Opinion ID: 540100
Heading Depth: 2
Heading Rank: 1

Heading: The Rental Agreement

Text: 9 To allow Travelers to recover from Budget on the basis of the rental agreement would require an act of interpretive legerdemain; the language of the contract could not be clearer. The rental agreement provides liability coverage only for Renter and any Authorized Driver ... for bodily injury ... arising from use or operation of Vehicle as permitted by this Agreement. As to what is permitted by the agreement, it states explicitly that the 10 Vehicle shall not, under any circumstances, be used or operated by any person: (a) Other than Renter or any Authorized Driver which shall by definition include only the Additional Driver shown on the reverse side hereof, and any driver who is a member of Renter's immediate family, his employer, his employee, his fellow employee, or his partner, provided such driver has Renter's prior permission and is a qualified, licensed driver of at least 21 years of age; .... 11 Brent Jones is neither the Renter nor an Authorized Driver as provided by the rental agreement. Under the plain terms of the contract, Budget provides no coverage for the accident at Mama's Fish House. 12 Travelers would have us adopt a different interpretation; it makes two arguments in this regard. 1 13 1. Travelers relies on BATS, Inc. v. Shikuma, 1 Hawaii App. 231, 617 P.2d 575 (1980), for the proposition that Mellon was still using the car within the meaning of the contract when he turned it over to the valet. In BATS, a rental car insurance policy limited coverage to instances where the car was being operated or used by the named insured. The court distinguished operation, meaning the actual driving of the car, from use, meaning under one's supervision and control even if driven by another. Thus, BATS held that the insured was using the car under the terms of the agreement when he gave it to a friend to return to the rental company. 617 P.2d at 576-78. 14 BATS does not help Travelers here. The rental agreement in BATS was inclusive; it insured any operation or use by the renter. Although the renter was not operating the car, he was using it, under the court's definition, and the rental agreement thereby provided liability coverage. By contrast, the rental agreement here is exclusive; it provides that the car shall not, under any circumstances, be used or operated by any person other than the renter or an authorized driver. It further states that Budget will provide liability coverage only for use or operation permitted by this Agreement. Even if Mellon was still using the car while the valet had it, he was not using it as permitted by the agreement; for whoever was using the car, there is no doubt that the valet, an unauthorized driver, was operating it. Mellon thereby violated the agreement, and there is no coverage. 15 2. Travelers next asks us to read into the rental agreement an implied term providing liability coverage to anyone who drove the car with Mellon's permission. The company points to cases from other jurisdictions that have found such an implied term. See, for example, Allstate Insurance Co. v. Travelers Insurance Co., 49 A.D.2d 613, 370 N.Y.S.2d 675 (1975); Financial Indemnity Co. v. Hertz Corp., 226 Cal.App.2d 689, 38 Cal.Rptr. 249 (1964); Roth v. Old Republic Insurance Co., 269 So.2d 3 (Fla.1972). We find these cases unpersuasive and, for the reasons set forth below, we do not believe the Hawaii Supreme Court would follow them. 16 For one thing, an implied term providing liability coverage to anyone other than the renter or an authorized driver would be directly contrary to the express language of the contract. It is elementary contract law that a court will only supply a term where the contract does not address the dispute between the parties. In re Marriage of Garrity/Bishton, 181 Cal.App.3d 675, 683, 226 Cal.Rptr. 485 (1986) ([T]here can be no implied covenant where the subject is completely covered by the contract.) and cases cited therein; E. Allan Farnsworth, Contracts Sec. 7.16 at 521 (Little, Brown, 1982) ([A] court will supply a term only after it has determined that the language of the agreement does not cover the case at hand.). Where the language of a contract is clear and addresses the issue before the court, the court may not interpret the contract by supplying an implied term: 17 When the terms of a contract are definite and unambiguous there is no room for interpretation. It is only when the language used by the parties leaves some doubt as to the meaning and intention that the courts will apply the rules of construction and interpretation in an effort to ascertain the intention of the parties to the contract. 18 Hackfeld and Co. v. Grossman, 13 Hawaii 725, 729 (1902), quoted in DiTullio v. Hawaiian Insurance & Guaranty Co., 1 Hawaii App. 149, 616 P.2d 221, 226 (1980), and Hanagami v. China Airlines, Ltd., 67 Hawaii 357, 688 P.2d 1139, 1144-45 (1984). The Budget-Mellon rental agreement is definite and unambiguous on this point; the contract excludes insurance coverage for the events at Mama's parking lot. There is no occasion to supply an implied term, and that should be the end of the matter as far as Hawaii contract law is concerned. 