Case Title: USAA Casualty Insurance v. The Hertz Corp.

Citation: 

Docket Number: 021659

State: virginia

Court: Virginia Supreme Court

Date: 2003-04-17T00:00:00Z

Document:
Present:  Hassell, C.J., Lacy, Keenan, Koontz, Kinser, and 
Lemons, JJ., and Carrico, S.J. 
 
USAA CASUALTY INSURANCE COMPANY 
 
       OPINION BY 
v.  Record No. 021659             JUSTICE LAWRENCE L. KOONTZ, JR. 
 
          April 17, 2003 
THE HERTZ CORPORATION 
 
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY 
M. Langhorne Keith, Judge 
 
In this appeal, we consider whether a rental car company 
that maintains liability insurance coverage on its rental fleet 
by self-insuring under the provisions of Code § 46.2-368 is 
required to provide primary liability coverage to its customer 
on a motor vehicle rented in Virginia. 
BACKGROUND 
The parties stipulated to the relevant facts.  On March 6, 
2000, Daniel E. Hess (Hess), a resident of Illinois, rented an 
automobile owned by The Hertz Corporation (Hertz) from Hertz’s 
rental office at Dulles International Airport in Loudoun County.  
Hertz had qualified as a self-insurer in 1961 and remains so 
under the statutory scheme presently set out in Code § 46.2-368.  
Under its certificate of self-insurance, Hertz provides primary 
liability insurance for the vehicles in its rental fleet while 
those vehicles are under its control.  In its standard rental 
agreement, Hertz offers an optional liability insurance 
supplement to its customers for an additional daily charge. 
Hertz’s standard rental agreement specifically addresses 
the primary responsibility for liability arising out of the use 
of the rental vehicle when a customer declines to purchase the 
optional liability insurance supplement coverage.  Preprinted 
language in the rental agreement states that if the customer 
does not purchase the liability insurance supplement (LIS), 
“YOUR INSURANCE AND THE INSURANCE OF THE OPERATOR OF THE CAR 
WILL BE PRIMARY.  THIS MEANS THAT HERTZ WILL NOT GRANT ANY 
DEFENSE OR INDEMNITY PROTECTION UNDER THIS PARAGRAPH IF EITHER 
YOU OR THE OPERATOR OF THE CAR ARE COVERED UNDER ANY VALID AND 
COLLECTIBLE AUTOMOBILE LIABILITY INSURANCE, WHETHER PRIMARY, 
EXCESS OR CONTINGENT.” 
 
Hess declined to purchase Hertz’s optional LIS coverage.  
Because Hess declined the LIS coverage, the cover page of the 
rental agreement included the statement that “HERTZ LIABILITY 
PROTECTION IS SECONDARY.”  A preprinted statement at the bottom 
of the cover page also stated that Hess “agree[d] that any 
insurance that provides coverage to You . . . shall be primary.” 
 
Hess was insured under an automobile insurance policy 
providing liability coverage issued to him in Illinois by USAA 
Casualty Insurance Company (USAA).  The liability coverage of 
Hess’s policy with USAA expressly applied to his “use of any 
auto,” but included the following provision: 
OTHER INSURANCE 
 
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If there is other applicable liability insurance we 
will pay only our share of the loss.  Our share is the 
proportion that our limit of liability bears to the 
total applicable limits.  However, any insurance we 
provide for a vehicle you do not own shall be excess 
over any other collectible insurance. 
 
Hess’s policy with USAA further provided that if the liability 
arose as the result of an accident outside of Illinois, the 
“policy will provide at least the minimum amounts and types of 
coverages required by law.” 
 
On March 9, 2000, while driving the Hertz rental car in 
Fairfax County, Hess was involved in an accident with a vehicle 
driven by Albert Ng (Ng).  Ng was also insured under a policy 
with USAA.  USAA subsequently paid Ng $6,200 in settlement of a 
claim for property damage to Ng’s vehicle under his policy’s 
collision coverage.  By subrogation to Ng’s rights, USAA made 
demand on Hertz to provide primary liability coverage to Hess 
and to reimburse USAA for its payment of Ng’s claim.  Hertz 
refused to reimburse USAA.  Relying on the terms of its rental 
agreement with Hess, Hertz denied that it was obligated to 
provide primary liability coverage to Hess. 
 
