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T. Lauvetz v. AK Sales & Service (11/15/91), 828 P 2d 162
NOTICE: This opinion is subject to formal correction
before publication in the Pacific Reporter. Readers are
requested to bring typographical or other formal errors to
the attention of the Clerk of the Appellate Courts, 303 K
Street, Anchorage, Alaska 99501, in order that corrections
may be made prior to permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
THOMAS J. LAUVETZ, )
Petitioner, ) File No. S-4025
v. ) 3AN 89 7285 CIV
ALASKA SALES AND SERVICE d/b/a ) O P I N I O N
NATIONAL CAR RENTAL; JOHN C. )
) [No. 3775 - November 15, 1991]
Petition for Review from the Superior Court
of the State of Alaska, Third Judicial
District, Anchorage, J. Justin Ripley, Judge.
Appearances: Sanford M. Gibbs, Hagans,
Brown, Gibbs & Moran, Anchorage, for Petition
er. John C. Siemers, Burr, Pease & Kurtz,
Anchorage, for Respondent, Alaska Sales and
Before: Rabinowitz, Chief Justice, Burke,
Matthews, Compton and Moore, Justices.
This matter is before the court on petition for review.
By previous order, we agreed to examine the superior court's
grant of partial summary judgment against the operator of a
rental vehicle in an action against the operator for collision
damage to the vehicle. The issue that we address is whether the
operator is entitled to the coverage afforded by a collision
damage waiver found in the vehicle rental agreement if the
operator is intoxicated while operating the vehicle.
Vacationers John Osborne and Thomas Lauvetz arrived in
Alaska on August 26, 1988. Before leaving Anchorage
International Airport, they rented a previously reserved van from
Alaska Sales and Service, doing business as National Car Rental
(National). Although Osborne rented the vehicle, he listed
Lauvetz as an authorized driver. While at the rental desk,
Osborne was offered an optional collision damage waiver (CDW),
which he accepted, and optional personal accident insurance,
which he declined. The CDW added $8.95 per day to the basic
daily rate of $70.00.
On the face of the Rental Agreement there is no indica
tion of the scope of the CDW. Directly above the CDW box, in
bold face and in the same size type as "Collision Damage Waiver
Option," are the words "See Terms and Conditions." The National
agent did not inform Osborne and Lauvetz where the terms and
conditions could be found. The agent apparently made no represen
tations about the scope of the CDW, nor did the agent indicate
that the terms and conditions contained specific exclusions to
The terms and conditions of the Rental Agreement were,
in fact, on the inside of the travel folder in which the agent
placed the Rental Agreement. The right flap of the travel
folder opened into three panels containing the terms and
conditions. The terms and conditions were printed in black on a
white background and were legible. Lauvetz and Osborne did not
read the terms and conditions.
Paragraph seven of the terms and conditions concerns
the CDW option:
If I [the renter] am involved in an
accident or the car sustains collision
damage, even from unknown causes, I am
responsible for the resulting damages
including loss of use, claims processing
fees, and administrative charges regardless
of fault. This financial responsibility is
eliminated if I accept the CDW Option, pay
for it, and comply with the Agreement,
including all Terms and Conditions.
I UNDERSTAND THAT CDW IS NOT INSURANCE.
I understand that some automobile insurance
policies cover loss and damages to the rental
vehicle; that National cannot interpret the
terms of my insurance policies; and that it
is my responsibility to check with my insur
ance company and my insurance agent.
If I accept the CDW Option, I agree to
pay the charge per day shown on the Rental
document for each full or partial day. I
understand that CDW does not apply to
interior or exterior damage to the Vehicle
caused by negligent loading or unloading of
baggage or equipment.
The Terms and Conditions also included a paragraph on
I agree that the Vehicle shall NOT be
used by or for any of the following
a. by an unauthorized driver;
b. by any driver under the
influence of intoxicants, drugs, or any
other substance known to impair driving
c. for any illegal purpose;
d. by anyone who gives the
Company a false name, address, age or
other false or misleading information;
e. in any abusive or reckless
f. to carry persons or property
g. to tow or push anything;
h. in any race, test, contest, or
i. for any use in Mexico without
the prior written permission of the
renting location. All protection is
void in Mexico. Your written permission
must be obtained and special insurance
must be purchased before entering
I UNDERSTAND THAT IF THE VEHICLE IS
OBTAINED OR USED FOR ANY PROHIBITED USE OR IN
VIOLATION OF THIS AGREEMENT, THEN THE CDW
OPTION SHALL BE VOID AND, WHERE PERMITTED BY
THE LAW, THE LIABILITY AND COMPREHENSIVE
PROTECTION, PAI, PEC, AND SLI INSURANCE SHALL
On August 29, 1988, the van was damaged while Lauvetz
was driving. As a result of the accident, Lauvetz was charged
with and pled no contest to reckless driving. AS 28.35.040.
