Connecticut Supreme Court voids auto self-insurer exclusion

Underinsured motorist coverage is provided in most auto policies to be sure that someone who is injured or whose vehicle is badly damaged is fully compensated. Some policies provide an exclusion when the underinsured vehicle is owned by a rental car company that has been classified as a self-insurer by the state.

Recently, the Connecticut Supreme Court reviewed a case of underinsured motorist coverage and the rental car company exclusion as a self-insurer to determine whether the precedent set in a 1996 case should be overturned.

The case

Sandra and Patrick Tannone were crossing the street when they were struck and seriously injured by a rental car owned by EAN Holdings, LLC, more commonly known as Enterprise Rent-A-Car. Enterprise had leased the vehicle to Barbara Wasilesky, but she wasn’t driving at the time of the collision. The vehicle was instead operated by a permitted user named Arthur Huffman.

Wasilesky, the lessee, was the named insured on an automobile insurance liability policy that provided bodily injury coverage in the amounts of $20,000 per person and $40,000 per occurrence — the minimum allowable in Connecticut at the time. The Tannones made a claim against Wasilesky, as the lessee, and Huffman, as the vehicle operator, and the parties settled for the full amount of coverage from Wasilesky’s policy: $20,000 each.

Wasilesky and Huffman had no other insurance coverage, and the Tannones claimed that their damages exceeded what they recovered under Wasilesky’s insurance policy.

At the time of the collision, Amica Mutual Insurance Company insured the Tannones through separate policies. Each of their policies carried $500,000 of coverage for personal injuries sustained due to the negligence of an underinsured driver. This coverage, however, excluded from the term “underinsured motor vehicle” any vehicle “[o]wned … by a self-insurer under any applicable motor vehicle law.” Enterprise was designated a self-insurer by Connecticut’s insurance commissioner, making it eligible for the exclusion.

After settling with Wasilesky and Huffman, the Tannones sued Amica to recover underinsured motorist benefits from their own insurance policies.

Related: 3 ways to protect yourself from uninsured and underinsured motorists

It’s all about the exclusion

In response, Amica argued that its policies did not afford underinsured motorist benefits when the wrongdoer’s vehicle was owned by a self-insurer. Amica moved for summary judgment, arguing that it was entitled to judgment as a matter of law because the vehicle driven by Huffman was owned by a self-insurer, Enterprise, and because the Tannones had not demonstrated that they had exhausted their remedy from Enterprise.

In support of the validity of the exclusion, Amica pointed to the state regulation [Section 38a-334-6(c)(2)(B) of the Regulations of Connecticut State Agencies] that expressly authorized such exclusions and to an earlier case [Orkney v. Hanover Ins. Co., 727 A.2d 700 (Conn. 1999)] in which the Connecticut Supreme Court confirmed the validity of the regulation and a similar coverage exclusion.

The Tannones asserted in response that Amica’s reliance on Orkney was misplaced because it predated the “Graves Amendment” [49 U.S.C. § 30106(a)], which Congress enacted in 2005. The Graves Amendment makes rental car companies immune from vicarious liability for injuries caused by their underinsured lessees even if a state has designated them as self-insurers capable of providing a remedy. Therefore, under the Graves Amendment, the Tannones could not recover from Enterprise.

The trial court nevertheless agreed with Amica and granted its motions for summary judgment.

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The dispute reached the Connecticut Supreme Court.

There, the Tannones argued that the self-insured exclusion in their underinsured motorist coverage did not apply to Enterprise in this case. The Connecticut regulation authorizing that exclusion was invalid as applied to Enterprise because Enterprise could not be held liable following the Graves Amendment, the Tannones claimed.

The Connecticut Supreme Court’s decision

The court reversed, holding that the regulation giving rise to the self-insurance exclusion in the Tannones’ policies was invalid as applied to Enterprise.

In its decision, the court explained that Enterprise was a self-insurer but that, after Congress passed the Graves Amendment in 2005, Enterprise could not be held vicariously liable for the negligence of its customers. The court added that, because of the Graves Amendment, the “relevant legislative landscape” had changed since its 1999 decision in Orkney v. Hanover Ins. Co., which upheld the self-insurer exclusion. It then found that Orkney was no longer controlling.

The court reasoned that Orkney held that the Connecticut regulation validly authorized “the exclusion of vehicles owned by self-insurers from the scope of the underinsured motorist coverage provided by an automobile liability insurance policy.” However, the court added, central to the decision in Orkney was the injured party’s ability to “seek compensation from the [self-insurer]” for the negligence of its lessees.

In other words, the court continued, at the time of Orkney, the self-insurer exclusion did not foreclose the insured from a remedy but, rather, essentially directed the insured to seek another source of compensation for the insured’s injuries: the self-insurer.

The court added that, given the Graves Amendment, injured parties were precluded by federal statute from seeking compensation from rental car companies as self-insurers, “undercutting the primary rationale on which Orkney was decided.”

The court pointed out that Connecticut law requires underinsured motorist coverage but that the regulation permits the exclusion of underinsured motorist coverage as to vehicles owned by self-insurers — now, “without a substitute remedy.”

Accordingly, the court concluded that Section 38a-334-6 contradicted the public policy behind Connecticut’s underinsured motorist mandate and was invalid as applied. The Tannones were not precluded from underinsured motorist benefits under their insurance policies.

The case is Tannone v. Amica Mutual Ins. Co., Nos. SC 20020, SC 20021 (Conn. Aug. 7, 2018).

Related: 1 in 8 U.S. drivers was uninsured in 2015, new study says

Steven A. Meyerowitz, Esq., (smeyerowitz@meyerowitzcommunications.com) is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc.