Appeals court clarifies coverage when auto lessee uninsured, no certificate of insurance filed

By Joe Forward, Legal Writer, State Bar of Wisconsin

March 21, 2012 – Under a 2007 lease agreement with Nissan, Michael Kuester was supposed to maintain auto liability insurance. He didn’t. But Nissan didn’t file a certificate of insurance with Wisconsin’s Department of Transportation when it leased the car.

That means Nissan’s insurer, Tokio Marine & Nichido Fire Insurance Company, must pay statutory minimums to those injured in an auto accident caused by the uninsured Kuester, who later pled guilty to causing great bodily harm while driving under the influence of drugs.

Deanna Brown (driver) and Cynthia Eulenbach (passenger) sued Kuester and Tokio Marine, which had issued a $5 million business auto insurance policy to Nissan. Tokio argued that its policy with Nissan did not cover damages caused by a lessee, in this case Kuester.

In Brown v. Tokio Marine & Nichido Fire Ins. Co., 2011AP454 (March 21, 2012), the District II Wisconsin Court of Appeals affirmed a circuit court ruling that Nissan’s policy with Tokio Marine did not cover lessees and Wisconsin’s omnibus coverage statute did not mandate coverage. But the court also affirmed that Nissan’s failure to comply with another statute created liability.

Lessees and policies issued or delivered outside Wisconsin

Tokio Marine’s insurance policy contained a specific exclusion of coverage for Nissan’s lessees. However, the plaintiffs argued that Wisconsin law overrode the exclusion.

Under Wis. Stat. section 632.32(3)(b), auto insurance policies issued or delivered to an automobile owner “extends to any person legally responsible for the use of the motor vehicle.”

The plaintiffs argued that Kuester was legally responsible for use of the leased vehicle owned by Nissan, and Nissan had an auto insurance policy with Tokio Marine.

Tokio Marine argued that section 632.32 (omnibus coverage statute) only applies to policies issued or delivered in Wisconsin (Tokio Marine mailed the business auto insurance policy covering Nissan from California to Nissan’s office in Tennessee).

The appeals court held that policies issued or delivered outside Wisconsin are still subject to section 632.32 if the policy incorporates section 632.32 provisions into the policy.

Tokio Marine’s policy did. It contained a “Wisconsin Changes” endorsement consistent with Wisconsin law on coverage for vehicles used with an owner’s permission.

Thus, the appeals court held that Tokio Marine incorporated Wisconsin’s omnibus coverage statute for auto insurance into the policy with Nissan. However, it ruled that the policy’s exclusion for lessees was consistent with Wisconsin law under section 632.32(5)(e).

“Tokio Marine’s lessee exclusion conforms to the omnibus coverage statute and § 632.32(3) does not mandate coverage for Kuester,” wrote appeals court Judge Paul Reilly.

No certificate of insurance filed

Although the appeals court upheld the policy’s exclusion for lessees, the court ruled that Wis. Stat. section 344.51(1m) mandated coverage for damages sustained by the plaintiffs.

Section 344.51(1)(m) requires a lessor, before leasing the vehicle, to file a certificate with the Department of Transportation ensuring the vehicle is covered with liability insurance. Failure to comply means violators are responsible for future damages under section 344.01(2)(d).

Nissan did not file the certificate of insurance. Tokio Marine did not dispute that it was liable for Nissan’s violation of that statute under its insurance policy with Nissan.

“Nissan’s failure to file a certificate of insurance with the Department of Transportation when it leased the vehicle to Kuester means that Tokio Marine is liable to Brown and Eulenbach in the amounts of $25,000 per person and $50,000 per accident,” Judge Reilly explained.

Related article

• Lessons from Casper: Expanded Recovery for Injured Litigants – Wisconsin Lawyer, March 2012