October 2005

AUTOMOBILE LAW BULLETIN

The Automobile Law Bulletin is published by the Motor Vehicle Liability Practice Group  at Arthur, Chapman, Kettering, Smetak & Pikala, P.A. to keep our clients informed of the ever-changing complexities of automobile and rental laws.  In this issue:

Federal Law Eliminates Vicarious Liability for Rental Vehicle Companies

By Paul J. Rocheford

As part of a larger transportation bill, President Bush signed legislation which effectively eliminates vicarious liability for all rental vehicle owners. The new law essentially preempts laws in the 16 states (including Minnesota) which impose limited or complete vicarious liability on rental or leasing companies.   If an action was not commenced against a rental vehicle owner by August 10, 2005, the new law precludes that action. 

This law is somewhat paradoxical for the insurance industry as many carriers write personal lines while others, in specialty areas, insure auto, truck and leasing companies. Generally, it appears that the large personal lines carriers lobbied against the bill, while commercial lines insurers supported it.  

We believe that the new law may open the door for more underinsured motorist (UIM) claims, particularly where the tortfeasor renter/driver has no personal auto coverage. In those cases the only coverage available to the claimant will be the minimum $30,000 limit which the rental vehicle company must still provide to the renter/driver.

Prior to this law, a claim against a rental vehicle driver and owner in Minnesota usually invoked three or four layers of coverage protection. The first layer was the minimum 30/60 protection which the rental vehicle owner must provide to the renter/driver. The next layer was generally the renter/driver’s personal auto coverage (or in some cases also the driver’s employer’s coverage if the driver was in the course and scope of employment). The last layer was the rental vehicle owner’s vicarious liability protection pursuant to Minn. Stat. 65B.49 subd. 5a. This last layer of protection (for the rental vehicle owner only) was capped by statute and indexed for inflation. As of January 1, 2005 (for accidents occurring on or after 1/1/05) the “capped” layer was 120/370/60.  This new law extinguishes the last layer of exposure.

As a result of the new law, rental vehicle owners must now only provide the minimum financial responsibility of 30/60/10 for a renter/driver.  The renter/driver’s personal auto policy (and that of the driver’s employer if the driver is engaged in the course and scope) will be engaged as the next layer.   If the damages exceed those layers, then the claimant may pursue a UIM claim. Previously, a UIM claim could not be pursued until the damages exceeded all available coverage including the owner’s vicarious layer.     

It should be noted that the new law does not  eliminate a rental vehicle owner’s exposure for its own direct negligence (e.g. negligent maintenance of a vehicle which causes an accident) or a rental vehicle owner’s vicarious liability for reasons other than ownership (e.g. the vicarious liability of a rental vehicle owner for the negligent actions of the owner’s employee).  The new law eliminates only the vicarious liability of a rental vehicle owner which occurs “by reason of being the owner of the vehicle”.   

It remains to be seen whether the plaintiffs’ bar challenges this law in some way.  In our defense of rental vehicle companies, we have seen an increased volume of lawsuits commenced against rental vehicle companies just before the August 10 deadline.

For information on the new law as well as a table showing the history and amount of vicarious liability limits, see below:

NEW LAW

SEC. 10208. RENTED OR LEASED MOTOR VEHICLES.    
 

          (a) IN GENERAL.-Subchapter I of chapter 301 of title 49, United States Code, is amended by adding at the end of the following:   

“§ 30106. Rented or leased motor vehicle safety and responsibility 

          “(a) IN GENERAL.– An owner of a motor vehicle that rents or leases the vehicle to a person (or an affiliate or 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). 

            “(b) FINANCIAL RESPONSIBILITY LAWS.– Nothing in this section supersedes the law of any State or political subdivision thereof–  

             “(1) imposing financial responsibility or insurance standards on the owner of a motor vehicle for the privilege of registering and operating a motor vehicle; or

             “(2) imposing liability on business entities engaged in the trade or business or renting or leasing motor vehicles for failure to meet the financial responsibility or liability insurance requirements under State law. 
            “(c) APPLICABILITY AND EFFECTIVE DATE.– Notwithstanding any other provision of law, this section shall apply with respect to any action commenced on or after the date of   enactment of this section without regard to whether the harm that is the subject of the action, or the conduct that caused the harm, occurred before such date of enactment.

