<DOC>
[106th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:60357.wais]
THE RENTAL FAIRNESS ACT OF 1999
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
FINANCE AND HAZARDOUS MATERIALS
of the
COMMITTEE ON COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
on
H.R. 1954
__________
OCTOBER 20, 1999
__________
Serial No. 106-78
__________
Printed for the use of the Committee on Commerce
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COMMITTEE ON COMMERCE
TOM BLILEY, Virginia, Chairman
W.J. ``BILLY'' TAUZIN, Louisiana JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas RALPH M. HALL, Texas
FRED UPTON, Michigan RICK BOUCHER, Virginia
CLIFF STEARNS, Florida EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio FRANK PALLONE, Jr., New Jersey
Vice Chairman SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania BART GORDON, Tennessee
CHRISTOPHER COX, California PETER DEUTSCH, Florida
NATHAN DEAL, Georgia BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma ANNA G. ESHOO, California
RICHARD BURR, North Carolina RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California BART STUPAK, Michigan
ED WHITFIELD, Kentucky ELIOT L. ENGEL, New York
GREG GANSKE, Iowa THOMAS C. SAWYER, Ohio
CHARLIE NORWOOD, Georgia ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma GENE GREEN, Texas
RICK LAZIO, New York KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming TED STRICKLAND, Ohio
JAMES E. ROGAN, California DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois THOMAS M. BARRETT, Wisconsin
HEATHER WILSON, New Mexico BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona LOIS CAPPS, California
CHARLES W. ``CHIP'' PICKERING,
Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland
James E. Derderian, Chief of Staff
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Finance and Hazardous Materials
MICHAEL G. OXLEY, Ohio, Chairman
W.J. ``BILLY'' TAUZIN, Louisiana EDOLPHUS TOWNS, New York
Vice Chairman PETER DEUTSCH, Florida
PAUL E. GILLMOR, Ohio BART STUPAK, Michigan
JAMES C. GREENWOOD, Pennsylvania ELIOT L. ENGEL, New York
CHRISTOPHER COX, California DIANA DeGETTE, Colorado
STEVE LARGENT, Oklahoma THOMAS M. BARRETT, Wisconsin
BRIAN P. BILBRAY, California BILL LUTHER, Minnesota
GREG GANSKE, Iowa LOIS CAPPS, California
RICK LAZIO, New York EDWARD J. MARKEY, Massachusetts
JOHN SHIMKUS, Illinois RALPH M. HALL, Texas
HEATHER WILSON, New Mexico FRANK PALLONE, Jr., New Jersey
JOHN B. SHADEGG, Arizona BOBBY L. RUSH, Illinois
VITO FOSSELLA, New York JOHN D. DINGELL, Michigan,
ROY BLUNT, Missouri (Ex Officio)
ROBERT L. EHRLICH, Jr., Maryland
TOM BLILEY, Virginia,
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Faulkner, Sharon, Area Manager, Premier Car Rental
Corporation................................................ 6
Middleton, Richard H., Jr., President, Association of Trial
Lawyers of America......................................... 15
Wagner, Raymond T., Jr., Vice President, Enterprise Rent-A-
Car Corporation............................................ 10
(iii)
THE RENTAL FAIRNESS ACT OF 1999
----------
WEDNESDAY, OCTOBER 20, 1999
House of Representatives,
Committee on Commerce,
Subcommittee on Finance and Hazardous Materials,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 2322, Rayburn House Office Building, Hon. Michael G. Oxley
(chairman) presiding.
Members present: Representatives Oxley, Cox, Largent,
Shimkus, Wilson, Shadegg, Towns, Deutsch, Stupak, and Luther.
Also present: Representative Bryant.
Staff present: Robert Gordon, majority counsel; Robert
Simison, legislative clerk; and Bruce Gwinn, minority
professional staff member.
Mr. Oxley. The subcommittee will come to order. I would
like to thank our panel of witnesses for joining us today to
discuss reforming vicarious liability laws. We are fortunate to
have before us Ms. Sharon Faulkner, who owned and operated an
independent car rental company in upstate New York for 17
years. Ms. Faulkner will also tell us firsthand how vicarious
liability impacted her small business.
Mr. Raymond Wagner gives us a triple perspective. He is not
only the vice president of Enterprise, but a municipal circuit
court judge and adjunct law professor as well.
Mr. Stewart, the former president of the Association of
Trial Lawyers of America, got stuck in bad weather in Florida,
so he is being replaced by ATLA's current president Mr. Richard
Middleton.
Thank you all for joining us today.
The legislation before us today H.R. 1954, introduced by
Mr. Bryant, would accomplish two simple things. First, it
creates a legal presumption that car rental employees are not
required to obtain State insurance licenses when providing
short-term coverage in connection with a vehicle. Class action
lawsuits have been threatened in several States which do not
have express laws governing this issue. The provision of H.R.
1954 only applies where a State has not acted on the issue and
only lasts for 3 years as a sort of grace period to encourage
each side to work toward resolving the issue.
I would note that this subtitle was adopted by unanimous
consent in the ongoing conference on financial services reform.
Second, the bill states that no person engaged in the
business of renting or leasing a motor vehicle shall be liable
to a claimant for the tortious act of another solely by reason
of being an owner of such motor vehicle. In other words, if
Mrs. Faulkner rents somebody a car, and they go off and crash
into somebody, this bill says that the person who is at fault
and caused the car crash should be liable for the damages, not
Mrs. Faulkner. It seems to make sense to me, and I went to law
school.
This sounds like a simple concept. In fact, 44 States have
rejected vicarious liability as unfair and unjust.
Unfortunately, if Mr. Wagner rents a car to a Red Sox fan in
Massachusetts, for example Mr. Markey, which has rejected
vicarious liability, and the driver gets so upset about the
Sox's latest playoff loss that he hits a driver from New York,
inadvertently of course, then the courts may end up applying
unlimited liability under New York law for all damages against
Mr. Wagner even though he was in no way at fault for the
accident, did not rent a car in New York.
I don't think we want to force car rental companies to ask
prospective renters whether or not they are Red Sox fans and if
they plan on attending any baseball games in New York. All this
subtitle does is to say that the party at fault should be
responsible for the damages. If you don't do anything wrong,
you shouldn't be forced to pay for the wrongdoing of others.
This bill does not in any way preempt State insurance laws or
the ability of the States to impose minimum responsibility
requirements on rental companies.
It also does not in any way limit the liability if the
agency is in any way or in any respect negligent. For example,
if Enterprise failed to maintain a car or rented a car to an
obviously drunk individual, then they would still be liable for
the resulting harm, but this bill does establish a simple rule
of fairness. Liability should be based on fault. If we continue
to let the trial lawyers go after innocent small business
owners like Mrs. Faulkner, we will end up with less
competition, higher prices, and only a few megacompanies left
who can afford the insurance premiums and legal cost of the
constant lawsuits.
Last term I was proud when this committee enacted the
biomaterials bill on a bipartisan basis, protecting medical
implant suppliers from excessive and frivolous litigation. We
said that a company shouldn't be dragged into lawsuits merely
for supplying component parts. Previous term we sent to the
President a bipartisan product liability bill which contained a
much broader vicarious liability repeal. This bill is another
small step forward toward fairness and sanity in our legal
system.