National subsequently filed suit against Lauvetz and
Osborne, seeking compensatory and punitive damages for the wreck
of the van. The complaint alleged that Lauvetz was intoxicated
at the time of the accident and that this intoxication was a
causal factor of the accident. The complaint further claimed
that the CDW did not apply, because Osborne and Lauvetz remained
liable for any damage resulting from a prohibited use of the
vehicle, specifically, use by an intoxicated driver or use in a
During preliminary proceedings, National sought and
obtained partial summary judgment on the validity and enforce
ability of the exclusions to the CDW option. The superior court
ruled that the "terms and provisions of the collision damage
waiver in the car rental agreement governing drunk and reckless
driving are valid, binding, and enforceable, and the Court re
jects Defendants' position that the CDW is insurance." This
court accepted Lauvetz's petition to review the grant of partial
Lauvetz argues that the exclusions were beyond the
reasonable expectations of lessees accepting National's standard
ized contract. Before considering the parties' specific argu
ments, it is necessary to discuss the applicable law.
Section 211 of the Restatement Second of Contracts ad
dresses the question of interpreting standardized form agree
(1) Except as stated in Subsection (3),
where a party to an agreement signs or other
wise manifests assent to a writing and has
reason to believe that like writings are
regularly used to embody terms of agreements
of the same type, he adopts the writing as an
integrated agreement with respect to the
terms included in the writing.
. . . .
(3) Where the other party has reason to
believe that the party manifesting such as
sent would not do so if he knew that the
writing contained a particular term, the term
is not part of the agreement.
Restatement (Second) of Contracts 211 (1981). Thus, this
section establishes the general enforceability of the terms of
standardized forms, without regard for whether the customer reads
or understands those terms. Id. at comment b. This general
enforceability, however, is subject to limitations of
reasonableness: Customers "are not bound to unknown terms which
are beyond the range of reasonable expectation." Id. at comment
Although we have never explicitly endorsed Section 211
as the appropriate analysis for standardized agreements, we have
invoked a doctrine of reasonable expectations in analogous situa
tions. See Hillman v. Nationwide Mutual Fire Ins. Co., 758 P.2d
1248 (Alaska 1988); State v. Underwriters at Lloyds, London, 755
P.2d 396 (Alaska 1988). Both of those cases involved insurance
contracts. The operative fact in both situations, however, was
that the policy was a contract of adhesion, rather than a negoti
ated agreement. Hillman, 758 P.2d at 1250; Lloyds, London, 755
P.2d at 400. As a consequence, the agreements were "construed
according to the principle of reasonable expectations." Hillman,
758 P.2d at 1250; Lloyds, London, 755 P.2d at 400.
These cases suggest that "reasonable expectations"are
those expectations a consumer would have after reading the form.
For example, we noted that an "insurance policy may be considered
a contract of adhesion, and as such, should be construed to
provide the coverage which a layperson would have reasonably
expected, given a lay interpretation of the policy language."
Stordahl v. Government Employees Ins. Co., 564 P.2d 63, 65-66
(Alaska 1977); see also Wainscott v. Ossenkop, 633 P.2d 237, 243-
44 (Alaska 1981) ("[insurance] policy must be construed 'so as to
provide that coverage which a layman would reasonably have ex
pected given his lay interpretation of the policy's terms'")
(quoting Continental Ins. Co. v. Bussell, 498 P.2d 706, 710
(Alaska 1972)). Thus, this principle of reasonable expectations
is somewhat different from the principle embodied in Section 211,
which actually presumes that the customer does not read the
contract. Restatement (Second) of Contracts 211 comment b
(1981) ("Customers do not in fact ordinarily understand or even
read the standard terms.").1
The distinction is significant in this case. Given the
clarity of the terms and conditions, there is little room for
argument that a Stordahl-type "lay interpretation"of the terms
would differ from a legal interpretation. The Stordahl approach
is inadequate, however, in cases where consumers probably will
not read adhesive contracts and will not have any choice in the
terms even if they do read them. See Burgess Constr. Co. v.
State, 614 P.2d 1380, 1383 (Alaska 1980). Section 211, on the
other hand, emphasizes the reasonableness of the term or
condition, no matter how clear its meaning might be to the layman
if he happened to read it. The Arizona Supreme Court justified
its endorsement of Section 211 by noting that
[t]o acknowledge standardized contracts
for what they are--rules written by
commercial enterprises--and to enforce them
as written, subject to those reasonable
limitations provided by law, is to recognize
the reality of the marketplace as it now
exists, while imposing just limits on
Darner Motor Sales v. Universal Underwriters Insurance Co., 682
P.2d 388, 399 (Ariz. 1984). We agree and adopt the analysis of
Section 211 with regard to standardized form agreements outside
the insurance context.
