ELRAC, Inc. v. Masara, 96 N.Y.2d 847 (2001)
A rental car company can enforce an indemnification agreement against a renter for property damage exceeding the statutory maximum liability requirement when the driver was not a permissive user under the rental agreement.
Summary
ELRAC, a rental car company, sought indemnification from Amnodia Masara and her father, Rafael Masara, after Rafael caused property damage while driving a rental car Amnodia had rented from ELRAC. The rental agreement prohibited anyone other than Amnodia from driving the vehicle and Amnodia declined optional insurance. The New York Court of Appeals held that ELRAC could enforce the indemnification agreement because Rafael was not a permissive user of the vehicle. Further, the Court clarified that since Vehicle and Traffic Law § 370 specifies a maximum, but not a minimum, insurance requirement for property damage, ELRAC could seek indemnification for such damages to the extent legally permissible.
Facts
Amnodia Masara rented a car from ELRAC and signed an agreement to indemnify ELRAC for any damage caused by her use of the vehicle. Amnodia declined to purchase supplemental insurance offered by ELRAC. The rental agreement explicitly prohibited anyone other than Amnodia from driving the car. While Rafael Masara, Amnodia’s father, was driving the rental car, it was involved in an accident, causing property damage to three other vehicles. ELRAC settled the property damage claims and then sued Amnodia and Rafael Masara for indemnification based on the rental agreement.
Procedural History
ELRAC sued the Masaras for indemnification in Supreme Court, which granted summary judgment to ELRAC. The Appellate Division affirmed the Supreme Court’s decision. The Masaras appealed to the New York Court of Appeals.
Issue(s)
Whether Vehicle and Traffic Law § 370 prohibits ELRAC from enforcing an indemnification agreement against the Masaras for property damage caused while the rental car was being driven by someone not authorized under the rental agreement.
Holding
No, because Rafael Masara was not a permissive user of the rental car, and Vehicle and Traffic Law § 370 specifies no minimum insurance requirement for property damage, ELRAC may seek indemnification from its renters for property damage awards to the extent otherwise legally permissible.
Court’s Reasoning
The Court of Appeals rejected the Masaras’ argument that Vehicle and Traffic Law § 370 prohibited ELRAC from enforcing the indemnification agreement. The court reasoned that Rafael Masara was not a permissive user of the rental car because the rental agreement did not allow him to drive it. As such, the insurance coverage required by section 370 did not extend to him. The Court distinguished this case from *ELRAC, Inc. v Ward*, 96 N.Y.2d 58 (2001) where it held a rental company may not enforce an indemnification agreement for amounts up to the minimum insurance coverage requirements for *permissive* users.
Moreover, the court noted that while section 370 requires rental companies to obtain a minimum amount of coverage for bodily injury and death, it only requires a “maximum” coverage of $10,000 for property damage. The Court relied on the principle that statutory language should be read in its “natural and obvious sense.” The Court declined to interpret the word “maximum” to mean “minimum,” stating that if the legislature intended to require a minimum amount of property damage coverage, it could have explicitly done so. As the statute specified no minimum insurance requirement for property damage, ELRAC was permitted to seek indemnification to the extent legally permissible.
The Court stated, “since section 370 specifies no minimum insurance requirement for property damage, ELRAC may seek indemnification from its renters for property damage awards to the extent otherwise legally permissible.”