I am pleased to cosponsor the reform legislation by our
good friend from Tennessee Mr. Bryant. I look forward to
hearing further thoughts on this legislation from our panel of
witnesses.
Let me now yield to the gentleman from Minnesota for an
opening statement should he so desire.
Mr. Luther. Thank you, Mr. Chairman. I look forward to the
testimony. Obviously there are reasons why these vicarious
liability--why vicarious liability laws are in place in this
country, and I am looking forward to hearing testimony on the
issue of why we should have a Federal standard here. In other
words, as I understand it, the State laws, there are a variety
of State laws on this issue. We generally allow State laws to
control in this area. So I will look forward to hearing the
testimony on the issue of why we should be passing Federal
legislation on this particular issue.
I know that, for example, in Minnesota, the State that I
come from, we do have a law that affects this particular
subject in that State, and generally speaking, I think this
comes within the jurisdiction of State law, what we generally
view here as coming within the jurisdiction of State law.
Also, I will be interested in hearing testimony on why we
should single out this particular industry compared to all of
the other areas of law where there is vicarious liability and
where the burden and responsibility for that is borne by the
business community and by others. And so I appreciate, very
much appreciate, the hearing and looking forward to hearing the
testimony on some of those key issues. Thank you.
Mr. Oxley. I thank the gentleman. Now I recognize the
gentleman from Tennessee, the aforementioned gentleman from
Tennessee, who is a sponsor of the bill and not technically a
member of the subcommittee, but a member of the full committee.
We are proud to have him with us this morning, and I now
recognize him for an opening statement.
Mr. Bryant. Thank you, Mr. Chairman. I do appreciate your
holding this hearing today. I want to thank you for allowing me
to participate. From the beginning of my service in the House
in 1995, I have been a strong proponent of fair and reasonable
tort reform. Having participated in this type of debate for
nearly 6 years, I am well aware of the arguments from those who
might disagree with me on the need for broad legal reform. The
bill I have introduced and which we are discussing today,
however, is a common-sense piece of legislation which I think
both sides of the legal reform debate should be able to support
and hope will support.
Currently companies that rent or lease motor vehicles such
as car and truck rental firms are subject in five States and
the District of Columbia to unlimited liability for tortious
acts of their renters and lessees even if the rental car
company is not negligent and there is no defect in the motor
vehicle. In these select States a rental company will be held
vicariously liable for the injuries and damages caused by the
negligence of its customers simply because the rental company
owns the motor vehicle and has given permission of its use by
the customer.
With your indulgence, Mr. Chairman, I would like to relate
to members of the subcommittee some of the more outrageous
examples of how unfair vicarious liability can be. Budget
Rental Car rented a vehicle to a woman in New York. The woman
allowed her son, an unauthorized driver under the rental
agreement, to drive the vehicle even though he had a suspended
New York driver's license. The son lost control of the car. His
mother, who was a passenger at the time of the accident,
suffered injuries. The mother sued her son for negligence, and
the jury found Budget vicariously liable for the son's
negligence under New York State law. The jury returned a
verdict of $450,000 against Budget.
In another example four British sailors rented a car from
Alamo in Florida. The driver fell asleep at the wheel. The car
ended up in a canal, and only one passenger survived. Alamo was
found vicariously liable for the deaths and injuries 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 plaintiffs $7.7 million.
Mr. Chairman, there are many other examples similar to this
where the rental company is held liable even though it had not
been negligent in any way and the vehicle was operated
perfectly or the vehicle operated perfectly. My legislation
would preempt the laws of these States which impose unlimited
vicarious liability on companies that rent or lease motor
vehicles.
Again, this bill is a common-sense, targeted solution. This
bill would not exempt rental companies from liability if the
company is negligent. It would not exempt the company from
minimum financial responsibility laws for vehicle owners in
each State. For example, if a car rental company does not
maintain a car properly, and the brakes on the car fail, then
the rental car company would be liable for its negligence. This
bill would also not foreclose other avenues of tort liability
for third parties injured by the customers of rental companies.
Mr. Chairman, the vicarious liability system acts as a
hidden tax on all rental customers nationwide. Rates go up,
companies refuse to do business in vicarious jurisdictions, and
the competition is stifled. It is time for the Congress to take
action to institute reform in this area of the law. I look
forward to working with you and other members of this
subcommittee to move this legislation, and, again, I thank you
for giving this issue the hearing it deserves and for allowing
me to participate. Thank you.
Mr. Oxley. The gentleman's time has expired.
The gentleman from Florida, Mr. Deutsch.
Mr. Deutsch. No, thank you.
Mr. Oxley. How about the gentleman from the Upper
Peninsula? Does he have an opening statement?
Mr. Stupak. Yes, Mr. Chairman. This legislation would
preempt current laws in five States. While I understand the
reason why the rental car industry wants to change these laws,
I believe we are in the wrong forum here. Tort law has long
been the province of State legislatures. The State legislatures
in Connecticut, District of Columbia, Iowa, Maine, New York,
and Rhode Island have decided that rental car companies should
be vicariously liable in the case of an accident. Now, my
friend from the other side says this is a hidden tax, but we
don't serve in those State legislatures. I don't know why they
made those choices, but I do know the State capitals are the
place where the decision should be made and not here in
Washington, DC, and if those States and residents feel it is a
tax, then that is their responsibility and not ours. I believe
if the rental car companies feel the residents in these States
pay more for auto rentals because of vicarious liability, then
they should go there and try to convince those States to elect
representatives that will change the laws.
Proponents of the bill argue that rental cars are products
that exist in interstate commerce and therefore justify uniform
liability standards, but the simple fact is nearly all items
involved in lawsuits travel in interstate commerce. In my view,
rental cars should not be held to a different standard than any
other product.
I point out to my fellow Republican colleagues that support
of Federalizing the tort laws in these States is wholly
inconsistent with the majority party's stated desire to return
the power to the States. This bill will remove these decisions
from the State legislatures and bring them to Capitol Hill.
Forty-five States, all the territories have addressed this
issue. I don't think we should come here for five States.
Mr. Chairman, I understand why the rental car companies are
lobbying for this bill. I don't fault them in doing so.
However, I disagree that we should be in the business--we
should not be in the business of preempting State tort law.
Thanks, Mr. Chairman.
Mr. Oxley. I thank the gentleman.
The gentleman from Oklahoma Mr. Largent.
Mr. Largent. Thank you, Mr. Chairman.
We have all heard of oxymorons like jumbo shrimp and hot
water heater and why we park on a driveway and drive on a
parkway. Today we are going to learn about a legal oxymoron,
which is called vicarious liability. I am pleased to offer my
strong support for H.R. 1954, the Rental Fairness Act of 1999.
I am an original cosponsor of this important legislation. I
commend you, Mr. Chairman, for your leadership in calling this
hearing.
I am supportive of the underlying theme of H.R. 1954. A
person should not be held liable for accidents which they were
not at fault. This theme is a fundamental construct of our
Nation's liability system. This construct must be upheld if
dozens are to have faith in the fairness of our judicial
system. Holding motor vehicle rental companies liable for the
negligence of their customers when there is nothing they could
do to prevent this negligence is unfair. So-called vicarious
liability laws for motor vehicle rental companies, although
present in a small minority of jurisdictions, impact on car
rental customers across the Nation, including the citizens of
my State of Oklahoma. These laws drive up rental rates, reduce
competition and act as a barrier to interstate commerce.
