[Senate Hearing 106-1023]
[From the U.S. Government Publishing Office]
S. Hrg. 106-1023
S. 1130, MOTOR VEHICLE RENTAL FAIRNESS ACT
=======================================================================
HEARING
before the
SUBCOMMITTEE ON CONSUMER AFFAIRS, FOREIGN COMMERCE AND TOURISM
of the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 30, 1999
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana DANIEL K. INOUYE, Hawaii
SLADE GORTON, Washington JOHN D. ROCKEFELLER IV, West
TRENT LOTT, Mississippi Virginia
KAY BAILEY HUTCHISON, Texas JOHN F. KERRY, Massachusetts
OLYMPIA J. SNOWE, Maine JOHN B. BREAUX, Louisiana
JOHN ASHCROFT, Missouri RICHARD H. BRYAN, Nevada
BILL FRIST, Tennessee BYRON L. DORGAN, North Dakota
SPENCER ABRAHAM, Michigan RON WYDEN, Oregon
SAM BROWNBACK, Kansas MAX CLELAND, Georgia
Mark Buse, Staff Director
Martha P. Allbright, General Counsel
Ivan A. Schlager, Democratic Chief Counsel and Staff Director
Kevin D. Kayes, Democratic General Counsel
------
Subcommittee on Consumer Affairs, Foreign Commerce and Tourism
John Ashcroft, Missouri, Chairman
SLADE GORTON, Washington RICHARD H. BRYAN, Nevada
SPENCER ABRAHAM, Michigan JOHN B. BREAUX, Louisiana
CONRAD BURNS, Montana
SAM BROWNBACK, Kansas
C O N T E N T S
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Page
Hearing held September 30, 1999.................................. 1
Statement of Senator Ashcroft.................................... 1
Statement of Senator Gorton...................................... 20
Witnesses
Elder, Ken, chief executive officer, Welcome Corporation......... 12
Prepared statement........................................... 13
Faulker, Sharon, area manager, Premier Car Rental Corporation.... 8
Prepared statement........................................... 10
Stewart, Larry S., Association of Trial Lawyers of America....... 15
Prepared statement........................................... 17
Wagner Jr., Raymond T., vice president, Legal and Legislative
Affairs, Enterprise Rent-A-Car Corporation..................... 3
Prepared statement........................................... 4
Appendix
Statement of Hon. Ernest F. Hollings, U.S. Senator from South
Carolina....................................................... 23
Statement of Hon. Trent Lott, U.S. Senator from Mississippi...... 23
S. 1130, MOTOR VEHICLE RENTAL FAIRNESS ACT
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THURSDAY, SEPTEMBER 30, 1999
U.S. Senate,
Subcommittee on Consumer Affairs, Foreign Commerce and
Tourism
Committee on Commerce, Science, and Transportation,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:35 a.m. in
room SR-253, Russell Senate Office Building, Hon. John
Ashcroft, chairman of the subcommittee, presiding.
Staff members assigned to this hearing: Robert Taylor,
Republican counsel; and Moses Boyd, Democratic senior counsel.
OPENING STATEMENT OF HON. JOHN ASHCROFT,
U.S. SENATOR FROM MISSOURI
Senator Ashcroft. Good morning. Let me thank all of you for
being here and let me call this meeting of the Consumer Affairs
Subcommittee of the Commerce Committee to order.
I am aware of the fact that we normally wait 10 minutes for
full professors while we are in college and sometimes even
longer if we are in law school, if our grade is in question,
but we I think ought to proceed this morning. There are other
Senators who have just recently voted on an item. The vote
started at 10, and they have had sometime to both vote and make
their way here.
I would just like to get this moving, because the day is a
day full of serious challenges. The purpose of this morning's
hearing is to review S. 1130, the Motor Vehicle Rental Fairness
Act, a bill introduced by Chairman John McCain, several of my
colleagues, and by me.
I want to begin by thanking all of our witnesses for their
participation in today's hearing. The committee understands
that each witness is very busy, and we appreciate your time and
your assistance.
S. 1130 seeks to put a halt to an absurd aberration in our
legal system. Under the liability laws of a small number of
States, companies that rent or lease motor vehicles are held
strictly liable if their renters or leasers are negligent or
cause an accident. The company does not have to be negligent in
any way. The vehicle may operate perfectly, be maintained
properly, and still be the occasion of the liability of the
company. These States simply hold the company liable because of
their ownership of the vehicle. This has been true even if the
car has been used by an unauthorized driver.
While most of these cases are settled, since there are no
defenses to vicarious liability the outcomes are perverse. Car
rental companies are being held responsible for renters who go
out and get drunk or use drugs and then cause an accident, for
renters who let unauthorized or underage drivers use the car,
for renters who fall asleep at the wheel or who are otherwise
severely negligent. In many cases, it is a family member of the
renter who is injured in an accident and then they turn around
and sue the rental car company.
The American judicial system should be based on, in my
judgment, general principles that a defendant should be liable
for the harm he or she could prevent, not merely because the
defendant has a deep pocket.
Vicarious liability laws undermine car rental and leasing
competition in these States. They also adversely impact
interstate commerce because companies located in nonvicarious
States own cars that are driven into vicarious States,
subjecting them to unlimited liability. Finally, vicarious
liability statutes have driven some smaller rental and leasing
companies out of business.
Again, I want to thank our witnesses, and I look forward to
their testimony.
Now, at the request of the Ranking Member of the full
committee, Senator Hollings, Mr. Stewart, who is here to oppose
this bill, will be asked to testify last, because the Ranking
Member asked that he come. I do not want anyone to think that I
am trying to adversely--but having the last word is something
that I know my wife always appreciates having, so maybe, Mr.
Stewart, you would understand that that is the reason the
sequencing will be as it is.
Mr. Stewart. I appreciate that also, Senator.
Senator Ashcroft. It is my pleasure, first of all, to
introduce to this committee Mr. Raymond Wagner, who is a
corporate official--the vice president of legal and legislative
affairs at Enterprise Rent-A-Car. Enterprise is a family-owned
corporation headquartered in St. Louis, Missouri, and I am
delighted to welcome Mr. Wagner to this committee.
I might just take a moment to indicate that Mr. Wagner and
I have had a long opportunity to serve together in Government.
He served as legal counsel in the Governor's Office of the
State of Missouri, and as the Director of the Department of
Revenue in the State of Missouri while I was Governor. Upon my
retirement as Governor, he went to be the Director of Revenue
in the State of Illinois, so I was pleased that our neighbors
saw the quality of his work and invited him there, but I wanted
our relationship to be clear and open to everyone, and we
appreciate the fact that you have come to the committee.
Mr. Wagner. Thank you, Senator.
Senator Ashcroft. I have asked that we set a timer so that
you all will have the benefit of a mechanical device, which
will not interrupt you but alert you to the fact that the time
allotted for your testimony has expired, if not the patience of
the committee, so please proceed.
STATEMENT OF RAYMOND T. WAGNER, JR., VICE PRESIDENT OF LEGAL
AND LEGISLATIVE AFFAIRS, ENTERPRISE RENT-A-CAR CORPORATION
Mr. Wagner. Thank you, Mr. Chairman.
Good morning, Mr. Chairman, members of the committee. My
name is Ray Wagner, and I am a vice president at Enterprise
Rent-A-Car Company. Enterprise, as you have indicated, is a
family-owned corporation headquartered in St. Louis, Missouri.
I appear before you today on behalf of Enterprise to express
our support for Senator McCain's ``Motor Vehicle Rental
Fairness Act of 1999.''
Thank you, Mr. Chairman, for inviting me to present
testimony this morning and for your continued strong support
for vicarious liability reform here in Congress. I view the
current vicarious liability laws from perhaps a unique
perspective. Not only am I a vice president at Enterprise, but
I am also a circuit court judge in the municipal division in
St. Louis County, and I am also an adjunct professor of law at
Washington University School of Law.
I am here today to say that the current vicarious liability
laws are unfair, and badly in need of reform. The title of this
legislation accurately describes its impact. S. 1130 will
return the notion of fairness to litigation involving car
rental companies in these handful of States which still cling
to this unfair doctrine. It is simply not fair to subject car
rental companies to unlimited liability for the acts of their
renters, and yet that is exactly what the vicarious liability
laws in Connecticut, Iowa, Maine, New York, Rhode Island, and
the District of Columbia impose.
It is not fair to impose multimillion-dollar judgments on
any entity, whether an individual or a corporation, when they
have done nothing wrong. It is not fair to force our customers
across the Nation to pay higher rental rates for the misguided
and outdated vicarious liability laws, which incidentally date
back to the days of horse and buggies, when horse and buggy
rental operators were presumed to know the personality of their
horses.
The laws of these States force car rental companies to
charge nonresident renters high rates to cover their losses. In
essence, nonresident accident-free renters are forced to
subsidize accident-prone renters in vicarious liability States.
We would submit this is poor public policy.
It is not fair to deprive consumers of the competition and
lower rental rates that smaller operators can offer, but that
is exactly what is happening, because literally hundreds of
companies have been forced out of business. It is not fair that
the only sure way an operator, even one operating outside of a
vicarious liability State, can protect itself against such
claims is to simply go out of business.