On December 29, 2000, USAA filed a motion for declaratory 
judgment in the Circuit Court of Fairfax County contending that 
Code § 46.2-108(D) required Hertz to provide primary liability 
coverage on the automobiles it rented and, thus, asked the 
chancellor to determine that Hertz was the primary insurer for 
 
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both the property damage claim already paid as well as for any 
potential personal injury claim Ng might have against Hess.  
USAA sought a further declaration that Hertz is “obligated to 
reimburse USAA for amounts paid in satisfaction of the collision 
coverage afforded the claimant Ng.”  Hertz filed an answer on 
February 5, 2001 admitting the facts alleged in USAA’s pleading, 
but denying the legal conclusion that Code § 46.2-108(D) 
required it to provide primary liability insurance coverage to 
all automobiles it rented. 
 
On February 13, 2002, USAA filed a motion for summary 
judgment along with a supporting brief.  The following day, 
Hertz filed its own motion for summary judgment and supporting 
brief.  Thereafter, the parties jointly submitted stipulations 
of fact and agreed exhibits.  On February 21, 2002, Hertz filed 
an amended motion for summary judgment, and the chancellor heard 
argument from the parties on their respective motions. 
 
In an opinion letter dated April 8, 2002, the chancellor, 
while recognizing that Code § 46.2-108(D) required rental car 
companies to rent only “insured motor vehicle[s],” opined that 
“nothing in § 46.2-108 or § 46.2-368 prohibits a self[-]insurer 
from contracting with their customers as to whose insurance will 
 
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provide primary coverage.”1  The chancellor concluded that Hertz 
was not required to provide primary liability coverage to Hess 
because Hess had declined such coverage from Hertz in the rental 
agreement. 
 
In a final order dated April 18, 2002 and incorporating by 
reference the prior opinion letter, the chancellor entered 
judgment in favor of Hertz and dismissed USAA’s motion for 
declaratory judgment.  Noting a conflict in the judgments of 
various circuit courts on the central issue of this case, we 
awarded USAA an appeal. 
DISCUSSION 
The chancellor based his judgment upon stipulated facts 
rather than upon an ore tenus hearing.  Therefore, the 
chancellor’s conclusions drawn from the stipulated facts, 
although highly persuasive and entitled to great weight, are not 
binding on appeal.  See, e.g., Johnson v. Insurance Company of 
                     
1 The chancellor also addressed the alternative theory 
raised by USAA that Code § 38.2-2204(A), commonly referred to as 
the “Omnibus Clause,” should be applied to a self-insurer such 
as Hertz and, thus, prohibit Hertz from reducing or shifting its 
burden of providing the minimum level of liability coverage 
required by that statute.  Relying on Yellow Cab Company of 
Virginia, Inc. v. Adinolfi, 204 Va. 815, 819, 134 S.E.2d 308, 
311 (1964), the chancellor concluded that the Omnibus Clause did 
not apply to self-insurers.  Although USAA also assigns error to 
this aspect of the chancellor’s judgment, as will become 
apparent, consideration of the application of the Omnibus Clause 
to self-insurers is not a factor in our resolution of this 
appeal.  Accordingly, we express no opinion on that issue. 
 
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North America, 232 Va. 340, 345, 350 S.E.2d 616, 619 (1986).  
However, we will not reverse the chancellor’s judgment on appeal 
unless it is plainly wrong or without evidence to support it.  
See, e.g., State Farm Mutual Automobile Insurance Co. v. 
Weisman, 247 Va. 199, 202, 441 S.E.2d 16, 18 (1994).  See also 
Code § 8.01-680. 
We begin our analysis in this case with a review of the 
statutory scheme applicable to self-insurers of motor vehicles 
under the provisions of Code § 46.2-368 and related Code 
sections.  There is no dispute that Hertz is engaged in the 
business of renting motor vehicles and that it has been issued a 
certificate of self-insurance pursuant to, and in full 
compliance with, the provisions of Code § 46.2-368(B).  Code 
§ 46.2-108(D) provides that “[n]o person engaged in the business 
of renting automobiles and trucks without drivers shall rent any 
vehicle without a driver unless the vehicle is an insured motor 
vehicle as defined in § 46.2-705.  A violation of this 
subsection shall constitute a Class I misdemeanor.”  Code 
§ 46.2-705, in relevant part, defines an “[i]nsured motor 
vehicle” as “a motor vehicle as to which there is bodily injury 
liability insurance and property damage liability insurance, 
both in the amounts specified in § 46.2-472 . . . or as to which 
the owner has qualified as a self-insurer in accordance with the 
provisions of § 46.2-368.” 
 
