A federal court in South Dakota handed down a Graves Amendment decision last week significant to the rental car industry. 

In SDI v. Brown, U.S. District Judge Jeffrey L. Viken issued a 25-page opinion concluding that federal law prevents rental car companies from having to bear ultimate responsibility for damages their renters cause to third parties. His decision allows recovery from a renter after the company paid the damages, even though state law had previously denied it. 

Subrogation Division, Inc. (SDI), owned and founded by David Purinton, filed the case to obtain the ruling. Purinton is also president and founder of PurCo Fleet Services, Inc., which has long championed rental car damage recovery causes.

“We had confidence this was the right reading of the Graves Amendment,” Purinton said in a statement. “The judge’s decision leaves no doubt: Rental car companies are not liable for damages their renters cause to third parties just because their rental car was involved. Congress made that clear, the Court has now made that clear and more rental car companies ought to be aware of it.”

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. By its terms, 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, according to the ruling.

Defendant Brown rented a car from Overland West, the Hertz licensee in Rapid City, South Dakota. During his rental period, he caused an accident with a third party, Claymore. 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.

“The Amendment states rental companies like Overland ‘shall not be liable’ under state law for damages incurred by renters,” Judge Viken wrote. While states may require rental companies to carry insurance, they “may not require rental companies to be vicariously liable for damages incurred solely by renters through insurance law or otherwise.” Consequently, the state law “requirement that Overland pay the Claymore damages is preempted by the Graves Amendment.”

The court observed that the intent of the Amendment was to relieve rental car companies of just this type of liability, regardless of what state law says. “By requiring [Overland] to primarily cover the Claymore damages,” Viken observed, South Dakota law “forces Overland to be vicariously liable for Mr. Brown’s torts. This is the precise result barred by the Graves Amendment.”