New York Law Review

Tag: Car Rental Agreement

  • Morris v. Snappy Car Rental, Inc., 84 N.Y.2d 21 (1994): Enforceability of Indemnification Clauses in Car Rental Agreements

    84 N.Y.2d 21 (1994)

    A car rental company can secure indemnification from a renter for liability exceeding the minimum insurance coverage required by Vehicle and Traffic Law §§ 370 and 388, provided the indemnification agreement is clear, conscionable, and doesn’t attempt to disclaim the minimum liability mandated by statute.

    Summary

    Barbara Morris rented a car from Snappy Car Rental. She was injured in an accident while her husband was driving. Morris sued Snappy, among others. Snappy sought indemnification from Morris based on a clause in the rental agreement. The New York Court of Appeals held that Snappy could enforce the indemnification clause for liability exceeding the statutory minimum insurance requirements, but not for amounts within that minimum. The court emphasized the importance of freedom of contract and found the indemnification clause was not unconscionable, as it was clearly stated and the renter had the opportunity to read it. The court affirmed that Snappy was not entitled to litigation costs and attorney’s fees.

    Facts

    On October 5, 1989, Barbara Morris rented a car from Snappy Car Rental for 30 days. Three days later, she sustained injuries in a collision while her husband, a permissive user under the agreement, was driving. The other vehicle was driven by Eric Sherry, who was working for Franco’s Pizzeria. Morris suffered a fractured femur requiring multiple surgeries.

    Procedural History

    Morris sued Snappy, Eric Sherry, Laura Sherry, and Franco’s Pizzeria. Snappy denied negligence and asserted an affirmative defense and counterclaim for indemnification based on the rental agreement. Supreme Court denied Snappy’s motion to dismiss the complaint but granted a conditional order of summary judgment for Snappy on its indemnification counterclaim, also granting Snappy attorney’s fees and denying Morris’s cross-motion for summary judgment. The Appellate Division modified the order, limiting Snappy’s indemnification to amounts exceeding the statutory minimum insurance and denying Snappy costs and attorney’s fees. Both parties appealed to the Court of Appeals.

    Issue(s)

    Whether a car rental company can enforce an indemnification clause in its rental agreement, requiring the renter to indemnify the company for liability arising out of the use of the vehicle, specifically regarding:

    1. Whether such an indemnification clause is void as against public policy to the extent it seeks to disclaim liability imposed by Vehicle and Traffic Law § 388.

    2. Whether the indemnification agreement is unenforceable as an adhesion contract or the result of procedural unconscionability.

    Holding

    1. No, because while a car rental company cannot disclaim the minimum liability coverage mandated by Vehicle and Traffic Law § 388, it can secure indemnification for amounts exceeding that minimum.

    2. No, because the indemnification agreement was not an adhesion contract, nor was it procedurally unconscionable, as the renter had the opportunity to read and understand the terms.

    Court’s Reasoning

    The Court of Appeals reasoned that Vehicle and Traffic Law § 388 was enacted to ensure injured parties have access to financially responsible insured persons. However, the statute does not prevent a lessor/owner from securing indemnification from a lessee/driver for liability exceeding the statutory minimum insurance. The court emphasized the importance of freedom of contract, stating that the Legislature did not intend to abrogate the right of indemnification. Quoting the Restatement of Restitution § 76, the court said, “[a] person who, in whole or in part, has discharged a duty which is owed by him but which as between himself and another should have been discharged by the other, is entitled to indemnity’”. The court distinguished this case from MVAIC v. Continental Natl. Am. Group Co., where the rental agreement sought to entirely evade liability. Here, Snappy only sought indemnification for amounts exceeding the statutory minimum. The court found no evidence of high-pressure tactics or deceptive language, and the plaintiff signed the agreement, affirming she had read and understood it. Therefore, the indemnification agreement was enforceable up to the point of overage of mandatory insurance requirements. The court agreed with the Appellate Division in denying Snappy its costs and expenses of litigation.

