Accepting a permissive appeal from a Victoria County district court, the Corpus Christi Court of Appeals recently ruled that a UM/UIM policy did not exclude coverage on the basis that the tortfeasor was driving a vehicle leased through Enterprise Rent-A-Car. While this fact pattern has presented itself in other jurisdictions, no Texas court has yet to resolve it.
Progressive County Mutual Insurance Company v. Anselmo M. Caltozonsing (No. 13-21-00209-CV) arose from a traffic accident in which plaintiff Caltozonsing was seriously injured when rear-ended by a rental car. Plaintiff recovered from the rental car driver’s personal auto liability policy, but the recovery was insufficient to cover all of plaintiff’s damages. Plaintiff then proceeded against Progressive, his employer’s insurer, for UM/UIM benefits under the employer’s policy. Progressive declined coverage, arguing that the policy excluded coverage because the underinsured tortfeasor was driving a self-insured entity, Enterprise. The trial court denied Progressive’s summary judgment motion, but the parties agreed and the trial court approved a permissive appeal to resolve the coverage issue.
Observing that the appeal involved a matter of first impression, the court of appeals had to grapple with the interaction between the policy language, Texas’ financial responsibility statute, and a federal statute immunizing rental car companies from vicarious liability for injuries caused by their lessee drivers. First, the policy language. The policy stated that uninsured vehicles do not include vehicles “owned and operated by a self-insurer under any applicable vehicle law, except a self-insurer that is or becomes insolvent.” The policy did not define “self-insurer,” which Progressive argued should be controlled by a Transportation Code provision that allows a person in whose name more than 25 vehicles are registered to apply for a certificate of self-insurance (which Enterprise possessed in this case). The court was not persuaded to adopt this meaning, first because the contract did not refer to it, and second because the most reasonable meaning of the term in the policy context “requires a lack of actual insurance, financial responsibility, and some form of risk retention.”
So far so good for Progressive. The court then turned to federal law (the Graves Amendment), which shielded Enterprise from liability for a tort committed by its lessee driver. Because Enterprise cannot be held liable for the driver’s tort, the court reasoned that it could not simultaneously be a “self-insurer”—it had no need of insurance covering these facts in the first place. Reviewing federal and state court decisions from other jurisdictions, the court found that the great majority of them concluded the same thing when presented with a similar fact pattern and policy language.
Finally, the court considered the public policy underwriting Texas’ financial responsibility law. While it noted that Texas has a strong policy in favor of freedom of contract, that policy is not unlimited and may contravene other important state policy objectives. The specific policy objective of the UM/UIM statute “is to protect conscientious motorists from financial loss caused by negligent financially irresponsible motorists” (citations omitted). Exclusions from the statutory requirement may be approved by the commissioner of insurance, but only if they are consistent with the underlying policy of the law. The only apposite case cited by Progressive in favor of the proposition that its policy exclusion did not conflict with that policy was an unpublished 5th Circuit opinion that made an Erie guess that it did not. The court of appeals declined to follow a ruling lacking precedential value and, in any event, disagreed with it. Citing several SCOTX opinions, the court pointed out that the UM/UIM law governs what happens when a plaintiff is injured by somebody who doesn’t have insurance or has insufficient insurance to pay the plaintiff’s damages. The 5thCircuit decision, according to the court of appeals, erroneously characterized Texas’ financial responsibility law as prioritizing the insured status of the vehicle, not the injured party. Such a reading violated the essential purpose of the law, which is to protect conscientious drivers from unconscientious tortfeasors. The exclusion at issue in the case, if enforced, would directly contradict this policy and frustrate the purpose of the statute.
The court of appeals declined to hold that “as a matter of law, vehicles owned by self-insured entities will never be excluded from UIM coverage. Rather, such a determination is properly made on a case-by-case basis” (citation omitted). It’s now up to Progressive to decide whether to take the matter further. If it does, it risks the opinion of one court of appeals becoming the law for all. If it doesn’t, it is faced with the potential for more lawsuits on this issue. Without knowing how frequently this particular scenario occurs, it’s difficult for us to judge.
