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VOLUME 9 July 2005 | ||||||
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WHO PAYS WHEN TWO INSURANCE COMPANIES HAVE EXPOSURE FOR THE SAME ACCIDENT By Darren C. Audino, Esq. and Kimberly A. Jubanyik, Esq.
Under New Jersey law, the respective obligations of two insurance companies under their respective insurance policies for the same motor vehicle are notable. Here is what could occur under the following situation:
A person, hereinafter referred to as “the renter,” enters into a written rental agreement for the use of a motor vehicle from a car rental company. The renter is subsequently involved, while operating the rental vehicle, in a motor vehicle accident with a third party. At the time of the accident, the renter carried a personal automobile liability insurance policy with insurance company “A.” The car rental company carried an automobile liability insurance policy on the rental vehicle, in accordance with New Jersey law, with insurance company “B.” The insurance policy issued by insurance company “A” insures the renter and the insurance policy issued by insurance company “B” insures the renter and the car rental company.
Each insurance policy covered the renter but for the other insurance policy. Each insurance policy was intended to provide insurance on an “excess” basis when any other insurance covered the same type of loss. The third party files a lawsuit seeking damages for personal injuries which were sustained as a result of the motor vehicle accident. The issue is which insurance policy is required to provide “primary” insurance coverage and which insurance policy is required to provide excess insurance coverage, under the above circumstances.
The law requiring one who engages in the business of renting motor vehicles to carry and provide liability insurance serves to protect the public from the irresponsibility of persons operating those motor vehicles on our highways. This law, which requires a car rental company to carry and provide liability insurance, does not require that the insurance policy issued be primary insurance. As long as the car rental company’s insurer would be liable in the absence of other insurance covering the renter, the car rental company has satisfied its legal. See Cosmopolitan Mut. Ins. Co. v. Continental Cas. Co.
Insurance policies are interpreted by their plain and ordinary meaning. If two insurance policies, on their face, provide only for excess insurance over any other valid and collectable insurance, the obvious problem arises that there can be no excess insurance in the absence of primary insurance. Since neither policy by its terms is a policy of primary insurance, neither can operate as a policy of excess insurance. Each provision becomes inoperable if there is no other insurance available. Therefore, the general coverage of each insurance policy applies and each insurance company is obligated to share in the cost of settlement and expenses. Since both insurance companies stand on equal footing, equity requires each sharing the payment of liability equally until the limit of the smaller policy is exhausted. See generally, Harrison v. Snappy Car Rental et al. and Rogers v. Snappy Car Rental et al..
Therefore, it is essential for the interpreter of an insurance policy to identify the respective language of each insurance policy on a case by case basis as to whether primary coverage, pro-rata coverage, or excess coverage is provided under the circumstances, in order to determine each insurance company’s potential exposure. |
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