Look into two things: the passenger signed as a co-driver. So he/her may not be entitled as a passenger of yours, technically, even in the car when you were driving. Ask your own lawyer about the legal implications. Second, look into Hertz insurance policy. If the court determines the passenger as the "passenger" and should be compensated as such, then by definition Hertz has to cover the passenger's loss. If the court determines otherwise, then Hertz doesn't have to pay and you should not be liable either because you're only liable to your passengers. Have your own lawyer look hard into this "gray area" of insurance liabilities.
Have you tried to settle with the other passenger?