The Colorado Supreme Court decided on Monday that car rental companies offering insurance policies are not also “insurers” under state law, who may be sued for their failure to pay out benefits on claims.

By 4-3, the justices further concluded that Hertz Corp. was not a “de facto” insurer simply because it was heavily involved in the claims process for injured vehicle occupants covered under a rental policy.

“Hertz rents cars; it doesn’t insure them,” wrote Justice Carlos A. Samour Jr. in the April 27 majority opinion. “True, Hertz participated in the early investigation and adjustment of plaintiffs’ claims and offered input on potential settlement. But those actions pale in comparison” to what an insurer does.

Justice William W. Hood III disagreed that Hertz’s involvement in the claims process is necessarily different from what an insurance company does.

“(W)hen, as here, a rental car company (1) generates revenue from a third- party insurance policy it offers to its customers, (2) assists in adjusting claims under that policy, and (3) assumes complete financial risk for those claims, the rental car company potentially becomes a de facto insurer,” Hood wrote for himself and Justices Richard L. Gabriel and Susan Blanco.

After a hit-and-run driver caused two passengers to incur more than $700,000 in medical bills, they sought payment from the company that owned the rental car they were riding in, Hertz. The driver, upon renting the vehicle, opted to purchase insurance covering injuries up to $1 million, and the injured passengers alleged Hertz breached that contract.

Hertz insisted it was not the insurer, but the entity being insured by its own insurance company, Chubb. By purchasing extra coverage, the driver and the passengers became insured alongside Hertz. A Denver judge sided with Hertz and determined Chubb retained the obligation to pay plaintiffs Stanislav Babayev and Oleg Chikov.

But a three-judge Court of Appeals panel concluded nothing in state law prevented car rental companies from also being recognized as insurance companies.

“Because Hertz offered to and did sell (the driver) two separate insurance coverages for specified prices, we conclude that Hertz was an insurer,” wrote Judge David J. Richman.

To the Supreme Court, Hertz maintained it was not an insurance company based on a sequence of events in the 1990s. The Supreme Court ruled at the time that rental agreements providing insurance rendered companies insurers, and they were required to offer certain coverage. Afterward, the legislature amended the law to walk back that decision.

However, the plaintiffs responded by pointing to the specific actions Hertz took in their case: The company investigated the claim, evaluated the injuries, had final decision-making authority, offered partial payment and bore the brunt of the financial responsibility.

“I don’t think there can be a realistic argument that what Hertz did in this case isn’t the transaction of insurance business. If it’s not, then nothing is,” attorney Nelson A. Waneka said during oral arguments.

The Colorado Division of Insurance also weighed in to the Supreme Court, cautioning that treating car rental companies as insurers would result in a “significant gap” in the entity’s regulatory authority. Trade groups representing truck and car rental agencies also warned that upholding the Court of Appeals’ decision would raise prices and reduce the availability of insurance for customers.

The Colorado Trial Lawyers Association and the American Association for Justice countered that rental car companies offer insurance because it is a “lucrative business,” which would be even more profitable if the rental companies could not be sued as insurers.

Ultimately, the Supreme Court agreed unanimously that the Court of Appeals mistakenly found car rental companies could be liable as insurers under state law.

As for whether Hertz acted as an insurer, Samour also concluded it had not.

“Chubb is the insurer; Hertz is the named insured; and purchasers of supplemental insurance are additional insureds,” he wrote for the majority. “If a car rental company offering incidental access to insurance coverage is an ‘insurer’ potentially subject to liability — notwithstanding the General Assembly’s painstaking efforts to make clear that such a company is not an ‘insurer’ — the same would seemingly be true of any Colorado business that offers access to third-party insurance incidental to the services or products it sells.”

Samour added that the plaintiffs’ claims for benefits were better directed against Chubb and the third-party claims administrator.

Hood, in dissent, would have kept the plaintiffs’ claims alive, with a direction for the trial judge to take another look at whether Hertz’s actions rendered it an insurer.

The case is Hertz Corporation v. Babayev et al.