19 Travelers nonetheless points to cases from other jurisdictions that have found an implied permittee term under circumstances similar to those here. According to these courts, car rental companies must expect that some renters will allow other people to drive the rental car in violation of the agreement. Therefore, the rental companies are deemed to have consented to the breach. See, for example, Allstate, 370 N.Y.S.2d at 677 ([I]t is foreseeable and inevitable that rental vehicles will be involved in their fair share of accidents, and that some of them will be operated in violation of a restrictive lease agreement.) (emphasis original); 2 Financial Indemnity, 226 Cal.App.2d at 699, 38 Cal.Rptr. 249 (Hertz did not have a reasonable basis for believing that the said restriction contained in the referred to Hertz contract would be carried out; and since Hertz had no such reasonable expectations, Hertz is deemed to have given implied permission to the use of the subject automobile without the said restriction.). 20 To recite such reasoning is to criticize it. The idea that a party may not rely on a contract term because the other side can be expected to violate it cuts at the very heart of contract law. Contracts enable parties to define their mutual rights and responsibilities; they are useful only insofar as each side can count on being able to hold the other to the terms of the agreement. If a contract provides anything at all, then, it is the reasonable expectation that the parties will fulfill their obligations, either voluntarily or under judicial compulsion. For a court to deny enforcement of a contract term because breach is foreseeable defeats the purpose of having a contract, effectively withdrawing that particular issue from regulation by mutual assent. 3 21 The dangers of the Allstate/Financial Indemnity approach are manifold. In the first place, it forces a wealth transfer from those who respect the terms of their agreements to those who do not. When courts take away the right of the parties to limit who will drive the rental car, they confer a benefit on the plaintiffs before them as well as on all others similarly situated. But these benefits do not appear as manna from heaven; like all other economic advantages, someone has to pay for them. Under these circumstances, insurance companies foot the bill, but only until they can raise their rates to cover the additional risk. Automobile renters thus wind up paying for the implied permittee term whether they want it or not; those who respect the terms of their contract wind up subsidizing the renegers. As is often the case with judicially created rules that adjust contract rights on an ad hoc basis, an implied permittee term favors the careless, the irresponsible, the crafty, the unscrupulous at the expense of those who live up to their contractual responsibilities. 4 22 The rule Travelers advocates is also dangerous because it adds a heaping measure of uncertainty where certainty is essential. Insurance companies, like other commercial actors, need predictability; they write their contracts in precise language for that reason, and they calculate their premiums accordingly. When insurance contracts no longer mean what they say, it becomes exceedingly difficult to calculate risks. Insurance companies can predict with a fair degree of accuracy the risks involved when a car may only be used or operated by an Authorized Driver. What are they to make of it is foreseeable and inevitable that rental vehicles ... will be operated in violation of a restrictive lease agreement? Just how many other risks will some court find foreseeable and inevitable? Increasing uncertainty through judicial meddling raises insurers' costs of doing business; inevitably, those costs are passed on to customers. 23 But perhaps the greatest danger in the facile reasoning of cases like Allstate and Financial Indemnity is its limitless scope. Breach of contract is always an option for a party to a commercial agreement, provided it is willing to bear the consequences. As a matter of experience, breach is a relatively common occurrence in the marketplace: Apartment dwellers occasionally move out before their lease expires; debtors often are unwilling or unable to repay as provided in the loan agreement; employers and employees sometimes terminate their relationships prematurely; buyers and sellers of real estate now and then refuse to go through with the deal. It is therefore foreseeable and inevitable, to quote Allstate, that a significant portion of all contracts will be violated. Applying the rationale of Allstate and Financial Indemnity, one would have to conclude that virtually all commercial agreements are unenforceable because the contracting parties will be deemed to have consented to every foreseeable and inevitable breach. 24 This is total nonsense, of course; no court would take the reasoning of these cases to its logical conclusion. Yet there is nothing in principle that distinguishes Allstate and Financial Indemnity from the examples we have given; it all turns on the gut feeling of the judge who happens to be applying the law. Cases like Allstate and Financial Indemnity are particularly pernicious, therefore, because they give courts a roving commission to nullify or rewrite contract terms they don't like, and to do so without bothering to rely on established principles of contract law. We are convinced that the Supreme Court of Hawaii would summarily reject a rule of law that gives courts such broad and undefined powers to rewrite agreements between parties who have dealt with each other freely and at arms length. 5