S. 1130 will return uniformity and fairness to the car
rental industry and to our customers. Quite simply, it will
preempt the laws in a small minority of States which presently
hold the car rental companies vicariously liable for the
negligence of their customers.
Opponents of this legislation will raise three central
arguments against it. First, they will argue that Congress
should not preempt State laws as a matter of States's rights
and federalism. I would agree with this argument if the impact
of these State laws were confined to their borders and their
citizens, but this is not the case. Our customers across the
Nation pay for vicarious liability losses through higher rates.
A company operating in Virginia cannot stop its customers and
vehicles from traveling to New York or the District of
Columbia, and as the selection of cases attached to my
testimony outlines, creative plaintiff lawyers seek to apply
these vicarious liability laws no matter where the accident
occurs.
Second, opponents will argue that the bill will somehow
lower the standard of care companies will use in the future
renting vehicles. They will allege we will feel free to rent to
drunk customers, or to not maintain our vehicles because we
have no fear of liability. These arguments are simply not true,
and I believe that they know this.
S. 1130 expressly states that the bill will not impact
claims alleging a company's negligence whether by negligently
entrusting their car to a renter, or by failing to maintain the
car. If Enterprise, for example, has been negligent in any way,
S. 1130 does not shield the company from potential liability,
nor should it.
Third, opponents of S. 1130 will argue that the innocent
injured persons will go uncompensated if these laws are not
preserved. It is, indeed, true that persons are injured every
day in vehicle accidents, and that financial resources either
through insurance or personal wealth are in many cases
insufficient to compensate, but it is also true that our
Nation's liability system is based on fault. Compounding a
wrong, the original accident, by adding another injustice,
holding the car rental company liable, does not make the
original wrong right.
My company has been subject to numerous vicarious liability
judgments and settlements over the past 10 years. These
judgments have cost Enterprise tens of millions of dollars,
costs that we simply must pass along to our customers.
Collectively, vicarious liability results in well over $100
million, exclusive of insurance costs and legal fees, for the
industry.
In sum, Mr. Chairman, S. 1130 will right an ongoing wrong.
These laws, these current laws impact interstate commerce
through higher rental rates for all consumers. These laws
lessen competition, acting as a barrier to entry into business
in vicarious liability States, and these liability laws
undermine the fundamental principle of our Nation's liability
system that a person should pay damages for harm caused only
when he or she is at fault or could have prevented the harm in
some way.
Thank you for inviting me to present this testimony today.
I urge this committee to pass this bill so that it can be
enacted into law by the end of this year. I would be pleased to
answer any questions you may have, Senator.
[The prepared statement of Mr. Wagner follows:]
Prepared Statement of Raymond T. Wagner, Jr., Vice President of
legal and Legislative Affairs, Enterprise Rent-A-Car Corporation
Good morning, Mr. Chairman and Members of the Committee. My name is
Ray Wagner and I am a Vice President at Enterprise Rent-A-Car Company.
Enterprise is a family-owned corporation headquartered in St. Louis,
Missouri. I appear before you on behalf of Enterprise to express our
support for Senator McCain's ``Motor Vehicle Rental Fairness Act of
1999'' (S. 1130). Thank you, Mr. Chairman, for inviting me to present
testimony this morning and for your continued strong support for
vicarious liability reform legislation.
I view the current vicarious liability laws from perhaps a unique
perspective. Not only am I a vice president at Enterprise, I am also a
municipal circuit court judge in St. Louis County and an adjunct
professor at the Washington University School of Law in St. Louis. And
I am here to say that the current vicarious liability laws are unfair
and badly in need of reform.
The title of the legislation under consideration today accurately
describes the impact this bill will have when it is enacted. S. 1130
will return the notion of fairness to litigation involving car rental
companies in a handful of states that still cling to the unfair
doctrine of vicarious liability for companies that rent or lease motor
vehicles.
It is not fair to subject car rental companies to unlimited
liability for the acts of their renters. And yet that is exactly what
the vicarious liability laws in the states of Connecticut, Iowa, Maine,
New York, Rhode Island, and the District of Columbia impose on
Enterprise and other companies.
It is not fair to impose multi-million dollar judgments on any
entity, whether an individual or a corporation, when they have done
nothing wrong. Again, that is exactly what the vicarious liability laws
of these states do.
It is not fair to force car rental customers across the nation to
pay through higher car rental rates for the misguided and outdated
vicarious liability laws that exist in only a handful of states. But
that is exactly what happens every day, as the laws of these states
force car rental companies to charge renters outside of these states
higher rates to cover their losses in these vicarious liability states.
It is not fair to deprive consumers the competition and lower
rental rates that smaller car rental companies can offer. But that is
what has happened because vicarious liability laws have forced many
companies out of business.
And it is not fair that the only sure way a car rental company,
even one operating outside of vicarious liability states, can protect
itself against vicarious liability claims is to go out of business. But
that is the only way that a car rental company can make sure it avoids
such claims.
S. 1130 will return uniformity and fairness to the car rental
industry and to the customers who rent our cars. Quite simply, it will
pre-empt the laws in a small minority of states that hold companies
that rent or lease motor vehicles liable for the negligence of their
customers only because the company owns the vehicle involved in the
accident.
Opponents of this legislation will raise three central arguments as
to why S. 1130 should not become law. I would like to respond to each
argument in turn.
First, opponents will argue that Congress should not pre-empt state
laws as a matter of states' rights and federalism. I would agree with
this argument if the impact of these states' vicarious liability laws
was confined to their borders and their citizens. But, this is not the
case. Car rental customers across the nation pay for the vicarious
liability losses incurred by car rental companies through higher rates.
A car rental. company operating in Virginia cannot stop its vehicles
from traveling to New York or the District of Columbia. And, as the
selection of cases attached to my testimony outlines, creative
plaintiffs' lawyers will seek to apply one of these states' vicarious
liability laws no matter where an accident occurs.
Second, opponents of S. 1130 will argue that the bill will somehow
lower the standard of care car rental companies will use in the future
in renting their vehicles. They allege that we will feel free to rent
to drunk customers or to not maintain our vehicles in peak condition
because we will have no fear of liability. These arguments are pure
bunk and they know it. S. 1130 expressly states that the bill will not
impact claims alleging a company's negligence, either by negligently
entrusting the car to a person or by failing to maintain the car. If
Enterprise, for example, has been negligent in any way, S. 1130 does
not shield the company from potential liability for an accident. Nor
should it.
Third, opponents of S. 1130 will argue that innocent, injured
persons will go uncompensated if these states' vicarious liability laws
are not preserved. It is indeed true that persons are injured every day
in motor vehicle accidents and that financial resources, either through
insurance or personal wealth, are in many cases insufficient to
compensate these persons. But it also is true that our nation's
liability system is based on fault. If a person is not at fault for an
accident, then he or she should not be held liable. Compounding a
wrong--the original accident--by adding another injustice--holding the
car rental company liable--does not make the original wrong right.
My company has been subject to numerous vicarious liability
judgments and settlements over the past ten years. These vicarious
liability judgments have cost Enterprise tens of millions of dollars--
costs that we must pass through to our customers. Together, vicarious
liability results in losses by car rental companies of over $100
million every year, exclusive of insurance costs and legal fees.
In sum, Mr. Chairman, S. 1130 will right an ongoing wrong--holding
a car rental company liable for the negligent actions of their renters.
Vicarious liability impacts on interstate commerce through higher
rental rates for all consumers, not just those in vicarious
jurisdictions. Vicarious liability lessens competition in vicarious
states by acting as a barrier to entry into business in the vicarious
states. And vicarious liability undermines the fundamental principle
of our nation's liability system--that a person should pay damages for
harm caused only when he or she is at fault or could have prevented the
harm in some way. Federal vicarious liability reform is appropriate and
long overdue.
Thank you for inviting me to present this testimony today. I urge
this Committee to pass this bill so that it can be enacted into law by
the end of this year. I would be pleased to answer any questions my
testimony may have raised.
SELECTED EXAMPLES OF VICARIOUS LIABILITY
cases against car rental companies
Settlements and judgments from vicarious liability claims against
car rental companies cost the industry over $100 million annually.
Listed below are selected examples of cases involving vicarious
liability and car rental companies.
Fu v. Fu, 733 A.2d 1133 (1999)
In 1993, two friends rented a car in New Jersey from Freedom River,
Inc., a Philadelphia licensee of Budget Rent-A-Car Corporation. The
rental agreement identified only the two renters as authorized drivers
of the car. The car, while being driven by Defendant Hong Fu (the wife
of one of the renters and an unauthorized driver under the rental
contract), was involved in a single car accident in New York. Plaintiff
Li Fu, the sister of the Defendant and the wife of the other renter,
was seriously injured in the accident. An arbitrator applied New York
law and found the defendant and Freedom River liable for $3.75 million.
This judgment was affirmed by the New Jersey Supreme Court.