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Code § 46.2-368(B) requires a self-insurer to provide the 
permissive users of its motor vehicles uninsured or underinsured 
motorist protection “to the extent required by Code § 38.2-
2206.”  However, the subsection limits that protection to the 
financial requirements of Code § 46.2-472 (single accident 
limits of $25,000 for bodily injury or death of one person, 
$50,000 for bodily injury or death of two or more persons, and 
$20,000 for property damage) and specifically provides that this 
protection “shall be secondary coverage” to any other available 
insurance coverage.  Code § 46.2-368(C) creates an exception to 
the liability of a self-insurer “where the permissive user has 
prejudicially failed to cooperate in the defense of the claim 
which resulted in the judgment” and the self-insurer has 
provided notice of its intent to rely on this exception. 
USAA contends that when Code §§ 46.2-368, 46.2-705, and 
46.2-108 are construed together, as they must be given the 
internal cross-references found within them, it is clear that 
the legislature intended a self-insuring rental car company, 
such as Hertz, to provide primary liability coverage on vehicles 
owned by it at all times, including when a vehicle is under the 
control of a customer and even if the customer has declined to 
 
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pay additionally for such coverage.2  Stated another way, USAA 
contends that a customer is a permissive user of a vehicle owned 
by the self-insured rental car company and, thus, entitled to 
coverage under the rental company’s certificate of self-
insurance pursuant to Code § 46.2-368(C).  USAA maintains that 
it would be against public policy to permit a rental car company 
in its rental agreement to disclaim or shift the requirement of 
providing primary liability coverage to “any insurance” the 
customer carries.  In support of this assertion, USAA notes that 
Code § 46.2-368(B) expressly provides that uninsured or 
underinsured coverage provided by a certificate of self-
insurance “shall be secondary coverage to any other valid and 
collectible insurance providing the same protection which is 
available” to a permissive user, but this statute, nor any 
                     
2 USAA further contends that a rental car company that is 
not self-insured, but has obtained the insurance required under 
Code § 46.2-108(D) through a policy from a licensed insurance 
provider, would necessarily be required to have that coverage 
extend to its customers because “[t]he Omnibus Clause, . . . 
Code § 38.2-2204, would clearly apply and any provision either 
in the policy or in the rental agreement purporting to seek to 
limit the Omnibus coverage would be void.”  Thus, USAA contends 
it would be inconsistent for the legislature to permit self-
insurers to receive “superior treatment.”  While we agree with 
USAA that Code § 46.2-108(D) makes no distinction between rental 
car companies that insure under a commercial policy and those 
that self-insure, the facts of the case under consideration are 
limited to the application of that law with respect to Hertz, a 
self-insurer.  Accordingly, our discussion is limited in its 
application to that circumstance. 
 
 
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other, contains no similarly express provision for liability 
coverage. 
Hertz first responds that USAA applies too broad a reading 
to Code § 46.2-368(C), contending that “permissive users” could 
be read to mean the employees and agents of the self-insurer 
using its vehicles in the course of their employment or agency.  
Hertz further asserts that even if customers are permissive 
users entitled to coverage, the provisions of its rental 
agreement that permit a customer to decline its liability 
insurance supplement coverage are in keeping with the 
requirements of Code § 46.2-108 and public policy.  This is so, 
Hertz contends, because even when the customer declines such 
coverage, the vehicle remains insured by Hertz, while primary 
coverage rests with any insurance carried by the customer.  
Continuing, Hertz contends that if there is no other coverage 
available to the customer, Hertz would still provide coverage in 
the event of a claim being made and, thus, the vehicle is not 
uninsured.  We disagree with Hertz. 
When read in pari materia, Code §§ 46.2-108, 46.2-368, and 
46.2-705, evince a clear legislative intent that a company 
renting a motor vehicle without a driver in Virginia must assure 
that the vehicle has the statutory minimum liability insurance 
coverage.  Such intent is in keeping with the long-standing 
public policy to assure that motor vehicles driven on the 
 