Vicarious liability reform legislation was approved by this
committee and the full House in 1995. These reforms are long
overdue, and I look forward to working with the chairman of
this subcommittee and the chairman of the full committee to
move this legislation this year. Thanks for the opportunity to
present this opening statement. I look forward to the hearing
the testimony of our panel of witnesses today. Thank you, Mr.
Chairman.
Mr. Oxley. I thank the gentleman.
The gentlelady from New Mexico.
Mrs. Wilson. No, Mr. Chairman.
Mr. Oxley. I guess we completed the opening statements.
[Additional statement submitted for the record follows:]
Prepared Statement of Hon. Tom Bliley, Chairman, Committee on Commerce
Thank you Mr. Chairman.
I congratulate my friend from Tennessee, Mr. Bryant, for his work
in moving this issue forward.
The Commerce Committee has a long history of working together to
enact bipartisan product liability reform. Vicarious liability reform
was included in the product liability bill this Committee sent to the
President in the 104th Congress, as well as a Gorton-Rockefeller reform
bill last term that the President supported, but which ultimately
failed in the Senate on other grounds.
Vicarious liability is the theory that you can sue the person with
the most money, even if they have no fault for the harm.
In my home state of Virginia, a large percentage of rental cars are
driven into the District. If one of these renters decides to give the
car keys to a total stranger who gets drunk and crashes the car into
the Washington Monument, then under the DC vicarious liability laws,
the trial lawyers can go after the rental company for the bill.
This is wrong! Why should we subject anyone to unlimited liability
without any fault or responsibility, where the accident was completely
caused by the negligence of a third party?
Responsibility and liability should be placed on the party at
fault. Forty-four states have recognized this and have repealed their
vicarious liability laws. But they can't protect their citizens from
being sued in the other six states without this legislation.
H.R. 1954 establishes the simple rule that liability should be
based on fault, not deep pockets to be picked by the trial lawyers.
The legislation by Mr. Bryant is timely, necessary, and a fine
addition to this Committee's long-standing efforts on liability reform.
I thank the gentleman from Ohio for holding this hearing and look
forward to hearing further testimony from our witnesses.
Mr. Oxley. Let me now turn to our panel, and, Ms. Faulkner,
we will begin with you.
STATEMENTS OF SHARON FAULKNER, AREA MANAGER, PREMIER CAR
RENTAL CORPORATION; RAYMOND T. WAGNER, JR., VICE PRESIDENT,
ENTERPRISE RENT-A-CAR CORPORATION; AND RICHARD H. MIDDLETON,
JR., PRESIDENT, ASSOCIATION OF TRIAL LAWYERS OF AMERICA
Ms. Faulkner. Good morning, Mr. Chairman and members of the
committee. My name is Sharon Faulkner, and I am the area
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 H.R. 1954, the Rental Fairness Act
of 1999. I thank Congressman Bryant for introducing this
important legislation. In addition, I thank you, Mr. Chairman,
for your support of this.
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, Capitaland Rental
Car, was head-quartered in Albany, New York. 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.
That situation changed 1 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 occurred over a year previously.
Capitaland 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 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 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 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. As a result, I had no idea
that an accident had ever occurred or that a person had ever
been injured. Nevertheless, Capitaland was named as a
codefendant in a lawsuit which demanded enormous amounts of
money to pay medical bills and compensate the injured person
for his pain and suffering.
So you might wonder how is it that my company was sued for
this accident. We rented to a licensed driver. The renter then
loaned to an unauthorized driver. It was the unauthorized
driver, a person neither I nor any of my employees 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. Therefore, 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 the 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 own 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 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 and all my
employees' families' future on the line in the hope that the
customer did not drive the car negligently and caused an
accident. I made a 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.
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 a car rental company exists
in five States: Connecticut, Iowa, Maine, New York, and Rhode
Island, and the District of Columbia.
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.
H.R. 1954 will put a stop to this legal lottery. This bill
will preempt State vicarious liability laws that hold companies
that rent or lease motor vehicles liable for the negligence of
the 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 this bill will not
do. This section will not shield the car rental company from
its own negligence or for failing to maintain the 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 insure their vehicles at
the level required by State law.
I urge this committee to pass H.R. 1954 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 will be happy to answer any questions.
[The prepared statement of Sharon Faulkner follows:]
Prepared Statement of Sharon Faulkner, Area Manager, Premier Car Rental
Company
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 H.R. 1954, the ``Rental Fairness Act of
1999.'' I thank Congressman Bryant for introducing this important
legislation and you, Mr. Chairman, for being an original co-sponsor of
the bill. I 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 uniform 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. Budget assumed
the liability for this lawsuit and, although I am deeply interested in
knowing the result of this case, the plaintiff's lawyers insisted that
the settlement of the lawsuit be sealed.
As a result of the sale of my company, 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 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.
H.R. 1954 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 H.R. 1954 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 H.R. 1954, 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.
Mr. Oxley. Thank you, Ms. Faulkner.
Mr. Wagner.
STATEMENT OF RAYMOND T. WAGNER, JR.
Mr. Wagner. 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 is a family owned
corporation headquartered in St. Louis, Missouri. I appear
before you on behalf of Enterprise to express our support for
Congressman Bryant's Rental Fairness Act of 1999. Thank you,
Mr. Chairman, for your strong support of this legislation and
for inviting me to present testimony today.
My testimony today will center on Title II of H.R. 1954.
Title I of this bill was attached as a noncontroversial
amendment to H.R. 10 when that bill was considered by this
committee earlier this year and, in fact, yesterday as well. It
is my understanding that this amendment has been agreed to by
the conference committee currently crafting the final financial
services modernization bill. Thus, when H.R. 1954 is marked up
by this committee, it will consist only of Title II of the
bill.
I view the current vicarious liability laws from perhaps a
unique perspective. Not only am I a vice president at
Enterprise Rent-A-Car, but I am also a circuit judge in the
municipal division of St. Louis County as well as an adjunct
professor of 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. H.R. 1954 will return the notion of fairness to
litigation involving car rental companies and those 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 of 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 car rental rates for this misguided and
outdated vicarious liability laws, which, incidentally, date
back to the days of horse and buggies, when the horse rental
operator was presumed to know the personality of his horse.
The laws of these States force car rental companies to
charge nonresident renters higher rates to cover their losses.
In essence, nonresident accident-free renters are forced to
subsidize accident-prone renters in vicarious liability States.
I would submit that 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 has
happened because these laws have forced hundreds of companies
out of business, as we just heard from Ms. Faulkner. And it is
not fair that the only sure way an operator, even one operating
under--outside of a vicarious liability State, can protect
itself against such claims is to simply go out of business.
H.R. 1954 will return uniformity and fairness to the car
rental industry and to our customers. Quite simply, it will
preempt the law in the small minority of States which presently
hold vehicle rental companies liable for the negligence of
their customers merely because the company owns the vehicle
involved in the accident.
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 rights and
federalism. I would agree with this argument if the impact of
these States' vicarious liability laws were confined to their
borders and their citizens, but this is not the case. Our
customers across the Nation pay for vicarious liability laws
through higher rates. A 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 plaintiff lawyers seek to apply
these States' 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
when renting their vehicles. They allege we will feel free to
rent to drunk customers or to not maintain our vehicles because
we will have no fear of liability. I believe that they know
that these arguments are false. This bill expressly states that
the bill will not impact claims alleging a company's negligence
whether 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, H.R. 1954 does not shield the
company from potential liability, nor should it. We have an
obvious interest in protecting our cars, the tool of our trade,
and we take all steps to do so.
