Arizona Court of Appeals Division Two Holds That a Farmer’s Policy Did Not Provide Coverage To a Third Party Who Borrows a Rental Car From an Insured Individual and Then Causes an Accident.

In July 2001, Jay Good, who had previously purchased insurance from Farmers, rented a vehicle from a car rental agency in Oregon. Although Good was the sole authorized driver under the rental agreement, he loaned the vehicle to Roman Orona, who drove the vehicle into a house, resulting in injury to Jeffrey Odom. Odom sued Orona and Good. After Farmers denied coverage to Orona under Good’s policy. Odom then obtained a judgment, and agreed not to execute the judgment in exchange for an assignment of any claims Orona might have against Farmers for denying coverage. In 2005, Odom filed an action against Farmers for breach of contract and bad faith denial of coverage to Orona. The trial court granted summary judgment in favor of Farmers. This appeal followed.

In holding that Orona was not covered under Good’s automobile insurance, the Arizona Appeals Court first looked to the relevant language in Farmers’ policy, which provided that “no vehicle shall be considered as your insured car unless there is sufficient reason to believe that the use is with permission of the owner and unless it is used by you or a family member.” This Court found this language subject to only one reasonable interpretation: a rental car is not an “insured car” unless the rental car was used by Good or a family member. Lending the rental car to Orona did not constitute “use” by Good. Nor did Orona obtain the rental agency’s permission before driving its vehicle; Orona thus failed to meet the policy’s requirement that use of the vehicle be “with permission of the owner.” The Court also held that Farmers’ policy did not violate Arizona’s Vehicle Insurance and Financial Responsibility Act (FRA), A.R.S. §§ 28-4001 through 28-4153, because the FRA does not mandate that an insurance policy cover non-named individuals driving vehicles not named in the policy.

Chief Judge Pelander authored the opinion; Judges Howard and Brammer concurred.