The Safety and Family Financial Responsibility Law requires that automobile rental companies operating in Illinois demonstrate their financial responsibility by filing one of three things with the Secretary of State: (1) a liability bond; (2) an insurance policy or other proof of insurance; or (3) a certificate of self-insurance issued by the Director of the Department of Insurance. The statute provides that the company’s minimum liability if it files a bond or insurance policy is $100,000.
In Nelson v. Artley, the Illinois Supreme Court addressed the question of what the potential liability was if the rental company opted to file proof of self-insurance. The Appellate Court had held that the rental company was obligated to cover any judgment – meaning that potential liability was limitless. In an opinion by Justice Karmeier, the Supreme Court reversed. Our detailed summary of the facts and lower court opinions in Nelson is here. Our report on the oral argument is here.
Nelson began when the rental car being driven by the defendant was involved in an accident, injuring the plaintiff and several others. The plaintiff sued the defendant and recovered a default judgment in the amount of $600,000. The plaintiff then filed a supplementary action and issued a citation to discover assets against the rental company, arguing that it was responsible for the judgment. The rental company initially took the position that it had no liability at all for the accident since the defendant was neither its customer nor listed on the rental agreement as an authorized driver. But before the Supreme Court, the company primarily focused on a statutory argument, arguing that pursuant to Fellhauer v. Alhorn, its maximum potential liability was $100,000 – the ceiling for multi-victim accidents where the rental company filed an insurance policy. The rental company asserted that it had paid $50,000 to settle a claim by another injured party arising out of the same argument, and tendered $50,000 into court to allocate between the plaintiff and yet another injured party, thus extinguishing its liability.
The trial court granted relief to the plaintiff, but held that under Fellhauer, the company’s potential liability was limited to the statutory limit for insured companies. The Appellate Court reversed, holding that the statutory limit for insured rental companies didn’t apply to the self-insured.
The Supreme Court unanimously reversed the Appellate Court. The Appellate Court had lost sight of the purpose of financial responsibility statutes, the Court said. The laws weren’t intended to ensure that any judgments would be fully covered; rather, they were meant to provide injured parties with some compensation where they would otherwise receive nothing.
The Court pointed out that Fellhauer had been in place for a decade. Where the courts construe a statute and the legislature leaves that interpretation in place, the courts must presume that the legislature has acquiesced in the judicial interpretation.
Besides, the Court said, although it was true that the liability limit wasn’t expressly extended to self-insuring rental companies, the Appellate Court’s holding rendered the self-insurance option effectively a nullity. If a rental company was faced with the option of limited liability with an insurance policy, or limited liability with a bond, or unlimited liability with self-insurance, what rational rental company would choose self-insurance? “[W]e fail to see any reason why the legislature would have wanted to single such companies out for special treatment,” the Court held.
In closing, the Court took note of the Appellate Court’s adverse comments on the reliance on “common sense” as a basis for the Fellhauer court’s holding. Although the Appellate Court had suggested that common sense was not an appropriate consideration, “there is nothing inherently objectionable about using common sense when deciphering a statute,” according to the Court. Besides, the Fellhauer court had used “common sense” as a “shorthand for deductive reasoning based on the language and purposes of the law and the consequences of a contrary construction.”