Graves Amendment Under Attack

How Graves Changed the Leasing and Rental Industries

The Graves Amendment eliminated vicarious liability of owners of rented or leased vehicles beginning Aug. 10, 2005. The amendment was named after Missouri Congressman Sam Graves, one of its sponsors, and it was part of a much broader piece of transportation legislation signed that day by President Bush.

Those involved in the car rental industry as well as the truck rental and leasing industries led the fight for passage of the amendment, and celebrated the day it became law.

Prior to the signing date, an owner of a rented or leased vehicle could be found responsible for damage caused by that vehicle, even if the owner was not at fault. In one of the worst cases—just prior to the passage of the Graves Amendment—Budget was held liable for millions in damages when one of its renters struck and seriously injured a pedestrian in New York City.

Vicarious liability was the law in 14 jurisdictions, most with a cap on damages. However, in New York, Connecticut, Idaho, Iowa, Washington, D.C. and Puerto Rico, vehicle owners could be held liable in unlimited amounts. This uncertainty as to the ceiling on risk led insurers to become wary of writing coverage in states with unlimited loss potential.

Passage of the Graves Amendment put life back into the car rental industry in states such as New York, where independent and franchised car rental operators were going out of business because of their inability to obtain liability insurance at reasonable prices. New York may still have a few laws oppressive to car rental companies, but vicarious liability is no longer among them.

In the years immediately before 2005 some auto manufacturers and their lease financing arms even threatened to suspend personal auto leasing in New York and Connecticut. The Graves Amendment also ended those objections.

Graves Constitutionality Challenged

But neither the rental nor the leasing industry felt the Graves Amendment would go unchallenged. The obvious point of attack would be the constitutionality of the legislation (i.e., whether Congress has the power to overrule state laws establishing vicarious liability). The attacks would come in lawsuits by persons injured in auto accidents where one of the vehicles was leased or rented.

As of Dec. 1, 2007, most courts have upheld the validity of the Graves Amendment, but a few have held it unconstitutional. There is no legislative effort underway to repeal the Graves Amendment.

Trial case rulings are binding only on the litigants in the cases. Appellate decisions can reach beyond the litigants and set precedents that bind future trials. To date the only appellate decision that reaches beyond the actual litigants is the Kumarsingh case in Florida, a state appeals court case that binds trial court in Florida’s third district—which includes Miami and Dade County. That case, which found the Graves Amendment valid, is detailed below.

Following is a review of the most significant cases interpreting the Graves Amendment. The cases involve both rented and leased vehicles, not only because the Graves Amendment applies to both, but because a finding of unconstitutionality in either a leasing or a rental case would invalidate the law for both businesses.

CONTINUED:  Graves Amendment Under Attack
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