Tuesday, October 21, 2008

Graves Amendment Held Not to Apply to "Loaner" Vehicle

AUTO – GRAVES AMENDMENT – VICARIOUS LIABILITY – VEHICLE & TRAFFIC LAW § 388 – LOANER VEHICLE
Zizersky v. Life Quality Motor Sales, Inc.

(Sup. Ct., Kings Co., decided 10/14/2008)


Since August 10, 2005, the "Graves Amendment" has provided vehicle lessors and renters with a statutory basis for dismissing vicarious liability claims in motor vehicle accident lawsuits. In what may be another case of first impression, the court held that the Graves Amendment does not apply to a "loaner" vehicle.

While driving her 1998 Ford, plaintiff Haya Zizersky was involved in a collision with Symantha Mitchell, who was driving a 2008 BMW owned by either BMW of North America, LLC or BMW Financial Services NA, LLC. Defendant Life Quality Motor Sales had provided that vehicle to Mitchell for her use, free of charge, while her vehicle was being serviced by the dealer. Zizersky brought an action against the dealer, both BMW entities and Mitchell for damages relating to that accident.

New York Vehicle and Traffic Law § 388 provides that "[e]very owner of a vehicle . . . shall be liable and responsible for death or injuries to person or property resulting from negligence in the use or operation of such vehicle, in the business of such owner or otherwise, by any person using or operating the same with the permission, express or implied, of such owner." Vehicle and Traffic Law § 388 has been applied to "loaner" vehicles. Dunne v. Lloyd, 40 AD3d 685, 686 (2d Dept 2007); Fili v. Matson Motors, Inc., 183 AD2d 324, 328-29 (4th Dept 1992); Matter of Liberty Mut. Ins. Co. v Clench, 180 AD2d 684, 685 (2d Dept 1992).

In pertinent part, the Graves Amendment provides:
§ 30106. Rented or leased motor vehicle safety responsibility(a) In general. An owner of a motor vehicle that rents or leases the vehicle to a person (or an affiliate of the owner) shall not be liable under the law of any State or political subdivision thereof, by reason of being the owner of the vehicle (or an affiliate of the owner), for harm to persons or property that results or arises out of the use, operation, or possession of the vehicle during the period of the rental or lease, if: (1) the owner (or an affiliate of the owner) is engaged in the trade or business of renting or leasing motor vehicles; and(2) there is no negligence or criminal wrongdoing on the part of the owner (or an affiliate of the owner).
The BMW entities and dealer moved for summary judgment based on what they contended was the applicability of the Graves Amendment to them, insulating them from V&T § 388's vicarious liability.

In denying that motion, Kings County Supreme Court Justice Jack Battaglia ruled that the Graves Amendment does not apply to a "loaner" vehicle that is provided to a customer free of charge. Finding that the affidavits submitted by the moving defendants were inconsistent and insufficient to warrant summary judgment, Justice Battaglia framed the disputed issue as follows:
The difference in the Affidavits is particularly important because the fundamental dispute between the parties here is the applicability of the Graves Amendment to "loaner" vehicles used, without charge, by persons whose own vehicles, previously purchased or leased, are being serviced. It is essentially Plaintiffs' contention that, no matter which Defendant or Defendants might be considered the "owner" of the subject vehicle or an "affiliate" of the "owner," and whether any or all Defendants might be engaged in the trade or business of renting or leasing motor vehicles, the Graves Amendment cannot apply where, as here, the subject vehicle is "loaned" without separate charge to the user. Under such circumstances, as Plaintiffs would have it, the vehicle has not been "rented" or "leased" as those terms are used in the Amendment. Defendants, of course, disagree.
Before being allowed to use the loaner vehicle, Mitchell had signed a "BMW Rental Agreement" and "Loaner Car Addendum". The heading "rental charges" on the Rental Agreement was blank and that section of the document was crossed-out. The Loaner Car Addendum stated the user's understanding that, if the vehicle was not returned within 24 hours after notification that the repairs to the user's own vehicle had been completed, the user would be charged $40.00 per day.

In support of their argument that the loaner vehicle was a "rental" within the meaning of the Graves Amendment, the moving defendants relied on language in the Rental Agreement that stated: "If Your vehicle is being serviced by Us under BMW warranty Our right, or the right of Our affiliate, to repair your vehicle during this rental is considered by Us as the rental fee. No additional consideration is necessary except for fuel You use and do not replace." Mitchell apparently had been given the loaner vehicle to use while her own car was at the dealer for a warranty repair.

