Lawsuits arising from motor vehicle collisions often include a claim against the owner of the vehicle because California law permits an award of damages against the vehicle owner for the negligence of a permissive user. Vehicle Code §17150 mandates “Every owner of a motor vehicle is liable and responsible for death or injury to person or property resulting from a negligent or wrongful act or omission in the operation of the motor vehicle, in the business of the owner or otherwise, by any person using or operating the same with the permission, express or implied, of the owner.” This statute establishes the owner is vicariously liable for an accident caused by the operator and does not require proof of negligent entrustment.
For dealers operating their own vehicle rental operation, this vicarious liability statute can expose them to damages up to $15,000 for the death or injury to one person, up to $30,000 for death or injury to two or more persons, and up to $5,000 for damage to the property of others. While recovery shall first be made against the negligent renter, the potential liability above what can be recovered from the renter as well as the cost of defending the lawsuit is a significant burden for the rental industry.
In response to the escalating expenses incurred by vehicle rental companies and the impact on interstate commerce caused by increased vehicle rental costs, a provision of federal law, commonly known as the Graves Amendment, was enacted in 2005 as part of the “Safe, Accountable, Flexible, Efficient Transportation Equity Act.” This provision provides in pertinent part:
An owner of a motor vehicle that rents or leases the vehicle to a person (or an affiliate of the owner) shall not be liable under the law of any State or political subdivision thereof, by reason of being the owner of the vehicle (or an affiliate of the owner), 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 (or an affiliate of 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 (or an affiliate of the owner).
(49 U.S.C. § 30106.)
This means a rental company cannot be held vicariously liable for the negligence of its renter so long as the entity rents or leases vehicles (more than simply providing service loaners), and there is no independent liability (e.g. renter’s drivers license checked and recorded on rental agreement). While there is no similar provision in California law, state and federal courts across the country addressing this issue have consistently found that the Graves Amendment preempts state law.
Our firm has successfully used the Graves Amendment to convince plaintiff’s lawyers not to file suit against our rental company clients, or to defeat the vicarious liability claim on summary judgment. If you are presented with such a claim, the Graves Amendment may help bury that lawsuit.