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Vicarious Liability For Rental And Leasing Car Companies

Vicarious liability is a legal concept that means that one person is held liable for the bad actions of another person.  Historically, it was often applied to cases where there existed an employer- employee relationship. For example, an employer could be held liable for the actions of an employee who harasses another employee during the course of employment.  Similarly, up until 8 years ago, eleven states had statutes that imposed vicarious liability on an owner of a rented or leased vehicle that would make the owner legally responsible for damage caused by that vehicle, even if the owner otherwise had no involvement in the incident that led to the damage.

In 2005 Congress passed the Transportation Equity Act that included the Graves Amendment.  The Graves Amendment eliminated vicarious liability of owners of rented or leased vehicles. The only exception is in the case of negligence or criminal wrongdoing on the part of the owner.

To say that the Graves Amendment was good news for the vehicle rental and leasing industries is an understatement.  The high potential for losses caused insurers in many jurisdictions such as New York, Washington, D.C. and Iowa to become hesitant to cover car rental businesses, forcing many rental companies to close shop due to the inability to get coverage. According to auto industry trade associations, including the New York State Auto Dealers Association and the Greater New York Automobile Dealers Association, as a result of New York’s vicarious liability laws in 2003 new car and truck leasing in New York decreased by 36% compared to a nationwide decrease of 18%.

However, even though it had a preemption clause giving it priority over state law, the passage of the Graves Amendment did not immediately settle the issue of vicarious liability in the eleven states that had state statutes that imposed vicarious liability.  Following the passage of the Graves Amendment was a series of lawsuits challenging the applicability of the Graves Amendment where there was a conflict with state law.

The vast majority of courts across jurisdictions found that the Graves Amendment preempted state law. For example in Meyer v. Nwokedi, 777 N.W.2d 218 (Minn. 2010), the Minnesota Supreme Court concluded that the Graves Amendment preempted Minnesota’s vicarious liability laws that imposed liability on the owner of rented and leased motor vehicles.  Similarly, New York’s vicarious liability statute was considered in Green v. Toyota Motor Credit Corp., 605 F. Supp. 2d, 430 (2009 E.D.N.Y.).  The court determined that the New York statute creating a cause of action based on a theory of vicarious liability against lessors of vehicles was preempted by the Graves Amendment.

In Garcia v. Vanguard Car Rental USA, Inc., 540 F.3d 1242, 1253(11th Cir. 2008), a federal appeals court considered the issue for the first time.  The Eleventh Circuit found that the Graves Amendment was indeed constitutional, preempting a Florida statute. While challenges to the Graves Amendment may continue, recent decisions across jurisdictions indicate that state statutes imposing vicarious liability to owners of leased or rented vehicles will likely fail when pitted against the Graves Amendment.

While challenges to the Graves Amendment may continue, recent decisions across jurisdictions indicate that state statutes imposing vicarious liability to owners of leased or rented vehicles will likely fail when pitted against the Graves Amendment.  The practical impact is twofold. For the auto rental and leasing industry the result is that vicarious liability for vehicle owners is a thing of the past, removing a disincentive for companies to enter the rental and leasing arena in affected jurisdictions.  For victims of accidents where the negligent person drove a rented or leased vehicle, the Graves Amendment generally eliminates the ability to sue vehicle owners who often have much deeper pockets than the drivers.

Andrew Miller is a passionate member of the End Ecocide movement, an avid legal blogger and Environmental Law Student. This article was written on behalf of the Law office of Kevin Krist, a Houston Personal injury law firm.

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