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Federal Law Eliminates Vicarious Liability for Rental Vehicle Companies

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 lastlayer 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 a link to the new law as well as a table showing the history and amount of vicarious liability limits, click here.