Supreme Court of Illinois Limits Liability of Self-Insured Car Rental Company

On October 8, 2015, in DeShaw Nelson v. Donald Artley, the Illinois Supreme Court overturned a ruling by the First District Appellate Court  that ordered a car rental company to pay an accident victim $600,000 as a result of damages allegedly sustained in an automobile accident involving a car owned by the rental company and driven by an operator without his own insurance. At issue in DeShawn was the extent of financial liability that a self-insuring rental car company faces where a default judgment is entered against the driver of one of its vehicles.

Suzanne Haney rented a car in Illinois from Enterprise Leasing Co. That car was being driven by an unauthorized driver, Donald Artley, when it crossed over the center line and collided with a vehicle being driven by DeShaw Nelson. Nelson sued Artley in the Circuit Court of Cook County, Illinois. Artley was without his own insurance at the time of the accident, and after he failed to defend Nelson’s lawsuit, the Circuit Court entered a default judgment against him in the amount of $600,000. Nelson then brought a supplementary action against Enterprise solely on the basis that Illinois’ financial responsibility laws, [cite], should render Enterprise liable for the judgment against Artley based on its ownership of the vehicle involved in the accident with Nelson. Nelson sought the full $600,000 judgment from Enterprise, plus interest and costs. The Circuit Court ruled that Enterprises’ liability for the default judgment was limited by the Illinois Appellate Court’s decision Fellhauer v. Ahorn, [361 Ill. App. 3d 792 (2005)], which held that the Illinois “legislature intended no distinction between self-insurers and those companies that purchased an outside insurance policy in terms of the companies’ liability to injured third parties.” Relying on Fellhauer, the Circuit Court held that since Enterprise had chosen to purchase insurance for the car at issue, its liability under Illinois’ financial responsibility law was limited to the minimum coverage levels applicable to rental car companies that elect to purchase insurance policies, which are $50,000 per person, up to $100,000 per occurrence. Enterprise had previously paid $50,000 to settle a claim brought by a second individual involved in the accident with Artley and then tendered the remaining $50,000 of its policy to the court to be divided between Nelson and a third accident victim. Thus, the Circuit Court ruled that Enterprises had met its obligations under Illinois’ financial responsibility law.

Nelson appealed the Circuit Court’s decision to the First District Appellate Court in Chicago, Illinois. The Appellate Court rejected the Circuit Court’s analysis of Fellhauer, undertook its own statutory analysis, and held the Enterprise was liable for the full $600,000 judgment against Artley.

The Supreme Court of Illinois reversed the judgment of the Appellate Court and affirmed the Circuit Court’s judgment. In reaching its conclusion, the Supreme Court analyzed, a part of the Illinois motor vehicle code that allows rental car companies to satisfy the State’s proof of financial responsibility requirements by (1) filing a liability bond, (2) purchasing an insurance policy, or (3) filing a certificate of self-insurance with the Department of Insurance.  The Supreme Court noted that if either option (1) or (2) are elected, under Fellhauer, the rental car company’s liability limits would be capped at $50,000 per person, $100,000 per incident. The Supreme Court commented, however, that since the liability cap did not apply to companies that elected to self-insurer, i.e., option 3, under the Appellate Court’s analysis, those companies that selected to self-insure would be exposed to maximum financial liability, which the Court concluded would effectively render that option meaningless since it found that “[T]hat is a deal no rational economic actor would be likely to take.” The Supreme Court confirmed that “construing a statute in a way that renders part of it as a nullity offends basic principles of statutory interpretation.” The Supreme Court noted that allowing any other interpretation of the statutes would create a dangerous double-standard that could lead to random and inconsistent application of the law in the future. As such, the Supreme Court ruled that Enterprises’ liability for the accident was capped at $100,000.