The court held that “the public policy of this state in favoring the freedom to contract would be frustrated by holding ineffective contracts such as the rental contract here at issue, where no competing public policy requires us to do so.” Citing Farm Bureau v. Alamo, 319 Ill. App. 3d at 389, 744 N.E.2d at 305. Consequently, the court held that neither the Illinois Vehicle Code nor the public policy of the State of Illinois required rental car owner’s insurers to provide primary coverage to their vehicles.
As did the court in Farm Bureau v. Alamo, the court in State Farm v. Hertz did not directly the driver’s right to contractually agree that their own individual policy would be excess to other coverage. In the present case, the court specifically found that the insured agreed with State Farm that the State Farm policy would be excess to other insurance. A court must also consider the contractual agreement found within the individual’s policy.
