Cedric Stephens | Revisiting advice on car rental collision

The article I wrote two weeks ago, 'When little things pile up, insurance image takes a hit', had big, embarrassing errors. Moreen Marks, vice-president of operations at Insurance Company of the West Indies, brought the mistake to my attention.

Thanks, Moreen, for highlighting the case of Avis Rent-a-Car v Maitland (1980) and also for sending me a copy of the court report.

That Court of Appeal decision, 37 years ago, is germane to the advice that I offered to the motorist. Her vehicle suffered damage of approximately $1.75 million in a recent accident. The other vehicle was owned by a Montego Bay car rental company. At the time of the collision, that car was driven by a renter who caused the collision.

THE ADVICE OFFERED

"The Motor Vehicles Insurance (Third-Party Risks) Act says in Section 5(3)(b) ' ... in respect of property damage claims, the policy must be required to cover a total liability of not less than one million dollars ... arising from all claims ... in connection with one accident'.

"That limit is the minimum. The legislation is very specific. It does not legally let the owner or driver off the hook when the liability any one accident exceeds the stated limit.

"This means, in relation to the third party insurer's offer of settlement to you, that you still have the right sue the car owner/driver for the amount that the insurance company did not pay. Unfortunately, you will have to do so at your own expense because your policy does not provide protection for this.

"By paying you $1 million, the third party insurer is discharging its contractual duty to its customer, the car rental company. You would therefore be wasting your time and money in trying to bring an action against the insurer. Accept the $1 million offer of settlement.

"Exercise caution when signing the form of release that was sent to you. Make absolutely sure that by signing it that you are not giving up your legal right to sue the car rental company for the amount that their insurance company did not pay you. It appears likely that you will recover the portion of your claim in excess of $1 million if you were to sue the car rental company."

That advice was wrong.

REASSESSING THE CASE

The accident victim would be going on a wild-goose chase without any prospect of recovery from the car rental company. A suit against its insurer would not succeed once it had discharged its duty under the policy.

Recovery could only be obtained by suing the car driver for the additional $750,000. If the driver did not have the resources to pay, the victim would be left out-of-pocket. The reason: the Court of Appeal's decision in the Avis case.

To summarise the Avis case, the rental company made an appeal against a lower court's decision. The judge in that court found that Avis was jointly liable for the death of a passenger who was travelling in a vehicle that the rental company owned. The hirer of the vehicle, the person driving at the time of the accident, was also liable.

The judge determined that the driver was 'the agent' of the rental company. He decided that "where a car rental company hires a vehicle to any person by way of business ... the hirer would not be driving merely for his own benefit and for his concern. The driver was the agent of Avis at the time of the driving and was jointly liable for damages."

The Court of Appeal disagreed with the lower court. It ruled that "when a company or individual hires a motor vehicle on condition that the vehicle can be driven by the hirer for purposes exclusively determined by the hirer, the owner cannot be held to be legally liable".

In arriving at that decision, it cited a leading case in the United Kingdom, Morgans v Launchbury (1971), which held that the owner "escapes liability when he lends (a motor vehicle) or hires it to a third person to be used for purposes in which the owner has no interest or concern".

The judges in the Avis case recognised the problems that their judgment would cause. Victims of accidents whose personal injuries and property damage were caused by the negligence of drivers of U-drive vehicles would suffer. Harm would also be done to accident victims in situations where the policy limits were exhausted and/or the drivers of rented car were 'persons of straw'.

The judges recommended urgent action by law makers to protect members of the public under the Motor Vehicles Insurance (Third-Party Risks) Act. Lawmakers, many of them attorneys, have not taken any action on the subject in nearly 40 years. Shame.

- Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: aegis@flowja.com