A federal court in South Dakota handed down a decision last week concluding that federal law prevents rental car companies from having to bear ultimate responsibility for damages their renters cause to third parties. The decision in SDI v. Brown also 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, who is also president and founder of PurCo Fleet Services, Inc. outlined the implications of the decision for the car rental industry:

“The first is that this decision came in a ‘primary’ state, where state law mandated that a rental car company’s insurance be primary in the event of an accident,” Purinton said. “The Graves Amendment still provided the same relief — a rental car company may not be held liable for the acts of its renters.” 

(The court expressed no opinion on whether the law required the same result if the damages had been within the scope of coverage borne by the carrier, as Overland West had paid them as part of its deductible.)

“The second is that rental car companies should not be paying these claims in the first place,” he said. “Congress wants the individuals responsible for causing damages to be the ones paying for those damages. Rental car companies are not responsible just because renters drive their cars. So there is no reason those companies should be paying out on third-party claims in the first place.”

The Brown court ruled, however, that recovery may be available even if they do initially pay those claims. The supremacy of federal law means the Graves Amendment applies regardless of the form in which state law attempts to achieve a different outcome, the court said. The decision let SDI enforce clauses in the rental agreement allowing recovery of the damages from the renter, as well as recovery of its attorney fees and costs.

Steve Jones, Overland West’s vice president of operations, said the opinion brings to the foreground yet another tool available to help rental car companies fight off unnecessary losses.

“We had actually gone out-of-pocket to pay this third-party liability claim because it was under our deductible,” Jones said. “Every one of those kinds of claims that a rental car company can avoid or recover helps save our customers money, grow our business and drop dollars to the bottom line. We shouldn’t have to shoulder the burden of something that is legally not our obligation in the first place. This decision helps us see that more clearly, and I think it will help others see that as well.”

Judge Viken’s decision squared with that sentiment. “The Amendment protects rental companies by lowering their tort liability, thereby lowering the cost of providing rental vehicles to the public,” he wrote. He rejected a constitutional challenge mounted by Brown and his insurer, concluding it was “a valid exercise of Congress’ power to regulate the instrumentalities of interstate commerce.”

Jerry Petersen, Overland West’s president and CEO, said he appreciates the causes Purinton and his companies have championed on behalf of the rental industry. In 2012, PurCo prevailed in Koenig v. PurCo, a landmark rental car decision from the Colorado Supreme Court. 

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

“These big battles that David Purinton is fighting and winning pave the way for better recoveries for rental car companies like mine,” Petersen said. “The amazing thing is that he pays for them from his own pocket because he believes so deeply in the cause. And we are the beneficiaries in the long run.”

Purinton received the Russell Bruno Award for Outstanding Service to the Auto Rental Industry in 2015. He lectures and writes extensively on damage recovery issues, including the Graves Amendment.

PurCo was founded in 1993. It provides risk management services to the rental car industry. PurCo has handled more than 500,000 car rental damage claims in all 50 states.

SDI was founded in 2000. It handles subrogation claims assigned by clients such as rental car companies, trucking companies and others.