Work Product of Matthiesen, Wickert & Lehrer, S.C. 2 Last Updated: 4/4/2022
Liability Insurance Primary or Excess
The following chart concerns itself only with liability insurance provided by the car rental company. Car rental companies
do not require a renter to have liability insurance, but liability coverage is still necessary in order to operate a vehicle in
every state except New Hampshire. (Note: In Virginia, a vehicle owner is not required to carry liability insurance on a
vehicle if he pays a $500 Uninsured Motor Vehicle fee to the Virginia Department of Motor Vehicles). Car rental companies
have no obligation to advise you of this or check to see if a renter has liability insurance coverage, and they cannot
mandate that a driver purchase same. Car Rental companies are required by law (in every state except California) to
provide the state-mandated liability limits for the rental car. However, in many cases this liability coverage may be
considered secondary to the primary coverage provided by your personal auto policy.
Liability Shifting, Vicarious Liability, and the Graves Amendment
Several states have vicarious liability statutes which make the owner of a motor vehicle automatically liable for the actions
and negligence of permissive users of the owner’s vehicle. Under common law, the owner of a motor vehicle is not liable
for injuries caused by the negligence of another person driving the owner’s vehicle (i.e., vicariously liable) unless the driver
was acting as an employee or agent of the owner, or there is a vicarious liability statute at play. California, Connecticut,
Florida, Idaho, Iowa, Maine, Michigan, Minnesota, Nevada, New York, Rhode Island and the District of Columbia all have
forms of vicarious liability statutes. Under these statutes, an owner who gives authority to another to operate the owner’s
vehicle, by either express or implied consent, has a non-delegable obligation to ensure that the vehicle is operated safely.
For instance, New York has a typical vicarious liability statute in § 388 of the New York Vehicle and Traffic Law, which reads
as follows:
Every owner of a vehicle used or operated in this state shall be liable and responsible for death or injuries to person
or property resulting from negligence in the use or operation of such vehicle, in the business of such owner or
otherwise, by any person using or operating the same with the permission, express or implied, of such owner.
These vicarious liability statutes had become very expensive for car rental companies during the 1990’s and the major car
rental companies began changing their rental contracts to make the renter’s own insurance policy primary. Effective
August 10, 2005, however, Congress passed the Graves Amendment to the Federal Highway Bill, H.R. 3, codified at 49
U.S.C. § 30106. It provides as follows:
An owner of a motor vehicle that rents or leases the vehicle to a person shall not be liable under the law of any State
or political subdivision thereof, by reason of being the owner of the vehicle, 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 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.
The Graves Amendment preempted any state law to the contrary and provided relief to car rental companies. Whether
or not the company’s liability policy was considered primary or excess when a rented vehicle was involved in a collision
once again was determined by the rental agreement and applicable state law.
Challenges to state laws requiring that a car rental company provide liability insurance arose following the Graves
Amendment. In Subrogation Division, Inc. v. Brown, 2020 WL 211260 (D. S.D. 2020), a federal court discussed the impact
of the Graves Amendment’s saving clause on the issue of whether the car rental company’s liability policy was primary or
excess. That clause provides:
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 of renting or leasing motor vehicles for
failure to meet the financial responsibility or liability insurance requirements under State law.
In Brown, Overland West, Inc. rented a vehicle to Brown, who was involved in a crash with a vehicle owned by Dan
Claymore and insured for the minimum liability limits by Farmers (21
st
Century Indemnity Insurance Company). Brown’s
rental agreement stated that he agreed to indemnify Overland for “any and all loss, liability, claim, demand, cause of
action, and attorneys’ fees…” It also stated that Brown’s liability insurance would be “primary” in the event of an accident.
Overland’s liability carrier paid damages to Claymore and sought to recover those damages from its renter, Brown, and