New York Car Accident Lawyer Blog
Motor vehicle accidents involving rental vehicles often raise complicated insurance coverage issues. In New York, Vehicle and Traffic Law § 370 requires rental car companies to maintain certain insurance coverage for vehicles they place on the road. For many years, courts interpreted the statute as requiring rental companies to provide primary insurance coverage to renters up to the statutory minimum limits. However, Congress changed the legal landscape when it enacted the Graves Amendment in 2005.
In Second Child v. Edge Auto, Inc., 2025 NY Slip Op 01432, the Appellate Division, First Department, considered whether a rental car company and its insurer were required to provide primary insurance coverage and indemnification to renters involved in a motor vehicle accident. The decision addressed the interaction between Vehicle and Traffic Law § 370, the Court of Appeals’ decision in ELRAC, Inc. v. Ward, 96 N.Y.2d 58 (2001), and the federal Graves Amendment. The case provides important guidance regarding the extent of a rental car company’s insurance obligations in New York.
Background Facts
The plaintiffs rented a vehicle from defendant Edge Auto, Inc. While operating the rental vehicle, they were involved in an accident. After the accident, the plaintiffs were sued by another person who claimed to have been injured in the crash.
As a result of that lawsuit, the plaintiffs filed a third-party action against Edge Auto and its insurer. They sought a declaration that Vehicle and Traffic Law § 370 required Edge Auto to provide insurance coverage on a primary, non-contributory basis. The plaintiffs also sought a declaration that Edge Auto and its insurer were obligated to defend and indemnify them in the underlying action. In addition, they argued that Edge Auto could not seek reimbursement from them or their insurer for amounts up to the minimum insurance limits required by the statute.
After the defendants answered the complaint, the plaintiffs moved for summary judgment. They relied heavily on the Court of Appeals’ decision in ELRAC, Inc. v. Ward, which held that Vehicle and Traffic Law § 370 required rental car companies to provide primary insurance coverage to renters up to the statutory minimum limits and prohibited rental companies from seeking indemnification for those amounts.
The Supreme Court denied the motion. The plaintiffs appealed to the Appellate Division, First Department, arguing that Vehicle and Traffic Law § 370 continued to require Edge Auto and its insurer to provide primary coverage and indemnification despite the enactment of the Graves Amendment.
Issue
Does Vehicle and Traffic Law § 370 require a rental car company to provide primary insurance coverage and indemnification to renters despite the liability protections provided by the Graves Amendment?
Holding
No. The Appellate Division held that while Vehicle and Traffic Law § 370 continues to require rental car companies to maintain minimum insurance coverage, the Graves Amendment preempts New York law to the extent it would require rental companies to provide primary insurance coverage and indemnification for damages caused by renters. Accordingly, the court affirmed the denial of the plaintiffs’ motion for summary judgment.
Rationale
The court began by reviewing Vehicle and Traffic Law § 370 and the Court of Appeals’ decision in ELRAC, Inc. v. Ward. In Ward, the Court of Appeals interpreted the statute as requiring rental car companies to provide primary insurance coverage to renters up to the statutory minimum limits and prohibiting rental companies from seeking indemnification for those amounts.
The court then examined the Graves Amendment, which Congress enacted in 2005. The Graves Amendment generally provides that a rental car company cannot be held liable simply because it owns a vehicle involved in an accident, provided the company was not negligent and did not engage in criminal wrongdoing.
The plaintiffs argued that the Graves Amendment did not affect the obligations imposed by Vehicle and Traffic Law § 370 because the federal law contains a savings clause preserving state financial responsibility and insurance requirements. The court agreed that New York may continue to require rental companies to maintain minimum insurance coverage as a condition of operating vehicles in the state.
However, the court concluded that requiring Edge Auto to provide primary coverage and indemnification for damages caused by its renters would effectively impose liability that Congress intended to eliminate through the Graves Amendment. According to the court, it makes little difference whether liability is imposed through a vicarious liability statute or through a rule requiring primary insurance coverage. In either situation, the rental company would be financially responsible for damages caused by the renter even when the company itself was not negligent.
The court also rejected the plaintiffs’ argument that Vehicle and Traffic Law § 370 reverse-preempted the Graves Amendment under the McCarran-Ferguson Act. The court explained that the state statute continues to operate by requiring rental companies to maintain minimum insurance coverage. Because the Graves Amendment does not completely invalidate the statute, reverse preemption does not apply.
As a result, the court concluded that Vehicle and Traffic Law § 370 remains valid as a financial responsibility statute but cannot be used to require rental companies to provide primary insurance coverage and indemnification to renters in a manner prohibited by the Graves Amendment.
Conclusion
The decision in Second Child v. Edge Auto, Inc., highlights the continuing impact of the Graves Amendment on accident litigation involving rental vehicles and demonstrates the limits of New York’s ability to impose financial responsibility on rental car companies for the conduct of renters.
If you were injured in a motor vehicle accident involving a rental vehicle, it is important to understand how state and federal laws may affect liability and available insurance coverage. Contact an experienced New York car accident lawyer to evaluate your case, identify potential sources of recovery, and protect your rights throughout the claims process.