Commercial Negligent Entrustment In California

by Vikas Bajaj

Negligence lawsuits both obtain compensation for current victims and make the community safer for future victims. That second reason makes third party liability theories, such as negligent entrustment, very important. After all, if XYZ Rental Car Company hands a set of car keys to a dangerous driver, that driver causes a car crash, and XYZ is not held partly responsible, the company will likely keep renting vehicles to anyone with a valid credit card regardless of their ability or inability to drive.

Negligent entrustment, or owner liability, is recognized in all fifty states. Essentially, if vehicle owners allow incompetent drivers to use their cars, and these incompetent drivers subsequently cause vehicle collisions, the owners are responsible for damages. Commercial negligent entrustment works a little differently, because of an obscure legislative add-on to an omnibus highway bill.

The Graves Amendment

The story behind 49 USC 30106 begins several years before its approval. In the early 2000s, a number of juries in various states held vehicle rental companies like Avis, Enterprise, U-Haul, and Ryder liable for damages in vehicle wreck cases. One of the more notable ones was in Connecticut. After a jury ordered a car rental company to pay millions of dollars in damages following a deadly fireball collision, the company threatened to pull out of several states. In response, Rep. Sam Graves (R-MO) added the Graves Amendment to the sprawling Safe, Accountable, Flexible, and Efficient Transportation Equity Act in August 2005.

Like many such add-ons, there is almost no legislative history either supporting the need for the Graves Amendment or explaining its application. Additionally, as is typical of such legislative riders, the Graves Amendment is somewhat poorly drafted, as many of its key terms are not even defined in the statute.

Grant of Immunity

To protect the vehicle rental industry, pro-business lawmakers intended the provision to make these companies immune from lawsuits in all but a few situations. However, as often happens, the exceptions may be so broad that they effectively swallow the rule, and that’s especially the case for vicarious liability in California.

One major exception is in subsection (a)(1), which states that the vehicle owner, or the owner’s agent (franchisee), must be in the “trade or business of renting or leasing motor vehicles.” The Graves Amendment does not define this key phrase, but it is defined elsewhere. The IRS uses the phrase to describe any entity that offers goods or services for sale, a circular definition that is not really very helpful. However, a provision in the Code of Federal Regulations contains an extensive discussion of what does and does not constitute a “trade or business.”

Essentially, an organization must derive most or all of its income from a certain endeavor to be in that “trade or business.” For example, a corner barber shop is not in the confectionery business even though it offers a few sodas and candy bars for sale and a coffee shop is not an art gallery even though it allows people to buy its wall hangings.

Many vehicle rental companies, especially moving truck rental firms, arguably do not fit this definition, because these businesses are essentially moving companies that have a few trucks in the parking lot available for rent. In a negligence lawsuit, if the defendant claims it is not liable because of the Graves Amendment, the defendant has the burden of proof to show that the provision applies, and that amount of evidence may simply not be available.

The Law in California

The bigger exception, especially in the Golden State, is (a)(2)’s dictate that the owner or agent cannot be otherwise negligent in the commercial transaction. In California, it is well-settled law that “A rental car company may be held liable for negligently entrusting one of its cars to a customer” under certain circumstances.  There are basically two situations:

• Suspended or Invalid License: Under traditional negligent entrustment theory, unlicensed drivers are incompetent as a matter of law, and that would include drivers whose licenses are facially valid but legally invalid.
• Poor Driving Record: If the drivers have prior tickets, prior medical suspensions, and other “black marks” on their records, the driving record is essentially evidence of negligence.

No court has ruled on this issue in several years, so the extent of the duty to verify a license probably depends on the policy of that particular company, as some firms require extensive checks and some do not.

The Graves Amendment probably does not prevent negligence lawsuits against vehicle rental companies in California. For a free consultation with an aggressive personal injury lawyer in San Diego, contact the Injury Trial Lawyers, APC. An attorney can arrange for victims to receive ongoing medical care, even if they have no money and no insurance.