Darner Motor Sales v. Universal Underwriters

Brief Fact Summary.

A motorist rented a car from Plaintiff. The motorist negligently injured a pedestrian. The pedestrian sued the motorist and the motorist filed an insurance claim with Defendant, but the insurance coverage was limited to 15/30. The motorist then sued Plaintiff. Plaintiff then filed a third party complaint, naming Defendant as a third party defendant.The trial court granted Defendant’s motion for summary judgment. Plaintiff appealed.

Synopsis of Rule of Law.

In a contract of adhesion, where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement.

Facts.

Darner Motors Sales (Plaintiff) purchased umbrella coverage and a “U-Drive” policy from Universal Underwriters (Defendant). The U-Drive policy insured Plaintiff and the lessees of its cars for liability risk of up to $100,000 for any one injury and $300,000 for all injuries arising out of one accident (100/300). Lessees were covered to $15,000 for one injury and $30,000 for all injuries to themselves (15/30). Plaintiff claimed that it had informed Defendant that its rental contracts specified a higher amount of insurance for lessees and that Defendant had assured it that injuries exceeding the lessee insurance would be covered under the “all-risk” clause of the umbrella policy. Plaintiff rented a car to Dwayne Crawford. The rental agreement specified 100/300 coverage. While driving the vehicle, Crawford negligently injured a pedestrian and caused severe injuries. The pedestrian sued Crawford, and Crawford made an insurance claim to Defendant, which stated that its coverage was limited to 15/30. When Crawford then sued Plaintiff under the terms of the rental agreement providing coverage of 100/300, Plaintiff called upon Defendant to provide coverage under the umbrella policy, but Defendant claimed that lessees were not parties “insured” under the policy, and declined to provide coverage in excess of 15/30. Plaintiff then filed a third party complaint, naming Defendant as a third party defendant. Plaintiff appealed the grant of summary judgment to Defendant.

Issue.

Whether a party must be held to the terms of an adhesion contract if the other party knew that the contract contained a particular term for which the party would refuse to sign the contract.

Held.

No. The trial court ruling is reversed. In a contract of adhesion, where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement.

Dissent.

Holohan, CJ: In many industries where similar contracts are used, the court’s decision would encourage customers to ignore the terms of contracts in the hope they would not be bound by them. This puts an unfair burden on companies to advise customers on every term of the agreement and to develop a record to support that the customer was sufficiently informed.

Cameron, J.: The dissent’s opinion that the majority’s decision adopted minority positions, made the contents of such contracts irrelevant, and rewarded ignorance of the contents of the document is misguided. The rule adopted applies only to the type of contract which, because of the nature of the transaction, the particular customer was not or should not have been expected to read. Customers are still charged with knowledge and understanding of the forms, even when they do not read them.

Discussion.

If the writing is normally executed absent understanding of its fine print provisions, then it is less worthy as evidence of the true agreement. The reality of the marketplace is that customers expect the inclusion of certain terms, typically do not read every term in the contract, and trust the good faith of the other party. Where the insurer has reason to believe the party agreeing to the contract would not do so if he knew that the writing contained a particular term, the term is not part of the agreement. Standard terms may be superseded by separately negotiated or added terms, are construed against the drafter, and are subject to the overriding obligation of good faith and the power of the court to refuse to enforce an unconscionable term. Here, the fact finder could have concluded that Defendant breached its obligation of good faith or that the term was unconscionable.