Blanket Auto Insurance Coverage for Leased Vehicles
Nationwide Mutual Insurance Company v. Land
318 N.C. App. 551 (1986)
North Carolina Supreme Court
Background
This case involves a question of insurance coverage, specifically whether a blanket automobile policy, which was issued by plaintiff, Nationwide Mutual Insurance Company (Nationwide) to North Carolina National Bank (NCNB), provides coverage for its leased vehicles, of which defendant, Archie Roland Talley (Talley), was a lessee at the time of the accident. The passengers in the other vehicle, Ronnie Wayne Land (Land) and Jessie H. Pruitt (Pruitt), sustained significant injuries.
Procedural History
At trial in the Superior Court of Rockingham County, all of the parties involved waived a jury trial, and judgment was entered that declared the blanket automobile policy carried by NCNB provided compulsory coverage in accordance with N.C. Gen. Stat. § 20-281. The policy also provided voluntary coverage under the terms of the policy for legal liability of Archie Roland Talley for personal injury and property damage arising out of Talley’s alleged negligence in a vehicle owned by NCNB. The Court of Appeals reversed the trial court’s decision, finding that Talley, due to his own actions and failure to honor his obligations under the terms of the policy, was provided neither compulsory nor mandatory coverage by Nationwide.
Facts
The facts, stipulations, admissions, and evidence tended to indicate that Talley entered a lease with NCNB in 1979, in which NCNB leased Talley a 1979 Chrysler Cordoba, owned by and registered to NCNB, for 36 months at a monthly rental rate. Under the terms of the lease, if Talley failed to maintain liability, comprehensive, and collision insurance during the lease, or failed to make any rental payment due, the effect would constitute an event of default. “Events of default,” as set forth in the agreement, granted NCNB the right to terminate the lease and continue to hold Talley accountable for his obligations under the lease. NCNB was also authorized, if an event of default occurred, to demand and receive immediate repossession of the vehicle.
The loan officer at NCNB, Mr. Watson, developed suspicions about Talley after a Winston-Salem police detective informed him that an arrest warrant for Talley had been issued in South Carolina. It was then discovered that Talley had misrepresented his prior credit history to Mr. Watson in acquiring the lease, and also that Talley was past due on his lease only 2 months after signing it. About a year later, before NCNB could repossess the vehicle, Talley, while driving under the influence in South Carolina, collided with the vehicle occupied by Land and Pruitt, resulting in severe injuries to both of them.
Governing Law
The relevant North Carolina statute which concerns the insurance required on leased vehicles is contained in N.C. Gen. Stat. § 20-281, which provides:
“It shall be unlawful for any person, firm or corporation to engage in the business of renting or leasing motor vehicles to the public for operation by the rentee or lessee unless such person, firm or corporation has secured insurance for his own liability and that of his rentee or lessee… Each such motor vehicle leased or rented must be covered by a policy of liability insurance insuring the owner and rentee or lessee and their agents and employees while in the performance of their duties from any liability imposed by law for damages…”
The defendants contention is that § 20-281 mandates insurance coverage by the lessor, and that such coverage cannot simply be terminated by a lessee’s violation of the lease agreement. North Carolina case law has also indicated in prior decisions that “The public policy expressed in §281 is that even where automobile rental agreements are violated it is preferable to provide coverage for innocent motorists rather than to deny such coverage because of the violation.” American Tours Inc. v. Liberty Mutual Ins. Co., 315 N.C. 341, 348 (1986).
The issue in American Tours, however, involved the use of a rental car by the lessee father’s 19-year-old daughter where the lease provision prohibited operation of the automobile by anyone under the age of 21. Id. This is a stark contrast from the multiple violations present in the case at hand. Talley had failed to make payments for over a year, and also allowed the insurance he carried on the vehicle to lapse. NCNB took actions to recover the vehicle, and the court noted that even though NCNB did not recover the vehicle, there were multiple sources evidencing that the lessor-lessee relationship between NCNB and Talley had terminated.
Conclusion
The Supreme Court of North Carolina ultimately upheld the ruling of the Court of Appeals, which denied insurance coverage of Talley’s vehicle for injuries sustained by defendants Land and Pruitt. The Court reasoned that because the relationship between the parties quickly deteriorated, and that in the absence of such a lessee-lessor relationship, the NCNB’s blanket policy did not cover the lessee’s operation of the automobile in any way.