“We believed we were reading the law correctly when no one else was," said Spencer Jacobsen, SDI’s director of operations.  - Image via Pixabay/Okan Caliskan.

“We believed we were reading the law correctly when no one else was," said Spencer Jacobsen, SDI’s director of operations. 

Image via Pixabay/Okan Caliskan.

A federal court in South Dakota has awarded Subrogation Division Inc. (SDI) attorney fees and costs for prevailing in a landmark Graves Amendment case. The new decision, handed down in a 16-page opinion in SDI v. Brown, reimburses SDI $61,077.20 for prevailing in the case as announced in a reported decision last year. The amount at issue in the underlying lawsuit was $2,271.75.

The original decision in SDI v. Brown was handed down in January 2020.

The case had decided that federal law prevents rental car companies from having to bear ultimate responsibility for damages their renters cause to third parties. His prior ruling had allowed recovery from a renter after the rental agency paid the damages, even though state law had previously denied it.

“This is another blow to those who would lay blame on rental car companies for their renters’ accidents,” said SDI president and founder David Purinton in a statement. “The United States Congress said in the Graves Amendment you can’t do it, but not everyone has gotten the message. This should help get the message through a little more clearly to those actually responsible for causing harm to third parties using rental cars.”

SDI v. Brown

The Graves Amendment was signed into law in 2005 as part of a major federal highway bill. Its name derives from its sponsor, Rep. Sam Graves (R-MO), who penned the amendment.

The Graves Amendment prohibits liability against a rental car company unless the company itself is negligent or engages in criminal wrongdoing. Neither of those occurred in SDI v. Brown.

Brown rented a car from Overland West, a Hertz System licensee in Rapid City, South Dakota. During his rental period, Brown caused an accident with a third party. Overland West paid the third party’s claim under its deductible, then assigned its own claims to SDI. SDI in turn sought recovery from Brown under his rental car agreement.

When both Brown and his insurance company refused to pay, citing state law, SDI sued in federal court, invoking the Graves Amendment. The court sided with SDI, enforcing the rental agreement to require the renter to reimburse Overland West for paying the third party’s damage claim. After prevailing on the damage claim — which Brown then paid — SDI sought its attorney fees and costs from the court under the rental agreement, totaling more than $60,000.

Brown opposed the motion, arguing the court should not make such a high fee award in a case that Brown described as a run-of-the mill damage dispute. U.S. District Judge Jeffrey L. Viken rejected Brown’s argument and awarded SDI $61,077.20.

More at Stake

In outlining his ruling, Viken noted that more was at stake in the litigation than merely the disputed payment amount.

“The court believes prior to the commencement of this litigation there were few attorneys in the state of South Dakota who might have heard of the Graves Amendment, let alone been prepared to litigate the vast spectrum of affirmative defenses asserted by the defendants,” Judge Viken wrote. “This is not a run of-the-mill insurance subrogation claim case.” He noted that the numerous defenses asserted by the renter and his carrier “set the battle lines for resolving this case.”

“The court believes prior to the commencement of this litigation there were few attorneys in the state of South Dakota who might have heard of the Graves Amendment, let alone been prepared to litigate the vast spectrum of affirmative defenses asserted by the defendants,” Judge Viken wrote.

He also found “the issues litigated in this case were unique and complex.” Spencer Jacobsen, SDI’s director of operations, noted that SDI took the risk in litigating the case and that the award was simply reimbursement for SDI’s outlay. “No guts, no glory,” Jacobsen said in the statement. “We believed we were reading the law correctly when no one else was. We went for it and it paid off. This will help rental companies, renters, and insurers on both sides of these disputes have a clearer path forward when a renter causes an accident that harms a third party.”

SDI, founded in 2000, handles subrogation claims assigned by clients such as rental car companies, carriers, third-party administrators, self-insured trucking and other companies, and governmental agencies.

Purinton said the effort was a joint one with its hometown legal team of twenty-plus years. “We have spent hundreds of thousands of dollars of our own money blazing trails for others to follow,” Purinton said. “It’s gratifying to see that pay off.”

Judge Viken recognized the effort as well when he ruled that “an attorney with the required skills more than likely was not available locally” in South Dakota.

The court found it “appropriate” for SDI to retain its longtime counsel, who the court deemed “an expert in the field of Graves Amendment litigation” to lead this case. SDI also retained a local attorney at its own expense to assist in managing the case.

Judge Viken quoted SDI’s papers in observing that the Graves Amendment is “not very well understood within SDI’s industry,” but that SDI’s attorney “has worked with SDI over many years to obtain the knowledge and expertise necessary to present Graves Amendment arguments appropriately and effectively.” The court added that SDI’s counsel “has special expertise and knowledge concerning the interplay between the Graves Amendment and state law” so “SDI logically chose to retain him as counsel in the case.”

Long History

In 2012, PurCo Fleet Services, Inc., another Purinton company founded in 1993, prevailed in Koenig v. PurCo, a landmark decision from the Colorado Supreme Court. PurCo provides risk management services to the rental car industry.

Like Brown, the Koenig decision came at the end of a long court battle. Koenig established that loss-of-use damages are an intrinsic loss in property damage incidents. The most recent Brown decision came in the fifth year of the case; the Koenig case took seven years.

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