Congratulations to all NVLA members on the passage of H.R. 3 and its Graves Amendment! Your tenacity and can-do attitude have made you true champions and role models for all who face adversity.

What can you expect now from a risk and insurance standpoint? Today, (mid September), there is much speculation as to what may or may not result as backlash from the new legislation. That being the case, it is better to stick with what we know to be true right now: legislation abolishing vicarious liability is now the law of the land.

main exposures

Lessors will still have 3 main exposures that need to be managed, even in the absence of vicarious liability. These exposures existed prior to the passage of H.R. 3 but they were overshadowed by the severity and unpredictability of vicarious liability

lessors can still be held liable, on a contingent basis, up to a state's minimum financial responsibility limit

• The insurance carriers and their lawyers interpret the H.R. 3 wording to mean that lessors can still be held liable, on a contingent basis, up to a state's minimum financial responsibility limit. The good news is that these limits are relatively low, (extremely low compared to unlimited vicarious liability!), and they are finite - each state's FRL has a maximum cap. The following web site provides links to the statutes for each state: www.prairienet.org/~scruffy/f.htm.
  
  Insurers can now accurately predict losses, enabling them to charge a premium that is adequate to cover incurred claims. To the lessor, this means that the contingent exposure is readily insurable at a relatively low cost. Conversely, some lessors may choose to self-insure the contingent exposure. Before making that business decision a lessor should consult with an accountant, an attorney and a risk manager.

  Tracking the lessee's primary liability insurance is still a necessity, especially if the lessor self-insures the contingent exposure. If you decide to perform this function yourself, rather than outsource it to a professional tracking service, it is extremely important that your tracking employees understand the policies they are verifying.

  Tracking the lessee's primary liability insurance is still a necessity

  This is especially true for commercial insurance policies where wording and coverage symbols are key to coverage applicability. The fact that there is a certificate that states a policy exists does not necessarily mean that the correct coverage exists.

• H.R. 3 has also been interpreted as not applying to the District of Columbia and Puerto Rico. The Graves Amendment releases the vehicle owner from vicarious liability in "any State or political subdivision thereof". DC and Puerto do not qualify under this definition. Until the wording is amended, these two areas remain vicarious.

Negligent Entrustment is the third exposure, and it is a serious one

• Negligent Entrustment is the third exposure, and it is a serious one. Its definition varies from state to state, but a generic description is: a lessor leases a dangerous instrument, (vehicle), to a lessee even though the lessor knows, or should have known, that the lessee is likely to cause an accident resulting in risk to others. The chain of events leading to a claim of negligent entrustment are

  1. the driver is incompetent,
  2. the lessor knew or should have known of the incompetence,
  3. the lessor leased the vehicle to that lessee,
  4. the lessee's negligence caused the accident

  The exposure is serious because liability is usually unlimited, (depending on the state), and because punitive damages are often assessed against the negligent party. Punitive damage awards are usually extremely high because their intent is to punish the negligence. Because of this punishment aspect, most states do not allow punitive damages to be covered by insurance.

  Negligent entrustment issues may become more prominent now that vicarious liability no longer exists, since the result is often a high award.

  What would make a lessee incompetent? The most basic example of an incompetent retail lessee would be one with a suspended license or DUI recurrence. A commercial lessee might be deemed incompetent if the company failed to check MVR's for its employees or failed to enforce its driver standards.

  How can a lessor protect against negligent entrustment claims?

  How can a lessor protect against negligent entrustment claims? Asking commercial lessees about their driver hiring procedures on the lease application shows due diligence on the part of the lessor, as does asking a retail lessee about his or her driving record. If at all feasible, obtaining a copy of the retail lessee's MVR is a prudent approach. The best way to protect against these claims is to take the advice of a trusted attorney.

insurance premiums

How much can lessors expect to save on their insurance premiums now that the vicarious exposure is gone? Right now, some but not much. Most of the carriers are taking a wait-and-see position. Their concern is that the law is untested and may yet be contested. Lessors in NY should be able to purchase coverage more easily than before, but the premiums will not be decreased until all the dust settles favorably. Once that happens, though, premiums will decrease because the substantial charge to cover vicarious claims will disappear.