New amendment

April 1, 2006
BEFORE finalizing the Transportation Equity Act of 2005 (TEA), lawmakers approved an amendment that would generally hold rental car drivers responsible

BEFORE finalizing the Transportation Equity Act of 2005 (TEA), lawmakers approved an amendment that would generally hold rental car drivers responsible for accidents rather than rental car companies — legislation that tank truck carriers should note, according to Robert T Franklin, General Counsel for the Maryland Motor Truck Association (MMTA).

“This law goes beyond the classic car rental scenario involving, for example, Hertz, Avis, Budget, etc, and has interesting implications for commercial transportation situations involving a leased tractor or trailer,” Franklin wrote in the February 2006 issue of The Bulletin, MMTA's monthly newsletter.

Franklin pointed out that the new requirements are not to be confused with an equipment lease with an owner-operator (pursuant to 49 CFR 376.12), but may apply to lawsuits in which an equipment rental company, such as Associates Leasing, Penske Truck Leasing, or Ryder Systems Inc, is named as a party because the companies happened to own the vehicle leased by the person who caused the injury.

The TEA amendment in question was introduced by Rep Sam Graves (R-MO) in order to hold rental car customers responsible for accidents they cause rather than the company which leased the vehicle to them.

Number sufficient

Although there are only 15 states, the District of Columbia included, that threaten non-negligent companies with unlimited vicarious liability, lawmakers determined the number was sufficient to affect consumers and businesses nationwide.

Vicarious liability increases consumer costs in acquiring vehicles and buying insurance which, in turn, results in higher commercial costs for the transportation of goods.

In the most absurd situations, the imposition of non-negligent vicarious liability has resulted in the end of small businesses through no fault of their own, Franklin said.

It was recognized that the issue of financial responsibility is, and will continue to be, addressed by states on an individual basis by setting minimum insurance requirements for each vehicle.

Every car rental company is required to maintain insurance coverage on each of its vehicles that meets those state requirements.

Common sense

This common sense reform that makes vehicle operators responsible for their own actions does not apply to leasing companies which committed their own act of negligence resulting in an injury.

The amendment is limited to preempting state laws that subject lessors to vicarious liability for the acts of the lessee.

The Graves Amendment provides, in part, as follows: “(a) In general — 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:

  • the owner (or an affiliate of the owner) is engaged in the trade or business of renting or leasing motor vehicles;

  • there is no negligence or criminal wrongdoing on the part of the owner (or an affiliate of the owner).”

Motor carriers

The provision is also potentially significant for motor carriers. The motor carrier's equipment is often its most valuable and liquid asset. If there is a catastrophic verdict, or some other judgment or fine against the motor carrier, beyond what the carrier is insured for, those assets may be lost. The motor carrier may, however, be able to take advantage of the new law, in order to shield the equipment from such an exposure.

In order to utilize the Graves Amendment to that end, the owners of the motor carrier may create a new entity which will own the vehicles, and lease them to the motor carrier entity. If that is done properly, that arrangement should effectively shield the equipment from exposure incurred by the motor carrier's operations, because the motor carrier no longer owns the equipment.

Moreover, the new corporate entity is “engaged in” the business of leasing equipment, and thus the new law applies to it, and the new entity cannot be held liable for the negligent acts of the motor carrier.

Careful attention, however, must be given to the documents which create the new leasing entity, and the contracts between it and the motor carrier entity, in order to validly take advantage of this arrangement, Franklin added.

As noted above, the new law applies only to entities “engaged in” the business of leasing equipment. Accordingly, if instead of creating a new separate leasing entity, the motor carrier itself occasionally leases equipment to other motor carriers, the carrier which owns the equipment would not be able to take advantage of the law because it is not regularly “engaged in” the business of leasing equipment.

Editor's note: Robert Franklin is a principal at the law firm of Franklin & Prokopik in Baltimore, Maryland. For more information, telephone 410-230-3623, or e-mail Franklin at [email protected].