Auto Rental Liability Law To Change

The issue divides the insurance industry, which is split between the personal lines writers, who oppose efforts to pre-empt such laws, and the commercial/surplus/excess lines writers, who insure auto and truck leasing and rental companies.

The provision was tucked into the bill providing $86 billion over several years for highway construction projects, H.R. 3, which passed both houses of Congress Friday.

It was strongly opposed by the plaintiff's bar.

On Friday the New York State Trial Lawyers Association put out an "urgent notice" warning its members that the time for them to file suits for damages against rental car companies was rapidly running out.

The notice said the new provision will be effective as soon as President Bush signs the law. In her notice on the state Trial Lawyers' Web site, Val Washington, counsel to the New York Trial Bar, said, "As mentioned in previous e-mails, we will be looking for ways to challenge this preemption of state law."

Earlier, Carlton Carl of the American Trial Lawyers Association said that the point of such state laws "is that rental car companies can and should require renters to have adequate insurance coverage in those states that have vicarious liability laws in cases where the driver is not adequately insured.

Mr. Carl said that the situation is particularly acute in New York City, where many rental drivers don't have cars, and therefore insurance.

"In the 16 states, plus Washington, D.C., that have such laws, it means that if a rental car driver is irresponsible, that is, uninsured or underinsured, something the rental car companies can prevent if they wanted, then the rental car company is responsible for accidents and damages."

State Farm and Allstate were among the larger personal lines insurance companies which lobbied against the bill; commercial lines insurers supported it. Officials of State Farm and Allstate would not comment today.

Sixteen states, plus the District of Columbia, currently have vicarious liability in force. Arizona, Connecticut, Delaware, Iowa, Maine, Nevada, New York and the District of Columbia all have no limits on the amount for which a car rental agency can be held vicariously liable.

California, Florida, Idaho, Michigan, Minnesota, Oklahoma, Pennsylvania, and Wisconsin allow vicarious liability with limits. Rhode Island allowed vicarious liability with limits, which became unlimited on July 1.

The exemption provision was added on the House floor during debate on the measure. The amendment, offered by Rep. Sam Graves, R-Mo., would eliminate rental car and leasing company liability under owner's liability or similar laws. There was no such provision in the Senate version of the bill.

The Truck Renting and Leasing Association (TRALA) hailed congressional passage of the law. "This is a huge victory for the vehicle renting and leasing industry," said TRALA Chairman Mark Siegal, president of Edart NationaLease in Hartford, Conn.

"Consumers and businesses will benefit enormously from passage of this legislation with lower costs and increased transportation options," Mr. Siegel said. "Our industry will save billions of dollars that would otherwise be spent on litigation. Although the vast majority of states do not allows vicarious liability, those few that do create a serious nationwide problem for both our companies and our customers. In a few states, companies can be subject to unlimited liability, without any allegation of negligence on the part of the company."

TRALA helped establish the Vehicle Renting and Leasing Fairness Alliance, a group of truck and car rental and leasing companies and trade associations brought together by TRALA in early 2003 to lead this fight against the state laws.