Rental Car Companies Offering Third-Party Supplemental Insurance Are Not Colorado Statutory or De Facto Insurers

Introduction

In Hertz Corp. v. Babayev, 2026 CO 26, the Colorado Supreme Court held that a motor vehicle rental company does not become an insurer merely because it offers customers supplemental insurance supplied through a licensed third-party insurer.

The dispute arose after Roman Rakhimov rented a vehicle from Hertz and purchased a Liability Insurance Supplement that included uninsured/underinsured motorist coverage for occupants. After a hit-and-run collision injured passengers Stanislav Babayev and Oleg Chikov, they sought benefits under the supplemental coverage. The policy was issued by ACE American Insurance Company, referred to as Chubb; Hertz was the named insured; and the rental customers and passengers were additional insureds.

Plaintiffs sued Hertz, alleging breach of contract, common-law bad faith, and statutory unreasonable delay or denial of benefits under sections 10-3-1115 and 10-3-1116. The central question was whether Hertz could be treated as either a statutory insurer under Colorado insurance statutes or a common-law “de facto insurer” under Cary v. United of Omaha Life Insurance Co.

Summary of the Opinion

The Colorado Supreme Court reversed the court of appeals and reinstated the district court’s dismissal of the claims against Hertz.

• Statutory holding: Hertz is not an “insurer” under title 10 of the Colorado Revised Statutes. The General Assembly, after Passamano v. Travelers Indemnity Co., amended Colorado insurance statutes to distinguish motor vehicle rental companies from insurers.
• Common-law holding: Hertz is not a de facto insurer under Cary v. United of Omaha Life Insurance Co.. The court limited Cary to third-party administrators whose primary business is claims handling and who have both primary claims-handling responsibility and a significant financial stake in claim outcomes.
• Disposition: The court held that Chubb was the insurer, ESIS was the third-party claims administrator, Hertz was the named insured, and plaintiffs were additional insureds. Hertz’s financial exposure and limited involvement in claims handling did not transform it into an insurer.

Justice Hood, joined by Justices Gabriel and Blanco, concurred in part and dissented in part. The dissent agreed that Hertz was not a statutory insurer but argued that disputed facts could support treating Hertz as a de facto insurer because Hertz bore the financial risk and allegedly exercised meaningful control over claim valuation.

Analysis

Precedents Cited

1. Statutory-insurer framework

Passamano v. Travelers Indemnity Co. was the key statutory precedent. In Passamano, the Colorado Supreme Court had treated a car rental company as an insurer for purposes of the statutory duty to offer UM/UIM coverage. The majority in Hertz concluded that the General Assembly effectively abrogated that holding through later amendments excluding motor vehicle rental agreements and rental companies from relevant insurance-law provisions.

The court emphasized that the legislature created separate statutory categories for “insurer” and “motor vehicle rental company,” excluded motor vehicle rental agreements from the UM/UIM offer requirement, and provided that the sale of authorized insurance by rental-car agents is not “transacting insurance business.” These amendments made Passamano unusable as support for treating Hertz as a statutory insurer.

2. Common-law bad faith and de facto insurer doctrine

Cary v. United of Omaha Life Insurance Co. supplied the core common-law issue. In Cary, the court imposed bad-faith duties on a third-party administrator that performed virtually all insurer functions and had a financial stake in the outcome. The Hertz majority read Cary narrowly: de facto insurer liability applies only to claims administrators whose primary business is claims handling and who effectively substitute for the insurer.

Travelers Ins. Co. v. Savio and Goodson v. Am. Standard Ins. Co. of Wis. were cited for the special nature of insurance contracts and the insurer-insured relationship. These cases explain why insurers owe a tort-based duty of good faith and fair dealing. The majority used them to show that this duty ordinarily belongs to the insurer, not to every entity connected to an insurance transaction.

Riccatone v. Colo. Choice Health Plans was important because it applied Cary to third-party administrators. The majority refined Riccatone, clarifying that Cary should not be read to impose bad-faith liability on any third party with insurer-like functions and financial incentives. Instead, the third party must be a claims-handling administrator of the kind involved in Cary.

3. Statutory interpretation and procedural authorities

The court relied on Shelter Mut. Ins. Co. v. Mid-Century Ins. Co., Apodaca v. Allstate Ins. Co., Robbins v. People, Doubleday v. People, Archuleta v. Roane, and Dep't of Nat. Res. v. 5 Star Feedlot, Inc. for standard principles of statutory interpretation: courts review statutory questions de novo, give words their plain meaning, and read statutory schemes as a harmonious whole.

Great N. Props., LLLP v. Extraction Oil &Gas, Inc. and Coffman v. Williamson were cited for the standard governing C.R.C.P. 56(h) determinations of law. The court concluded that the relevant facts were sufficiently undisputed to decide Hertz’s status as a matter of law.