Brown v. National Car Rental System. Inc., 707 So.2d 394 (1998]
Renter, a Georgia resident, leased a car from the Georgia office of
National. The car was registered in Florida. Renter, in violation of
the rental agreement, loaned the car to a friend, also a Georgia
resident, who drove the car to Florida. While the unauthorized driver
was driving in Florida, he hit a car driven by the plaintiff, a
Florida. resident. The lawsuit was brought in Georgia, and yet Florida
law was applied. On appeal, the court held that National was
vicariously liable for plaintiffs injuries under Florida law. National
settled the case for $70,000.
Brown v. Welcome Corporation t/a Thrifty Car Rental, Docket No. 10779/
96, Supreme Court of New York for the County of Westchester (1997)
Welcome Corporation, a Thrifty licensee, rented a car to Scott
Freeman in Norfolk, Virginia. Freeman was the only authorized driver
under the rental contract. Freeman gave the car to an employee, Harrell
Davis, to use for business. Frank Dibello, another employee of Freeman,
took the car without the permission of either Freeman or Davis and
drove it to New York, where he was involved in an accident with
Plaintiff. Despite the tortured connection of this accident to Welcome,
the company was found vicariously liable for the accident under New
York law and settled the case for $75,000 plus over $100,000 in defense
costs.
Larocca v. Budget Rent-A-Car Corporation, Docket No. 08632/95, Supreme
Court of New York for the County of Suffolk (1995)
Budget rented a vehicle to Rosalba Larocca in New York. Larocca
gave permission to her son, an unauthorized driver under the rental
contract with a suspended New York driver's license, to drive the
vehicle. The son lost control of the vehicle on the New Jersey turnpike
in a one-car accident. Larocco was a passenger in the vehicle at the
time of the accident and suffered injuries. Mother sued son for his
negligence, and jury found Budget vicariously liable for the son's
negligence under New York law. A jury returned a verdict of $450,000
against Budget.
McNamara v. Thrifty Canada. Ltd, Civil Action No. 98-CV-507, U.S.
District Court, N.D.N.Y. (1999).
Thrifty rented the car to renter in Toronto. Renter was involved in
an accident in New York in which the plaintiff, the driver of another
car, was injured. The police report on the accident indicated that the
renter was driving too fast for the prevailing conditions and following
too close. After a three day jury trial, Thrifty was held vicariously
liable under New York law and ordered to pay $1.1 million in damages to
plaintiff.
Zafra v. National Car Rental. Inc., Docket No. 126728/95, Supreme Court
of New York for the County of Westchester (1995).
In 1995, a 19-year-old, who was an unauthorized driver under the
rental contract for a car rented in New York by her mother, was driving
in Vermont. She turned around to tell her friends in the back seat to
be quiet and the car veered off the road and rolled over. One of the
passengers was injured and sued the driver and National. Despite the
fact that the accident occurred in Vermont, New York law was applied.
National settled the claim for $985,000. Of particular interest,
National was insured for $1 million, but the insurance company denied
the claim because the driver was underage, in violation of the
insurance coverage. However, New York prohibits car rental companies
from refusing to rent to anyone 18 years of age or older.
Clay et al. v. Alamo Rent-A-Car. Inc., 586 So.2d 394 (1991).
Four British sailors rented a car from Alamo in Fort Lauderdale to
drive to Naples. While driving to Naples, the driver of the car fell
asleep at the wheel. The car left the road and ended up in a canal. The
driver and two passengers were killed; the fourth passenger was
seriously injured. Alamo was found vicariously liable for the deaths
and injuries due solely to the fact that it owned the vehicle. No
negligence for the accident was attributed to Alamo. Alamo was ordered
by a jury to pay the plaintiffs $7.7 million. The jury award was
affirmed on appeal.
Nichols v. Value Rent-A-Car. Inc.. Case No. 92-20889(21), Circuit Court
of the 17th Judicial Circuit in and for Broward County (1992).
In a single vehicle accident, the driver of a passenger van rented
from Value lost control of the van after braking on a freeway to avoid
a slower moving vehicle. The van rolled over and plaintiff Nichols, who
was not wearing a seat belt, was thrown from the van. She sustained
injuries to her hands and her head. At trial, Value was not found
negligent for her injuries in any way, and yet the jury ordered Value
to pay the plaintiff $2.2 million for her injuries.
Rodrigues v. Dollar Rent A Car Systems. Inc., Case No. 94-10085 CA6,
Circuit Court for the 11th Judicial Circuit in and for Dade County
(1994).
Plaintiff was speeding in a Dollar rental car when another vehicle
ran a stop sign, striking the rental car and causing it to overturn.
The injured parties in the rental vehicle received $800,000 payments
from the insurance company that covered the other vehicle. Plaintiffs
sued Dollar based on the negligence of the driver of the rental car
(she admitted to speeding at the time of the accident). The jury
awarded total damages of $420,000 against Dollar based upon the
negligence of the driver and Dollar's ownership of the vehicle.
Watson v. Budget Rent A Car Corporation, Case No. 91/055232, Orange
County Circuit Court (1991).
Budget rented a van to a family in Florida. At the time of the
accident, the mother of the family was driving the van. The mother lost
control of the van in a single-vehicle accident. Her infant son (the
plaintiff), who was not restrained in the van, was thrown from the van
and suffered severe injuries. Based upon the infant's mother's
negligence and Florida's vicarious liability doctrine, Budget settled
the case for $490,000.
Stein v. Thrifty Rent-A-Car. Inc.. Case No. 298-6936-TS, Supreme Court
of New York for the County of Suffolk (1986).
The renter of a Thrifty car ran a stop sign and collided with
Stein's car. Stein was thrown from the vehicle and killed. Stein's
estate sued Thrifty based upon New York's vicarious liability statute.
At the original trial, the jury found that Stein's death was caused by
her failure to wear a seat belt and awarded no damages. In 1992 a New
York appellate court reversed the original jury verdict and ordered a
new trial on the issue of damages alone. The second trial resulted in a
$1.25 million jury verdict against Thrifty.
Senator Ashcroft. I thank you for your testimony. I think
you get the award for coming closest to a compact 5-minute
statement that I have seen. You do not even have to pay a
charge for redelivering the car past the deadline.
[Laughter.]
Mr. Wagner: Thank you. I am grateful for that.
Senator Ashcroft. It is my pleasure now to call upon Ms.
Sharon Faulkner, who is the area manager for Premier Car Rental
Corporation, located in Albany, New York. Premier is a
subsidiary of Budget Rent-A-Car Corporation. Ms. Faulkner.
STATEMENT OF SHARON FAULKNER, AREA MANAGER, PREMIER CAR RENTAL
CORPORATION
Ms. Faulkner. Good morning, Mr. Chairman and members of the
committee. My name, as you said, is Sharon Faulkner, and I am
the area manager for Premier Car Rental in Albany, New York.
Thank you for inviting me to appear at this hearing today. My
testimony is in support of S. 1130, the ``Motor Vehicle Rental
Fairness Act of 1999.'' I thank Senator McCain for introducing
this important legislation. In addition, I thank you, Mr.
Chairman, for your longstanding commitment to reforming State
vicarious liability laws.
Let me tell you about my own personal experience, which I
hope will help the members of this committee understand the
importance of this bill. For 17 years, until 1997, I was a
small business owner operating an independent car rental
company in upstate New York. The company, called Capitaland Car
Rental, was headquartered in Albany, and during those years,
thanks to the hard work of my employees and the loyalty of our
local customers, my company survived two recessions and fierce
competition.
Well, that situation changed one day in 1997, when I was
notified that I and my company were being sued for an accident
involving one of our rental cars that had occurred over a year
previously. Capitaland had rented a car in 1996 to a female
customer who possessed a valid New York driver's license. As
part of Capitaland's standard rental agreement, the customer
agreed that she would be the only driver of the car.
Our customer then loaned the car to her son, an
unauthorized driver under the rental agreement. The renter's
son, without my knowledge, drove the car to New York City and
was involved in an accident in which a pedestrian was struck in
the crosswalk. The injured person sued our company for the
son's negligence in causing the accident.
This lawsuit caught me completely by surprise, because when
I checked our records I found that the rental vehicle had been
returned to us without any damage, no accident report. As a
result I had no idea that an accident had ever occurred, or
that a person had ever been injured. Nevertheless, my company
was named as a co-defendant in the lawsuit, which demanded
enormous amounts of money to pay for medical bills and
compensate the injured person.
You might wonder how it is that my company was sued for
this accident. We rented to a licensed driver, the renter then
loaned the car to an unauthorized driver, and it was the
unauthorized driver, a person who neither I nor any of my
employees had ever met, that caused the accident that injured
this pedestrian. We were not negligent in any way, and we could
not have prevented the accident from occurring. Therefore, how
could we be considered liable?
However, New York is one of the very small minority of
States that hold the companies that rent motor vehicles liable
for the negligence of persons driving their vehicles, whether
that person is a customer or not.
In these States, a car rental company can be assessed
unlimited damages by a court under the legal doctrine of
vicarious liability if one of its cars is involved in an
accident in which the driver of the car was negligent. Simply
because we owned the car, New York law held my company liable
for the negligence of the renter.
For me, this lawsuit was the final straw. I am a mother
with three children, and Capitaland was our sole means of
support. I found it incredible that I could lose everything I
had worked to achieve for 17 years because of an accident that
was not my fault.