            “(d) DEFINITIONS.– In this section, the following definitions apply:   

            (1) AFFILIATE.– The term ‘affiliate’ means a person other than the owner that directly or indirectly controls, is controlled by, or is under common control with the owner. In the preceding sentence, the term ‘control’ means the power to direct the management and policies of a person whether through ownership of voting securities or otherwise.

            “(2) OWNER.– The term ‘owner’ means a person who is–  
                  “(A) a record or beneficial owner, holder of title, lessor, or lessee of a motor vehicle;

             “(B) entitled to the use and possession of a motor vehicle subject to a security interest in another person; or

             “(C) a lessor, lessee, or a bailee of a motor vehicle, in the trade or business of renting or leasing motor vehicles, having the use or possession thereof, under a lease, bailment, or otherwise. 
          

              “(3) Person.– The term ‘person’ means any individual, corporation, company, limited liability company, trust, association, firm, partnership, society, joint stock company, or any other entity.”.   

Minnesota Statute §65B.49 Biennial Limits

Vicarious Liability Limits Applied to Owners of Rented Motor Vehicles

Date
Effective

Bodily Injury
for one person

Bodily Injury
per accident

Property
Damage

1/1/1995 

 $100,000

  $300,000

  $50,000

1/1/1997 

   100,000

   305,000

   50,000

1/1/1999

   105,000

   320,000

   50,000

1/1/2001

   110,000

   335,000

   55,000

1/1/2003

   115,000

   350,000

   55,000

1/1/2005

   120,000

   370,000

   60,000

Minnesota Statute §65B.49 Biennial Limits requires the Commissioner of Commerce to adjust the Vicarious Liability Limits Applied to Owners of Rented Motor Vehicles.

The dollar amounts stated in this paragraph shall be adjusted for inflation based upon the consumer price index for all urban consumers, known as the CPI-U, published by the United States Bureau of Labor Statistics. The dollar amounts stated in this paragraph are based upon the value of that index for July 1995, which is the reference base index for purposes of this paragraph. The dollar amounts in this paragraph shall change effective January 1 of each odd-numbered year based upon the percentage difference between the index for July of the preceding year and the reference base index, calculated to the nearest whole percentage point. The commissioner shall announce and publish, on or before September 30 of the preceding year, the changes in the dollar amounts required by this paragraph to take effect on January 1 of each odd-numbered year. The commissioner shall use the most recent revision of the July index available as of September 1. Changes in the dollar amounts must be in increments of $5,000, and no change shall be made in a dollar amount until the change in the index requires at least a $5,000 change.

About the Author: Paul practices primarily in the area of general liability, professional liability, construction law, and automobile litigation, including third-party liability and UM/UIM.   Paul is an integral member of our Auto Rental Group.  Paul has successfully and efficiently defended numerous automobile, general liability, toxic tort, professional liability and commercial claims.  He enjoys ADR and has been chosen to serve as an arbitrator and mediator on various claims.  Paul has tried many personal injury and commercial lawsuits, with excellent results. Paul is a Certified Civil Trial Specialist by the Minnesota State Bar Association and is a Qualified Mediator.  He has been with the firm since he began his practice in 1988 and is serving on the firm's management Board of Directors.  Paul has also been licensed in Wisconsin since 1996, and defends a number of lawsuits "across the border."

ABOUT THIS PRACTICE GROUP

The Automobile Law Practice Group at Arthur, Chapman, Kettering, Smetak & Pikala, P.A. has extensive experience in automobile insurance issues and automobile litigation for insured and self-insured companies, handling third-party cases, underinsured, no-fault claims and bad faith matters. The firm is renowned in Minnesota for its expertise in automobile insurance issues and automobile litigation.

This publication is intended as a report on legal developments in the automobile insurance area. It is not intended as legal advise. Readers of this publication are encouraged to contact Arthur, Chapman, Kettering.