"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 W. 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.”
When Michael LaPlaca penned those words for the Sept/Oct 2005 issue of Auto Rental News (“What Does the End of Vicarious Liability Mean?”), the impact of the Graves Amendment was only beginning to develop, and there were questions as to interpretation of the specifics of the law.
Previous to passage of the Graves Amendment, the doctrine of vicarious liability had a chilling effect, particularly in states that had no limits on damages awarded in vicarious liability cases involving rental vehicles. “Vicarious liability” imposes responsibility on one person (like a rental company) for the actions of another (like a renter), even if the first person was not negligent itself.
In New York, unlimited vicarious liability contributed to sky-high insurance rates that caused some companies to go out of business. Leasing — both consumer and commercial — came to a virtual standstill.
The Graves Amendment changed all that, though it has weathered challenges in the 10 years since its passage. Here’s an update on the interpretation of the Graves Amendment today and how many of those initial questions have been answered.
What’s Covered, What’s Not
Essentially, the federal Graves Amendment provides that a motor vehicle rental or leasing company cannot be held liable under state or local law for damages or injuries that occur during the rental or lease simply because the rental company (or its affiliate) is the owner of the vehicle.
To benefit from the Graves Amendment, the “owner” must be “engaged in the business of renting or leasing motor vehicles.” A vehicle “owner” may be the titleholder, lessee, or bailee of the vehicle.
The Graves Amendment, however, does not protect a rental company from its own negligence or criminal wrongdoing. If an injury is caused by a rental company’s negligent or criminal act, the rental company could still be directly liable for its actions or inactions — even if an accident occurs while a renter is driving the vehicle.
Direct negligence claims brought against rental companies typically take one of three forms: negligent entrustment, negligent maintenance, or failure to supervise or train employees. In addition, a rental company may still be held vicariously liable for damages or injury to third persons caused by the rental company’s employees, depending upon the state and circumstances.
Finally, the Graves Amendment does not affect state minimum financial responsibility (MFR) laws or laws that impose liability on rental companies for failure to meet MFRs or other insurance requirements.
When Graves was enacted, a number of issues were raised regarding the new law. Today we have some answers, while some questions remain.
- On whether Graves would be applied in states such as New York, which had imposed unlimited vicarious liability on rental car companies, a number of cases in New York courts confirmed the application of Graves, as have courts in other states.
- The Graves Amendment applies to trucks, which are covered under the term “motor vehicles.”
- There has not been a wholesale increase in state MFR levels, though some saw the potential at the time.
- The application of Graves as it applies to auto dealer loaner cars was a good question in 2005 and still is today. The outcome — in particular circumstances — may depend on factors such as the terms of the loaner agreement and the practices of the auto dealer.
New Business Models
Since business models and technology often evolve at a much faster pace than the law, courts frequently must apply existing law to technology unimagined by the legislatures at the time the law was written.
The Graves Amendment is no different, and the question of its applicability to newer business models typically turns on whether a business involves an owner “engaged in the business or renting or leasing” motor vehicles. The Graves Amendment does not define “rent,” “lease,” or “engaged in the business,” so the answer is not always clear.
Carsharing operators often market themselves as an alternative to car rental. At least one court has found this approach to be a distinction without a difference as far as the Graves Amendment is concerned.
In two cases involving Zipcar, a New York state court found that the commercial carsharing company was engaged in the business of rental for purposes of the Graves Amendment, because Zipcar permits its members to use cars in exchange for a fee.
As of this writing, we are unaware of any published cases analyzing whether the Graves Amendment applies to other business models, such as peer-to-peer carsharing or hybrid models combining elements of traditional car rental, carsharing, and newer mobility services.
As technology and the ingenuity of operators evolve, a court likely will need to address this issue. The outcome will depend on how well innovators can show that their model is really just a traditional rental company using technology to deliver services in a new way.
Attempts to Limit the Graves Amendment
Over the past 10 years, plaintiff’s lawyers and legislators have sought to limit the Graves Amendment. For example, some plaintiff’s lawyers have taken to including negligent entrustment claims as part of any claim in connection with an accident caused by a renter.
There are a wide variety of claims asserted, but they generally fall into three categories: The renter was impaired in some way at the time of the rental; the renter was not qualified to drive (by way of an expired or suspended license); or the renter had a poor driving record. This is sometimes a strategic move and may not ultimately have any basis in the facts of the case.
Defending these claims involves a number of tactics, but the key goal is to separate the negligent entrustment claim from any claim based simply on ownership (and thus subject to state MFR). This can be accomplished with focused discovery requests directed to the plaintiff. Confirming the basis for the claims may allow a rental company to pursue a motion with the court limiting its liability without the risk (and cost) of a full trial.
On the legislative side, in May 2010, Congressman Bruce Braley (D-Iowa) unsuccessfully sought to offer an amendment to the Motor Vehicle Safety Act of 2010, which would have repealed the Graves Amendment. Legislation to alter MFR limits and rules has also been introduced (but not passed) in states like Florida and New York.
A Constant Evolution
During its first 10 years, the Graves Amendment has survived several challenges, and courts have answered some of our initial questions.
Since the vehicle rental industry of 2016 is markedly different from that of 2005 and will continue to evolve, the application and interpretation of the Graves Amendment will continue to be critical for the industry. Stay tuned.