In effect, every time I rented a car to a customer, I
realized I was putting my family's future on the line in the
hope that the customer did not drive the car negligently and
therefore cause an accident, so I made a decision to sell my
company, the assets of which were purchased by a company that
is now Budget Group Incorporated. All of my employees were laid
off, many of them with me for years and years.
Another independent car rental company disappeared in my
State, and my company is not alone. Capitaland was only one of
over 300 car rental companies that have closed in New York
since 1990.
Unlimited vicarious liability for car rental companies
exists in five States, Connecticut, Iowa, Maine, New York,
Rhode Island, and the District of Columbia. Vicarious liability
for companies that rent or lease motor vehicles is unfair and
contrary to our Nation's fundamental pillars of justice that a
person should be held liable only for harm that he or she
causes or could have prevented.
In the car rental industry, vicarious liability increases
rates for all of the customers, not just the customers in the
small minority of States that adhere to this outmoded doctrine.
I could give you many examples of this unfair and unjust legal
doctrine. Together, these cases result in well over $100
million in judgments and settlements against car rental
companies every year, costs that must be recovered by the
companies through the rates they charge every rental customer.
In effect, these judgments from a small minority of States
results in a tax on the car rental customers everywhere, not
just on the citizens of the vicarious liability States. S. 1130
will put a stop to this legal lottery. This bill will preempt
State vicarious liability laws that hold the companies that
rent or lease motor vehicles liable for the negligence of their
renters or lessors. Specifically, it prohibits a State from
imposing liability on a company solely because the company owns
the vehicle.
Let me take a minute to tell you what the bill will not do.
This section will not shield the car rental company from its
own negligence or for failing to maintain that car properly.
This bill will not shield the car rental company from potential
liability if it rents a car to a person who is intoxicated and
that person causes an accident. That is negligence, and this
bill will not prevent any action based upon the negligence of
the car rental company.
In addition, it will not impact on the requirement that a
car rental company must insure the vehicles at the level
required by State law.
I urge this committee to pass S. 1130 as quickly as
possible. While it is too late to help my former company, it is
not too late to put a stop to this legal lottery in the future.
I would be pleased to answer any questions that you may
have.
[The prepared statement of Ms. Faulkner follows:]
Prepared Statement of Sharon Faulker, Area Manager, Premier Car Rental
Corporation
Good morning, Mr. Chairman and members of the Committee. My name is
Sharon Faulkner, and I am the regional manager for Premier Car Rental
Company in Albany, New York. Premier is a subsidiary of Budget Rent A
Car Corporation.
Thank you for inviting me to appear at this hearing today. My
testimony is in support of S. 1130, the ``Motor Vehicle Rental Fairness
Act of 1999.'' I thank Senator McCain for introducing this important
legislation, and urge this Committee to approve this bill in the near
future.
Let me be very clear about what this bill would and would not do.
This bill would right a wrong by adopting a unifonn federal standard
that would not hold motor vehicle rental companies liable for damages
when the companies in no way caused an accident. The bill would not,
however, eliminate the liability of the companies when they are
negligent or failed to maintain the vehicle properly.
Let me relay my personal experience to you, which I hope will help
the Members of this Committee understand the importance of this bill.
For 17 years, until 1997, I was a small business owner, operating an
independent car rental company in upstate New York. The company,
Capitaland Car Rental, Inc., was headquartered in Albany. During those
years, thanks to the hard work of my employees and the loyalty of our
local customers, my company survived two recessions and fierce
competition from the larger, nationwide car rental companies.
That situation changed one day in 1997, when I was notified that I
and my company were being sued for an accident involving one of our
rental cars that had occurred over a year previously. Capitaland had
rented a car in 1996 to a female customer who possessed a valid New
York driver's license. As part of Capitaland's standard rental
agreement, the customer agreed that she would be the only driver of the
car. Our customer then loaned the car to her son, an unauthorized
driver under the rental agreement. Our renter's son, without her
knowledge, drove the car to New York City and was involved in an
accident in which a pedestrian was struck in the crosswalk. The injured
person sued our customer's son for his negligence in causing the
accident.
This lawsuit caught me completely by surprise, because, when I
checked our records, I found that the rental vehicle had been returned
to Capitaland without any damage. As a result, I had no idea that an
accident had occurred or that a person had been injured. Nevertheless,
Capitaland was named as a co-defendant in the lawsuit, which demanded
enormous amounts of money to pay medical bills and compensate the
injured person for his pain and suffering.
You might wonder how it is that my company was sued for this
accident. We rented to a licensed driver. The renter then loaned the
car to an unauthorized driver. It was the unauthorized driver--a person
neither I or any of my employees had ever met--that caused the accident
that injured this pedestrian. We were not negligent in any way and
could not have prevented the accident from occurring. Thus, we should
not have been liable.
However, New York is one of a very small minority of states that
hold the companies that rent motor vehicles liable for the negligence
of persons driving their vehicles--whether that person is a customer or
not. In these states, a car rental company can be assessed unlimited
damages by a court under the legal doctrine of ``vicarious liability''
if one of its cars is involved in an accident in which the driver of
the car was negligent. Simply because we owned the car, New York law
held my company liable for the negligence of our renter.
For me, this lawsuit was the final straw. I am a mother with three
children and Capitaland was our sole means of support. I found it
incredible that I could lose everything I had worked to achieve for 17
years because of an accident for which I was not at fault. In effect,
every time I rented a car to a customer, I was putting my family's
future on the line in the hope that the customer did not drive the car
negligently and cause an accident.
I made the decision to sell my company, the assets of which were
purchased by a company that is now Budget Rent A Car. All of my
employees were laid off, and another independent car rental company
disappeared in New York. And my company is not alone. Capitaland is one
of over 300 car rental companies that have closed in New York since
1990.
Unlimited vicarious liability for car rental companies exists in
five states (Connecticut, Iowa, Maine, New York, and Rhode Island) and
the District of Columbia. One other state, Florida, has limited
vicarious liability to a cap of $900,000 per accident. Forty-four other
states have either discarded unlimited vicarious liability or never
adopted it in the first place.
Vicarious liability for companies that rent or lease motor vehicles
is unfair and contrary to one of our nation's fundamental pillars of
justice--that a person should be held liable only for harm that he or
she causes or could have prevented. In the car rental industry,
vicarious liability increases rates for all of our customers, not just
for customers in the small minority of states that adhere to this
unfair and outmoded doctrine.
Vicarious liability undermines competition in the car rental
industry. As I have stated, hundreds of companies have disappeared from
New York this decade--leaving the major, nationwide systems as the only
car rental option for consumers in the state. In addition, many
smaller, growing car rental companies will not do business in vicarious
liability states and seek to prohibit their customers from driving into
those states. And vicarious liability operates as a legal lottery,
enabling trail lawyers to target the so-called ``deep pockets'' of car
rental companies for huge judgments.
I and the other witnesses here today can give you numerous other
examples of this unjust and unfair legal doctrine. Single car accidents
where the only person at fault was the driver. A car rented in Ohio and
driven to New York where an accident occurred and New York's law was
applied. Customers loaning their cars to a friend who loans it to a
sibling who runs a stop sign and has an accident. All of these
situations have resulted in car rental companies being sued and paying
tens of millions of dollars in judgments--despite the fact that the car
rental company was not negligent or at fault for the accident.
Together, these cases result in over $100 million in judgments and
settlements against car rental companies every year--costs that must be
recovered by the companies through the rates they charge every rental
customer. In effect, these judgments from this small minority of states
results in a tax on all car rental customers everywhere, not just on
the citizens of the vicarious liability states.
S. 1130 will put a stop to this legal lottery. This bill will pre-
empt state vicarious liability laws that hold companies that rent or
lease motor vehicles liable for the negligence of their renters or
lessors. Specifically, it prohibits a state from imposing liability on
a company solely because the company owns the vehicle involved in an
accident.
Let me take a minute to tell you what S. 1130 will not do. It will
not shield a car rental company from its own negligence or for failing
to maintain the car properly. It will not shield a car rental company
from potential liability if it rents a car to a person who is
intoxicated and that person causes an accident. That is negligence, and
this bill specifically states that it will not prevent any action based
upon the negligence of the car rental company. In addition, it will not
impact on the requirement that a car rental company insure their
vehicles at the level required by state law.
Instead, this bill will prevent the situation I faced in 1997--
being sued and forced to sell the company that I had worked so hard to
make successful.
I urge this Committee to pass S. 1130, as quickly as possible.
While it is too late to help my former company, it is not too late to
put a stop to this legal lottery in the future.
I would be pleased to answer any questions that my testimony may
have raised.
Senator Ashcroft. Well, you have just nosed out Mr. Wagner
for compliance. [Laughter.]
Thank you very much.
Ken Elder is the chief executive officer of the Welcome
Corporation, headquartered in Alexandria, Virginia. It is a
pleasure to have you here and to welcome you here as a member
of the Welcome Corporation.
