Vicarious Liability – Rental Car Companies (Graves Amendment)

Vicarious Liability – Rental Car Companies (Graves Amendment)

This is the third segment of a four-part series that addresses vicarious liability and vehicle accidents. Vicarious liability is a legal doctrine that applies in situations where a party is potentially liable for the harm caused by negligent actions of another, even if the first party did not demonstrate the negligence themselves. It applies in relationships, such as a parent being liable for actions of their child, or, among other examples, an employer being liable for the actions of an employee during the course and scope of employment, among others. In this segment, we look at the potential liability of a rental car company for harm, such as injuries, fatalities and property damage caused by the renter. In 2005, the federal government enacted legislation known as the “highway bill”, which included some provisions referred to as the Graves Amendment (“Graves”) relevant to this legal issue.

Graves Amendment

This amendment states the owner of a vehicle that is rented or leased to a party is not liable for damages caused by the renter. The law applies exclusively to those whose business is in the vehicle rental or leasing industry. Before the law was enacted in 2005, rental car entities were potentially exposing themselves to liability vicariously when they rented a vehicle. This was a detriment to rental and leasing companies because of the need for additional insurance coverage. In states such as New York, the laws did not have any limits on the amount of recoverable damages in cases of vicarious liability against rental car companies.

Potential Rental Company Liability Scenarios & Constitutional Challenges

The Graves Amendment obviously does not apply when the rental or leasing company demonstrates negligence themselves or engages in criminal acts. A rental car company, like any employer, also may face potential liability for injuries or losses stemming from the actions of their employees. Rental companies are still required to meet state laws regarding minimum financial responsibility (MFR) and insurance standards applicable to all vehicle registrants and operators in a state. There have been challenges to the limits and applicability of Graves in court. One example is a claim of negligent entrustment against the rental company for the damages caused by renter actions. Colorado does recognize negligent entrustment in civil cases, which requires three elements:

  1. The owner allowed another individual to use the vehicle;
  2. The owner had control or right to control the vehicle; and
  3. When permission was granted, the owner knew that it was likely to cause unreasonable dangers to others.

Examples include lending a vehicle to an individual that was visibly intoxicated or to someone far too young to drive. Historically, the common factors cited in these claims have included:

  • Renter was intoxicated at the time of the rental/lease;
  • Renter did not possess a valid driver’s license; or
  • Renter had a very poor driving record.

There have been several cases challenging the constitutionality of the law that were largely unsuccessful. There has yet to be any involvement from the U.S. Supreme Court regarding the constitutionality since its enactment.

Graves Amendment vs. State Laws

Cases in some states have questioned whether Graves applies to truck rentals, which are applicable if classified as motor vehicles. The issue of how Graves applies to auto dealership “loaner” cars depends on the specific agreement terms and dealer practices. Graves is a federal law that preempts individual state laws. The Constitution has a principle of “preemption,” a requirement that state courts follow federal law when a state law exists. In most court challenges the plaintiffs have named both the driver (renter) and the rental company (owner) as defendants. Ultimately, the rental company’s extent of liability is equivalent to the state’s established MFR.

Applicability for Emerging Car Sharing Industry

New business concepts and technology continue to evolve; therefore, courts have the responsibility of interpreting and applying the existing laws to scenarios that were not in existence when drafted by the legislature. One such example is how vicarious liability applies to operators in the newer “car sharing” or “shared mobility” industry such as Zipcar and Car2go. Graves does not specifically define the meanings of “rent” or “lease”; therefore, the question is whether these companies are part of the industry engaging in motor vehicle renting or leasing. Thus far, these companies have been found to qualify under Graves.