Vicarious Liability for Rental and Leasing Companies: The Graves Amendment
October 28, 2010 Leave a comment
The Graves Amendment is a federal statute that abolishes vicarious liability of companies that rent or lease motor vehicles based on the negligent driving of their customers.
By 2005, only eleven states imposed vicarious liability on the owner of motor vehicle (California, Connecticut, Florida, Idaho, Iowa, Maine, Michigan, Minnesota, Nevada, New York and Rhode Island) as did the District of Columbia. Under a vicarious liability law, the vehicle owner becomes legally liable for injuries and damages caused by a permissive driver of the motor vehicle. “[V]icarious liability is the ‘imposition of liability on one person for the actionable conduct of another, based solely on a relationship between the two persons.’” Sutherland v. Barton, 570 N.W.2d 1, 5 (Minn.1997) (quoting Black’s Law Dictionary 1566 (6th ed.1990)). Vicarious liability differs from direct negligence claims, such as negligent maintenance or negligent entrustment of a vehicle, which impose liability on the vehicle owner for its active fault. The Minnesota vicarious liability law is found in Minn. Stat. § 169.09, subd. 5a (previously Minn. Stat. § 170.54), which sets forth the general rule as follows:
Whenever any motor vehicle shall be operated within this state, by any person other than the owner, with the consent of the owner, express or implied, the operator thereof shall in case of accident, be deemed the agent of the owner of such motor vehicle in the operation thereof.
The Minnesota vicarious liability statute only applies to the “owner” (Minn. Stat. § 65B.43, subd. 4) of a “motor vehicle” (Minn. Stat. §169.011, subd. 42) which is involved in an accident in Minnesota. Boatwright v. Budak, 625 N.W.2d 483, 488 (Minn. Ct. App. 2001). (“[e]mploying a plain-meaning approach,” court held statute only applies “to accidents that occur within Minnesota”); Avis Rent-A-Car System v. Vang, 123 F.Supp.2d 504 (D. Minn. 2000) (Minnesota statute creating liability on part of owner for damages resulting from operation of automobile by another with owner’s consent did not apply to automobile accident in Michigan); West Bend Mut. Ins. Co. v. American Family Mut. Ins. Co., 586 N.W.2d 584 (Minn. Ct. App. 1998) (garage liability policy insuring Minnesota dealership’s vehicles did not afford any liability coverage for accident occurring involving dealership vehicle in Louisiana, a jurisdiction which did not impose vicarious liability); Vee v. Ibrahim, 769 N.W.2d 770, 771-775 (Minn. Ct. App. 2009) (motor vehicle for purposes of vicarious liability statute). The statute is to be interpreted liberally to achieve its purpose. Christensen v. Milbank Ins. Co., 643 N.W.2d 639, 642 -645 (Minn. Ct. App. 2002). The statute imposes liability on the owner where it would not otherwise exist, thereby giving an injured person more certainty of recovery by encouraging vehicle owners to obtain appropriate liability insurance coverage. Boatwright, 625 N.W.2d at 486.
Some of the jurisdictions which imposed vicarious liability on the owner of a motor vehicle enacted statutes which capped the liability of the owner of a rented vehicle under certain circumstances. Minnesota Statute § 65B.49, subd. 5a (i), for example, provided in part: “(2) . . . an owner of a rented motor vehicle is not vicariously liable for legal damages resulting from the operation of the rented motor vehicle in an amount greater than $100,000 because of bodily injury to one person in any one accident and, subject to the limit for one person, $300,000 because of injury to two or more persons . . . if the owner of the rented motor vehicle has in effect, at the time of the accident, a policy of insurance or self-insurance . . . covering losses up to at least the amounts set forth in this paragraph.”
However, in 2005, Congress passed the Transportation Equity Act of 2005 (49 USC § 30106) (a/k/a “Graves Amendment”). The Graves Amendment is a federal statute that abolishes vicarious liability of companies that rent or lease motor vehicles based on the negligent driving of their customers. The Graves Amendment was an attempt to bring all states in line with the majority of states that did not impose vicarious liability on vehicle owners. In light of the inherently interstate nature of the vehicle renting and leasing business, Congress was of the view that a uniform, national standard was needed. See, Statement of Rep. Graves, 151 Cong. Rec. H1200 (daily ed. March 9, 2005) (“Since companies cannot prevent their vehicles from being driven to a vicarious liability state, they cannot prevent their exposure to these laws and must raise their rates accordingly. These higher costs have driven many small companies out of business, reducing the consumer choice and competition that keeps costs down.”); H. Rpt. 106-774, pt. 1, at 4 (“because rented or leased motor vehicles are frequently driven across state lines, these small number of vicarious liability laws impose a disproportionate and undue burden on interstate commerce by increasing rental rates for all customers across the Nation.”). The Graves Amendment is applicable to all actions “commenced on or after August 10, 2005 without regard to whether the harm that is the subject of the action, or the conduct that caused the harm, occurred before such date of enactment.” 49 U.S.C. § 30106(c) (2006). The Amendment contains a preemption clause and two savings provisions. The preemption clause in subsection (a) provides in part: “[a]n owner of a motor vehicle that rents or leases the vehicle to a person . . . shall not be liable under the law of any State . . . by reason of being the owner of the vehicle . . . for harm to persons or property that results or arises out of the use, operation, or possession of the vehicle during the period of the rental or lease, if (1) the owner . . . is engaged in the trade or business of renting or leasing motor vehicles; and (2) there is no negligence or criminal wrongdoing on the part of the owner . . ..” 49 U.S.C. § 30106(a) (2006).