STATEMENT OF KEN ELDER, CHIEF EXECUTIVE OFFICER, WELCOME
CORPORATION
Mr. Elder. Thank you. Good morning, Mr. Chairman, ladies
and gentlemen. I am appearing today on my own behalf to testify
in support of S. 1130. I thank Senator McCain for authoring
this important legislation and you, Senator Ashcroft, for
calling this hearing and being an original cosponsor of the
bill. I am most grateful for and appreciate the invitation to
be here, and to participate in this process.
To understand the reasons why I support this legislation,
let me tell you a little bit about my company. My wife, Judie,
and I founded our company in 1970 with 29 cars. In those days,
I washed them and she rented them. Through the hard work of
many dedicated employees, we now have 35 offices, including
offices at seven airports, and we operate an average fleet of
about 4,000 vehicles company-wide, with 325 people, including
40 of whom who have been with us for over 10 years. We are
really proud of that.
I guess most folks would call Welcome an American success
story. It is a small business that has grown and prospered. I
consider it a success on a far more personal level, because now
my son, who is a junior at William and Mary, is as passionate
about the company as am I, and he plans to come to work for the
company as soon as he graduates.
But we have been lucky, and every day our success is
threatened by unfair laws in a few States, and they risk the
future of our company on events that we have no control over.
These vicarious laws permit my company to be sued and forced to
pay judgments and settlements when we have done nothing wrong.
To date, we have just been lucky. Welcome has not been hit
by a multimillion judgment. However, each year my company pays
in excess of $1 million in judgments and settlements from
claims that somewhat relate to vicarious liability. For
vicarious liability, there is no need to show that we have been
negligent in any way. Instead, my company is held liable simply
because we own the car. If an accident occurs because we are in
any way negligent, S. 1130 offers no protection to us
whatsoever, nor should it.
Because of vicarious liability, every time one of Welcome's
cars leaves the lot, we are in effect betting the company on
the hope that our renter will not cause an accident in a
vicarious liability jurisdiction. Some day I will lose this
bet, because the odds will eventually catch up with us.
You may have heard the argument that I can insure for my
company's exposure to vicarious liability claims, but sir, that
is far more easily said than done. I can buy insurance, so long
as I do not have a claim. However, if we are ever hit by a
multi-million claim, one of the following will happen. Either
the judgment itself will bankrupt the company, or insurance
will become prohibitively expensive, or it may not even be
there at any price, and I cannot and will not operate without
any insurance.
Let me give you a couple of examples of some vicarious
liability claims my company has faced. These are not the big
ones you may hear about from other car rental companies, but
they have taken money directly from us.
First of all, we rented a car to an individual in Norfolk,
Virginia. He drove the car to Florida, picked up a friend on
the way to the beach, 3 days later the renter was involved in a
single car accident on a freeway at 5 in the morning. Both the
driver and the passenger were legally intoxicated, according to
blood tests. Tragically, the driver was killed and the
passenger was seriously injured.
The passenger in this car sued us for $1.1 million under
Florida's vicarious liability doctrine. Eventually we settled
the case for $400,000, despite the fact that Welcome had not
been negligent in any way.
Another example in 1995 is, we leased a car at the Richmond
Airport office. The renter said he was going to use the car in
his local business. A month later, we received a report that
the car was involved in an accident in New York. The vehicle
was driven by Mr. Tim Baker, who was not the same person as the
fellow that rented the car, and had no apparent connection with
our renter.
A passenger in the car was, indeed, injured, and sued
Welcome under the New York vicarious liability statute because
we were simply the owner of the car. While some issues remain
to be settled in this case, we have already paid out $55,000,
with the potential of many more thousands to come. We are
paying for these sums despite the fact that Welcome was not
negligent and in fact had no business or contractual
relationship with the person who was responsible for the
accident.
S. 1130 would protect us from incidents like these, but I
want to emphasize this bill would not impact my company's
liability if we are negligent in any way.
I strongly urge you to pass S. 1130 as quickly as possible.
If you do not, then one morning soon I may wake up to find my
fears realized, but if that happens and our family business is
taken away from us, I will be able to tell my son, the one that
wants to come to work with us in the business, that we did
everything we could to change this unjust system.
Thanks again for your invitation to be here, sir. I would
be pleased to answer any questions.
[The prepared statement of Mr. Elder follows:]
Prepared Statement of Ken Elder, Chief Executive Officer,
Welcome Corporation
Good morning, Mr. Chairman and Members of the Committee. My name is
Ken Elder. I am the Chief Executive Officer of the Welcome Corporation,
headquartered in Alexandria, Virginia. Welcome is Thrifty Car Rental's
licensee in the Baltimore/Washington area. Our car rental locations
also stretch north to Harrisburg, Pennsylvania and as far south as
Richmond, Virginia and the Tidewater area.
I am appearing today on my own behalf to testify in support of S.
1130, the ``Motor Vehicle Rental Fairness Act of 1999.'' I thank
Senator McCain for authoring this important legislation and you,
Senator Ashcroft, for calling this hearing and for being an original
co-sponsor of the bill.
In order for you to understand the reasons I support this
legislation, you must know something about my company. My wife and I
founded Welcome in 1970 with 29 cars. We used to joke that I washed and
fueled the cars and she rented them. Through hard work, we have grown
since then. Welcome now has 35 rental locations, including operations
at seven airports. We operate an average fleet of about 4,000 vehicles
company wide and employ 325 workers, including more than 40 who have
been with us over 10 years.
Most people would call Welcome an American success story--a small
business that has grown and prospered through personal owner
involvement and the dedication and commitment of our employees. I
consider it a success on a far more personal level. My son, now a
junior at William & Mary, is as passionate about the company as I am
and plans to work for Welcome after graduation.
I am proud to say that our company is a success. But every day,
this success is threatened by an unfair law that risks the future of
our company on events over which we have absolutely no control.
The reason for this threat is the laws in a small minority of
states that hold Welcome liable for the negligence of our renters.
These so-called ``vicarious liability'' laws permit my company to be
sued and forced to pay judgments and settlements when we have done
nothing wrong. To date, I have been very lucky. Despite the fact that
many of the cars we rent regularly travel into Washington, D.C.,
Florida, and New York--all vicarious liability jurisdictions--Welcome
has not been hit with a multi-million dollar judgment. However, each
year, my company pays a total of over $1 million in judgments and
settlements from claims relating to vicarious liability.
Vicarious liability laws hold car rental companies liable for the
negligence of their renters solely because the company owns the vehicle
involved in the accident. A plaintiff need not show that Welcome did
anything wrong: that we negligently entrusted one of our cars to an
unlicensed driver or to someone under the influence; or, that we failed
to maintain the vehicle properly. I take great pride in the quality of
our rental fleet. If an accident occurs because we have failed to
maintain the car properly, we should be responsible and be sued for our
negligence.
But that is not the case here. For vicarious liability, there is no
need to show that we have been negligent in any way. Instead, my
company is held liable simply because we own the car.
As a result, every time one of Welcome's cars leaves our lots, we
are in effect betting the company on the hope that our renter will not
cause an accident in a vicarious liability jurisdiction. Someday, I
fear that I am going to lose this bet because the odds eventually catch
up with everyone.
Vicarious liability may make some sense when it is applied to
individuals. Perhaps society should discourage individuals from lending
their personal cars to family members or friends for fear of being held
liable for someone else's negligence. That is not for me to decide.
However, in the commercial context--such as the car rental industry--
where lending cars is the very nature of the business activity
involved, it does not make sense. An individual can avoid vicarious
liability by not lending his or her car to someone else. The only way
my company can avoid vicarious liability is to stop renting cars. In
other words, to go out of business.
Some may argue that I can insure against my company's exposure to
vicarious liability claims. But that is more easily said than done.
Currently, Welcome self-insures for all claims up to $100,000. We carry
an additional insurance policy that covers claims between $100,000 and
$5 million. That policy currently costs my company $225,000 per year
and we have an excellent claims history. Please understand, if we were
hit with a large vicarious judgment, our premiums will skyrocket even
higher, if insurance is available to us at all. Just like your premiums
would if you make a claim against your personal auto insurance.
As I stated above, without ever accessing our insurance policy, we
pay over
$1 million every year in vicarious liability claims. And if a claim is
ever made against my company for more than $5 million, as has happened
to larger car rental companies in recent years, then I might as well
simply lock the door and turn over the keys because the company I
worked so hard to create for almost 30 years will be bankrupt.
Let me give you a couple of examples of the vicarious liability
claims my company has faced. While these claims do not involve the
multi-million dollar payments you will hear about from other car rental
companies, these cases have taken money directly out of my pocket.
First, Welcome rented a car to an individual in Norfolk, Virginia.
The renter drove the car to Florida and picked up a friend on the way
to the beach. Three days later, the renter was involved in a single car
accident on a freeway at 5:00 in the morning. Both the driver and his
passenger were legally intoxicated, according to blood tests. The
driver was killed in the accident and his passenger was seriously
injured.
The passenger in this car sued Welcome for $1.1 million under
Florida's vicarious liability doctrine. Eventually, we settled this
case for $400,000, despite the fact that Welcome had not been negligent
in any way and there was no evidence that the car did not operate
perfectly.