4. Additional-insured and institutional-restraint cases

Md. Cas. Co. v. Buckeye Gas Prods. Co. and Weitz Co. v. Mid-Century Ins. Co. were used to show that commercial actors often arrange for others to be additional insureds under a policy. Such arrangements do not make the named insured into the insurer.

Bermel v. BlueRadios, Inc. and Martinez v. Lewis supported judicial restraint. The majority reasoned that courts should not create common-law liability that conflicts with the legislature’s policy choice to exclude rental car companies from insurer status. Laird v. Nelms reinforced the court’s rejection of an indirect “back door” route to liability that the legislature had foreclosed directly.

5. Comparative and dissent-related authorities

The majority cited De Dios v. Indem. Ins. Co. of N. Am., William Powell Co. v. Nat'l Indem. Co., McLaren v. AIG Domestic Claims, Inc., and Charleston Dry Cleaners & Laundry, Inc. v. Zurich Am. Ins. Co. to note that most jurisdictions do not extend bad-faith liability to entities lacking privity with the insured, including many third-party administrators.

The dissent cited Vaccaro v. Am. Fam. Ins. Grp. for the distinction between statutory and common-law insurance claims, and relied on authorities concerning fronting arrangements, including Reliance Ins. Co. v. Shriver, Inc., Dorsey v. Fed. Ins. Co., and O'Hare v. Pursell. The dissent viewed Hertz’s fronting arrangement with Chubb as potentially sufficient to create de facto insurer obligations. It also cited Scott Wetzel Servs., Inc. v. Johnson as part of the doctrinal background for exceptions to privity requirements.

Legal Reasoning

The majority’s reasoning had two independent parts.

First, as a matter of statutory interpretation, the court held that Colorado’s insurance code does not treat rental car companies as insurers when they offer optional supplemental coverage through a licensed insurer. The court gave weight to multiple post-Passamano amendments, including provisions excluding motor vehicle rental agreements from UM/UIM requirements and clarifying that rental-company employees offering such insurance are not insurance producers.

Second, as a matter of common law, the court refused to expand Cary. Hertz had a financial incentive because it reimbursed Chubb under a fronting-style arrangement, and Hertz had some involvement in the claims process. But the court found those facts insufficient. ESIS, not Hertz, handled the claims; Chubb, not Hertz, issued the policy; and Hertz’s core business was renting cars, not administering insurance claims.

The dissent disagreed with the majority’s narrow reading of Cary. In the dissent’s view, the combination of revenue generation, claim-adjustment involvement, and complete financial risk could create the special relationship needed for common-law bad-faith liability, at least enough to survive resolution as a pure question of law.

Impact

• For rental car companies: Colorado rental car companies that offer optional third-party supplemental insurance are not automatically insurers and are not subject to bad-faith liability on that basis alone.
• For insurance bad-faith law: The decision narrows and clarifies Cary. De facto insurer liability is limited to entities functioning as claims administrators with primary claims-handling responsibility and financial exposure.
• For fronting arrangements: Financial risk alone is not enough. Even a fronting-style deductible arrangement does not make a commercial policyholder an insurer if it does not primarily administer claims.
• For plaintiffs: Injured claimants may still pursue claims against the actual insurer or claims administrator, and may pursue consumer-protection theories where supported. But they cannot recast a rental car company as an insurer merely because it sold access to coverage.
• Beyond car rentals: The ruling protects other businesses that incidentally offer access to third-party insurance, such as travel, equipment rental, or leasing companies, from being treated as insurers absent true claims-administration responsibility.

Complex Concepts Simplified

• UM/UIM coverage: Insurance that protects an insured person when the at-fault driver has no insurance or too little insurance.
• Statutory insurer: An entity that qualifies as an insurer under the definitions and obligations created by insurance statutes.
• De facto insurer: An entity that is not formally an insurer but is treated like one because it performs insurer-like functions and has insurer-like incentives.
• Third-party administrator: A company hired to process, investigate, adjust, and sometimes pay claims on behalf of an insurer or plan.
• Fronting agreement: An arrangement where a licensed insurer issues a policy, but another entity ultimately reimburses the insurer for claim payments, meaning the other entity bears much of the financial risk.
• Nondelegable duty: A duty that an insurer cannot avoid by hiring someone else to perform the work. If the duty is breached, the insurer may remain responsible.
• Privity of contract: A direct contractual relationship between parties. Bad-faith insurance claims usually require such a relationship, though Cary recognized a narrow exception.

Conclusion

Hertz Corp. v. Babayev establishes that, under Colorado law, a rental car company does not become a statutory or de facto insurer merely by offering optional supplemental insurance provided through a licensed third-party insurer.

The decision is significant because it both confirms the legislative abrogation of Passamano v. Travelers Indemnity Co. in this context and limits Cary v. United of Omaha Life Insurance Co. to a narrow category of claims-handling administrators. The result preserves a clear distinction between insurers, claims administrators, named insureds, and additional insureds.