National emphasizes that reasonableness is an objective
concept, and adds that "[n]o person who drives a car that does
not belong to him can have any reasonable expectation that he can
drive that car recklessly or while intoxicated." It argues that
Lauvetz's claimed reasonable expectations are nothing more than
"subjective and self-serving statements of [his] intent
concerning the meaning of the CDW." Such subjective intent,
National asserts, has no probative value, citing Peterson v.
Wirum, 625 P.2d 866, 870 (Alaska 1981).
National notes that the doctrine of reasonable expecta
tions is nothing more than a judicial construct for imposing
community standards of reasonable behavior on the private law of
contracts. National argues that under modern community stan
dards, drunk driving is viewed as a serious threat to public
safety. State v. Conley, 754 P.2d 232, 236 (Alaska 1988) ("driv
ers impaired by intoxication present a substantial risk to the
driving public"). Thus, National contends that Lauvetz's
position that a prohibition against drunk and reckless driving is
an unconscionable or unreasonable limit on the CDW is absurd.
National mischaracterizes the relevant question. It is
not whether a prohibition against drunk driving is unreasonable;
any renter would certainly know that the law prohibits drunk
driving on pain of severe penalties. See AS 28.35.030(c) (man
dating incarceration, a fine, and revocation of driver's license
even for first conviction). Rather, the relevant question here
is whether the purchaser of the damage waiver reasonably expected
the waiver to be subject to any exclusions. We conclude that a
consumer would not reasonably expect the damage waiver to be less
The common law rule is that bailees are not responsible
"for damages unattributable to their fault." Dresser Industries
v. Foss Launch & Tug Co., 560 P.2d 393, 395 (Alaska 1977). This
rule may be altered by contract. Id. The standardized form used
by National did in fact purport to alter that common law rule by
making the bailee responsible for any damage, however caused.
The CDW then offered the bailee protection from National's
unilateral alteration of the common law rule, ostensibly subject
to the exclusions.
We think that the common law rule aptly expresses a
bailee's reasonable expectation: He will be responsible for any
damage caused by his fault. The average car renter would not
parse that "fault" into the fine legal categories of
"negligence," "recklessness" or "volitional conduct." When
offered the CDW, the bailee would reasonably expect this option,
at the not inconsiderable rate of $8.95 per day, to relieve him
of responsibility even if the damage were caused by his fault.
Again, the average car renter would not parse that fault into
fine legal categories.
As the Colorado Supreme Court commented in a case
similar to the present one, "lessors should know that the simple,
highly readable summary of the collision responsibility alterna
tives will lead an average customer to reasonably conclude that
he is protected against most, if not all, risks." Davis v.
M.L.G. Corp., 712 P.2d 985, 992 (Colo. 1986). In this case,
there was not even a summary of the responsibility alternatives.
Lauvetz merely had the choice between a damage waiver and no
waiver, protection against damaging the car or no protection. In
deciding today that a consumer would reasonably expect that the
rental company's waiver is complete, we join the large number of
courts who have refused to enforce damage waiver exclusions under
a variety of circumstances. E.g., id.; Automobile Leasing & Rent
al, Inc. v. Thomas, 679 P.2d 1269, 1271 (Nev. 1984).2
The superior court's grant of partial summary judgment
in favor of National on the enforceability of the CDW exclusions
is REVERSED and this case REMANDED for further proceedings consis
tent with this opinion.
1. We have suggested in dicta an analysis closer to
An unusual or unexpected term in an
adhesion contract which falls outside the
weaker party's "reasonable expectations"will
be denied effect against him, unless it has
been brought to his attention by express
notice, as by clear, plain and conspicuous
language on the face of the contract . . . .
Burgess Constr. Co. v. State, 614 P.2d 1380, 1384 (Alaska 1980).
2. See also National Car Rental Sys. v. Council
Wholesale Distrib., Inc., 393 F. Supp. 1128 (M.D. Ga. 1974);
Union County U-Drive It v. Blomeley, 137 A.2d 428 (N.J. 1958);
Elliott Leases Cars, Inc. v. Quigley, 373 A.2d 810, 813-14 (R.I.
1977); Val Preda Leasing, Inc. v. Rodriguez, 540 A.2d 648, 652
(Vt. 1987); cf. Ill. Ann. Stat. ch. 95«, 6-305(f) (Smith-Hurd
Supp. 1991) (prohibiting CDWs altogether).