Second, in 1995, a renter leased a Welcome car at the Richmond
airport, stating that he was going to use the car in his local
business. One month later, we received a report that the car was
involved in an accident in New York. The vehicle was being driven by
Mr. Tim Baker, who was not the same person who rented the car and had
no apparent connection to our renter. A passenger in the car was
injured and sued Welcome under New York's vicarious liability statute
because we were the owner of the vehicle. While some issues remain to
be settled in this case, Welcome already has paid out over $55,000 in
claims to date on this case with many more thousands of dollars
potentially to come in the future. We are paying these sums despite the
fact that Welcome was not negligent and in fact had no business or
contractual relationship to the person responsible for the accident.
These cases represent a miscarriage of justice and they should be
stopped. S. 1130 would accomplish this goal. Simply stated, S. 1130
would pre-empt state laws that hold my company liable for the
negligence of our renters solely because we own the vehicle involved in
the accident. This bill would not impact my company's potential
liability if we are negligent in any way. If we entrust a car to an
unqualified driver or fail to maintain the car properly and either of
these negligent acts leads to an accident, this bill would not shield
my company from liability. Nor should it. However, if the only action
we are ``guilty'' of is owning a quality car that we rent to a
qualified, licensed driver, then S. 1130 would not hold us liable for
that driver's negligence.
I strongly urge you to pass S. 1130 as quickly as possible.
Vicarious liability reform has been passed by both the House and the
Senate in the past as part of more sweeping product liability reform
legislation. This Committee approved legislation in 1996 that contained
a provision on vicarious liability reform. I ask you to move this bill
in this session of Congress and work for its enactment this year.
If you do not, then one morning soon I may wake up to find my fears
realized and the company I have worked 30 years to create will be
forced into bankruptcy by a vicarious liability judgment. But, if that
happens, and our family business is taken away from us, at least I will
be able to tell my son--the one who wants to join me at Welcome--that I
have done everything in my power to change this unjust system.
Thank you again for your invitation to testify at this hearing
today. I would be pleased to answer any questions my testimony may have
raised.
Senator Ashcroft. Thank you very much. We will move now to
Mr. Larry Stewart, who is a partner with Stewart Tilghman Fox &
Bianchi, which is located in Miami, Florida. He is here today
to speak on behalf of the Association of Trial Lawyers of
America.
STATEMENT OF LARRY S. STEWART, ASSOCIATION OF TRIAL LAWYERS OF
AMERICA
Mr. Stewart. Thank you, Mr. Chairman, members of the
committee. I appreciate this opportunity to be here to urge
that S. 1130 not become law, because it would single out one
industry for special protection on a subject that is uniquely a
matter of State's rights, and that would be tantamount to
congressional regulation of State insurance laws.
States have the right to regulate insurance. It is
guaranteed by the McCarran-Ferguson Act. Indeed, this bill
recognizes the authority of States to impose financial
responsibility on car rental agencies.
Vicarious liability is another form of financial
responsibility. It is not unique to the car rental agency
business. It is a principle of law that has existed since the
founding of the union and that is applied in almost every
industry and throughout America.
As far as car rental companies are concerned, States which
impose vicarious liability on the car rental companies, the
owners of the vehicles--and it is not just five; there are 12
States that impose some form of vicarious liability on the
companies--have made a policy decision that if the driver of
the vehicle is uninsured, or underinsured, the owner can be
held responsible. In so doing, those laws encourage the owners
to have insurance.
In effect, as between the owner and the injured party,
those States have made the choice that it is better as a matter
of fundamental fairness for the owner to be liable, which can
be protected by insurance, than to risk the State having to
pick up the tab for the care and treatment of the accident
victims.
The promoters of this bill, which I would respectfully
submit should be perhaps retitled as a car rental company
protection act, while acknowledging State's rights to regulate
financial responsibility, say that they do not want too much
responsibility imposed upon them.
Every special interest would like to have immunity from
lawsuits, but there is no demonstrable need here. While $100
million is a lot of money, to put it in perspective, it amounts
to less than 1 cent of every dollar of revenue that the car
rental companies receive. As a matter of fact, it is minuscule.
It is only seven-tenths of a penny of every $1 that is
received, and this from an industry that is making millions of
dollars in America. There is simply no reason for any company
that has taken reasonable steps and acquired insurance to go
out of business.
Moreover, this liability is something that car rental
companies could protect themselves from. If they are held
responsible, they have a right to sue the drivers to recover
what they have paid out, and if they make sure that the drivers
have insurance, they would be protecting not only themselves,
but also the public, but in the rush to rent as many cars as
possible, no company inquires about driver insurance.
They know that in a certain number of cases bad things will
happen. People are unfamiliar with the cars, and with the roads
they drive on. People let others drive the cars. People do
unpredictable things in cars, and accidents will hurt and kill
members of the public.
They know in some States if a driver is uninsured, or
underinsured, they will be held liable, and that they will not
be able to effectively recover from the driver if the driver
does not have insurance, but no company cares enough to ask if
the driver is insured.
As far as the companies know, every renter that they put on
the road is a potential uninsured or underinsured driver, and
the reason that they do not make inquiry is that if they did,
it would drastically reduce the number of rentals and income
that they receive.
But more important than that, this has already been
factored into the rates that the companies charge the public,
and what they are charged by their insurance companies, so it
is worth the risk that occasionally they might have to step up
and pay damages in the 12 States that impose vicarious
liability.
Under those circumstances, it should not be surprising that
some States have made the policy decision that they have.
Washington should not be in the business of telling states how
to deal with these insurance-driven issues, not for the car
rental agencies, industry, or for any other industry.
On the other hand, if we are going to plunge into these
insurance-driven issues, let's not just put our toe in the
water and federally regulate one industry. Let us treat this as
an amendment to the McCarran-Ferguson Act, and let us open up
the entire issue of Federal regulation of insurance.
I urge that we not take this piecemeal step to protect one
single industry, and that this legislation not receive the
approval of Congress.
I would be happy to answer any questions. Thank you.
[The prepared statement of Mr. Stewart follows:]
Prepared Statement of Larry S. Stewart, Association of
Trial Lawyers of America
Mr. Chairman and members of the Commerce Committee, my name is
Larry Stewart, and I am a practicing attorney from Miami, Florida. I
have practiced law for 35 years and am currently a partner with the
firm of Stewart Tilghman Fox and Bianchi P.A. I also had the honor of
serving as President of the Association of Trial Lawyers of America
(ATLA) from 1994 to 1995. Mr. Chairman, thank you for the opportunity
to present ATLA's views in opposition to S. 1130, the ``Motor Vehicle
Rental Fairness Act.''
The Association of Trial Lawyers of America opposes this bill for
several reasons, including our long standing belief that people who
have been injured should have a real opportunity to be compensated for
that harm. Vicarious liability laws are one means to help ensure that
is the case. This bill would abolish that principle in the several
states which have applied it to car rental agencies. We are also
concerned that Congress is once again seeking to limit the rights of
the states to enact liability laws as they see fit. That this effort
comes in the midst of other legislative initiatives to federalize all
state class actions, create a federal statute of repose, federalize no-
fault auto insurance, and alter long standing state laws on punitive
damages and joint and several liability makes the situation all the
more alarming in a Congress sworn to return power to the states.
The principle of vicarious liability--the legal doctrine that one
entity may be held liable for the actions of another, based on their
relationship to each other--is deeply rooted in anglo-saxon
jurisprudence. Where state courts and legislatures have adopted this
principle, they have done so not only to ensure that injured parties
are compensated for the harm they have suffered, but also to spread the
risks and costs of doing business across a broader community. These
vicarious liability laws also encourage renters and lessors of cars,
and other merchants, to monitor their products and services more
carefully, thereby ensuring safer products in the marketplace. This
bill chooses to protect a thriving car rental industry rather than
preserve the long standing principle of vicarious liability. As such,
this legislation not only derogates state prerogatives, but does so on
behalf of special interests.
THE ``MOTOR VEHICLE RENTAL FAIRNESS ACT'' IS ONLY FAIR TO THRIVING CAR
RENTAL AGENCIES
Let's be clear. The ``Motor Vehicle Fairness Act'' is only ``fair''
to the thriving car rental businesses. Many of these businesses had
billions of dollars in revenues in the past few years. Surely, they do
not need this legislation in order to flourish. They are merely trying
to limit their financial liability so they may reap additional profits.
But, for the individuals who are injured by drivers of rented or leased
cars, including the drivers themselves, this bill would curtail
possible avenues of recovery. When rental car drivers are injured or
injure others, they may seek recovery from a number of possible
defendants, including the rental agency and the manufacturer of the
automobile. This is not unlike the situation that exists in most other
industries, where the businesses are held vicariously liable for the
acts of others. There is no rationale or moral basis to single out car
rental companies for special immunities. That would not only be wrong
but the wrong is compounded by the fact that there is no demonstrable
need for such protection from Congress. The current system is working
and there is no documented evidence to support a federal override of
current state laws governing this area of tort law. Indeed, this
proposed bill recognizes that states have the authority to impose
financial responsibility laws on car rental businesses. Vicarious
liability is in essence another form of financial responsibility.
