The opinion of the court was delivered by: Barrington D. Parker, District Judge.
Plaintiff Integon National Insurance Company and Bankers and
Shippers Insurance Company ("Integon") move pursuant to
Fed.R.Civ.P.Rule 56 for summary judgment against Defendant The
Welcome Corporation T/A Thrifty Car Rental ("Thrifty") declaring
that Thrifty is primarily liable to defend an action pending in
the Supreme Court of the State of New York, County of
Westchester.*fn1 Thrifty cross-moves for summary judgment
against Integon for a declaration that Integon is primarily
liable to defend the state action. For the reasons stated below,
Integon's motion is denied, and Thrifty's motion is granted.
A. The Car may not be used:
6. BY ANYONE OTHER THAN AN AUTHORIZED RENTER;
The Rental Agreement stated, "ADD.[ITIONAL] RENTER: NONE
AUTHORIZED." Freeman expressly declined a Physical Damage Waiver,
Passenger Protection & Personal Effects Coverage, and
Supplemental Liability Insurance. Immediately preceding Freeman's
signature on the Rental Agreement was the following statement:
Immediately following Freeman's signature appeared a signature
line for any "Additional Authorized Renter," which was left
Thrifty operates as a certified self-insurer under a
Certificate of Self-Insurance issued by the Commonwealth of
Virginia, Department of Motor Vehicles, pursuant to Virginia Code
§ 46.2-368. As a self-insurer, Thrifty provides, to the extent
required by Virginia law, the minimum mandatory liability
coverage of $25,000 per individual and $50,000 per occurrence.
For additional protection, Thrifty also
maintained a policy through Classic Fire and Marine Insurance
Company ("Classic"). Classic has since become insolvent. Freeman
d/b/a Old Dominion Appraisal Company has a "Commercial Automobile
Policy through [Integon which] provides Liability coverage for
Both Integon, Freeman's insurance carrier, and Thrifty have
appeared in the state court action and have participated in the
defense. This case essentially involves two insurance carriers
disputing whether which is primarily liable for a state court
action. Jurisdiction in this Court is predicated on diversity.
See 28 U.S.C. § 1332.
1. Summary Judgment Standard
A motion for summary judgment should be granted only if "the
pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that
the moving party is entitled to judgment as a matter of law."
Fed.R.Civ.P. 56(c); Hayes v. New York City Dep't. of
Corrections, 84 F.3d 614, 619 (2d Cir. 1996); Bryant v.
Maffucci, 923 F.2d 979, 982 (2d Cir. 1991). The court is to
perform "the threshold inquiry of determining whether there is
the need for a trial — whether, in other words, there are any
genuine factual issues that properly can be resolved only by a
finder of fact because they may reasonably be resolved in favor
of either party." McNeil v. Aguilos, 831 F. Supp. 1079, 1082
(S.D.N.Y. 1993) (quoting Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)); Hayes,
84 F.3d 614 at 619.
In determining whether a genuine issue of material fact exists,
a court must resolve all ambiguities in the light most favorable
to, and draw all reasonable inferences in favor of, the party
opposing the motion. Wernick v. Federal Reserve Bank of New
York, 91 F.3d 379, 382 (2d Cir. 1996); In re State Police
Litigation, 88 F.3d 111, 123 (2d Cir. 1996). The Court must not
weigh evidence or assess the credibility of potential witnesses,
for such evaluations are to be conducted solely by the jury.
Hayes, 84 F.3d at 619; United States v. Rem, 38 F.3d 634, 644
(2d Cir. 1994); Azrielli v. Cohen Law Offices, 21 F.3d 512, 517
(2d Cir. 1994). A finding of disputed material facts that could
reasonably be resolved in favor of either party precludes summary
judgment. Wernick, 91 F.3d at 382 (quoting Anderson v. Liberty
Lobby, 477 U.S. at 250, 106 S.Ct. 2505).
Generally, the burden is on the moving party to demonstrate
that there is no genuine dispute respecting any material fact and
that he is entitled to judgment as a matter of law. In re State
Police Litigation, 88 F.3d at 123; Gallo v. Prudential
Residential Services, Limited Partnership, 22 F.3d 1219, 1223
(2d Cir. 1994).
