By: Eric D. Jarvis

In today’s litigious society, the rent-a-car company is often seen as an easy target. The car rental business is inherently risky, and the popular thought is that the rent-a-car company has a lot of money (how else can they afford all those cars?). Many of the risks discussed below are well-known to experienced operators, but for everyone, awareness of the potential for liability is the first step toward protecting yourself and your company.

1. Vicarious Liability. A car, by its very nature, is a piece of dangerous machinery. Each time you rent a car, you are entrusting it to an individual who is literally unknown to you. In many states, the so-called “Vicarious Liability” states, the law places the burden of liability for the safe operation of that vehicle squarely on the shoulders of the rent-a-car company. The idea behind this type of law is that the public is better protected by ensuring that the owner of the vehicle, who is presumably someone with assets and insurance, rather than a less-reliable driver, is responsible to the injured party. In a vicarious liability state, the rent-a-car company is always responsible for the loss caused by its renter, and it can not thereafter seek recovery from the renter.

Vicarious liability means that, no matter how careful you were in renting the vehicle, if the driver of your rental car causes some injury or damage to another person or to their property, you will be held liable to that person. In some states, such as New York, Connecticut, Maine, and Rhode Island, this liability is unlimited. In other states, such as Florida or Minnesota, the liability limit is capped at a certain amount.

Vicarious liability is the single most burdensome legal responsibility in those states that impose this doctrine. By shifting responsibility away from the driver to the owner of the vehicle, the law places responsibility where there is no fault. The best a rent-a-car operator can do in these states is to avoid risk through good rental practices, and to purchase liability insurance to cover those losses that inevitably occur.

2. Primary vs. Secondary Liability. Closely related to vicarious liability, are the concepts of primary and secondary liability. The question these concepts answer is not "Who's legally responsible for the loss?", but, “Who is going to pay the injured party for the loss?" In a primary state, the rent-a-car company is going to be responsible for paying the injured third party, but it can then seek recovery from the driver. In a secondary state, the renter himself is responsible. As a further twist, in some primary states, the rent-a-car company becomes secondary if they are self-insured and if the renter has their own insurance.

A vicarious liability state will always be a primary state, but a non-vicarious liability state may not necessarily be a secondary state. In a non-vicarious liability state, where the renter is at fault, the rent-a-car’s own insurance may still be held primarily responsible to the injured third party – but the rent-a-car’s insurance company will be permitted to go after the renter to recover the losses it has paid. Thus, even in a primary state (that is not also a vicarious liability state) the rent-a-car company is primarily responsible to the injured third party, but can seek recovery from the renter.

The bottom line is that, where the renter is at fault, a primary state will make the owner of the vehicle pay the loss first; the owner may then seek recovery from the renter. A secondary state will place the renter’s own insurance in the first position, and the owner’s insurance will pay only if the renter’s insurance runs out (and sometimes not at all).

3. Employee’s Negligence. The legal doctrine of respondeat superior (literally, "let the master answer") means that an employer is held strictly responsible for all injuries caused by his employees during the course and scope of their employment.

The largest and most common exposure in the car rental industry is that risk arising from employees driving vehicles on the company’s behalf. Whenever an employee is driving on a task for the company, whether it’s picking up or dropping off customers, moving cars from one lot to another, or even picking up lunch for the crew, the entire company is riding in the front seat of that car. This doctrine applies even if the employee is driving his own car.

Unfortunately, Plaintiff’s lawyers see an employer as a "deep pocket", with more wealth and/or better insurance than the individual actually driving the car. The first thing they will look for in an auto accident case is an employer they can pin the blame on. By alleging that the employee was working at the time of the accident, they put the employer on the hook and increase the employer’s exposure. This makes the common practice of providing company cars for employees especially risky.

To help avoid this risk, rent-a-car companies can take a lead from auto dealers and municipal fleet managers by regularly requesting driver record reports from their state’s motor vehicle department, and excluding employee drivers with less-than perfect records. Also check with your insurance provider to make sure your company is covered for this exposure through a garage liability or similar policy.

4. Negligent Entrustment. Negligent entrustment is a legal concept that directly implicates the rent-a-car company in giving the keys to someone who is not fit to drive. This is negligence that happens at the rental counter, not on the road. The theory behind this law is that the company should be responsible if it gives an inherently dangerous piece of machinery (the car) to somebody who is obviously incapable of handling that machinery, and then allows that person to go out on the road where he may then cause damage or injury to the public. This liability can arise when the person being rented to is intoxicated, on drugs, or physically incapable of driving a car. The most common ground for this charge, however, is simply a failure to verify that the renter has a valid driver’s license.

5. Premises and Operations Liability. The risk of a "slip and fall" or other type of accident is higher with a rent-a-car operation than it is with many other types of operations. The inherent operations of a rent-a-car lot make it more dangerous than, for example, a florist’s shop. Additionally, the risk of a lot collision with a customer’s car is one that doesn’t exist for many business owners.

A rent-a-car operator, as a necessary part of its business, invites members of the public onto its property. These “business invitees” are accorded the highest degree of protection under property liability law. The duty of the property owner with regard to business invitees is to not only warn of dangerous conditions that exist, but to correct the dangerous conditions and make it safe.

Plaintiff's lawyers know that a rent-a-car operation’s physical lot and facility shares many characteristics with car dealerships – vehicles are moved and stored, vehicle prep stations, and maybe even a repair facility. Because many of its operations are inherently more dangerous than other types of business, it becomes easier to argue that the risk of an accident occurring is greater, and the severity of the accident involving a vehicle on the lot can be high. It only takes an allegation of loose gravel or a little spilled fluid to create a dangerous condition.

One of the best ways to minimize the severity of a “slip and fall” type of loss is to aggressively manage the claim as soon as it is reported. A rent-a-car operator should have incident forms, similar to those required by your auto insurance company, to be filled out by anyone who says they were injured on your lot. This should be supplemented by witness and employee statements, as well as photos where the accident took place. Early collection of this information is important when it comes time to put together a defense.

The foregoing is a broad discussion of five of the most important risks every rent-a-car operator should be aware. Because laws vary from state to state, each rent-a-car operator should consult legal counsel to be aware of exactly how these risks affect his individual business. For operators with locations in multiple states, policies and procedures may have to vary according to each state within their system. Risk is often a necessary part of doing business, but recognition of risk is the first step in taking action to aggressively manage and minimize your business's exposure.

 Back to top      Return to press room