Third, opponents of H.R. 1954 will argue that innocent
injured persons will go uncompensated if these laws are not
preserved. As a subset to this argument, opponents of this bill
will assert that the car rental companies are in the best
position to compensate these victims. It is indeed true that
persons are injured every day in vehicle accidents and that
financial resources 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 upon fault. Compounding
the 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 judgments
and settlements over the past 10 years. These judgments have
cost Enterprise tens of millions of dollars, costs that we must
simply pass along to our customers. Collectively vicarious
liability results in losses well over $200 million per year to
this industry, exclusive of insurance costs and legal fees.
In sum, Mr. Chairman, H.R. 1954 will right an ongoing
wrong. These laws impact interstate commerce through higher
rental rates for all consumers. These laws lessen competition
by acting as a barrier to enter into business, and these
liability laws undermine the fundamental principle of our
Nation's liability system that a person should pay for the harm
caused only when he or she is at fault or could have prevented
the harm in some way. Federal reform legislation is appropriate
and long overdue.
I thank you for inviting me to present this testimony this
morning, and I would be pleased to answer any questions that my
testimony may have raised. Thank you.
[The prepared statement of Raymond T. Wagner, Jr. follows:]
Prepared Statement of Ray Wagner, Vice President, Enterprise Rent-A-Car
Company
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 Congressman Bryant's ``Rental Fairness Act of 1999'' (H.R.
1954). Thank you, Mr. Chairman, for your strong support for this
legislation and for inviting me to present testimony today.
My testimony today will center on Title II of H.R. 1954. Title I of
this bill was attached as a non-controversial amendment to H.R. 10 when
that bill was considered by this Committee earlier this year. It is my
understanding that this amendment has been agreed to by the conference
committee currently crafting the final financial services modernization
bill. Thus, when H.R. 1954 is marked-up by this Committee, it will
consist only of Title II of the bill. As a result, I will concentrate
my remarks today on Title II, which reforms state vicarious liability
laws for companies that rent or lease motor vehicles.
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. H.R. 1954
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.<SUP>1</SUP>
---------------------------------------------------------------------------
\1\ Seven additional states (Arizona, California, Idaho, Michigan,
Minnesota, Nebraska, and Nevada) impose limited vicarious liability
that is tied to the state's minimum financial responsibility
requirements. Thus, H.R. 1954 will have no impact on these seven
states. After enactment, a car rental company will continue to be
liable in these seven states (and, in fact, all states) up to the
state's minimum insurance requirements. One state, Florida, has capped
vicarious liability at $850,000 per incident. H.R. 1954 will pre-empt
Florida's vicarious liability cap.
---------------------------------------------------------------------------
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.
H.R. 1954 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 several arguments as to
why H.R. 1954 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. The car rental industry is a fundamental part of our nation's
interstate transportation network. 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 H.R. 1954 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. H.R. 1954 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,
H.R. 1954 does not shield the company from potential liability for an
accident. Nor should it.
Third, opponents of H.R. 1954 will argue that innocent, injured
persons will go uncompensated if these states' vicarious liability laws
are not preserved. As a subset to this argument, opponents of this bill
assert that car rental companies are in the best position to compensate
these victims. 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, H.R. 1954 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)
A Georgia resident rented 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 plaintiff's 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.
Rodriques 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.
Mr. Oxley. Thank you, Mr. Wagner.
Mr. Middleton.
STATEMENT OF RICHARD H. MIDDLETON, JR.
Mr. Middleton. Thank you, Mr. Chairman. I am pleased your
allowing me to substitute for Mr. Stewart on such short notice.
I come as president of the Association of Trial Lawyers of
America, and I come and voice our strong opposition to this
bill because one thing we don't need is anymore bald assertions
that such buzzwords as interstate commerce or the impact upon
consumers via so-called hidden tax is, in fact--is necessary to
consider.
The idea of vicarious liability is basically a doctrine of
law that is based upon the premise that the relationship of one
party to another, as well as the relationship of those parties
to the society within that particular State, drives a need to
have some sort of liability. The policy underlying the
imposition of vicarious liability is one indeed which the State
legislators have considered in conjunction with their State
insurance laws and how they are going to mandate coverage. They
have decided that in these five States and partially in a few
other States that legal accountability for actions caused by
participation in the market is necessary by recognizing who is
in the best position to identify the risk and then to assume
any responsibility for what goes wrong.
All you have to do is look at the impact of the market on
the market of these rental companies. It is in States where
there are large tourists numbers where, because they put so
many cars on the road, they impact the number and the
likelihood of uninsured motorists who are going to end up in
collisions, and it exacerbates that uninsured motorist problem
because of the number of cars they put out there. Vicarious
liability spreads the responsibility to those making money in
the marketplace and by increasing the risk to the citizens of
their particular States. It is peculiarly a matter of the State
legislatures and not of Congress.
The risk is obvious. You have people getting in unfamiliar
vehicles, particularly trucks. You have got no ties to
ownership, so you have a lesser sense of responsibility, no
respect for the vehicle involved, and they don't even require
any other proof of ownership which would help with this
problem. The benefits of the system, because vicarious
liability is imposed partially in certain States, is that they
now rent to people who are under 25 years of age--excuse me,
they do not rent to those individuals. They require credit
cards, which studies have shown are synonymous with people who
hold credit cards are more responsible. They also check driving
records of individuals. If they added that anybody who didn't
carry other insurance that would apply--would not be eligible
to rent cars, we might be getting someplace. But all of these
good safety-enhancing measures are a result of the fact that
insurance companies are under requirement to police their
customer base and are in the best position to do so. This bill
also encourages the irresponsible lending of vehicles to others
other than the owners.
Let me talk to you about something we haven't heard very
briefly, and that is the economics of this industry. We talk
about effective interstate commerce, but we don't hear anything
with regards to the impact on the industry because it is
transparent. In 1996, Auto Rental News, which is the
publication for that industry, said that the industry made
$14.6 billion on their rental cars across this country. Of that
there were only $100 million in total collision coverage, which
means that \7/100\ of a cent of every dollar of revenue
accounts for all the collisions, and if only a portion of that
includes vicarious liability, it is even less than that. So not
only is it minimal, it is really microscopic. And that is why
not one major rental car company has ever reported in their SEC
filings that liability concerns had impacted their profits in
any way, shape or form. So the rental car companies are telling
their investors and they are telling the Federal regulators one
thing, and they are coming before Congress and telling you all
something else simply because it is single-industry, special-
interest legislation.
Auto Rental News also said that States such as Florida that
have had vicarious liability and have handled their problem
legislatively on their own without the intrusion of the Federal
Government have much cheaper rates than other States. In
addition to that, Auto Rental News has revealed that the auto
rental industry has decided that they are going to not pursue
40 percent of the claims which they could, in fact, pursue for
third-party liability. They have made no effort to do so.
So let me in conclusion state this, Mr. Chairman. There is
absolutely no proof of an impact on interstate commerce. There
is absolutely no need to trample States rights, which I believe
is a much larger--become a much larger oxymoron than any
concept of vicarious liability which was carefully crafted in
the laws of these various States. It is absolutely special
interest-legislation, and it takes away carefully crafted
safety incentives that State legislatures have felt necessary
to implement in their particular States. Thank you, sir.
