Second Department Finds No Nonowned Auto Liability Coverage for Accident Involving Rental Vehicle

AUTO – NONOWNED AUTO LIABILITY COVERAGE – "USE" OR "MAINTENANCE" OF AUTO – FURNISHED OR AVAILABLE FOR REGULAR USE – RENTAL VEHICLE
Elrac, Inc., d/b/a Enterprise Rent-A-Car v. GE Capital Ins. Co.
(2nd Dept., decided 12/23/2008)

While a vehicle Carmelo Mazarese used regularly was being repaired, he rented a vehicle from Enterprise-Rent-A-Car.  The rental agreement listed Mazarese as the only authorized driver and provided that the rental car would be returned in 30 days.

On January 12, 2004, the rental car was involved in a motor vehicle accident. At the time of the accident, the rental car was being operated by Mazarese's cousin, Lisa Martinez, who had borrowed the car from Mazarese with his permission, but who was not an authorized driver under the rental agreement.

A month later, defendant Joseph V. Martinez, the father of the defendant Tess Martinez, the infant passenger (also the daughter of the driver) who was riding in the rental vehicle at the time of the accident, commenced a personal injury action entitled Martinez v Elrac, Inc. in Nassau County Supreme Court against ELRAC, Lisa Martinez, and Mazarese (the theory of liability against Mazarese not being disclosed or apparent). Pursuant to an infant's compromise order entered November 10, 2005, in the underlying action, ELRAC, on behalf of itself and Mazarese (whom it represented in the underlying action) settled that action for the sum of $1.1 million.

ELRAC then commenced this action against, among others, GE Capital Insurance Company, Lisa Matrtinez, and Mazarese for declaratory relief seeking indemnification from GE, which had issued a personal auto policy to Mazarese's mother.

GE's policy contained a nonowned auto clause that provided liability coverage for "[a]ny relative of [the named insured] who resides in your household * * * when using a nonowned auto provided that * * * [t]he relative is using the nonowned auto with the owner's permission and for the purpose the owner intended."  GE's policy defined the term "nonowned auto" as "an auto that is not owned by or registered to the [named insureds] or a resident of your household; and is not furnished or available to [the named insureds] or any resident of your household for regular use." "Use" of an auto was defined as "owning, operating, loading, unloading and maintaining the auto."

The issue in this case persumably was whether the GE policy afforded liability coverage to Mazarese, the renter.  This decision contains no discussion of liability coverage under the GE policy for Martinez, the driver.

In REVERSING the lower court's order granting summary judgment to ELRAC, the Second Department found that the nonowned auto provision of GE's policy did not afford liability coverage for the accident:

The exclusion of coverage under certain conditions for a relative residing with an insured when using a nonowned automobile "was designed to protect the company from being subjected 'to greatly added risk without the payment of additional premiums'" (Sperling v Great Am. Indem. Co., 7 NY2d 442, 448, quoting Vern v Merchants Mut. Cas. Co., 21 Misc 2d 51, 52). The purpose of a provision for a nonowned vehicle not for the regular use of an insured is to provide protection to the insured for the occasional or infrequent use of a vehicle not owned by him or her and is not intended as a substitute for insurance on vehicles furnished for the insured's regular use (see Liberty Mut. Ins. Co. v Sentry Ins., 130 AD2d 629, 630; see Liberty Mut. Ins. Co. v Allstate Ins. Co., 237 AD2d 260; Egle v United Servs. Auto. Assn., 158 AD2d 661; Federal Ins. Co. v Allstate Ins. Co., 111 AD2d 146; but see New York Cent. Mut. Fire Ins. Co. v Jennings, 195 AD2d 541). 

In determining whether a vehicle has been furnished for regular use, the general availability and frequency of use are criteria employed by the factfinder (see Liberty Mut. Ins. Co. v Allstate Ins. Co., 237 AD2d 260, 261; Liberty Mut. Ins. Co. v Sentry Ins., 130 AD2d 629, 630; Egle v United Servs. Auto. Assn., 158 AD2d 661, 662-663; McMahon v Boston Old Colony Ins. Co., 67 AD2d 757, 758; compare Hollander v Nationwide Mut. Ins. Co., 60 AD2d 380). 

In his affidavit, Mazarese asserted, inter alia, that at the time of the accident, he did not own a motor vehicle, but the vehicle he used on a daily basis was a 2004 Mercury Mountaineer that was insured by nonparty Geico Insurance Company (hereinafter Geico).  Mazarese had leased the rental vehicle from Elrac as a replacement vehicle while the Mercury Mountaineer was being repaired by the dealer. According to Mazarese, he used the rental vehicle "on an everyday basis." The rental agreement demonstrated that Mazarese rented the vehicle on November 18, 2003, and he returned it on January 13, 2004, the day after the subject accident. Thus, the rental vehicle clearly was available for Mazarese's regular use for 55 days.  Accordingly, under the circumstances of this case, the rental vehicle did not meet the definition of a nonowned vehicle under the GE policy. 

In addition, contrary to the Supreme Court's determination, Mazarese was not maintaining the rental vehicle at the time of the accident by virtue of his having entrusted the vehicle to the driver. "'Maintenance,' as that term is used in an insurance policy, means performance of work on an intrinsic part of the mechanism of the car and its overall function'" (Guishard v General Sec. Ins. Co., 9 NY3d 900, 902, quoting Farmers Fire Ins. Co. v Kingsbury, 105 AD2d 519, 520, citing 6B Appleman, Insurance Law & Practice, § 4315; see Pennsylvania Millers Mut. Ins. Co. v Manco, 63 NY2d 940, 942). Moreover, such entrustment of the rental vehicle to the driver did not constitute use of the rental vehicle as such term is otherwise defined in the GE policy because Mazarese neither owned, nor was he operating, loading, or unloading the rental vehicle at the time of the accident. Thus, the Supreme Court incorrectly concluded that there was coverage for the subject accident under the GE policy. 

The three reasons GE's policy did not afford liability coverage to/for Mazarese are:  (1) the rental vehicle was available for Mazarese's regular use, thus disqualifying it from being a "nonowned auto" as defined by the GE policy; (2) Mazarese's allowing Martinez to use the rental vehicle was not "maintaining" it; and (3) Mazarese's entrustment of the the rental vehicle to Martinez did not constitute his "use" of it.