States that decide it is in their best interest or good public policy
to impose such responsibility should not be prevented from doing so.
vicarious liability laws were established to protect the injured and to
ENSURE THE SAFEST POSSIBLE PRODUCTS ARE AVAILABLE IN THE UNITED STATES
THE COURTS ESTABLISHED THE PRINCIPLE OF VICARIOUS LIABILITY
primarily to ensure injured parties recover damages for the harm they
have suffered. But vicarious liability laws serve the additional
purposes of spreading the risks and costs of doing business throughout
a broader community, and of encouraging the sellers or renters of
products to monitor those products closely to ensure the safest
products possible are available to American families.
This bill would gut this fundamental principle for one industry by
prohibiting states from holding any car rental agency liable for the
harm resulting from a driver's negligent operation of a operation of a
rented or leased motor vehicle they own. Those states which have
established vicarious liability laws for car rental agencies clearly
believe there are strong policy reasons to hold these agencies
responsible for any harm involving their vehicles. Holding businesses
accountable via vicarious liability is one way of making sure that
profit-making businesses shoulder the risks they create. It also
ensures that innocent victims injured by the business's activities are
compensated for their injuries, and it creates an incentive for
businesses to decrease the amount of risk to which the larger community
is exposed. Ultimately, this legislation would weaken car rental
companies' responsibility to the community at large, and thereby reduce
safety on the roads for all of us.
S.1130 IS YET ANOTHER EXAMPLE OF CONGRESS SEEKING TO DICTATE STATE
POLICIES
This bill is also another example of the federal government seeking
to dictate how the states should behave. Currently, only 12 states,
either through statute or common law, allow for the determination of
vicarious liability in cases involving rented or leased cars, but
virtually all states impose some form of financial responsibility on
car rental businesses, although the precise terms may vary. Congress
should allow those 12 states to continue with their ongoing policies
and practices. Those states which have vicarious liability laws for car
rental agencies recognize that car rental companies enjoy a profit-
making enterprise within their borders that places potentially high-
risk drivers on their roads.
These companies are putting people behind the wheel of unfamiliar
cars, often in unfamiliar places. In addition, the people who rent the
cars do not have pride of ownership in the vehicle; therefore, they may
engage in behaviors that they would not normally do in their own car.
States like California, Florida, and New York, which have large
populations, large tourism industries and the largest rental car
markets, have either enacted legislation or follow common law
principles to make car rental companies vicariously liable. If a
company wants to profit from renting cars in their states, thereby
creating more potential risks and accidents, then they should help bear
the cost of the risk they create.
New York embodies the rationale of why states hold car rental
companies financially responsible via vicarious liability. The New York
Court of Appeals noted that New York's vicarious liability legislation
was designed to ``ensure access by injured persons to a financially
responsible insured person against whom to recover for injuries.'' The
New York Law Revision Commission noted that the legislation was
intended to regulate the conduct of automobile owners by
``discourag[ing] owners from lending their vehicles to incompetent or
irresponsible drivers.''\1\ California, Connecticut, Idaho, Iowa,
Nevada, Maine, Michigan, Minnesota and Rhode Island have all codified
vicarious liability statutes, in addition to the other jurisdictions
that follow common law principles. These states have decided that
vicarious liability is the best way to handle the risks created by car
rental companies. Their judgment is prudent, sound, and should be
respected.
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\1\ Haggerty v Cedeno 653 A.2d 1166 (1995) (quoting the New York
Law Revision Commission at 593 (1958))
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For more than 200 years, civil liability under tort and contract
law have been the sovereign domain of the states. Measures that would
preempt our state-based liability system, like S. 1130, are contrary to
values expressed by lawmakers on both sides of the aisle. Particularly
since 1995, I was under the impression that a central mission of the
Congressional leadership was to work assiduously to give more authority
back to the states. If that is correct, then I find it baffling, to say
the least, that this Committee is conducting a hearing on federal
legislation which would clearly extinguish states' rights. It is
particularly curious behavior when one considers that another Senate
Committee is poised to take action on Senator Thompson's bill, S. 1214,
the ``Federalism Accountability Act of 1999,'' that is designed to
restrain federal intervention into the traditional domains of state law
and authority.
The agenda behind S. 1130 is unambiguous: the proponents of this
legislation seek to unilaterally take power away from the states on an
issue that historically has been left to the states, that is, the
regulation of automobile liability. ATLA believes that extinguishing
state liability laws that work to protect our families is a measure
that is at best ill conceived, and at worst unconscionable.
WHY CAR RENTAL COMPANIES SHOULD BE HELD RESPONSIBLE VIA VICARIOUS
LIABILITY
The policy rationale underlying vicarious liability for car rental
companies is justified and effective. Car rental companies are the
experts on their own businesses. Therefore, they are in a best position
to anticipate the risks of renting cars to a variety of drivers and to
plan for those risks. In addition, the major car agencies appear to be
able to bear the consequences for the risks they create. According to
the Auto Rental News 1997 Fact Book, there were 1.6 million rental cars
in service at last count. Total revenues for all rental car companies
reached $14.6 billion in 1996, which was an 18.7 percent increase from
1985. Hertz's year end revenue was $4.2 billion dollars last year. Avis
had revenues of $2.3 billion. Budget was at $1.2 billion. Alamo
generated $201 million in revenue last year. According to the Wall
Street Journal, profits for the top eight companies was $245 million
dollars in 1996.\2\ Do not let these companies tell you they are facing
egregious accident and litigation costs. The entire industry had only
$100 million in accident costs in 1996.\3\ To put this in perspective,
their accident cost is .7 cents of a dollar, not even a penny of their
revenue. Clearly, these car rental agencies are managing the risks they
face in states with vicarious liability laws.
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\2\ Lisa Miller, Car Rental Companies are Jacking Up the Prices,
Wall Street Journal, Feb. 4, 1997 at B6.
\3\ Auto Rental News, Sept./Oct. 1996.
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Yet, car rental companies are motivated to find the most cost
effective methods in dealing with liability issues. In fact, their
efficiency in dealing with liability issues has brought us to this
Hearing Room today. After all, the most cost efficient way for these
companies to deal with liability issues is to eliminate them
altogether. But as a matter of fairness, car rental companies should
not continue to profit from the business without being held responsible
for accidents being caused by their lessees. Companies like Hertz,
Avis, Alamo, and Budget, and countless other large and small profitable
car rental concerns continue to impose risks on ``individually random
but collectively predictable victims of the activity,''\4\ namely the
people injured by under-insured lessees.
---------------------------------------------------------------------------
\4\ Harry J. Steiner, Moral Argument and Social Vision in the
Courts 71 (1987)
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Vicarious liability gives car rental companies incentives to
conduct their businesses with the safety of others in mind. For
example, they prevent drivers under the age of 25 years from renting
their vehicles. They don't rent to customers without credit cards. They
ask for your driver's license. They run a DMV check on your driving
record. Prohibiting vicarious liability statutes would eliminate one of
the remaining incentives car rental agencies have to continue to work
toward decreasing the dangers they are imposing on the public at large.
Do not let these companies walk away from their responsibilities.
There are numerous examples of how vicarious liability helps
compensate innocent victims of accidents that involve rental cars, but
I would like to leave you with just one. Two married couples rented a
vehicle from Budget Rent-A-Car for a trip to Cornell University in
Ithaca, New York. The rental contract named both couples as the parties
allowed to drive the car. Unfortunately, there was an accident. One of
the wives was driving when her view became distorted due to rain and
fog. Due to her unfamiliarity with the vehicle, she could not find the
windshield wiper. She lost control of the car, veered across two lanes
of traffic, rolled over, and hit an embankment. The wife who was a
passenger, a cardiologist, suffered a severe traumatic brain injury and
will never remember her medical training or be independent again.\5\
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\5\ Su v. Hong Fu and Freedom River d/b/a Budget Rent-a-Car, 733
A.2d 1133 (NJ 1999).
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Let me pose this question as my concluding remarks. Who is better
positioned to cope with the risk? The wife who has suffered traumatic
brain injuries because she happened to have the unfortunate luck of
traveling in a rented car that was unfamiliar to the driver? Or Budget,
who has to deal with the risk of accidents every day and who profits
from putting drivers on the road every day? For those states with
vicarious liability laws for auto rental agencies, we believe that
system is more equitable and fair than the system S. 1130 would create.
The Motor Vehicle Rental Fairness Act protects companies that profit
from risk-creating activities at the expense of innocent victims. Do
not let innocent victims go uncompensated to protect the thriving car
rental industry.
Last Congress, as time was running out on the Second Session, these
same rental car companies tried an end run around any real legislative
scrutiny and attempted to have this same type of legislation buried in
the massive Omnibus Appropriations bill. They were stopped dead in
their tracks. Of course, that might not stop them from making a second
try in the next three weeks.
Nevertheless, today, at least, the sunlight of public scrutiny is
being directed on this special interest legislation that would gut
state rights and potentially expose our communities to more reckless
behavior on the roads. Mr. Chairman, I very much appreciate having the
opportunity to discuss the nature of this legislation and why it should
be strongly opposed. Thank you.
Senator Ashcroft. Thank you very much.
