KEY TAKEAWAYS

• New York’s state appellate court has declared rental car companies are not required to provide primary insurance coverage to customers

• Under the court’s ruling, parties to the rental agreement can determine which of them will provide primary coverage for a rental vehicle

• If the renter is responsible for providing the coverage but fails to do so, the decision seems to open the door for the rental company to pursue indemnity against the customer

New York’s state appellate court recently declared rental car companies are not required to provide primary insurance coverage to their rental customers. Instead, the court concluded that New York law requiring the companies to provide such coverage is preempted by the Graves Amendment, 49 U.S.C. 30106.  That case is  Second Child v Edge Auto, Inc. (2025 NY Slip Op 01432).

The appellate court first discussed how section 370 of New York’s Vehicle & Traffic Law requires rental car companies to maintain insurance and requires that the insurance “inure to the benefit” of the operators of the company’s rental vehicles.  The appellate court then discussed how a Court of Appeals’ decision in Elrac v. Ward, 96 NY 2d 58 (2001) interpreted section 370 to (a) require rental companies to provide primary insurance to their renters up to the minimum liability limits required by section 370 and (b) prevent rental companies from seeking indemnity from their customers up to the minimum required limits.

The appellate court noted that the Elrac decision was issued before the Graves Amendment was passed in 2005.  The Graves Amendment shields rental companies from vicarious liability for their customer’s negligent use of their vehicles.  However, the Graves Amendment includes what the appellate court referred to as a “savings clause,” which says that nothing in the amendment supersedes the law of any state that (1) imposes financial responsibility or insurance standards on the owner of a motor vehicle or (2) imposes liability on a rental car company for failure to meet the financial responsibility or liability insurance requirements under state law.

The appellate court concluded that the Graves Amendment does not supersede section 370 to the extent that statute requires rental companies to carry specific minimum coverage limits for each of their vehicles.  However, the appellate found that the Graves Amendment does supersede section 370 “to the extent it requires a rental car company to provide primary insurance to their renters up to the minimum liability limits provided by the statute.”

So, under the court’s ruling, the parties to the rental agreement can determine which of them will provide primary coverage for the rental vehicle. Also, if the renter is responsible for providing the coverage but fails to do so, the decision seems to open the door for the rental company to pursue indemnity against the customer under the parties’ contract.

If you have questions about how this impacts your business, please contact:

• Christian A. Cavallo
• David L. Brown
• Jeffrey L. Kingsley
• Robert M. Hanlon Jr.
• John M. Allen
• Or another member of our Global Insurance Services or Transportation teams.