Given the clear language and purpose of the Amendment, numerous courts, beginning in 2006, have found the Graves Amendment preempts state law in the area of vicarious liability for owners engaged in the business of renting or leasing motor vehicles (absent a showing of negligence or criminal wrongdoing on the part of the owner) and is a proper exercise of the commerce power granted to Congress and, therefore, constitutional. See, e.g., Garcia v. Vanguard Car Rental USA, Inc., 540 F.3d 1242, 1253(11th Cir.2008) (Section 30106(a) applies to negligent acts of a lessee, not the lessor’s own negligence), cert. denied, ___U.S. ___, 129 S. Ct. 1369, 173 L.Ed.2d 591 (2009); Cates v. Hertz Corp., 2009 WL 2447792 at * 4 (5th Cir. Aug.11, 2009) (“Graves Amendment preempted state law in the area of vicarious liability for owners engaged in the business of renting or leasing motor vehicles, absent a showing of negligence or criminal wrongdoing on the part of the owner.”); Rodriguez v. Testa, 296 Conn. 1, 22, 993 A.2d 955, 967 (Conn. 2010) (“we join the overwhelming majority of federal courts that have considered the question and concluded that the Amendment is constitutional”); Johnson v. XTRA Lease LLC, 2010 WL 706037 *3 (N.D. Ill. 2010); Kersey v. Hirano, 2009 WL 2151845 *2 (D. Md. July 15, 2009); Green v. Toyota Motor Credit Corp, 605 F. Supp.2d 430, 435 (E.D.N.Y.2009); Stampolis v. Provident Auto Leasing Co., 586 F. Supp.2d 88, 94 (E.D.N.Y.2008); Flagler v. Budget Rent A Car System, Inc., 538 F. Supp.2d 557, 559 (E.D.N.Y.2008); Berkan v. Penske Truck Leasing Canada, Inc., 535 F. Supp.2d 341, 345 (W.D.N.Y.2008); Jasman v. DTG Operations, Inc., 533 F. Supp.2d 753, 757 (W.D.Mich.2008); Dolter v. Keene’s Transfer, Inc., 2008 WL 3010062 at *2 (S.D. Ill. Aug.2, 2008); West v. Enterprise Leasing Co., 997 So.2d 1196, 1197 (Fla. Ct. App. 2 Dist. 2008); Vargas v. Enter. Leasing Co., 993 So.2d 614 (Fla. 4th DCA 2008); Lucas v. Williams, 984 So.2d 580 (Fla. 1st DCA 2008); Kumarsingh v. PV Holding Corp., 983 So.2d 599 (Fla. 3d DCA), review denied, 984 So.2d 519 (Fla.2008) (table); Bechina v. Enterprise Leasing Co., 972 So.2d 925 (Fla. 3d DCA 2007); Dupuis v. Vanguard Car Rental USA, Inc., 510 F. Supp.2d 980, 985 (M.D.Fla.2007); Seymour v. Penske Truck Leasing Co., L.P., 2007 WL 2212609 *2 (S.D. Ga. July 30, 2007); Jones v. Bill, 34 A.D.3d 741, 741-742, 825 N.Y.S.2d 508, 509 – 510 (N.Y.A.D. 2 Dept. 2006). As noted by one court, the Amendment “was enacted to protect the vehicle rental and leasing industry against claims for vicarious liability where the leasing or rental company’s only relation to the claim was that it was the technical owner of the car.” Rein v. CAB East LLC, 2009 WL 1748905 at *2 (S.D.N.Y. June 22, 2009) (citing 151 Cong. Rec. H 1034, 1200 (2005) (statement of Rep. Graves)). Contra Vanguard Car Rental USA, Inc. v. Huchon, 532 F. Sup.2d 1371, 1382 (S.D.Fla.2007) (holding Graves Amendment unconstitutional); Vanguard Car Rental USA, Inc. v. Drouin, 521 F. Sup.2d 1343, 1351 (S.D.Fla.2007) (same).