I am pleased to note the presence of the Senator from
Washington here, and would ask if he had any comments, or chose
to question the witnesses.
STATEMENT OF HON. SLADE GORTON,
U.S. SENATOR FROM WASHINGTON
Senator Gorton. I think it is time, Mr. Chairman, for you
to be able to ask questions. As you know, I am a cosponsor of
this bill, which was one element in the broader product
liability legislation that has been considered a number of
times, and once at least got as far as a veto by the President.
While I was listening to this last testimony, I was also
reading the staff memo we have here, and I am tickled by the
one-liner that I suspect you read as well, and the line is,
Justice Benjamin Cardozo, considered one of the leading jurists
in the development of tort law, described the vicarious
liability doctrine in the following manner: ``The whole
doctrine is foolishly antiquated, unjust, and ought to be
abolished, but I suppose we shall have to leave the change to
the clumsy process of legislation.'' He wrote those words in
1928. We are still at the clumsy process 71 years later.
Senator Ashcroft. I would make a comment on that if I
thought I could add to it. [Laughter.]
Well, let me begin by asking a question. Is there any
practice, Mr. Wagner, that is taken by car rental companies to
ascertain the identity of people to whom they rent? Are there
any requirements?
Mr. Stewart suggests that car rental companies are solely
interested in volume, and that they do not check things. Are
there things that are done?
Mr. Wagner. Senator, thank you for asking that question. I
believe that Mr. Stewart painted the industry with a very broad
brush when he made that comment, and certainly I would call
upon Mr. Elder or others to make comments as well, but
Enterprise Rent-A-Car does, in fact, take precautions in
entering into rental agreements with customers.
We typically check to ensure that there is a driver's
license, an valid driver's license. We do inquire about
insurance, as I understand the practice, and in fact we even go
so far as to offer insurance-related type products for those
individuals who may have an interest.
Senator Ashcroft. Do people have to be a specific age in
order to rent from Enterprise?
Mr. Wagner. The laws on that question vary. In some States
we are required--New York specifically, we are required to rent
to customers 18 years or older, and in other States we have as
a matter of policy determined that we will rent to them if they
are over 21 years old, and the industry varies on that, but we
typically do rent to anybody who is a licensed driver at least
18 years of age or older.
Senator Ashcroft. Are there any jurisdictions which you
rent to people who are 16 years of age?
Mr. Wagner. Not to my knowledge. Generally speaking, that
is not the practice of the industry. Mr. Elder may be able to
comment on that.
Senator Ashcroft. Mr. Elder, do you have a comment?
Mr. Elder. I do not know of anyone who rents to youngsters
that are 16 years old, unless there's a State law that requires
it some place. We certainly do not in Washington.
Senator Ashcroft. Why don't you rent to 16-year-olds?
Mr. Elder. Well, the same reason that my son had to pay an
awful lot of money to buy insurance when he first got his
driver's license. Youngsters are particularly prone to
accidents, and we just do not feel comfortable turning them
lose in our car to go out and hurt someone.
Senator Ashcroft. Wait a second. Mr. Stewart indicates all
you care about is the volume of cars that you rent. Now you are
telling me that you care about something else, that you care
about whether or not there are accidents, and it is reflected
in your policy, so you have a policy not to rent to people who
are just 16 years old?
Mr. Elder. That is correct, absolutely. We do rent to
people who are 21. The one thing that we do do as well is, if
someone comes in and rents a car, and there is an additional
renter, we have to make sure that additional renter or
additional driver is qualified on the very same basis as the
primary renter of the car just to make sure that we are not
putting a car out for someone that is apt to go out and have an
accident.
If it is someone who did not have a driver's license, and
we just took a name, then I think we would be responsible, and
should be liable for anything that happens, but we qualify
additional drivers, 21-year-olds, the same way we would qualify
anyone else.
Senator Ashcroft. How much competition is there in the
industry? Is there? And Ms. Faulkner, you work now for Premier,
and you previously had Capitaland.
Ms. Faulkner. Capitaland was a small independent. I work
for Budget Group, Incorporated, in a division called Premier,
which does local rentals.
Competition is relatively strong throughout most States,
not as strong in the various States, and certainly not strong
in New York at all.
There are 25 independent rental car companies left in the
State of New York. All of the rest are national chains such as
Hertz, Avis, National, and Budget, and Enterprise, and they
maintain a presence in New York.
Senator Ashcroft. Is there price competition among these
firms?
Ms. Faulkner. Price competition in New York is not that
high. The rates are just simply high in New York to compensate
for additional expenses that we have in that State, so we do
not have to fight for price.
One comment, though, about not asking people if they have
insurance. We do ask in New York if you have insurance
coverage. We do list your insurance.
We even try to get your policy number, but we are primary
in that State, and it is against the law to refuse to rent to
someone without insurance. You have to rent to that person. It
is discriminatory. Many people in the city of New York do not
own a car, therefore they do not have insurance, so I cannot
turn them down on that basis.
Senator Ashcroft. Senator Gorton, do you have questions you
would like to ask?
Senator Gorton. No, thank you.
Senator Ashcroft. Well, let me thank all of you for coming
and presenting your testimony today. I am grateful for the
opportunity to hear from you about this important issue.
I had hoped that Senator Hollings would be here. We had
rearranged the schedule of testimony. I now am told that
Senator Hollings is not going to be able to come. I want to
thank you, Mr. Stewart, for letting us adjust your sequence of
appearance in that respect, and thank you all for being here.
With that, this hearing is concluded.
[Whereupon, at 11:10 a.m., the subcommittee adjourned.]
A P P E N D I X
Prepared Statement of Hon. Ernest F. Hollings,
U.S. Senator from South Carolina
My position on this legislation--S. 1130--will come as a surprise
to no one: I am opposed to its passage.
This bill is merely another attempt to overturn state tort law. As
I have noted previously, those, including members of Congress and
outside interests, who seek to use the power of Congress to overturn
the states jurisdiction of tort law should factually demonstrate a
compelling reason for such action. Based on my review of the research,
and the testimony that has been submitted for today's hearing, this
standard has not been met by the supporters of the legislation before
the committee.
Currently, only five states hold automobile rental and leasing
companies to any form of significant vicarious liability. This is
hardly sufficient to justify federal preemption of state law. Moreover,
there is no evidence that automobile rental and leasing companies are
being burdened and hindered by liability suits. If they were, it would
be reflected in their insurance premiums. However, data obtained from
the Congressional Research Service (CRS) shows that insurance costs for
one of the largest companies in the industry--the Hertz corporation--
amount to only 3% of annual revenues. The CRS data also demonstrates
that the automobile rental industry is doing exceptionally well
financially, producing annual revenues of approximately $15 billion.
As the members of this committee are aware, I have been a longtime
opponent of federal legislation designed to overturn state tort law and
curtail American citizens' constitutional right to civil redress for
wrongs done to them in the marketplace. I believe that like all
provisions of the Constitution and the Bill of Rights, the right of
civil redress is a precious right, and that, as such, Congress must act
with severe caution and restraint regarding legislation designed to
reduce the protections afforded by this right. As I indicated above,
based on the factual record before the committee, I am unconvinced of
the case that has been made by the supporters of S. 1130 on the need
for the legislation. I thank the Chairman for this opportunity to
present my views.
______
STATEMENT OF HON. TRENT LOTT, U.S. SENATOR FROM MISSISSIPPI
Mr. Lott. Mr. Chairman, I am pleased to offer my strong support for
S. 1130, the ``Motor Vehicle Rental Fairness Act of 1999.'' I am a co-
sponsor of this legislation, and I want to thank Senator McCain and
Senator Ashcroft for their efforts in sponsoring this legislation and
moving it ahead in the Senate.
I have been committed to tort reform during my entire tenure in
Congress, and I believe that this legislation presents an excellent
opportunity to further address this issue. This legislation
specifically addresses the problem of vicarious liability for companies
that rent or lease motor vehicles. The reforms that this legislation
would bring about have been considered by this Committee in each of the
last two Congresses and included in legislation passed by this
Committee in 1996 and 1997. In 1996, the full Senate endorsed
legislation which would have implemented vicarious liability reform.
Mr. Chairman, it is time that vicarious liability reform be enacted
into law with the passage of S. 1130 during the 106th Congress.
Vicarious liability for car rental companies is especially unfair for
the small businesses that are impacted by the application of this legal
principle. Small businesses are particularly vulnerable to the
devastating potential of vicarious liability laws. It is my
understanding that there will be testimony today from a former small
business owner in New York who was driven out of business by a judgment
in a case when there was absolutely no negligence on the part of the
business. This case is clearly an example of the inability of a small
business to weather an unjust liability verdict. Small businesses
operate on very tight budgets and profit margins, and usually cannot
afford to self-insure in this type of situation. It is clear that the
practice of certain states of holding car rental companies vicariously
liable is having a negative effect on interstate commerce, and it is
the Constitutional duty of Congress to act in this area.
I am proud to support this legislation, and I am eager to see it
move forward. I am confident that Senator McCain and Senator Ashcroft
will ensure that this bill makes its way quickly through the
legislative process, and I look forward to this legislation becoming
law in the near future.