Car rental companies: trying to slam the door on vicarious liability.

After President Clinton vetoed the comprehensive products liability bill that Congress passed in 1996, tort "reformers" began changing their approach. They stopped cramming all their so-called reforms into one large package. Instead they sponsored single-issue bills or sought to insert particular liability limitations within various bills.

Such is the case with vicarious liability.

A rental car consortium comprising some of the biggest names in the business has been pushing for years for a way to steer around state laws that hold rental car companies liable for the tortious acts of drivers who rent cars. In 1996, the group succeeded in adding a vicarious liability prohibition to the products liability bill passed by Congress. After that bill was vetoed, the consortium returned to Capitol Hill and nearly achieved success in 1998.

Currently, only 12 states allow vicarious liability actions with regard to car rental (or leasing) companies. Although all states require car rental companies to maintain a minimal amount of insurance, these 12 states have created a special insurance regulation to ensure that people who are injured in collisions with rental cars receive compensation.

The rental car consortium is once again making a pitch to members of Congress, and four bills have appeared: H.R. 1954, the Rental Fairness Act of 1999, sponsored by Rep. Ed Bryant (R-Tenn.); S. 1130, the Motor Vehicle Rental Fairness Act of 1999, sponsored by Sen. John McCain (R-Ariz.); H.R. 2366, the Small Business Liability Reform Act of 1999, sponsored by Rep. James Rogan (R-Calif.); and S. 1185, the companion legislation to the House's small business bill, sponsored by Sen. Spencer Abraham (R-Mich.).

The Small Business Liability Reform Act and its companion legislation are tort "reform" bills geared generally toward businesses with 25 or fewer employees. However, [sections] 204 of the bill, "Liability rules applicable to product sellers, renters, and lessors," would overturn the common law of vicarious liability as it applies to all businesses, regardless of size. Under this section, the seller or lessor of any product--from rental cars to heavy machinery--would not be liable for the tortious conduct of another solely by reason of ownership of that product.

Whereas the language of the small business bill is broad enough to provide protection from vicarious liability to all product renters, the other two bills are tailored specifically for rental car businesses. With titles like the Motor Vehicle Rental Fairness Act, there is no question which industry is actively seeking liability protection.

The lobbying efforts of the car consortium have produced these bail-out bills to help protect what is a $14.6 billion industry. According to the companies' latest filings with the Securities and Exchange Commission, the year-end revenue for Hertz in 1996 was $4.2 billion; for Avis, $2.3 billion; and for Budget, $1.2 billion. While these companies claim to face burdensome accident and litigation costs, the Wall Street Journal revealed that the entire car rental industry had only $100 million in accident costs in 1996. (Lisa Miller, Car Rental Companies Are Jacking Up Prices, Wall St. J., Feb. 4, 1997, at B6). In other words, the industry's accident cost represents only .07 cents (less than a penny) of every dollar of its revenue.

Reaping rewards

These companies are clearly making profits. The way they make those profits is by renting vehicles to people who are likely to be unfamiliar with both the rental vehicles and the roadways on which they will be driving. The majority of states that impose some sort of financial responsibility on car rental businesses, and the 12 states that allow vicarious liability actions, have done so to protect drivers--that is, the drivers who are not in the rental cars.

New York's vicarious liability laws demonstrate how a state creates an insurance system to protect its citizens. In New York, it is illegal to ask a person renting a car if he or she owns car insurance. Many New York City residents do not own cars or first-party car insurance, and the state realizes that many uninsured drivers will be put on the roads by car rental companies.

New York uses vicarious liability to protect people involved in accidents caused by uninsured drivers of rental cars. When rental car companies know they will be held accountable, they make sure renters are qualified to drive by checking driving records, confirming their age, and accepting only credit cards for payment.

Further, if an uninsured driver of a rental car hits someone and the company is not held accountable, the responsibility for costs stemming from the accident may shift to the victim's car insurance company, the victim's state workers' compensation system, or the victim's health insurance company. The four bills moving through Congress would transfer costs from the rental car companies to accident victims and the taxpayers.

Fortunately, none of the bills has made it out of committee. When the House Judiciary Committee attempted in November to mark up the Small Business Liability Reform Act, the committee chair announced that the bill would be put on hold. However, when Congress reconvenes this month, the committee may take up the bill fairly quickly. Also on the House side, the Subcommittee on Finance and Hazardous Materials marked up the Rental Fairness Act, passed it by only one vote (12-11), and forwarded it to the House Commerce Committee. The Commerce Committee has yet to mark up that bill.

On the Senate side, S. 1130 is awaiting markup in the Commerce Subcommittee on Consumer Affairs, Foreign Commerce, and Tourism. Senate Judiciary Committee members have yet to even hold a hearing on S. 1185.

This issue will likely move forward in the House before it moves in the Senate. The Senate subcommittee hearing occurred before the House's subcommittee hearing, yet the Senate committee has taken no further action. And one Senate bill sponsor--John McCain--has been busy, traveling the presidential campaign trail.

Kristin Loiacono is media relations coordinator for ATLA.