What Does the End of Vicarious Liability Mean?

Aug. 10, 2005, will go down in history as one of the most significant dates in the vehicle rental industry. On that day, President George Bush signed into law a bill popularly known as the "highway bill." The legislation contained a section, known as the Graves amendment, which effectively bars all states from forcing vicarious liability on rental and leasing companies.

Vicarious liability is a legal concept that imposes liability on an actor who is not at fault. In the rental world vicarious liability means that the titled owner of a vehicle could be held liable for injuries caused by the renter —even though the vehicle owner committed no wrong.

Many states have vicarious liability laws, but only a few states or jurisdictions have laws that impose unlimited liability on vehicle owners. The most notable are: New York, Connecticut, the District of Columbia, Iowa and Puerto Rico.

Some states, such as Florida and Rhode Island, have vicarious liability laws with limits: $800,000 for Florida and $500,000 for Rhode Island. The majority of states with vicarious liability laws limit that liability to minimum financial responsibility (MFR) amounts. California is an example of such a state.

But on Aug. 10, all the vicarious liability laws melted away. The major car rental companies, all of which have been hit with enormous judgments in states with unlimited vicarious liability, led the way for introduction and passage of the so-called Graves amendment to the highway bill. The operative language in the Graves amendment is:

An owner of a motor vehicle that rents or leases the vehicle to a person shall not be liable under the law of any State or political subdivision thereof, by reason of being the owner of the vehicle, for harm to persons or property that results or arises out of the use, operation, or possession of the vehicle during the period of the rental or lease, if: (1) the owner is engaged in the trade or business of renting or leasing motor vehicles; and, (2) there is no negligence or criminal wrongdoing on the part of the owner.

Here are some questions raised by our clients since the bill became law:

District of Columbia
Does the Graves amendment really eliminate vicarious liability for losses occurring in Washington D.C.? The answer is not clear. The amendment releases rental companies from vicarious liability in "any State or political subdivision thereof." However, the District of Columbia is neither a state nor a political subdivision of a state. Attorneys for major rental companies are in the process of trying to clarify the meaning of this language with the office of Representative Sam Graves, the sponsor of the amendment. But they don’t expect to have answers until Congress reconvenes in the fall. Even Rep. Graves' opinion may not be followed by D.C. courts.

New York, Connecticut, Iowa, Florida, Rhode Island
In these states, the Graves amendment apparently overrides state law and eliminates vicarious liability of rental companies.

Puerto Rico Puerto Rico shares the same issue as the District of Columbia. Because Puerto Rico is not a state or a political subdivision of a state, the Graves amendment will likely have no effect, and unlimited vicarious liability will continue for rental companies in Puerto Rico.

CONTINUED:  What Does the End of Vicarious Liability Mean?
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  1. glen johnson [ August 26, 2013 @ 05:44PM ]

    Can a rental car agency be held liable
    If the person rent a car using false identification and get in a accident. Would'nt
    then they would be held negligent.

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