HIDDEN RISKSPresented by Jeff Toole

TRALA Annual MeetingScottsdale, Arizona ● April 8-11, 2018

Equipment LeasingGraves AmendmentPermissive User LawsInsurance Policies

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Graves Amendment The Safe, Accountable, Flexible, Efficient

Transportation Equity Act: A Legacy For Users (“SAFETEA-LU Act”)49 U.S.C. § 30106

Goal: Preempt state vicarious liability lawsOwnership does not equal liability, but no

shield if negligent or wrongdoing

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Graves Amendment

Protection Summarized An entity “engaged in the trade or business of renting or

leasing” “Motor vehicles” The entity is an “owner” of the vehicle

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Graves Amendment Engaged in Trade or Business Will include leasing companies,

private or public Other business activities?

• Yes, Johnke v. Espinal-Quiroz, 2016 WL 454333 (N.D. Ill. Feb. 5, 2016) (Affidavit stated that entity was in the business of leasing and delivering product)

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Graves Amendment Engaged in Trade or Business Car sharing – yes, Moreau v. Josaphat, 975 N.Y.S.2d 851 (N.Y.

Sup. Ct. 2013) Loaner cars – no, Zizersky v. Life Quality Motor Sales, Inc., 866

N.Y.S.2d 501 (N.Y. Sup. Ct. 2008)

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Graves Amendment What does “Motor Vehicle”

include? Power unit/tractors Also includes trailers

• 49 U.S.C. § 30102(a)(6) (defines “motor vehicle” as “a vehicle driven or drawn by …”

• 49 U.S.C. § 13102(14) (term “motor vehicle” means “a vehicle, machine, tractor, trailer or semitrailerpropelled or drawn by …”

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Graves Amendment

Does “Motor Vehicle” include a golf cart? No, Bryan v. Blockbuster Golf

Cars, Inc. (Broward Cty. Ct., Fla. Mar. 7, 2017) (Order on Motion for Summary Judgment)

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Graves Amendment

Who is an “Owner?” Defined broadly to include record or beneficial owner, title

holder, lessor, lessee, bailee or entitled to possession via a security interest

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Graves Amendment

What about “Affiliation?” The negligence or wrongdoing of an affiliate can void

preemption/protection under Graves Amendment An affiliate is someone other than “owner” that directly or

indirectly controls, is controlled by or is under common control with “owner”

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Graves Amendment

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Graves Amendment

Stratton v. Wallace, 2016 WL 3552147 (W.D.N.Y. Apr. 5, 2016) –Requires owner and affiliate to be free from negligence

Awkward construction of the phrase “(or an affiliate of the owner).” Thus, leasing company was not protected because of the negligence of affiliated motor carrier.

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Graves Amendment(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—

(1) the owner (or an affiliate of 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 (or an affiliate of the owner).

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Graves Amendment

Recent Case Parker v. Miller, 2018 WL 898981 (S.D. Ohio Feb. 15,

2018), in which Court found Graves Amendment did not apply

Plaintiff did not allege liability based on ownership of vehicle. Rather, plaintiff alleged lessor and motor carrier were alter egos and thus leasing company was liable for driver via vicarious liability.

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Permissive User Laws

Graves Amendment addresses the owner’s/lessor’s vicarious liability, BUT it does not shield the owner’s/lessor’s liability insurance

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Permissive User Laws

Nearly every state has a permissive user law that requires an insurance policy that is issued to a vehicle owner that satisfies the state minimum financial responsibility laws to insure the owner AND permissive users of the vehicle.

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Permissive User LawsLocation of Permissive User Laws State Insurance Code Motor Vehicle Code / Financial Responsibility Laws Require proof of financial responsibility when:

Operate vehicle Registers Plates Garaged Accident Driving violation Permit

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Permissive User Laws

Requires Mandatory Coverage “Every owner’s policy … shall

insure the named insured and any other person, as insured, using any motor vehicle with express or implied permission.”

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Permissive User Laws

Exceptions to permissive user laws Motor Carrier Exception – in 15 states the laws do not

apply to commercial vehicles Generally exception applies if vehicles are registered in

another jurisdiction or by federal government (intrastate or interstate regulation)

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Permissive User Laws

Exceptions to permissive user laws Lease/Rental Exception – in 7 states the laws do not apply

to companies that lease or rent equipment Problem with exceptions – equipment is transient by

nature, so other states’ laws are still applicable

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Permissive User LawsIf policy does not include coverage for permissive user will be read into policy as a matter of law McCandless v. United Southern

Ass’n Co., 953 P.2d 911 (Ariz. Ct. App. 1998) – “Scheduled Vehicle” coverage limitation cannot defeat permissive user law

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Insurance Policies

Permissive user laws dictate scope of “Who Is An Insured” provision in transportation insurance policies Truckers Coverage Form Motor Carrier Coverage Form Business Auto Coverage Form

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Insurance Policies

Because of permissive user laws, the policies cover permissive users Who Is An Insured – The following are

“insureds”a) You for any covered “auto”b) Anyone else while using with your

permission a covered “auto” …

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Insurance Policies

“Omnibus Insureds” Permissive users are automatically insured under this

provision Insurance companies will not change or endorse the

policy to remove coverage

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Insurance Policies

Can increase exposure to owner’s/lessor’s auto liability insurer AND to lessor/owner with a high deductible This seems to erode Graves

Amendment protection because the owner is on the hook for deductible

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Insurance Policies

Question: Doesn’t the Graves Amendment step in and prevent liability under permissive user laws?Answer: No, in fact there is an exception in Graves Amendment for such laws. 49 U.S.C. § 30106(b) explains “Nothing in this section supersedes the law of any state … imposing financial responsibility or insurance standards on the owner of a motor vehicle …”

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Insurance PoliciesStep-Down Endorsements Strategy for reducing

exposure to owner and owner’s insurer

Reduces coverage for a permissive user to the minimum financial responsibility limits in a state

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Insurance Policies

Step-Down EndorsementsIf YOU [Leasing Company] rent or lease an auto to others pursuant to any contract or agreement whereunder there is no provision requiring YOU to provide liability insurance, the insurance afforded by the Policy shall;(1) not apply to any person or organization other than YOU unless a

minimum limit shall be required by state statute; in which case, the limit of our liability is the minimum limit required under the applicable state financial responsibility law with respect to any person or organization other than YOU.

(2) be excess over other collectible insurance applicable to YOU.

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Insurance Policies

MCS-90 Endorsement Doesn’t the MCS-90 Endorsement act as a federal

permissive user law? No, FMCSA Regulatory Guidance, 70 Fed. Reg. 58065,

58066 (Oct. 5, 2005) explains MCS-90 Endorsement only applies to named insured. See also, McComb v. Nat’l Cas. Co., 994 F. Supp. 2d 918 (N.D. Ill. 2013)

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