  • Guercio v. Hertz Corp., 40 N.Y.2d 680 (1976): Liability of Self-Insured Car Rental Company

    Guercio v. Hertz Corp., 40 N.Y.2d 680 (1976)

    A self-insured car rental company can be held liable for damages caused by a permissive driver of a rental vehicle if the rental agreement extends liability coverage to such drivers, consistent with the terms of standard automobile liability insurance policies.

    Summary

    Rosario Guercio rented a car from Hertz and allowed Raymond Frost to drive. Frost negligently caused an accident injuring Guercio. Guercio sued Frost and obtained a judgment, but Frost could not pay. Guercio then sued Hertz, arguing that as a self-insurer, Hertz was responsible for Frost’s negligence. The court held that Hertz was liable because the rental agreement extended liability coverage to permissive drivers, mirroring the coverage required in standard insurance policies. This obligation arose from the terms of the self-insurance Hertz agreed to in its rental agreement, not merely from the fact of being a self-insurer.

    Facts

    Guercio rented a car from Hertz, with the rental agreement restricting vehicle operation to the lessee, immediate family members over 21, or the lessee’s employer or employees. The agreement stated that the vehicle was covered by a liability policy with specific limits, but this policy did not apply if the vehicle was operated in violation of the agreement. The agreement also provided that Hertz, where permitted by state law, could provide liability coverage through a bond or self-insurance. Guercio allowed Frost, who was neither a family member nor over 21, to drive. Frost negligently crashed the car, injuring Guercio. At the time of the accident, Hertz was self-insured.

    Procedural History

    Hertz initially sued Guercio and Frost for property damage in Civil Court, alleging negligence by Frost and breach of contract by Guercio. The jury found for Guercio. Guercio then sued Frost and Hertz for personal injuries. The claim against Hertz was initially dismissed due to imputed contributory negligence. Guercio obtained a judgment against Frost, which remained unsatisfied, leading Guercio to sue Hertz to compel payment. Special Term denied relief, and the Appellate Division affirmed. This decision was appealed. Later, Guercio’s motion to set aside the dismissal against Hertz, based on a change in law eliminating imputed contributory negligence, was denied. Guercio then initiated the present action, which the Appellate Division reversed, holding Hertz liable as a self-insurer. Hertz appealed to the New York Court of Appeals.

    Issue(s)

    Whether Hertz, as a self-insured car rental company, is liable for damages caused by a driver operating the rental vehicle with the lessee’s permission, when the driver is not authorized under the rental agreement’s restrictions, and the rental agreement extends liability coverage to permissive drivers as if the company was actually insured?

    Holding

    Yes, because the rental agreement extended liability coverage to permissive drivers, consistent with the terms of a standard automobile liability insurance policy, and Hertz is bound by the prior Civil Court jury finding that it gave permission to Guercio to allow underage friends to operate the rental vehicle.

    Court’s Reasoning

    The court reasoned that self-insurance, in this context, is not insurance itself, but a method for vehicle owners to comply with the Motor Vehicle Financial Security Act by demonstrating their ability to pay judgments. While Hertz, as a self-insurer, is generally only obligated to respond to judgments against it, in this case, the rental agreement promised liability insurance or equivalent coverage through self-insurance. Because the agreement included the same terms as a liability insurance policy, it effectively made Hertz the insurer of Frost, who was driving with Guercio’s permission. The court stated that “Hertz, in its rental agreement with Guercio, promised to maintain a liability insurance policy or, failing that, to obtain the same liability coverage under a bond or as a matter of self-insurance.” Furthermore, the court invoked collateral estoppel, noting that Hertz was bound by the prior Civil Court’s finding that Hertz gave permission to Guercio to allow underage friends to operate the vehicle, thus precluding Hertz from arguing the operation violated the rental agreement. The court determined that Guercio could enforce his rights against Hertz through section 167 of the Insurance Law, which mandates a direct action against the insurer if the insured fails to pay, or through CPLR article 52, as Frost was an insured under Hertz’s policy of self-insurance.