Federal Law Drives Away Vicarious Liability for Auto Rental Firms

Recent N.Y. $21 Million Jury Award May Be Last of Its Kind in the Nation

A New York court’s $21 million award last month to a young Wall Street trader paralyzed in an accident involving a Budget Rent-a-Car vehicle may be one of the last of its kind.

Inserted among the thousands of road projects in a massive highway bill Congress passed last summer was language annulling state “vicarious liability” laws that hold vehicle rental and leasing companies liable when a driver without sufficient insurance causes a serious accident.

The industry had been pushing for years to get rid of vicarious liability, which generally holds an employer responsible for the acts of an employee.

qOpponents say legislation overriding state laws on the issue protects a prosperous industry at the expense of seriously injured victims who may need a lifetime of medical

The Truck Renting and Leasing Association, which has led the effort against vicarious liability, said the new law will save the industry and its customers billions of dollars spent on costly liability awards, attorney fees and supplemental insurance premiums.

“It’s had a very deleterious effect on the industry,” said Peter Vroom, the association’s president and chief executive officer. Contingency plans for serious injuries can be as much as 25 percent of insurance costs, he said, causing some rental and leasing companies either to go out of business or avoid states such as New York that have such laws.

Even companies in states without vicarious liability laws have had to buy supplemental insurance out of concern a lessee will drive a vehicle to a state where such laws exist.

States affected
In addition to New York, 15 states and the District of Columbia had full or limited vicarious liability statues. The others were Arizona, California, Connecticut, Delaware, Florida, Idaho, Iowa, Maine, Michigan, Minnesota, Nevada, Oklahoma, Pennsylvania, Rhode Island and Wisconsin. Those state laws were effectively nullified when President Bush signed the highway bill in August. Suits already in the pipeline line will be allowed to go forward.

David Cook, a partner in Kreindler & Kreindler, the firm that represented the driver in the New York case, said the action by Congress to abolish vicarious liability was “terribly wrong” because it does not provide an adequate safety net for victims of catastrophic injuries.

Cook said the action shifts the burden of responsibility from the company, which carries business liability insurance, to the driver, who normally does not have sufficient insurance or assets to cover a lifetime of lost income and medical care. Ultimately the burden could fall to the taxpayer, he said, as the victim “is going to be poverty-stricken and become a public charge.”

Rep. Jerrold Nadler, D-N.Y., noted that many New Yorkers don’t own cars and thus don’t have car insurance. Thus nullifying the state laws “would have the disastrous effect of allowing rental car companies to lease vehicles to uninsured drivers with no recourse for innocent victims should an accident occur.”