[The prepared statement of Richard H. Middleton, Jr.
follows:]
Prepared Statement of Richard H. Middleton, Jr., President, Association
of Trial Lawyers of America
Mr. Chairman and members of the Commerce Committee, my name is
Richard Middleton, Jr., and I am a practicing attorney from Savannah,
Georgia. I am a senior trial attorney in the firm of Middleton, Mathis,
Adams & Tate, P.C., with offices in Atlanta and Savannah, Georgia. I
also have the very high honor of serving presently as the President of
the Association of Trial Lawyers of America (ATLA). Mr. Chairman, thank
you for the opportunity to present ATLA's views in opposition to H.R.
1954, the ``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 ``rental fairness act'' is only fair to thriving car rental
agencies
Let's be clear. The ``Rental 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.
h.r. 1954 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.'' <SUP>1</SUP> 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.
---------------------------------------------------------------------------
\1\ Haggerty v. Cedeno 653 A.2d 1166 (1995) (quoting the New York
Law Revision Commission at 593 (1958))
---------------------------------------------------------------------------
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 H.R.1954, 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 Subcommittee is conducting a
hearing on federal legislation which would clearly extinguish states'
rights.
The agenda behind H.R. 1954 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.<SUP>2</SUP> 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.<SUP>3</SUP> 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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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,'' <SUP>4</SUP>
namely the people injured by under-insured lessees.
---------------------------------------------------------------------------
\4\ Harry J. Steiner, Moral Argument and Social Vision in the
Courts 71 (1987).
---------------------------------------------------------------------------
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.<SUP>5</SUP>
---------------------------------------------------------------------------
\5\ Su v. Hong Fu and Freedom River d/b/a Budget Rent-a Car, 733
A.2d 1133 (NJ 1999).
---------------------------------------------------------------------------
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 H.R. 1954 would
create. The 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 few 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.
Mr. Oxley. Thank you, Mr. Middleton.
Let me begin with some questions. Mr. Middleton, what if a
State like New York were to entertain repealing the vicarious
liability statute? Would you go to New York and lobby for that
repeal?
Mr. Middleton. As a matter of State policy, I don't think--
I think that is up to the States.
Mr. Oxley. What would the trial bar do? What position would
the trial bar take?
Mr. Middleton. I can't speak for the New York Trial Lawyers
Association. I would imagine they would have viable arguments
to not repeal it. New York is one of the largest tourist
States. They have seen the need to implement this type of
liability because of the risk involved to their citizenry by
having so many other rental cars on the road and by spreading
it to those who can recognize the risk and account for it. I
believe that is the whole reason that all of these car
companies have independent insurance policies to cover such
risk anyway.
Mr. Oxley. So the basic theory behind vicarious liability
is essentially the old deep pockets theory that goes back in
case law; is that correct?
Mr. Middleton. That is not correct. The theory of vicarious
liability as it has been crafted State by State throughout this
country in various ways is that because of the relationship of
the parties to each other, one should be held vicariously
responsible because of the nature of that relationship and
because of the impact on the other citizens of that particular
State by the market activity that is taking place.
Mr. Oxley. How far would you take it? Let's say I was going
to go to a Halloween party, and I was dressed as an umpire, and
I got attacked by some irate Boston Red Sox fan. Should the
company that supplied me with the costume be vicariously liable
for the injuries I received?
Mr. Middleton. I don't think that is what we are talking
about here. The transparency of the argument on this bill is
all about supposedly an impact on interstate commerce in only
five States----
Mr. Oxley. How do I protect myself from paying higher rates
for rental cars, which I do quite often in Ohio because the
rental car companies, Enterprise and Hertz and Avis and
everybody else, are paying these vicarious liability claims in
New York, Maine, and other States, which directly impacts the
ability of me to rent a car in Ohio, at least the cost of it.
How do I protect myself from that?
Mr. Middleton. Well, I don't know how you protect yourself
from \7/100\ of 1 cent of all the costs incurred of all of the
profits that these companies have brought in for themselves.
The problem that we have here is that the States where they
have large populations in certain States such as New York,
certain States such as Florida--and Florida said they had a
problem, so they addressed it, as the State properly should
have if that was a concern of that State. The truth of the
matter is certain of these States have much lower rental rates
than States that do not have vicarious liability. The reason is
they try--States like New York and Florida try to appeal to the
leisure time market, the family that walks up and rents a car
only once as opposed to the business market where they have to
deal with corporate discount rates. So they utilize these
lesser rates in some of these big States, and it has no bearing
whatsoever on the amount of collisions that they are sustaining
or the amount of vicarious liability.
The truth is if you look at vicarious liability, and we
heard from Capitaland, there is a company that had one lawsuit.
We didn't hear what the result of that lawsuit was, and yet we
know from a reported case that Ms. Faulkner's company had every
right to go to court and seek damages which were summarily
dismissed from one of their renters when it behooved them to.
So it seems like we have an argument here where they don't want
to be able to go to court when they may have some
responsibility for their actions according to that State
legislature, but they love the court system when they can go
after somebody for in this case something that was statutorily
not even allowed.
Mr. Oxley. I got rear-ended yesterday coming into the
office, and the guy that hit me--let's say I was driving a
rental car in the District of Columbia. And I was driving a
rental car, and I get rear-ended by this guy who lives in
Virginia. He is clearly at fault, and you are saying that the
rental car company in that case should be vicariously liable
for that accident caused by this guy that didn't stop in time?
Mr. Middleton. You don't necessarily have the situation
where the District of Columbia has to spread--seen the need to
spread the risk because you have the claim since you were rear-
ended against the driver of that car, and if you have other
insurance, which I am sure you do, Mr. Chairman, you would--in
fact, if that was an uninsured vehicle that rear-ended you,
your own insurance uninsured motorist coverage or----
Mr. Oxley. Why should I have to pay extra premiums for my
insurance to protect me against somebody who is going to end
up--who is liable, clearly liable and at fault? Why should I
have to pay that kind of money--do you believe in the fault
system?
Mr. Middleton. I do believe in the fault system. I also
believe in the balancing of if you increase the risk in a
certain jurisdiction, and the legislature has decided that as a
result of that, that you should undertake part of the
responsibility for harm that is caused as a result of
participating in that market, then if that is what the
legislature says, that is exactly how it must be adhered to.
Mr. Oxley. The law is imposed essentially on an out-of-
State driver, not in the driver's own jurisdiction or where he
lives?
Mr. Middleton. If you ask about the fact whether any
individual should pay, there is absolutely no proof that is put
forth--been put forth in this hearing or anywhere else of any
increase in premiums whatsoever as a result of the practice in
only five of the 50 States plus the District of Columbia.
Mr. Oxley. Why do you think that only five States and the
District of Columbia have vicarious liability laws and 44--45
do not?
Mr. Middleton. I don't know, but I certainly feel the need
to honor those States that looked at this----
Mr. Oxley. My time has expired. Let me introduce--recognize
the gentleman from New York, ranking member.
Mr. Towns. Thank you very much, Mr. Chairman. Also I would
like to ask my opening statement be placed in the record.
Mr. Oxley. Without objection all opening statements will be
made part of the record.