In rejecting that argument, Justice Battaglia held:
Even assuming, however, that Ms. Mitchell's own vehicle was being serviced "under BMW warranty," rendering the quoted provision from the BMW Rental Agreement applicable, the Court concludes for reasons that will appear that any so-called "right . . . to repair [the] vehicle," characterized as a "rental fee," cannot constitute the subject vehicle as "rented" or "leased" for purposes of the Graves Amendment. However it might be characterized for other purposes, the loan of the subject vehicle to Ms. Mitchell was a simple bailment (see Fili v Matson Motors, Inc., 183 AD2d at 328-29.)

* * * * *

"The central distinguishing characteristics of a lease is the surrender of absolute possession and control of property for an agreed-upon rent." (First Franklin Square Assocs., LLC v Franklin Square Prop. Account, 15 AD3d 529, 532 [2d Dept 2005] [quoting Matter of Dodgertown Homeowners Assn. v City of New York, 235 AD2d 538, 539 (2d Dept 1997)].) "When referring to tangible personal property, the word lease' means a contract granting the right to possess property for a specified period of time in exchange for periodic payment of a stipulated rent." (In Re: ICS Cybernetics, Inc., 123 BR 467, 475-76 [Bktcy Ct, NDNY 1989], aff'd 123 BR 480 [NDNY 1990].)
"In the context of lease agreements, rent' is the amount paid for use and occupation of land or other property." (Matter of Daben Corp., 469 F Supp 135, 141 [DPR 1979]; see also Stecher v 85th Estates Co., 43 AD3d 732, 743 [1st Dept 2007] [McGuire, J., dissenting]; 2657 East 68th Street Corp. v Bergen Beach Yacht Club, 161 Misc 2d 1031, 1033 [Civ Ct, Kings County 1994].) When used as verbs, the words "lease" and "rent" are synonymous. (See Richards v Princeton Ins. Co., 178 F Supp 2d 386, 395 [SDNY 2001].)
Giving the words their plain meaning, therefore, to "lease" or "rent" property requires payment for its use. If the words carry any shade of difference in common parlance when applied to personal property, a "lease" might be understood as allowing use for a longer term than a "rental." But, again, giving the words their plain meaning, bailment of a "loaner" vehicle without charge is neither a "lease" nor a "rental."
As the moving defendants would have it, their "right" to service Ms. Mitchell's own vehicle, presumably purchased or leased from one of them, is sufficient "consideration" to constitute the "loaner" arrangement a "rental" for purposes of the Graves Amendment. (Reply Affirmation, ¶ 6.) It may be that the bailment of a "loaner" vehicle without charge, but with other legal consideration, and considering the totality of the contract and relationship between the parties, would be sufficient to constitute a "lease" or "rental" for some purposes. (See Matter of West-Herr Ford, Inc. v Tax Appeals Tribunal, 16 AD3d 727 [3d Dept 2005]; Associated Groups Services, Inc. v Grow, 258 AD2d 716 [3d Dept 1999].) On the evidence of the arrangement presented here, however, there is no "lease" or "rental" for purposes of the Graves Amendment.
To read most posts about New York cases involving the Graves Amendment, click here.  

2 comments:

Larry Rogak said...

Roy: The subject of loaner cars from auto dealers is extremely interesting, and rarely touched upon. I wrote an article for the New York Law Journal back in 1997 explaining the very strange coverage issues that arise when a customer gets into an accident with a loaner car. Under the standard 'garage liability' policy that auto dealers carry, there is no coverage for a customer driving a loaner car if the customer has his own personal auto policy. If the customer has no policy of his own, then the dealer's policy provides coverage for the customer, but only the minimum statutory limits. This exception to V&T 388 requirements was upheld by the Court of Appeals in a case called Davis v. DeFrank in 1970. Insurers of the customer are always shocked when I inform them that their coverage is not only primary, but exclusive, for their insured driving a loaner car. But I have a file cabinet full of successful DJ actions on that subject.

Roy A. Mura said...

Rental vs. loaner car wars has been a favorite subject of mine for some time, as well, Larry. You're describing what some courts have called a "no liability" clause, which is actually embedded within the policy's omnibus insured clause, rather than as a policy condition. True what you say, but the dealer's insurer probably remains primary for UM and PIP coverages. And watch for potential Insurance Law §3420(d) slip-ups by the dealer's insurer vis-a-vis the liability coverage. Restrictive language even if found within insuring provisions has been held to implicate §3420(d).

My fave, though, is when a dealer imprints "rental" on a loaner "agreement" 2-3 dozen times in an effort to trigger coverage under the customer's mandatory New York Rental Vehicle Coverage Endorsement for physical damage to the loaner vehicle. Calling something a rental -- even over and over and over again -- doesn't necessarily make it so. Have won this issue not only in court but, believe it or not, in AF intercompany arb, as well.