Dealership Loaners & Temporary Substitute Vehicles: Does the Graves Amendment Apply?

Does the Graves Amendment apply to the owner of a loaner or temporary substitute vehicle?

In a previous post, I addressed case law construing the Transportation Equity Act of 2005 (49 USC § 30106) (a/k/a “Graves Amendment”), which 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). 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).

Over the past twenty years, I’ve represented many garage liability insurers, rental car companies and auto dealerships. (My dad owned an AMC/Jeep/Renault dealership when I was a kid.  Remember, the Gremlin, Pacer, Javlin? I grew up with them and was referred to as “Gremlin Greg” as a kid).  Most dealerships do not engage in “public rentals” as is the case with Avis, Budget, Enterprise, etc. And, the “standard” ISO-based Garage Liability Policy contains an exclusion against such activity. (If the dealership wants to rent vehicles to the public, it needs a Business Auto Policy).  One of the unanswered questions with regard to the Graves Amendment is whether the owner of the typical “loaner vehicle” (a vehicle a dealership loans to a customer while the customer’s vehicle is in the shop for repairs) will qualify for protection under the Graves Amendment when sued for vicarious liability arising out of the customer’s operation of the loaner vehicle.  In my view, the precise issue would boil down to whether the dealership is “engaged in the trade or business of renting or leasing motor vehicles,” within the meaning of 49 U.S.C. § 30106(a)(1) (2006), when it loans a vehicle to a customer.

I have not reviewed all of the legislative history of the Graves Amendment, but that which has been cited by courts and in briefs suggests that a loaner vehicle may not qualify for vicarious liability immunity under the Graves Amendment.  One of the reasons cited in support of adoption of the Graves Amendment was the adverse impact vicarious liability laws were having on rental rates, which are not applicable in the case of a loaner vehicle.  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.”).  And, although dealerships likewise cannot control whether the customer drives the dealership vehicle across state lines into a state that imposes vicarious liability (like a rental car agency), many dealership loaner agreements contain provisions which at least attempt to restrict the operation of the vehicle within a 50 or 100 mile radius of the dealership.

Assuming, without resolving the issue, the Graves Amendment does not apply to loaner vehicles, the vehicle owner/dealership would be exposed to vicarious liability if the accident occurred in a jurisdiction, like Minnesota, that imposes vicarious liability upon the owner of a motor vehicle when it is permissively operated by another.  See, Minn. Stat. § 169.09, subd. 5a (previously Minn. Stat. § 170.54) (“[w]henever 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”) However, the dealership’s vicarious liability for the negligent operation of the loaner vehicle may be capped by statute.  Of  the twelve jurisdictions in the U.S. that had vicarious liability statutes at the time of enactment of the Graves Amendment in 2005, only three allowed unlimited vicarious liability. The other states had some form of limited or capped vicarious liability.   For example, in 1995, the Minnesota legislature enacted a vicarious liability cap, which limits a rental-vehicle owner’s liability under the vicarious liability statute in certain circumstances. Section 65B.49, subdivision 5(a)(i)(2), acts to limit the rental owner’s vicarious liability.  The “vicarious liability cap” statute now provides:

Notwithstanding section 169.09, subdivision 5a, 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 in any one accident, and $50,000 because of injury to or destruction of property of others in any one accident, if the owner of the rented motor vehicle has in effect, at the time of the accident, a policy of insurance or self-insurance, as provided in section 65B.48, subdivision 3, covering losses up to at least the amounts set forth in this paragraph. Nothing in this paragraph alters or affects the obligations of an owner of a rented motor vehicle to comply with the requirements of compulsory insurance through a policy of insurance as provided in section 65B.48, subdivision 2, or through self-insurance as provided in section 65B.48, subdivision 3, which policy of insurance or self-insurance must apply whenever the operator is not covered by a plan of reparation security as provided under paragraph (a); or with the obligations arising from section 72A.125 for products that are sold in conjunction with the rental of a motor vehicle. Nothing in this paragraph alters or affects liability, other than vicarious liability, of an owner of a rented motor vehicle.

At first glance, the Minnesota vicarious liability cap statute appears to only apply to vehicle owners who rent vehicles to the public.  However, a vehicle is considered “rented” under the statute (1) if the rate for the use of the vehicle is determined on a monthly, weekly, or daily basis; or (2) during the time that a vehicle is loaned as a replacement for a vehicle being serviced or repaired regardless of whether the customer is charged a fee for the use of the vehicle. Minn. Stat. § 65B.49, subd. 5a(i)(1). Thus, the typical loaner vehicle is considered a “rented” vehicle. In Schmakel v. Kline-Oldsmobile-Mitsubishi, Ramsey Cty. Dist. Ct. File. No.: C5-98-8982 (May 17, 1999), a case my office handled for the dealership (and which arose several years prior to the passage of the Graves Amendment in 2005), the Ramsey County District Court in St. Paul, Minnesota rejected the Schmakel’s claim that the vicarious liability cap was unconstitutional.

Whether the Graves Amendment will apply to the owner of a loaner vehicle is a significant issue to injured plaintiffs, the Garage Liability and/or Business Auto insurer of the dealership and personal auto insurers (whether functioning as the BI carrier of the dealership customer or UIM insurer of the injured plaintiff).  Arguably, the Graves Amendment does not apply such that the dealership may be subject to vicarious liability (but, as noted above, I have not thoroughly researched the issue), In that event, the vicarious liability laws and any applicable caps will come into play as will statutes and case law addressing the insuring obligations of the vehicle owner/dealership (omnibus coverage requirements, if any, and coverage for its vicarious liability exposure, if any) and the personal auto insurer insuring the dealership customer. The insuring requirements of the parties will be addressed in a subsequent post.

This blog is for informational purposes only.  By reading it, no attorney-client relationship is formed.  The law is constantly changing and if you want legal advice, please retain an attorney licensed in your jurisdiction. © All rights reserved. 2010.


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