Exclusions Case Analysis

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The court’s general holding — that an exclusion to insurance coverage is invalid if the insured is not given notice of the provisions — cannot reasonably be disputed, as evidenced by the unanimous authority to that effect from other jurisdictions.

In the case at bar, however, it is not so clear that the rule applies, because it is not settled law in Wisconsin that a car rental agreement is an insurance policy to which the holding applies.

Two Wisconsin cases address, but do not resolve, this issue: Janikowski v. State Farm Mut. Automobile Ins. Co., 187 Wis.2d 424, 523 N.W.2d 130 (Ct.App.1994); and Prophet v. Enterprise Rent-A-Car Co., Inc., 2000 WI App 171, 238 Wis.2d 150, 617 N.W.2d 225.

In Janikowski, a rental car company in Illinois rented a car to Tracy Schmidt, who then permitted Patrick Janikowski to drive it. Janikowski caused an accident in Wisconsin, resulting in injuries to his mother, Sylvia, who was a passenger.

Two insurance companies wound up in a dispute over who was liable for the damages, arguing over whether the rental agreement was a contract of insurance.

The court of appeals concluded that it did not need to decide whether a car rental contract constitutes an insurance contract, deciding the case on other grounds. The court held, “Even assuming, only for the sake of argument, that the rental agreement was an insurance policy, the lease agreement is neither ‘a policy of insurance issued or delivered in this state,’ nor a ‘policy of insurance …. that insures … a motor vehicle registered or principally garaged in this state.’” Janikowski, 187 Wis.2d at 429.

In Prophet, the renter of an automobile was involved in a collision with an uninsured motorist. The renter purchased various types of insurance from Enterprise, but not uninsured motorist (UM) coverage.

The renter’s injured passengers brought suit, alleging that sec. 632.32(4), which requires that all automobile policies contain UM coverage, applies, and therefore, they can recover from Enterprise for their injuries.

The court of appeals held that, as a self-insured entity, the rental company was not required to provide UM coverage.

Thus, the cases leave open the fundamental question whether an agreement to rent a car is an insurance policy. If the answer to that question is no, then traditional contract principles would govern this case rather than insurance principles.

If the agreement here were construed as a routine contract, rather than an insurance policy, then the prior identical contracts between Enterprise and Leverance would be relevant, and the exclusion could be considered just a contract provision to which Leverance could be held because of the prior dealings.

In the case at bar, Enterprise was not self-insured, as it was in the Prophet case, but the insurance was provided by an outside party. To create a distinction on this basis, however, could be considered arbitrary.

The renter of an automobile is indifferent to whether the rental agency is self-insured or a third party provides the insurance. Thus, holding outside insurers to different standards than self-insured rental agencies would do nothing except to create an artificial incentive for self-insurance.

Furthermore, the result in this case cannot be justified on equitable grounds in the same way that it can in the cases cited by the court from other jurisdictions, something that is evident from a quotation by the court of appeals’ decision in Prophet.

	Links Wisconsin Court of Appeals Related Article Insurance exclusions don’t apply unless delivered

The court there wrote, “We can appreciate the Prophets’ concerns, and we do understand that they and others who occupy rental vehicles, for which optional insurance coverage has been purchased, may be surprised to learn of the limits of the coverage.”
Prophet, 238 Wis.2d at 160-161.

The court correctly acknowledges that most people injured in a rental car because of an uninsured motorist would assume they have coverage for their injuries. In contrast, few would be surprised to learn that a death benefit wouldn’t be paid if they killed themselves because they were driving drunk.

The court observed, “If an insured is not given a copy of the policy, he or she cannot take whatever action is appropriate to protect his or her interests.”

As true as the statement may be, it is hardly relevant to the case at bar, unless one is willing to accept that Leverance would have protected his interests and not driven drunk had he known that, if he died, his estate would lose the death benefit.

– David Ziemer

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David Ziemer can be reached by email.