LIABILITY OF RENTAL COMPANIES FOR ACCIDENTS WHICH OCCUR IN RENTAL VEHICLES
New York State is one of a minority of states which imposes legal responsibility on the owner of a vehicle, if the driver of that vehicle negligently causes an accident. The theory behind this type of vicarious liability is that the owner is in the best position to ensure that only responsible drivers use the owner’s vehicle. This liability is statutory, and is enshrined in New York’s Vehicle and Traffic Law, Section 388.
The owner liability statute long grated on car rental companies like Hertz, Avis and Enterprise Rent-A-Car, who are in the business of renting vehicles they own to drivers whose primary qualification for taking the vehicle is possession of a valid license. For many years, in New York, the rental company was a “deep pocket” defendant for the unfortunate driver or passenger who was struck by a negligent driver of a rental vehicle who, himself, was often poorly insured. In 2005, however, the liability of rental companies for the acts of their rental drivers radically changed. Congress enacted the “Graves Amendment,” which superseded or preempted New York Law regarding rental company liability for leased vehicles. The law provided that vehicle lessors, like Enterprise, Hertz and Avis, were no longer vicariously liable for the negligent acts of their renters. After that date, in New York, if a driver was struck negligently by another driver who was in a rented vehicle, there would usually be a base minimum policy of liability insurance on the car (typically $25,000), plus any excess insurance the renter himself may have had under his own automobile insurance. The rental company itself could not be sued. In a very serious injury case, the difference in possible recoveries for the injured victim could be enormous. Typically, most drivers hold liability policies in the amount of $25,000.00, $50,000.00 or $100,000.00. Some have larger policies of $300,000.00, and fewer have policies of $1,000,000.00. In a very serious automobile accident case, medical bills alone could easily exceed those sums.
It is important to note, however, that an exception was written into the Federal Statute which exempted rental vehicle companies from liability. The immunity conferred by the statute as owners does not extend to rental companies if they themselves were affirmatively negligent in entrusting the vehicle to the renter. Stated otherwise, before the enactment of the Graves Amendment, the rental company was vicariously liable for the acts of the renter-driver. After the enactment of the Graves Amendment, that vicarious liability continued only if the rental company was itself negligent in providing the vehicle to the driver.
What actually constitutes negligent entrustment is something of a gray area. New York Courts have found that a negligent entrustment claim can be made out if the rental company provides a mechanically unsound vehicle to the renter, and an accident ensues. Affirmative negligence on the part of the rental company can also conceivably include providing the vehicle to an unqualified and/or unlicensed driver. Even when the rental company negligently entrust the vehicle to an unlicensed driver, the injured Plaintiff must also establish some connection between that negligent entrustment and the happening of the accident which caused the victim’s injuries.
The most interesting question in this evolving field of the law is what burden should be placed on the rental company to assess the validity of the renter who presents a license? Licenses can be forged, and it is commonly known that forgers use false documents to obtain rental cars, essentially stealing them, and then selling them to other like-minded criminals. In a digital age, when virtually every motor vehicle department has a computerized database of searchable motor vehicle license records, it remains for the New York Courts to decide whether rental companies should be required, at minimum, to run the license that is presented through the motor vehicle database. Many rental companies already do this for selected states and in specific circumstances. New York Law currently requires that the rental company determine whether the license is “facially valid.” What is not defined in the case law, is what facial validity exactly means. At present, there are no appellate level decisions settling this issue, but the issue has surfaced in several trial level courts with mixed results. What is certain is that there will be continuing litigation in this important area of the law.