2. Virginia Omnibus Insurance Statute
Both parties concede that the resolution of this action hinges
on the application of Virginia law and the Virginia Omnibus
Insurance Statute, Va.Code § 38.2-2204 ("omnibus statute").
Specifically, § 38.2-2204(a) provides:
A. No policy or contract of bodily injury or property
damage liability insurance, covering liability
arising from the ownership, maintenance, or use of
any motor vehicle, . . . shall be issued or delivered
in this Commonwealth to the owner of such vehicle, .
. . or shall be issued or delivered by any insurer
licensed in this Commonwealth upon any vehicle, . . .
unless the policy contains a provision insuring the
named insured, and any other person using or
responsible for the use of the motor vehicle, . . .
with the expressed or implied consent of the named
insured, against liability for death or injury
sustained, or loss or damage incurred within the
coverage of the policy or contract as a result of
negligence in the operation or use of
such vehicle . . . by the named insured or by any
such person. . . .
This statute essentially requires that an automobile liability
insurance policy provide coverage for a person who is "using" a
motor vehicle "with the express or implied consent of the named
insured." State Farm Mutual Ins. Co. v. Geico Indemnity Co.,
241 Va. 326, 329, 402 S.E.2d 21 (1991). Although the omnibus
statute is remedial and is to be liberally construed to broaden
coverage of automobile liability policies, "[g]enerally, coverage
under the omnibus clause [does] not extend beyond the first
permittee when the named insured has expressly prohibited
operation of the vehicle by another." State Farm Mutual Auto.
Ins. Co., 241 Va. at 330, 402 S.E.2d 21. Accordingly, the
identification of the "insured" is critical to the proper
application of the omnibus statute.
In Shashona Martin v. National Car Rental, HH-420-4, 1997 WL
1070576, (Va. Cir. Ct. Apr.17, 1997), a Virginia court addressed
whether a rental company must provide insurance coverage under
the rental car agreement and/or Va.Code § 38.2-2204 for a traffic
accident which occurred while the rental car was operated by a
person other than the rental car customer, with the rental car
customer's consent, but in violation of the rental car agreement
because the person operating the car was not an authorized driver
under the rental car agreement. The Martin court held that the
named insured under a self-insured rental car company's insurance
policy, for purposes of the omnibus statute, is the rental
company and not the rental car customer and any other holding is
"simply untenable." Martin, 1997 WL 1070576, at *3. Thus, the
court found no liability coverage existed because although the
rental car customer gave permission for the car to be used by
another person, the named insured under the self-insurance
policy, the rental company, had not.
Here, Martin is fully applicable. Thrifty is the named
insured under its self-insurance policy and Dibello was not given
permission to drive the car by Thrifty, but by Freeman.
Accordingly, Thrifty is not obligated under the omnibus statute
to provide primary liability coverage in the underlying state
Integon's reliance on State Farm Mutual Ins. Co. v. Chrysler
Ins., 95-647 (Va.Cir. Ct. 1996), is misplaced. Chrysler Ins.
involved a rental car company's insurance carrier's refusal to
provide liability coverage to a rentee based on a particular
inclusion in the insurance policy. The court held the insurance
policy violated the omnibus statute and required that the
insurance carrier provide a defense to the customer. Unlike this
case, Chrysler Ins. involved an insurance policy that did not
provide coverage to an individual who had permission from the
named insured to use the vehicle — a direct violation of the
omnibus statute. Here, the individual was unauthorized by the
named insured, and thus not protected by the omnibus statute.