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highways of Virginia are subject to a minimum level of primary 
liability insurance in order to provide for the protection and 
compensation of innocent parties injured in motor vehicle 
accidents.  And, we will construe the statutory language at 
issue here liberally to accomplish the intended purpose of the 
statutes.  See, e.g., Virginia Farm Bureau Mutual Insurance Co. 
v. Gile, 259 Va. 164, 168, 524 S.E.2d 642, 644 (2000); Tudor v. 
Allstate Insurance Co., 216 Va. 918, 921, 224 S.E.2d 156, 158 
(1976); Rose v. Travelers Indemnity Co., 209 Va. 755, 758, 167 
S.E.2d 339, 342 (1969). 
It is then clear that Hertz, a self-insurer engaged “in the 
business of renting automobiles and trucks without drivers,” may 
not lawfully rent one of its vehicles unless that vehicle is 
insured with the statutorily mandated amount of primary bodily 
injury and property damage liability coverage.  Moreover, it is 
equally clear that no portion of the statutory scheme related to 
the insurance requirements for a self-insuring rental car 
company permits such a company by contract with its customer to 
avoid its obligation to assure primary liability coverage by 
purporting to alter or expand the insurance coverage provided by 
the customer’s own carrier. 
Here, Hertz’s contract with Hess improperly attempted to 
expand the coverage that USAA had agreed by contract to provide 
to Hess.  Hess’s contract with USAA, which was not issued or 
 
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delivered in Virginia, restricted its liability coverage for 
Hess’s operation of a non-owned vehicle by stating that such 
coverage shall be “excess over any other collectible insurance.”  
The parties do not contest the validity of this insurance 
contract provision.3
Manifestly, because USAA was not a party to Hertz’s 
contract with Hess, Hertz could not expand USAA’s obligations to 
Hess under that separate contract by attempting to require USAA 
to provide primary liability coverage for Hess’s use of Hertz’s 
rental vehicle.  Thus, because Hess’s policy with USAA provides 
only excess coverage, the motor vehicle Hertz rented to Hess 
remained an insured vehicle as required by Code § 46.2-108(D) 
only if primary coverage was afforded by Hertz through its 
certificate of self-insurance. 
For these reasons, we hold that Hertz is required to 
provide Hess with primary bodily injury and property damage 
liability insurance coverage in the amounts specified in Code 
§ 46.2-472, and that this obligation could not be delegated to 
USAA through Hertz’s rental agreement with him.  Thus, we 
                     
3 USAA’s policy was not issued or delivered in Virginia 
within the meaning of Virginia’s Omnibus Clause, Code § 38.2-
2204.  Therefore, the enforceability under this Code section of 
the USAA policy provision, that its liability coverage would be 
excess when its insured was driving a non-owned motor vehicle, 
is not an issue in this case. 
 
 
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conclude that the chancellor erred in granting summary judgment 
for Hertz and dismissing USAA’s motion for declaratory judgment. 
Our determination that Hertz is the primary liability 
insurer for any suit or judgment against Hess arising out of 
Hess’s operation of Hertz’s rental vehicle does not end our 
analysis of this case.  USAA also sought a declaration that 
Hertz is “obligated to reimburse USAA for any amounts paid in 
satisfaction of the collision coverage afforded claimant Ng.”  
The parties stipulated that amount was $6,200.  However, at the 
time of the proceedings before the chancellor, Ng had not filed 
suit against Hess to recover his asserted damages, Hess’s 
liability for such had not been admitted or established, and 
there is no evidence or stipulation that either Hess or Hertz 
was given prior notice of USAA’s payment to Ng.  In addition, we 
are not able to determine from the record whether Hess and Hertz 
may be able to assert either factual or legal defenses that 
would bar any reimbursement to USAA.  Under these circumstances, 
our judgment in favor of USAA must be limited to a declaration 
that Hertz is required to provide primary liability coverage and 
a defense to Hess in the event that Ng makes a claim against him 
for bodily injury.  USAA’s claim for reimbursement will be left 
to resolution in a separate proceeding if that becomes 
necessary. 
 
