Opening its opinion with the quote, “If you call a tail a leg, how many legs has a dog? Five? No; calling a tail a leg don’t make it a leg,” the Colorado Supreme Court made clear that labels alone do not transform a rental car company into an insurer. On April 27, 2026, the Colorado Supreme Court in Hertz Corp. v. Babayev, 2026 CO 26, held that Hertz could not be treated as either a statutory insurer or a common law “de facto insurer” for purposes of bad faith liability.
The case arose after passengers injured in a hit-and-run accident sought UM/UIM benefits under supplemental insurance purchased through a Hertz rental agreement. Although Hertz offered the supplemental coverage, Chubb issued the policy, and claims administrator ESIS managed the claims.
The plaintiffs argued Hertz functioned as an insurer because it sold the coverage, was involved in ESIS’s early handling of the claims, and had financial exposure tied to claim payments based on a risk-allocation agreement it had entered with Chubb. The Colorado Supreme Court disagreed.
First, the Court held that Colorado’s statutory framework distinguishes rental car companies from insurers, noting the legislature effectively abrogated earlier case law that had expanded insurer status to rental companies.
Second, the Court narrowly interpreted its earlier decision in Cary v. United of Omaha Life Insurance Co., which extended the tort of bad faith breach of insurance contract to certain third-party claims administrators, and emphasized that such potential “de facto insurer” liability applies only to a limited class of third-party administrators that both primarily handle claims and share financial risk. Because Hertz’s primary business was renting vehicles—not claims administration—the Court concluded it did not owe a common law duty of good faith and fair dealing arising out of the Chubb policy.
In closing, the Court returned to the theme that framed the opinion from the outset: “Words cannot alter facts.” Calling Hertz an insurer did not make it one. As the Court explained, “A dog has four legs, and relabeling its tail a ‘leg’ doesn’t magically create a fifth one.” Regardless of Hertz’s involvement in the claims process or its financial incentives, the “underlying reality remains unchanged”: under Colorado law, Hertz was neither a statutory insurer nor a common law de facto insurer.
The decision provides important guidance for businesses offering incidental insurance products and signals the Colorado Supreme Court’s reluctance to expand bad faith liability beyond traditional insurers and, in very limited circumstances, claims administrators.
