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 which impose limited or complete vicarious liability on rental or leasing companies.

On August 10, 2005 President George W. Bush signed into law the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU). This massive piece of federal legislation contained an amendment that has been referred to as the Graves Amendment (it was sponsored by R-Missouri Sam Graves). This amendment overrides and negates state vicarious liability statutes for companies that lease and/or rent motor vehicles.

In part the Graves amendment states that:

(a) 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.

It should be noted that the new law does not eliminate a rental vehicle owner’s exposure for its own direct negligence (i.e. negligent maintenance of a vehicle which causes an accident) or a rental vehicle owner’s vicarious liability for reasons other than ownership (i.e. the vicarious liability of a rental vehicle owner for the negligent actions of the owner’s employee).

There have already been court cases regarding the validity of the Graves Amendment. For example a U.S. District Court on March 5, 2007 ruled that the federal statute known as the Graves Amendment (49 USC 30106) preempts Florida vicarious liability laws. Consequently, the court found that pre-existing Florida law setting caps on vicarious liability involving short-term vehicle rentals is also preempted by the federal law. The federal court in this decision also declares that the passage of the Graves Amendment was fully within Congress’ constitutional authority under the Commerce Clause.

The Graves amendment makes special mention that it does not supersede the law of any state imposing financial responsibility minimums on rental companies. Therefore, rental operators will still have to self-insure or acquire liability insurance up to state minimums. Part (b) of the Graves Amendment reads:

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 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 requirements under State law.