Mr. Towns. Let me begin with you, Mr. Wagner. The laws of
how many States would not be affected by the provision of H.R.
1954?
Mr. Wagner. Forty-five States, Mr. Chairman. The laws of
five different States would be preempted by this bill as well
as the District of Columbia.
Mr. Towns. So this law is actually--five States; is that
correct?
Mr. Wagner. Yes, sir, for unlimited vicarious liability.
Let me be clear on that because there are various other States
that are not going to be impacted by this bill necessarily, but
do have some capped amount of vicarious liability. If you are
looking at some notes, I wanted to be clear about that.
Mr. Towns. Why do you think it is important for the
Congress to act on legislation that will have such a limited
and narrow kind of impact?
Mr. Wagner. Congressman, this issue of vicarious liability
affects the rental industry throughout the country. As I stated
in my remarks, renters do not just rent from within the
vicarious liability States. The damage is not contained to
those State borders. In fact, when somebody, for example, rents
in Virginia, they cross interstate lines. They cross into the
District of Columbia. They cross into New York and Florida and
so on, places like that.
So this is an issue that does have national ramifications
and one which is--amounts to over $200 million per year for
this industry and has put literally hundreds of small operators
out of business in States such as New York and other States
across the country.
A few moments ago the question was raised by the chairman
about how the Trial Lawyers Association of New York respond to
any effort in the State of New York, and the comment was made
that perhaps we should take these fights back to the State
capitals and deal with them there. I would submit that this is
precisely the type of issue which should come before Congress
for the simple reason that the legislators in the State of New
York, they are not going to be attentive, responsive to a
resident of the State of Virginia who petitions New York
Legislature, and for that reason that points to the fact that
it is an issue of interstate commerce, an issue of competition,
an issue of fairness fundamentally and lower rates and price
competition.
Mr. Towns. What have you actually done in terms of these
five States to change their liability laws or practices; what
have you done in this regard? It would seem to me some effort
should be made to just get that to happen first.
Mr. Wagner. Congressman, I would agree with you. In fact,
the industry has taken stops to address these issues in the
various State capitols. In fact, last year we aggressively
mounted an effort in the State of Florida and were successful
in the context of the overall tort reform bill that was signed
by Governor Bush and including a provision which would cap to
some degree the vicarious liability damages. It was a very
worthy effort on the part of the industry, and it was well
thought out and well discussed.
Unfortunately, tort reform laws across the country have
almost uniformly been set aside and struck down for various
constitutional reasons, and some of the rationale of those
decisions striking down those tort reform laws is that this is
a matter for the Congress. It is a matter of interstate
commerce, a matter of constitutional law that should be dealt
with by the Congress. And so while we are maintaining an effort
at the State level, for example, in Florida, and we have also
undertaken an effort in the State of New York and the other
States as well, we frankly do not have the success, and if we
do have the success at the State capitols, we are not sure that
that law will withstand the scrutiny of the State court.
Mr. Middleton also commented a while ago--this is a little
bit maybe related to your question as well about the various
steps that we take within the different States, vicarious
liability States. He commented that we have certain age
limitations. We don't rent to individuals below the age of 25,
for example, which, by the way, is not necessarily the case.
Some State laws address that, where we check drivers' licenses,
et cetera. The simple fact is if this law passes, if this bill
passes, those same--the same precautions are going to be in
place for the simple reason that there are State insurance laws
that will apply and still hold us accountable up to the State
financial limits.
Mr. Towns. Mr. Chairman, would you allow Mr. Middleton to
just respond? His name was called.
Mr. Oxley. Of course.
Mr. Middleton. Well, with regard--I heard the mention of
constitutional arguments. I am very concerned, obviously, that
the premise of federalism is being absolutely trampled by these
single special-interest attempts to impact tort reform, but in
addition to that, I wonder where the U.S. Supreme Court--it is
true the State courts have talked about it, but it is because
in those instances, State legislatures have violated the
constitutional rights of their citizenry.
With regards to the U.S. Supreme Court, it is hard to
imagine where they are going to go with the concept of
federalism when they have now agreed to accept at least one
appeal involving the Womens and Violence Act, which they say is
an intrusion upon the rights of the States to implement certain
of their own laws where they see fit in this particular area.
With regards to that and the fact that there was mention
made there were five States only, if this was an issue that
impacted a majority of the States, maybe then the argument
would hold water that interstate commerce was being affected.
But we have seen absolutely no arguments that with only 10
percent of the States involved, that there has been any impact
whatsoever. Where are the figures, and why isn't there a study
done to investigate not only that, but also the impact this
would have in those various States on the insurance laws that
they have implemented, because this does impact in a Federal
way the insurance laws, and I daresay the proponents of this
bill don't want to open the door to allow Federal regulation of
the insurance industry, which has inherently been held within
the States' purview.
Mr. Oxley. The gentleman's time has expired.
Mr. Towns. Thank you, Mr. Chairman. I appreciate your
generosity. Next year I want you to know when I am Chair, I
will reciprocate.
Mr. Oxley. Actually next year we will still be majority.
The gentleman from Oklahoma.
I am going to be here, so the members if they want can go
over and vote and come back. I will just keep on going.
The gentleman from Oklahoma.
Mr. Largent. Mr. Middleton, I just had a couple of
questions for you. I am looking at--first of all, I hear you
quote this figure \7/100\ of 1 percent. Have you met Mrs.
Faulkner down at the other end of the table ?
Mr. Middleton. Actually I met her in a different committee
on a different topic where I got to hear the same story and
where a member----
Mr. Largent. It is a yes or no question.
Mr. Middleton. Yes.
Mr. Largent. That is all I need. Yes or no. She is the \7/
100\ of 1 percent that you are talking about, her company, her
employees, and what this law did to her, take a look. She lost
her company because of what we are trying to address right
here. So, you know, you want to know the statistics, you want
to see the numbers, look at the other end of the table. That is
where they are. And companies just like hers are going through
the same thing in States that this exists.
The question I want to ask you is do you not see the
patently unfairness of what is taking place here? When I read
things like this about Budget Rent A Car renting a car to Mrs.
La Rocca, and then she gives the car to her son who has lost
his license, and then he drives it across someplace else and
has an accident, where is--what could the Budget Rent A Car do
to prevent that from happening? What could they have done to
prevent that from happening?
Mr. Middleton. They couldn't probably do anything----
Mr. Largent. That is all I need.
Mr. Middleton. Let me explain.
Mr. Largent. No, I don't want you to explain because what
you said is right. They couldn't have done anything, and yet
you want to hold them responsible, and they could not have done
anything.
Mr. Middleton. Hold them responsible, Mr. Congressman----
Mr. Largent. No, no. What I am saying is, when you come in
here and give us some trial lawyer explanation of what
vicarious liability is that is just so full of hogwash, I am
laughing up here listening to your definition, and then come in
here and try to defend what I believe is patently unfair, just
on the face of it that anybody would try to defend that, it
insults me. It insults me.
And when we see these things happening, I think it is right
for Congress. And I don't think it is any stretch to talk about
interstate commerce and what we are doing, not at all. We have
stretched interstate commerce so thin that this one is not even
close. This is a good example of what this Congress has done,
and I just would say that it is fascinating to me to listen to
the Trial Lawyers of America come in here and talk about States
rights. That is laughable on its face, too.
With that, Mr. Chairman, I would just like to yield back my
time.
