THE FEDERAL GOVERNMENT STRIKES OUT AGAINST STATE VICARIOUS LIABILITY LAWS
Until recently, §388 of the New York State Vehicle and Traffic Law permitted long term leasing companies to be held liable for the negligent acts of those driving their leased vehicles. Section 388 of the VTL provides that "[e]very owner of a vehicle used or operated in this state shall be liable and responsible for death or injuries to person or property resulting from negligence in the use or operation of such vehicle…".
For some time leasing companies have challenged the constitutionality of this provision of the VTL. In that regard, they have argued that holding long term lessors vicariously liable for the acts of their lessees bears no rational basis for achieving any governmental purpose and is therefore a violation of the equal protection and due process clauses of both the United States and New York State constitutions.
In 2004, Ford Motor Credit Company and Ford Credit Titling Trust Company made such a challenge before the Appellate Division, Fourth Department. See Chilberg v. Chilberg, 13 A.D.3d 1089, 788 N.Y.S.2d 533 (4th Dept., 2004).
In Chilberg, Id., the then fifteen year old plaintiff was accidentally run over by the pick-up truck being driven by her father as she lay in the driveway of her family's home sunbathing. The vehicle driven by the plaintiff's father was, at the time of the accident, leased from Ford Motor Credit Company and Ford Credit Titling Trust Company.
Refusing to agree with Ford's arguments, the Fourth Department held that "[o]ne legislative purpose in enacting the statute was to ensure that persons injured by the negligent operation of a motor vehicle would have recourse to a financially responsible person...". Id. at p. 1092.
Section 388 of the VTL was the reigning law until very recently when, on August 10, 2005, President Bush signed the Transportation Equity Act. This massive transportation bill contains a provision prohibiting states from holding long term leasing companies, or car rental companies, vicariously liable.
At first glance, in light of the general rule that state law is preempted to the extent that it conflicts with federal law, it appears that this new law brings an end to New York State's practice of holding leasing companies vicariously liable. However, some have questioned the constitutionality of this new law given the application of the McCarran-Ferguson Act and the limitations imposed on Congress' ability to control interstate commerce.
The McCarran-Ferguson Act, enacted in response to the Supreme Court's decision in U.S. v. South-Eastern Underwriters Assn., 322 U.S. 533, 64 S.Ct. 1162 (1944), provides that "[n]o Act of Congress shall be construed to invalidate, impair, or supercede any law enacted by any State for the purpose of regulating the business of insurance…unless such Act specifically relates to the business of insurance…" See 15 U.S.C.A. §1012(b).
In addition to the above, some also question whether this new law represents a constitutional exercise of Congress' authority under the Commerce Clause of the United States Constitution.
It is well settled that, under authority granted to it by the Commerce Clause of the United States Constitution, Congress may regulate the use of the channels of interstate commerce, the instrumentalities of interstate commerce and those activities having a substantial relation to interstate commerce. See U.S. v. Lopez, 514 U.S. 549, 115 S.Ct. 1624 (1995). However, the Supreme Court has also determined that Congress' authority, under the Commerce Clause, is not without bounds. As such, in order for this new law to withstand constitutional scrutiny, it must be shown that vicarious liability substantially affects interstate commerce.
The Transportation Equity Act became effective on August 10, 2005. Although it is likely that the constitutionality of this new federal law will be challenged given the issues addressed above, for the interim, §388 of New York's Vehicle and Traffic Law has been preempted. As such, neither long term leasing companies nor rental companies may be held vicariously liable for the acts of those driving their leased or rented vehicles. Whether this will remain the law of the land remains to be seen at this time.
Stephanie G. Elliott