Vicarious liability for motor vehicle lessors refers to liability flowing from merely being the owner of the vehicle at issue, not from any fault or wrongdoing. This article highlights some of the key considerations motor vehicle lessors need to know regarding vicarious liability under the Graves Amendment.

Historically, a number of states imposed liability vicariously on the owner of a motor vehicle for accidents relating to the negligence of the end user, rather than the negligence of the leasing or renting company. In response, in 2005,  Congress enacted the federal Graves Amendment (49 U.S.C. § 30106(a)) to preempt state laws that hold motor vehicle lessors vicariously liable for damages caused by their lessees while operating the leased vehicle, provided that (1) the leasing or rental company is engaged in the business of leasing or renting motor vehicles (and the vehicle at issue is under lease or rental at the time of the accident), and (2) the leasing or rental company (and its affiliates) was neither negligent nor engaged in criminal wrongdoing. 

Under the Graves Amendment, “motor vehicle” is defined as “a vehicle driven or drawn by mechanical power and manufactured primarily for use on public streets, roads, and highways, but does not include a vehicle operated only on a rail line ”(49 USC § 30102(a)(7)).

The clear intent of the Graves Amendment was to preempt state laws that imposed vicarious liability on leasing and rental companies for damage to people or property arising from the use, operation, or possession of the leased or rented  vehicle and  relating to accidents that occurred while the vehicle was leased or rented.  Preemption of state laws simply means federal law applies rather than the applicable state laws that seek to impose vicarious liability.

In the early years following passage of the Graves Amendment, there were several cases seeking to challenge the Graves Amendment. However, the Graves Amendment held up to such challenges and at this point, the Graves Amendment appears to be well established federal law.  

Cases under the Graves Amendment now generally focus on 1) whether the leasing or rental company was actually engaged in the business of leasing or renting motor vehicles, and relatedly whether the vehicle at issue was under lease or rental at the time of the accident, and 2) whether the leasing or rental company was itself negligent.  If either is the case, the leasing or rental company is expressly excluded from Graves Amendment protection.

Regarding whether the leasing or rental company was itself negligent for Graves Amendment purposes, the focus is on the independent, direct negligence of  the leasing or rental company, such as  knowingly renting  a vehicle with bad brakes, or negligent entrustment claims (discussed further below), rather than the indirect, vicarious liability of such leasing or rental company.

For negative entrustment claims, courts have typically emphasized that the negligence of the incompetent driver is not the determining factor but instead whether the leasing or rental company was itself negligent in supplying a vehicle to the incompetent driver. For example, knowingly renting a car to an unlicensed driver may lead to a negative entrustment claim. Under these claims, liability is not imposed simply because the leasing or rental company permits another person to drive the motor vehicle.  Instead there must be actual or constructive knowledge on the part of the leasing or rental company that the person to whom the vehicle is leased or rented is incompetent to operate the motor vehicle and the injury is a result of such incompetence.

Courts therefore evaluate whether the leasing or rental company had actual or constructive knowledge that the lessee was not a responsible or safe driver, had a history of incompetent driving, or of subleasing the car to unqualified drivers. For example, if a rental company was given prior notice that the car at issue was uncontrollably accelerating but took no preventative actions, this fact may lead to a negative entrustment claim due to actual or constructive knowledge. 

Common themes in many of the cases are whether the rental company verified that the driver held a valid driver’s license and confirmed insurance coverage and whether there are any facts showing that the rental company knew or  reasonably should  have known that the driver was so incompetent to operate the vehicle upon the highways that the rental company should have reasonably anticipated the likelihood of injury to others by reasons of that incompetence, and such incompetence resulted in injury.  A negligent entrustment claim typically requires specific factual allegations setting forth the known incompetence of the person to whom a vehicle was leased.

Claims based on an employment or other agency relationship between a driver and vehicle owner do not involve vicarious liability of the owner merely because of ownership of the vehicle. Therefore, the Graves Amendment protections would not apply to a claim that was premised on such an employment or agency relationship.

Many rental companies provide liability insurance to their customers. The Graves Amendment precludes only vicarious liability, not insurance liability, of the leasing or rental company.

The Graves Amendment requires that the owner of the vehicle be “engaged in the trade or business of renting or leasing motor vehicles”. There is a split in the case law between cases holding that businesses that rent or lease motor vehicles and that also provide loaner cars are protected by the Graves Amendment with other cases holding that the Graves Amendment does not protect car dealers that provide loaner vehicles to customers without imposing an express charge for the loaner. 

For jurisdictions that do not require an express charge, the rationale often articulated has been that the dealer would not have allowed the driver to use the loaner vehicle if the car was not being serviced for a fee by the dealership. These jurisdictions hold that this is sufficient consideration to bring the dealer within the scope of the Graves Amendment. The practical takeaway is that it is important to check local law.

Where the owner of a vehicle shifts responsibility for maintaining the vehicle to the lessee pursuant to the underlying lease agreement, such owner does not engage in the repair or maintenance of the vehicle and therefore should not be held responsible for potential negligent maintenance of such vehicle. Again, it is important to check local law.

Conclusion

The Graves Amendment provides the above protections to leasing and rental companies from being held vicariously liable for damages caused by their lessees while operating the leased vehicle merely because they are the owner of the motor vehicle. However, the Graves Amendment also specifically carves out such protections if the damages are caused by the leasing or rental company’s negligence or criminal wrongdoing. Remember, even if the Graves Amendment applies, victims can still sue the driver.  However, victims can no longer sue the leasing or rental company that provided the car unless one of the above carve outs applies.

One cautionary note to keep in mind: the Graves Amendment was designed to preempt state vicarious liability laws within the United States, not laws in other countries in the event a leased or rented vehicle travels outside the United States.