Car Rental Agencies Excess Clauses
In Government Empls. Ins. Co. v. Chrysler Ins. Co. (256 AD2d 1212). Mr. Velazquez rented a car from Snappy Rent-a-Car, Inc., and was subsequently involved in an accident.
At the time of the accident, Velazquez was insured by the plaintiff Government Employees Insurance Company.
Snappy Rent-a-Car, Inc., maintained an automobile liability policy with the defendant Chrysler.
In reversing the ruling below, the Court held that a car rental agency cannot refuse to provide primary insurance to renters.
Echoing the Morris decision (supra), the Court also stated that there is no statutory prohibition on insurance contract provisions which limit liability to "that portion of its liability that exceeds the amount for which vehicle owners are required to be insured." (Supra, at 1213 emphasis supplied).
The important distinction is that the Court's language concerning the freedom of the rental agency to disclaim liability is in reference to sums beyond the amount for which the vehicle owners are required to be insured under Vehicle and Traffic Law 388 and 370.
Although the Court in Morris (supra) did not specifically decide an "excess insurance" question, the principles involved are the same.
The decision in Government Empls. reiterates the holding in Morris and imposes the burden of primary coverage on the lessor ( Government Empls. Ins. Co. v. Chrysler Ins. Co., supra).
To require contribution from the lessee before the rental agency has paid up to the minimum amount of liability coverage would allow the car owner/agency to circumvent the minimum insurance imposed by statute, and impermissibly shift the burden of coverage to the lessee ( Allstate Ins. Co. v. Snappy Car Rental, 16 F Supp 2d 410, supra).
While it is a general rule that excess clauses negate each other when policies cover the same risk, "the general rule is inapplicable when its application ... distorts the meaning of the terms of the policies" ( American Tr. Ins. Co. v. Continental Cas. Ins. Co., 215 AD2d 342, 343, supra).
Application of this general rule would not affect the terms of the applicable policies, but it would effectively eviscerate and distort the meaning and function of the underlying statute.
It is obvious that policy considerations weigh heavily in favor of enforcing the State statute. (Vehicle and Traffic Law 388, 370; Government Empls. Ins. Co. v. Chrysler Ins. Co., supra).
To allow a shift in the liability from lessor to lessee as a result of the inclusion of an "excess insurance clause" in a rental agreement would have the effect of allowing the rental agency to achieve by an "excess clause" what it could not achieve by a full indemnity clause.
That result would run contrary to statute as well as the Morris decision (supra) and its progeny.