The Illinois Supreme Court rules that rental car companies that elect to self-insure have to pay no more than $100,000 to injury claimants.

In Nelson v. Artley, 2015 IL 118058, the Illinois Supreme Court ruled that rental car companies that elect to obtain a certificate of self-insurance from the Secretary of State instead of purchasing insurance cannot be required to pay more than $100,000 to injury claimants.

The high court reversed the ruling of the Illinois Appellate Court, First District, which had found Enterprise liable for a $600,000 claim even though the company was self-insured. The supreme court unanimously found that the first district's reading of the Illinois Safety and Family Financial Responsibility Law (625 ILCS 5/9-101) rendered the statute's self-insurance provision meaningless by failing to cap claims. The supreme court also took issue with the first district's rejection of Fellhauer v. Alhorn, 361 Ill. App. 3d 792 (4th Dist. 2005), noting that the case, which capped liability for self-insured car companies at $100,000, had remained good law for a decade. (For more about the case, see IL Law Update at page 18.)

'[P]atently incompatible' with the Illinois Safety and Family Financial Responsibility Law

Nelson arose from a car accident caused by Donald Artley, who was driving a rental car. DeShaw Nelson was injured in the accident and sued Artley. He obtained a default judgment in the amount of $600,000. Nelson then pursued the car rental company, Enterprise, attempting to recover some of the judgment amount.

Enterprise asserted three defenses, one of which was based on the fourth district's ruling in Fellhauer. Enterprise argued that because it self-insured, its total liability for any driver was $100,000 per occurrence. Enterprise had already paid $50,000 to another individual harmed in the accident and had tendered and additional $50,000 to the court to satisfy the claims of both Nelson and a third individual. The first district ruled that Enterprise was liable for the entire $600,000 judgment Nelson won against Artley.

In reversing the first district's ruling, the Nelson court stated that the law "mandates only certain minimum levels of coverage." Nelson, 2015 IL 118058, ¶ 14. Holding that "imposing unlimited liability on those who elect to self-insure...is patently incompatible with this standard," the court found that any other reading rendered the self-insurance provision of the Illinois Safety and Family Financial Responsibility Law a nullity. Id. ¶ 25.

Bob Park, an attorney with Califf & Harper, P.C. Moline, believes that Nelson will have "little practical effect on most lawyers." He said that most rental car customers will be covered by their own insurance policy while driving a rental car. Even when they are not, Nelson only applies to companies that choose to self-insure, and only then if the driver of the other car has no insurance or has a policy that does not cover rental cars.

Too quick to abandon Fellhauer

Although the ruling may have a narrow application, the Nelson court's strong rebuke of the first district provides a valuable lesson in statutory interpretation. Justice Karmeier, writing for a unanimous court, found that the first district was too quick to ignore the fourth district's ruling in Fellhauer.

The supreme court pointed out that Fellhauer had been in place for a decade. "Until the appellate court in this case ruled as it did, no court had challenged [its] soundness." Id. ¶ 23. In the 10 years since the fourth district's ruling, "the legislature allowed the relevant provisions of the Vehicle Code to remain in effect, as written, without change." Id. The high court noted that since the legislature had chosen not to amend the statute, it had "acquiesced in the [Fellhauer] court's statement of legislative intent." Id.

The supreme court also found that the first district had "ultimately failed to recognize that the express, undisputed and overriding purpose of the self-insurance option...is simply to establish 'proof of financial responsibility,'" not "proof of ability to fully satisfy judgments." Id. ¶ 24. Under the first district's reading of the statute, self-insurers would be exposed to unlimited liability, the high court opined. Given that both purchasing insurance and posting bonds have specific liability limits, allowing such a result for self-insurance creates "a deal that no rational economic actor would be likely to take." Id. ¶ 25.

The supreme court found that under the first district's approach, "the ability of persons injured in accidents involving rental cars to recover from the cars' owners would become a lottery." Id. ¶ 26. That lottery would create inconsistent results for similarly situated litigants. It is presumed that the legislature does not intend to create absurd or unjust results; the court could find no indication that the legislature had intended otherwise. Id. ¶ 27.

As a final admonishment, the supreme court in Nelson took issue with the first district's statement that the use of common sense is inappropriate or insufficient as a basis for statutory interpretation. The high court stated that "there is nothing inherently objectionable about using common sense when deciphering a statute." Id. ¶ 29. It pointed out that common sense is not a substitute for legal reasoning, but "a shorthand for deductive reasoning based on the language and purposes of the law and the consequences of a contrary construction." Id.