Auto Claims & Self Insured Retentions (“SIR”): Does the SIR Constitute “Insurance” ?

By Greg Johnson.

The determination of whether a self-insured retention (SIR) constitutes “insurance” within the meaning of an “other insurance” clause of another policy generally depends on the particular circumstances presented.  See, e.g., Champlain Cas. Co. v. Agency Rent-A-Car, Inc., 716 A.2d at 813 (1998) (noting that the “parties tend to paint with a broad brush, suggesting that self-insurance is a form of insurance . . . or alternatively, the antithesis of insurance” and observing that such labels are “generally unhelpful” to resolving the issue of whether self-insurance can constitute insurance). 

The determination of whether an SIR constitutes “insurance” is significant because “[m]any business liability policies contain self-insured retentions, which are, in effect, large deductibles.”  U.S. Fidelity & Guarantee Ins. Co. v. Commercial Union Midwest Ins. Co., 430 F.3d 929 (8th Cir. 2005) (quoting Allan D. Windt, Insurance Claims and Disputes, §11.31 (4th ed. 2003)).  

Although at first glance cases across the country appear to be inconsistent, the answer to the question is (or should be) fairly simple, at least in the context of auto accident claims involving a permissive user=driver. In jurisdictions which require a vehicle owner’s insurer (or self-insurance plan) to extend omnibus liability protection to permissive users, the SIR will invariably constitute “insurance” within the meaning of the permissive user’s policy.  Minnesota, as well as several other jurisdictions, requires the policy insuring the vehicle owner to extend omnibus protection to permissive users.  Minnesota also recognizes that if a vehicle owner self-insures, the self-insurance plan must provide the same “coverage” and incidents of “coverage” as an insurance policy insuring the vehicle owner. See, e.g., McClain v. Begley, 465 N.W.2d 680 (Minn. 1991) (same) (self-insurance obtained pursuant to Minn. Stat.  §65B.48, subd. 3, of the Minnesota No-Fault Automobile Insurance Act, “is the functional equivalent of an insurance policy” and “such a policy, if purchased [by the self-insured owner], would contain an omnibus clause extending coverage to permissive drivers as additional unnamed insureds” and constitutes “other insurance” within meaning of renter’s personal policy); White v. Howard, 240 N.J. Super. 427, 573 A.2d 513 (N.J. Super. A.D. 1990), cert. denied, 122 N.J. 339, 585 A.2d 354 (N.J. July 17, 1990) (“qualified self-insurance” obtained by car rental agency was the equivalent of “other collectible insurance” within the meaning of renter’s personal automobile policy); Boatright v. Spiewak, 214 Wis.2d 507, 570 N.W.2d 897 (1997) (statute requires self-insured car rental agency to “pay the same amounts that an insurer would have been obligated to pay under a motor vehicle liability policy if it had been issued” and, thus, protection extended to renter constituted “other insurance” within meaning of renter’s personal auto policy); Southern Home Ins. Co. v. Burdette’s Leasing Service, Inc., 268 S.C. 472, 234 S.E.2d 870, 872 (1977) (self-insurer is required to provide same protection to one operating self-insurer’s vehicle with consent as a statutorily required automobile liability policy must provide and, thus, protection extended to lessee constitutes “insurance” within meaning of lessee’s policy).  Thus, in jurisdictions which mandate that a vehicle owner’s policy (or self-insurance plan) extend omnibus protection to permissive users, an SIR in the vehicle owner’s policy will constitute “insurance” within the “other insurance” clause of the policy insuring the permissive user.

However, in jurisdictions which do not require a vehicle owner’s insurance policy (or self-insurance plan) to extend omnibus protection to permissive users, an SIR should not be considered “insurance.”  See, e.g., Home Indem. Co. v. Humble Oil & Refining Co., 314 S.W.2d 861 (Tex. Ct. App.1958), writ of error and reh’g denied, 159 Tex. 224, 317 S.W.2d 515 (1958) (self-insurance does not operate for benefit of negligent driver); Farmers Ins. Co. of Oregon v. Snappy Car Rental, Inc., 128 Or. App. 516, 876 P.2d 833 (Ore. Ct. App. 1994) (same);  American Fam. Mut. Ins. Co., v. Missouri Power & Light Co., 517 S.W.2d 110 (Mo. 1974) (same).  An SIR should not be considered “insurance” in such jurisdictions because the vehicle owner, if it paid the injured party for damages caused by the negligent permissive user, would be entitled to recover its payment from the permissive user — a proposition directly contrary to the purpose of liability insurance.  See Champlain Cas. Co. v. Agency Rent-A-Car, Inc., 168, Vt. 91, 716 A.2d 810, 813 (1998) (explaining basis for distinction in case law decisions and noting that “there is far less disagreement in the cases that a superficial perusal would suggest”).

This blog is for informational purposes only. By reading it, no attorney-client relationship is formed. The law is constantly changing and if you want legal advice, please consult an attorney licensed in your jurisdiction. © All rights reserved. 2010.

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