Federal judge: Insurance companies obligated to defend auto rental lessors

By Karen Kidd | May 16, 2018

MIAMI (Florida Record) — Even if an amendment to the a federal transportation act provided a complete defense for auto rental lessors, insurance companies remain obligated to defend them and raise the amendment as an affirmative defense, a federal judge ruled in an order handed down in April. 

In a case with cross-motions for summary judgment, U.S. District Court Judge Federico A. Moreno, on the bench for Florida's Southern District, Miami Division, granted summary judgment for defendants Infinity Insurance Company, Infinity Auto Insurance Company and J.P. Morgan Chase Bank. 

"lnfinity further maintains that the endorsement has been honored and it has defended lessors in such suits, but the court need not decide whether claims have been paid to determine that a duty to defend indeed exists," Moreno said in his April 20 order. "In sum, the court finds that the endorsement imposes a duty upon lnfinity to defend a lessor."

Moreno also denied the motion for summary judgment filed by plaintiffs Shelithea Hallums and Samuel Castillo.

At issue was how the Graves Amendment, a provision in the Safe, Accountable, Flexible, Efficient Transportation Equity Act, applies and whether a lessor's liability endorsements in the plaintiffs' automobile insurance policies provide insurance "or whether they are illusory," the order said.

"The primary contention between the parties is whether Infinity's obligation to indemnify plaintiffs' lessors can ever arise in a scenario that is not foreclosed by the Graves Amendment," Moreno said in his order. "The plaintiffs assert that under the endorsement, the damages that a lessor becomes legally obligated to pay post-Graves [and Infinity has an obligation to indemnify], can only stem from an injury for which the insured is legally liable. Such liability, plaintiffs submit, falls squarely within the definition of 'vicarious liability' that Graves did away with."

The defense argued that Hallums and Castillo could not be "injured" by the endorsement "that indemnifies a third party plaintiffs' lessors not plaintiffs," Moreno said in his order. 

"Thus, because the plaintiffs contend that an insurance policy that protects their lessors is illusory, lnfinity submits that the plaintiffs lack standing," the order continued. "In support, lnfinity relies on a bevy of cases that hold that an insured lacks standing to challenge the enforceability of an insurance policy, unless and until the insured actually makes a claim, and the insurer denies the claim."

Hallums and Castillo argued that the Graves Amendment "forecloses the possibility of lessor liability, and therefore, the endorsement constitutes no insurance coverage," the order said.

However, the Graves Amendment trumps state or common law that hold auto rental or leasing agencies vicariously liable for driver negligence.

Arguments in the defense's motion for summary judgment included allegations that the plaintiffs lacked standing, coverage exists under Florida law, even for accidents in other states, and that Infinity must defend lessors "even against claims barred by the Graves Amendment". The plaintiffs asked the court to rule on whether insurance was provided by the endorsement.

"For the following reasons, the court finds that the endorsement is not illusory because plaintiffs' interpretation of the endorsement would render the Graves Amendment's savings clause a nullity," Moreno said in his order. "Moreover, the court finds that the endorsement imposes a duty to defend. Therefore, summary judgment is granted in lnfinity's favor because there is no genuine dispute of a material fact and lnfinity is entitled to judgment as a matter of law."

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