An automobile insurer’s “Lessor Liability Endorsement” is not illusory, notwithstanding the fact that federal law bars claims of vicarious liability against vehicle lessors, because the endorsement imposes upon the insurer a duty to defend lessors against vicarious liability claims. Hallums v. Infinity Ins. Co., 2019 WL 6872507 (11th Cir. Dec. 17, 2019).

The plaintiffs entered into vehicle leases that required them to maintain liability insurance with specified limits. They purchased automobile insurance policies with lower limits for themselves, but including a “Lessor Liability Endorsement” providing the required level of coverage for the lessor. The Graves Amendment, 49 U.S.C. § 30106(a), bars claims of vicarious liability (but not negligence or criminal wrongdoing) against vehicle lessors. So the plaintiffs filed a putative class action alleging that the insurer’s “Lessor Liability Endorsement” was illusory. The insurer moved to dismiss the complaint and, after that motion was denied, moved for summary judgment. The court granted the motion, and the plaintiffs appealed.

The Eleventh Circuit, in an opinion written by Judge Martin and joined by Judge William Pryor and by Judge Jeffrey S. Sutton visiting from the Sixth Circuit, affirmed. The court first rejected the insurer’s argument that the plaintiffs lacked standing to bring their claims because neither of them had made an insurance claim under the policies in question. The allegation that the plaintiffs had paid premiums for coverage alleged to be illusory, the court held, was sufficient to convey Article III standing.

On the merits, the insurer argued that the endorsement was not illusory because it provides coverage for more than vicarious liability; because it imposes on the insurer a duty to defend insurers against claims of vicarious liability; and because the plaintiffs’ claims were, according to the insurer, barred by the filed rate doctrine. The court agreed with the second argument. “‘The duty to defend is of greater breadth than the insurer’s duty to indemnify,’” the court observed, and “‘[t]he central inquiry in a duty to defend case is whether the complaint ‘alleges facts that fairly and potentially bring the suit within policy coverage.’” Thus claims alleging vicarious liability against a lessor would implicate the insurer’s duty to defend under the Lessor Liability Endorsement, even assuming the claim would ultimately fail because of the Graves Act. The record in the case demonstrated that lessors continue to be sued based on alleged vicarious liability, even after passage of the Graves Act. The endorsement therefore was not illusory “Even if this were a close case,” the court concluded, “‘[a]ny doubt concerning an insurer’s duty to defend must be resolved in favor of coverage.’”