In 2010, in Meyer v. Nwokedi, 777 N.W.2d 218 (Minn. 2010), the Minnesota Supreme Court followed the lead of the vast majority of other jurisdictions which had concluded that the Graves Amendment preempted state vicarious liability laws such which imposed liability on the owner of rented and leased motor vehicles, such as Minn. Stat. § 169.09. As noted above, the Graves Amendment contains two savings clauses. One of the savings provisions provides that “(b) Financial responsibility laws. Nothing in this section supersedes the law of any State or political subdivision thereof: . . . (2) imposing liability on business entities engaged in the trade or business of renting or leasing motor vehicles for failure to meet the financial responsibility or liability insurance requirements under State law.” 49 U.S.C. § 30106(b) (2) (2006). The plaintiffs in Meyer v. Nwokedi argued that Minn. Stat. § 65B.49, subd. 5a (i) (2008), which created a statutory cap on the vicarious liability of a rental car company, fell within the savings clause. The Minnesota Supreme Court made short shrift of this argument. Following the lead of the Eleventh Circuit Court of Appeals in Garcia v. Vanguard Car Rental USA, Inc., 540 F.3d 1242, 1253(11th Cir. 2008), which had construed a similar statutory cap provision, the Minnesota Supreme Court determined that Minn. Stat. § 65B.49, subd. 5a (i) did not impose any “liability . . . for failure to meet insurance like requirements or liability insurance requirements” for two reasons. Meyer v. Nwokedi at 225-26. First, nothing in the statutory cap provision “required” rental vehicle owners to maintain insurance in the designated amount. Second, the last portion of the statute provides that nothing in the statute changes the obligation of rental vehicle owners to comply with the requirements of compulsory insurance. This language would be rendered superfluous if the first portion of the statute was construed to be a requirement. The court thus read the Minnesota statute as “allowing insurers to provide extra coverage regardless of any provisions that impose minimum coverage requirements.” Id. at 226 (emphasis in original.)
As noted above, the Graves Amendment preemption clause bars vicarious liability claims against the owner of a motor vehicle that rents or leases a vehicle if, among other things, “there is no negligence or criminal wrongdoing on the part of the owner . . ..” 49 U.S.C. § 30106(a) (2006). In Dubose v. Transp. Enter. Leasing, LLC, 2009 WL 210724 (M.D. Fla. Jan.27, 2009), a federal district court in Florida suggested that the Graves Amendment also barred claims of “negligent entrustment” against a rented vehicle’s owner. The court analyzed several state and federal court decisions interpreting the Graves Amendment and made the following observation:
Absent some evidence of a lessor’s failure to properly maintain a vehicle which it has expressly agreed to maintain pursuant to a lease agreement, or some similar active negligence on the part of the lessor, the conclusion reached by these courts is that § 30106(a) (2) is rarely applicable and should be cautiously applied in light of Congress’ clear intent to forestall suits against vehicle leasing companies. Indeed, unless a State specifically imposes a legal duty on lessors to ensure that their lessees maintain adequate insurance or to ensure that their lessees have adequate driving records, § 30106(a)(2) only appears to apply to claims predicated on criminal wrongdoing and negligent maintenance claims-not claims of negligent entrustment.
Recently, the Eighth Circuit Court of Appeals disagreed with the Dubose court’s narrow interpretation of the Graves Amendment’s savings clause. In Carton v. General Motor Acceptance Corp., 611 F.3d 451, 456-458 (8th Cir. 2010), the Eighth Circuit Court of Appeals concluded that the district court too narrowly interpreted the term “negligence” to find the Graves Amendment only permitted claims of “negligent maintenance” against a vehicle’s owner, and not claims of “negligent entrustment.” The court noted that the term “negligence” as used in the Graves Amendment savings clause “is a broad term, and nothing indicated that the term “negligence” should be construed narrowly to exclude (i.e., save) only claims for negligent maintenance.
It is important to recognize that the Graves Amendment does not affect any insuring obligations which may be imposed on the owner of a rented or leased motor vehicle under state law, including any omnibus coverage requirements. The savings clause to the Graves Amendment provides in part that “(b) Financial responsibility laws. Nothing in this section supersedes the law of any State or political subdivision thereof: (1) imposing financial responsibility or insurance standards on the owner of a motor vehicle for the privilege of registering and operating a motor vehicle . . .”. The insuring requirements of the Minnesota No-Fault Automobile Insurance Act (“No-Fault Act”), Minn. Stat. §§ 65B.41-.71, will be addressed in a subsequent blog post.
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