Ms. Faulkner. Mr. Largent and Chairman, I would just like
to mention, because my name was mentioned by Mr. Middleton, and
he did not look at me when you asked him to look at me, this
case that he said that my company, myself, presented was
presented in small claims court. It cost me less than $45. I
was asked to do it by the New York Vehicle Rental Association
because we wanted to try and clear up a gray matter on an issue
not related to vicarious. I was not in a financial position to
ever sue for vicarious liability in court, but I could afford
the $45 for a small claims court decision, which does not
really get upheld anywhere anyway. I just wanted to bring that
to your attention.
Mr. Oxley. The gentleman's time has expired.
The gentleman from California want to be recognized?
Mr. Cox. Actually, I intend to vote so--I was just
answering a page.
Mr. Oxley. Okay. The Chair would try to--want to keep this
going because I have got a meeting at 11:30 anyway.
Mr. Cox. I don't have enough time to ask questions and
vote.
Mr. Oxley. You want to come back?
Mr. Cox. I will be very brief. I wonder if I could ask Mr.
Wagner if he has had a chance to look at H.R. 1954, which we
are focused on in this hearing.
Mr. Wagner. Yes, Congressman, I have.
Mr. Cox. Enterprise has lawyers.
Mr. Wagner. Yes, sir.
Mr. Cox. Are you a lawyer?
Mr. Wagner. Yes, I am.
Mr. Cox. I am concerned about the way section 202 is
drafted because it seems to me that even though we are all
pretty clear on what we are trying to do, we are trying to
erase vicarious liability in this particular context. When the
language says, solely by reason of being an owner of such a
motor vehicle, and when it says, one shan't be placed in a
position of being an ultimate insurer, I mean, there are lots
of ways to, if you are trying to twist the thing or distort it
or whatever, to possibly draft your complaint around this.
I have taken a stab at something around the following
lines. I wonder if you would just react to it. I think it means
the same thing. No person engaged in the business of renting or
leasing a motor vehicle shall be liable under the laws of any
State or the United States for the tortious act of its rental
customers or the occupants of its rental vehicles or any other
driver, pedestrian, or person involved in a motor vehicle
accident by reason of being an owner of a motor vehicle
involved in such an accident.
Is that essentially the same thing that you understand this
bill to be trying----
Mr. Wagner. Congressman, I think it is essentially the same
thing. What we were trying to do was to address the issue of
ownership of the vehicle, the rental car company owning the
vehicle, and that by definition being the hook by which
vicarious liability would apply to the rental car company. And
I do not disagree that it could be rewritten in other ways to
accomplish the same result.
At the same time, what we were trying to do is preserve the
States' abilities to come in and address rental car companies
in the context of their insurance codes, their financial
responsibility limitations. So I think that was the balance we
were seeking, because we are not wanting to preempt State
insurance codes. We believe that--and that, by the way, is the
very thing that will protect consumers against, to ensure
consumers receive the safety precautions that were earlier
mentioned.
Mr. Cox. I think I might even suggest appending at the end
of what I just read the words, whether by reason of the
doctrine of vicarious liability or otherwise, to make sure,
again, there is no question what we are trying to do here.
Do you happen to know, or maybe Mr. Middleton would know,
what percentage of auto accident cases that are filed in courts
in the United States actually go to trial?
Mr. Middleton. I can only estimate based on other things,
statistics I have seen, Congressman, that actual trials consume
less than 5 percent of all the civil cases brought in this
country, but there is another statistic in that only 4 percent
of all cars that are rented in this country in any given year,
4 percent, are ever involved in any accidents of any type
whatsoever. That comes out of the Auto Rental News which is the
industry publication.
Mr. Cox. The 95 percent figure, and depending on whether we
are talking about the States generally, a specific State or the
Federal system, the numbers tend to range between 93 percent
and 98 per percent of cases filed compared to those that even
have a single day of trial. And because the norm is that these
lawsuits are settled and they are not tried, what we are
talking about is not so much an ultimate application of the law
to the facts, which is what a judge and a jury will do, but
rather we are talking about negotiations between parties that
are suing each other and settlement decisions that are reached
on the basis of minimizing the transaction costs. Both parties
in a settlement believe they are innocent, and therefore the
moneys that are paid in settlement tend to be the discounted
present value of what it would take you to finally get your day
before Judge Wapner and apply the law to the facts.
If we don't draft this properly, and if it is loosely
drafted, and a clever lawyer can write a complaint to get
around summary judgment or get around judgment on the
pleadings, then we will have done nothing, because in 95
percent of the cases, you can still make the claim even though
the statute is meant to prevent it from happening, and get held
up for ransom, and because vicarious liability relieves, as the
chairman said, deep pockets liability, it is an opportunity for
somebody to put a company in a position where they recognize if
they don't pay, in the end it is not profitable, so they pay
the ransom on the high seas.
Mr. Middleton. May I make one comment to that?
Mr. Cox. Sure.
Mr. Middleton. With regards to the actual cost, even in
those negotiated settlements with regards to rental car
companies, those are paid out of only two different possible
places: one, a deductible that is paid for by the rental car
company; and two, out of the insurance proceeds which they
contract for in the private market. So the limits, it is not
unlimited liability. The limits are whatever the coverage is
that they buy. And second, when you look at that cost of that
insurance spread out over the literally tens of millions of
cars that are rented every year is so microscopic that the
impact upon interstate commerce is--if it is not microscopic,
it is so negligible that the intrusion on States rights simply
shouldn't be allowed to take place.
Mr. Wagner. Congressman, if I might react to that and your
comments as well. First of all, I agree with your comments that
you are right, it is the issue of settlement and threat of
lawsuits, so the clarity of the law is as I think tantamount to
what we are trying to achieve here.
On the issue of insurance and deductibles, that is
absolutely not the case. The rental car companies are not
limited to their deductible. They are not limited to what they
pay for a policy. In fact, many rental car companies cannot
find insurance coverage for these types of liabilities, and as
everybody, I think, understands that ultimately insurance
premiums reflect the claims that are paid and so--and many of
the companies are self-insured. I can assure you that Ms.
Faulkner did not have potentially--depending upon how the case
was resolved, may not have had the insurance to cover the
ultimate claim.
Finally, the issue of only 4 percent or some small percent,
just a minuscule number we keep hearing about, the issue there
is the accident-free renters and the innocent car owner
subsidizing the accident-prone renter or the accident-prone
driver that runs into the rental car. And there is just
something fundamentally wrong.
Mr. Cox. I think most of us in Congress understand this
innately. If it costs $100 to rent a car, but it costs $100,000
to pay a settlement if there is a lawsuit about the rental of
the car, then the ratio is as 100 to 1, and 1 percent would be
enough to wipe out your entire profit.
Mr. Wagner. This industry has a very thin profit margin. We
talk about $14 billion, but if you study those reports that
were filed with the SEC, you would see that there is a very
thin profit margin. I can draw some analogies with other
industries, but in the interest of time I won't, unless asked.
Ms. Faulkner. Also, I am a contributor to Auto Rental News,
our only industry magazine, and I have been in the industry for
30 years in the year 2000. That is how long I have been doing
rental car. I have read the articles that have been, I feel,
misquoted here, especially $14.6 billion profit with $100
million in. If you noticed, he said collision. That article was
attempting to get car rental companies to collect collision
damages and encourage them to have good safe controls of the
counter. It did not include liability cases. There is a
difference. We collect X amount in collision damages, but it
did not say how much money we have lost on vicarious liability
claims or even liability claims themselves.