Not only is Thrifty not primarily liable under the omnibus
statute, but also because of Freeman's breach of the Rental
Agreement. Virginia case law makes clear that any coverage that a
rental car customer would otherwise be entitled is void when the
rental agreement is breached. In Martin, the driver was
unauthorized because the car rental company had not given its
consent for the driver to use the car. The court held that
because the person who rented the car from the car rental company
had violated the terms of the rental agreement by allowing
someone other than an "authorized driver" to operate the car, the
plaintiffs were not entitled to any liability coverage under an
otherwise applicable rental agreement. Martin, 1997 WL 1070576,
at *3. In Gordon v. Liberty Mutual Ins. Co., 675 F. Supp. 321
(E.D.Va. 1987), the court held that the company insuring the
rental car pursuant to a policy issued to the car rental company
was not obligated to cover damages from an accident because the
person driving the car at the time of the accident did not have
the named insured's — the car rental company's — permission. The
rental agreement specified that no one else was permitted to
drive the vehicle without the lessor's permission. Thus, this
breach vitiated any coverage under the rental agreement. Gordon,
675 F. Supp. at 322. Liberty Mutual Ins. Co. v. Mueller,
432 F. Supp. 325 (W.D.Va. 1977), aff'd, 570 F.2d 508 (4th Cir.
1978), held that the rental car company did not owe an insurance
obligation when, in violation of the rental agreement, the driver
had permission from the original customer, but not from the named
insured, the rental car company. The court also observed that
while the omnibus statute contained in the insurance policy was
to be liberally construed, since the named insured did not give
express or implied permission to the unauthorized user, the named
insured's insurance company was not obligated to defend or
otherwise extend coverage to the unauthorized user. Liberty
Mutual Ins. Co., 432 F. Supp. at 327-329.
Here, it is undisputed that Dibello had permission from Freeman
to drive the rental car. It is equally clear, however, that the
Rental Agreement signed by Freeman did not permit any authorized
driver other than Freeman, and any breach of the Rental Agreement
negated any liability coverage. See Rental Agreement, ¶ 3. The
Rental Agreement was breached by Freeman's loan of the car to
Dibello, an unauthorized driver. Also, Freeman declined
supplemental insurance and represented that he had insurance
which would cover any damages.
Under Virginia case law, liability coverage by a rental car
company is negated by a breach of the rental agreement. Whether
Freeman loaned the vehicle to Dibello as a business associate,
independent contractor or otherwise, is not relevant to Thrifty's
liability because the Rental Agreement was signed solely by
Freeman who did not specify any other authorized users on the
Rental Agreement. Since Thrifty, as the plain language of the
Rental Agreement indicates, gave permission solely to Freeman to
operate the rental vehicle, Freeman, and by extension Integon and
Dibello, are not entitled to any benefit from the Rental
Agreement due to Freeman's breach.
It is clear, and Integon does not dispute, that as Freeman's
insurance carrier, it is obligated to provide coverage to
Dibello. Freeman expressly gave permission to Dibello to use the
vehicle and Integon provides automobile liability insurance to
Freeman for rented and leased autos. Thus, under the omnibus
statute, Integon is liable because the named insured — Freeman —
expressly gave permission to Dibello to use the car.
Integon seems to contend, without reference to any rules of
civil procedure or case law, that Thrifty is not entitled to
claim that Dibello was an unauthorized user because Thrifty did
not allege any issue regarding the permissive usage of the
vehicle during the underlying state action. Thrifty in its
Verified Answer to the state court action, however, denied the
plaintiffs' allegations that Dibello rented the vehicle from
Thrifty and that Dibello operated the vehicle with Thrifty's
knowledge. Further, Thrifty, in its Answer to the Amended
Complaint in the state court action cross-claimed against the
codefendants on the ground that they breached the Rental
Agreement. Also, in its Answer to the Amended Complaint in this
action, Thrifty alleged, as affirmative defenses that the Old
Dominion Fixture & Appraisal Company and Dibello were not
authorized operators of the vehicle. Thus, Integon's argument is
For the reasons stated above, Integon's motion for summary
judgment is denied and Thrifty's motion for summary judgment is
granted to the extent that this Court holds that Integon is
primarily liable to defend the underlying state court action.
Thrifty is entitled to be reimbursed
by Integon for all past, present and future costs and
disbursements incurred relating to the defense in the underlying
action. The parties are directed to settle a judgment in ten (10)
days on seven (7) days notice.