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Tennessee Supreme Court Holds that Rented Cars Can Qualify as Uninsured Vehicles Where Insurance Policy Language is Too Broad or Vague

On October 21, 2016, the Tennessee Supreme Court held in Martin v. Powers that rental cars may be deemed uninsured vehicles under Tennessee law. In that case, Martin was intentionally struck by Powers, who was driving a rented vehicle at the time. Following this car accident, Martin sued Powers, the rental car company, and also made a claim against his own uninsured motorist (UM) policy. Powers’ insurance company denied coverage because his actions were intentional. The rental car company moved to be dismissed, claiming that it was not liable for Powers’ actions because it merely rented the subject vehicle to him. Martin’s uninsured motorist carrier sought dismissal by claiming that because the rental car company was self insured, Martin was not injured by an “uninsured vehicle” and there was thus no UM coverage.

The court examined the contents of Martin’s uninsured motorist policy and found the language to be vague and ambiguous, and that some of the policy terms were undefined.  One term that was not defined within the policy was that of what constitutes “self insured.”  The court found that it would be impossible for someone insured under the policy to understand the meaning of the purported exclusions in the policy and observed that such ambiguities are to be construed against the insurance carrier and in favor of the insured.

The Tennessee Supreme Court then reviewed the applicable Tennessee financial responsibility statutes. Under Tennessee law, a potentially liable party who is self insured acts as its own insurance company by satisfying Tennessee’s financial responsibility statutory requirements and agreeing to essentially use its own assets to compensate injured motorists. The court held that the rental car company was satisfactorily classified as self insured under Tennessee law.  At first glance, it may appear that recovery may be made against the rental car company itself, if the analysis ended at this point.  However, there is another controlling law which interacts with this situation.

The “Graves Amendment” is federal legislation prohibiting the imposition of vicarious liability against rental car companies based upon actions of renters while using a rented vehicle. Therefore, the rental car company, which is self insured under Tennessee law, is immune from liability where the renter causes an injury under federal law. The court found the Graves Amendment would render a rented vehicle “uninsured” as to any attempted recovery from the rental car company, where the actions of the renter caused injury.

So, the result is that Powers, the renter, had no insurance; the rental car itself was not covered by any policy of insurance; and, the rental car company is not required to carry any policy of insurance under Tennessee law and is protected from recovery by Martin under federal law. Returning to the ambiguous uninsured motorist policy, the court remanded the case for a determination of whether the rental vehicle involved is uninsured according to the definitions contained in Martin’s policy.

The sole dissenting justice in this case did not agree that the rented car qualified as uninsured under Tennessee law. Instead, the dissenter observed that this case implicates a “hole” in Tennessee financial responsibility statutes, which results in adverse effects on insurance policy language which relies upon these statutes. The dissenter also observed that the legislature likely did not intend this result, in which an uninsured vehicle owned by a self-insurer is exempted from liability by other laws. The dissenter suggested that legislation is needed to repair the “hole” in the statutes, and by implication restore reliability to the insurance policies which rely upon these same statutes.