Strategies, Challenges, and Answers

Even Where the Policy Language Conflicts, The Renter’s Personal Auto Policy Is Primary To The Rent-A-Car’s Financial Responsibility Coverage

The case of Alamo Rent-A-Car v. State Farm, 114 Nev. 154, 953 P.2d 1074 (1998) was a high-stakes showdown between a rental car company and two personal auto insurance companies, State Farm and Valley Forge.  As you know, Nevada law requires that a rental car company must provide proof of financial responsibility on every car that the company puts on the road.  NRS 482.295.  And in this case, each driver had his or her own personal auto coverage.  The dispute that the court was asked to resolve was whether rental car’s insurance or the personal auto insurance was the primary coverage.

Our regular blog readers will remember OUR TREATMENT of the similar case of Co-Operators Ins. Co. v. Allstate Rent-A-Car, 107 Nev. 17, 804 P.2d 1050 (1991).  In that earlier case, the Nevada Supreme Court had looked to the rental contract and found a provision that said that the personal auto insurance of the renter was primary.  It found no similar provision in the renter’s personal auto policy.  The court decided based on the language of the two contracts that the renter’s personal auto policy was primary.

However, in the Alamo Rent-A-Car case, the language in each of the policies contradicted the other.  Each policy said that the other was primary.  So let’s learn more about the facts and how the Nevada Supreme Court resolved this dispute.

Car-rental Drivers with State Farm and Valley Forge automobile policies caused accidents while driving rented Alamo cars.  None of the drivers bought extra coverage from Alamo.  State Farm and Valley Forge settled the claims brought by the injured claimants and then went to Alamo looking to get back what they had paid.

Rather than side with either party, the trial court said that the policies should be pro-rated based upon the amount of coverage available from the driver’s coverage and the self-insurance certificate of Alamo.  The case of Travelers Insurance Co. v. Lopez, 93 Nev. 463, 567 P.2d 471 (1977) suggested that this might be the correct outcome.  In Travelers, the Nevada Supreme Court adopted the rule stated in Lamb-Weston, Inc. v. Oregon Auto. Ins. Co., 341 P.2d 110 (Or. 1959).  The “Lamb-Weston” rules said that where the “other insurance” clauses in the policies conflict, both provisions are both null and void.

The Supreme Court rejected the application of the “Lamb-Weston” rule under these facts.  The court said that a rental car company is not an insurance company.  Unlike an insurance company, the rental car company does not have the option of reviewing a renter’s driving history.  The rental car company could not increase rates based upon bad driving.  Instead, it would be required to raise the rental rates of all drivers.

The Supreme Court clearly reiterated Nevada’s policy of having minimum limits coverage for all cars on the road.  But it pointed out that there was nothing in the law that required the rental car companies to foot that bill.

In the end, the Nevada Supreme Court said that where there is no additional coverage purchased, the automobile insurance company was primary and the rent-a-car company secondary.