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CONCLUSION 
For these reasons, we will reverse the judgment of the 
chancellor awarding summary judgment to Hertz and dismissing 
USAA’s motion for declaratory judgment.  We will enter final 
judgment for USAA declaring that Hertz is required to provide 
primary liability coverage and a defense to Hess for any bodily 
injury claim arising out of his operation of Hertz’s rental car 
that may be asserted by Ng. 
Reversed. 
JUSTICE LACY, with whom JUSTICE KINSER and JUSTICE LEMONS join, 
dissenting. 
 
I agree with the majority's holding that, while a vehicle 
rented by Hertz must have liability coverage equal to the 
statutorily prescribed limits, that coverage need not always be 
provided by Hertz.  However, I disagree with the majority's 
conclusion that Hertz, through its self-insurance certificate, 
must provide primary coverage in this case because the "excess 
insurance" language of the USAA policy precludes application of 
that policy as primary coverage. 
The USAA policy contains the following provision: 
 
If there is other applicable liability insurance we 
will pay only our share of the loss. . . .  However, 
any insurance we provide for a vehicle you do not own 
shall be excess over any other collectible insurance. 
 
 
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Under the plain language of this provision, if there is no 
other collectible insurance, the coverage provided by the USAA 
policy for non-owned vehicles is not restricted to excess 
coverage.  To determine what constitutes "collectible 
insurance," we apply Illinois law, the law of the jurisdiction 
in which the contract was made.  Woodson v. Celina Mut. Ins. 
Co., 211 Va. 423, 426, 177 S.E.2d 610, 613 (1970).  Under 
Illinois law, self-insurance is not "insurance" for purposes of 
assigning liability between commercial insurance providers and 
self-insurers.  Chicago Hosp. Risk Pooling Program v. Illinois 
State Med. Inter-Insurance Exch., 758 N.E.2d 353, 362 (Ill. App. 
2001); USX Corp. v. Liberty Mut. Ins. Co., 645 N.E.2d 396, 403 
(Ill. App. 1994); Aetna Cas. & Sur. Co. of Illinois v. James J. 
Benes & Assocs., 593 N.E.2d 1087, 1090 (Ill. App.), appeal 
denied, 602 N.E.2d 445 (1992).*  Therefore, the coverage 
available in this case, self-insurance, is not insurance for 
purposes of invoking the excess coverage restriction in the USAA 
                     
 
* I note that while this precise issue has not been 
considered in Virginia, it is consistent with our cases that 
have preserved the distinction between policies of insurance and 
self-insurance.  See e.g. Yellow Cab Co. of Virginia v. 
Adinolfi, 204 Va. 815, 134 S.E.2d 308 (1964). 
 
 
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policy.  Consequently, USAA's liability insurance is available 
as the primary coverage. 
This conclusion necessarily implicates the argument made by 
USAA that the rental contract conflicts with Code § 38.2-2204, 
the omnibus clause, because subsection D of that statute 
prohibits a policy of insurance from containing any provision 
that "purports or seeks to limit or reduce the coverage" 
required by that section, and provisions in liability insurance 
policies covering motor vehicles that render coverage under such 
policy secondary or excess violate subsection D of Code § 38.2-
2204.  Continental Ins. Co. v. State Farm Fire and Cas. Co., 238 
Va. 209, 211-12, 380 S.E.2d 661, 663 (1989).  However, as Hertz 
argues, Code § 38.2-2204, by its terms, applies only to 
contracts or policies of insurance; it does not apply to 
coverage provided through self-insurance.  The statute is not 
ambiguous in this regard and does not require interpretation.  
Regardless of whether we believe the public policy unwise or 
inequitable, imposing different requirements on policies of 
insurance and self-insurance is a matter for consideration by 
the legislative branch.  See Yellow Cab Co. of Virginia v. 
Adinolfi, 204 Va. 815, 134 S.E.2d 308 (1964). 
Based on this analysis, I conclude that the trial court was 
correct and that the USAA contract of insurance is primary in 
 
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this case.  Therefore, I respectfully dissent from the holding 
of the majority. 
 
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