Mr. Cox. Collision is just the amount necessarily to repair
a car.
Ms. Faulkner. Repair to our car. It was not for damages to
people. As much as he might state it is minuscule and it is
only New York, it wasn't minuscule to me, and it wasn't
minuscule to all of my friends in the industry that I have seen
go away.
Mr. Cox. Mr. Chairman, I certainly appreciate your focusing
this hearing on this subject, and I think it is vital for us to
try and restore the law to the principle of holding people
responsible for their own acts, because people who are
responsible are in a position to remedy these problems and
prevent them from happening in the first place. Probably the
most telling discussion we have had here this morning is the
question of what could the company do, the rental car company
do, to prevent the kind of accident that was discussed, and the
answer agreed all around is nothing, and as long as that is the
case, it is literally immoral to hold people who are not
responsible liable for damages caused by someone else.
Mr. Oxley. I thank the gentleman. The gentleman's time has
expired.
The gentleman from Michigan is recently back.
Mr. Stupak. Thank you, Mr. Chairman.
I wish the legislation was a little more reasonable. If
this vicarious liability is so horrible, how come other
industries aren't in here asking for us to repeal it? All we
have heard from is the car rental industry.
Mr. Wagner. Congressman, I believe that when the statement
is made that this single-issue, single-industry legislation--
that that is a statement that has been painted with a broad
brush----
Mr. Stupak. Where are the other industries from New York
that want us to repeal vicarious liability if it is so bad?
Mr. Wagner. Congressman, you don't see this law applied to
tuxedo rentals. You don't see this applied----
Mr. Stupak. Taxis, buses, airplanes, trains, they are all
transportation much like you guys.
Mr. Wagner. I don't think you see the issue of vicarious
liability applied to those industries.
Mr. Stupak. If the trial lawyers are so wonderful and
always wanting to go to vicarious States to get these big
verdicts you guys claim, then I would think they would attach
it to more than just rental cars. It would be other industries.
Mr. Wagner. I believe that it is not--it does not apply to
other industries in the interstate--stream of interstate
commerce. The issue of vicarious liability typically applies in
situations where there is an agency relationship, master-
servant relationship. We don't have that here or hazardous
materials.
Mr. Stupak. Didn't you say it didn't apply to other
products in the interstate commerce; you are only saying it
applies to taxis--excuse me, rental cars?
Mr. Wagner. I do not believe that it applies to taxis, and
I would have to check and certainly check with each State's
laws.
Ms. Faulkner. New York State, it only applies to motor
vehicles.
Mr. Stupak. Do you have to carry vicarious liability on
your own car?
Ms. Faulkner. You can't carry vicarious. It is unlimited.
How can I insure for something that is not limited?
Mr. Wagner. If Ms. Faulkner would loan her personal vehicle
to her neighbor, and the neighbor goes out and loans it to
their kid that was unauthorized, takes his friend out and they
get intoxicated and damage it, Ms. Faulkner would not be
accountable for that situation unless there was some sort of
negligent entrustment.
Mr. Stupak. Can rental car companies buy insurance coverage
for vicarious liability?
Ms. Faulkner. No. How do you insure something that is
unlimited?
Mr. Stupak. It is unlimited by the amount of damages
awarded by a jury, right?
Ms. Faulkner. But it is unlimited. You are still asking me
to go to an insurance company and ask for----
Mr. Stupak. It is limited to the damages, right. I have
home insurance, and something happens to my home----
Ms. Faulkner. What if it is $15 million?
Mr. Stupak. What if it is $15 million? I have as much
insurance as I can provide, and I am in trouble if I did
something so egregious that it would cost $15 million.
Ms. Faulkner. If I was responsible for what happened, I
agree, but if I am not responsible----
Mr. Stupak. You mentioned this accident where this person
took the car, loaned it to their son, went to New York City,
came back, brought the car back, and there was this enormous
amount of money awarded against you for this accident, right?
Ms. Faulkner. I don't know what the amount was. It was
closed, which happens.
Mr. Stupak. Pardon? It was closed?
Ms. Faulkner. The award was not--I was not told.
Mr. Stupak. It might have been a dollar?
Ms. Faulkner. I have sold my company.
Mr. Stupak. It might have been $100 million?
Ms. Faulkner. It absolutely could have been.
Mr. Stupak. Was there any damage to the rental car?
Ms. Faulkner. None whatsoever.
Mr. Stupak. So I doubt if it is a real serious accident
with millions of dollars?
Ms. Faulkner. It could be.
Mr. Stupak. Then again, it could be $1.
Ms. Faulkner. I can also tell you that----
Mr. Stupak. Could be $1, right?
Ms. Faulkner. You could also let me finish. It could be $1.
It could be $5 million.
Mr. Stupak. So you really don't know the extent of
vicarious liability on that accident?
Ms. Faulkner. And the reason why I don't know is because if
you do advertise the amounts that the trial lawyers are
obtaining, it only gives people the opportunity to do that
again and again and again.
Mr. Stupak. You live in Albany, the State capital of New
York. Did you go and ask them to change their laws?
Ms. Faulkner. Yes, I did.
Mr. Stupak. Did you ask them to put caps on damages in
lawsuits?
Ms. Faulkner. I have.
Mr. Stupak. They rejected that?
Ms. Faulkner. We have not been able to pass any
legislation.
Mr. Stupak. So then why should the U.S. Congress--if the
New York Legislature doesn't want to do it, why should the U.S.
Congress then bail you out?
Ms. Faulkner. I know you feel it is repetitive, but I am
coming here because I now currently work for a nationwide
company. That nationwide company is in New York, but it is in
all other States, and it is costing them amounts of money that
they must spread out those lawsuits----
Mr. Stupak. If we pass this, how much will my rental car
premium go down?
Ms. Faulkner. I can't tell you how much it will go down,
but it will bring competition back, and competition is always
good, and it always helps prices for the consumer.
Mr. Stupak. If we pass this, we won't get a break, but at
least we get more competition?
Ms. Faulkner. You will probably get a break because you
have increased competition. You can't deny that whenever there
is more competition, prices do tend to go down. That is a
simple concept.
Mr. Oxley. The gentleman's time has expired.
The gentleman from Illinois Mr. Shimkus.
Mr. Shimkus. Thank you, Mr. Chairman.
I would like to know--I know opening statements were
submitted for the record, but I also want to add to that to
welcome Mr. Wagner, who is from the St. Louis metropolitan
area. Of course, my district is across the river. We are all
part of that big family, the St. Louis metropolitan region.
When you live on the borderline, obviously you understand the
importance of interstate commerce. I would really like to thank
the whole panel, because I think we as Americans--I think there
is some pretty hard lines being drawn here. I think everybody
accepts that an injured party should have access for redress
through the court systems, and the problem is who is at fault
and how do you get compensation for negligence, I think.
I am not a lawyer. I don't even play one in another life. I
really have no desire to be one. But I think we respect the
court system, and the debate here is who is being held liable
for injuring another citizen. And I do think the interstate
commerce aspect comes in because in the St. Louis metropolitan
area, there are people renting vehicles at Lambert, St. Louis
airport, and driving over to see John Shimkus 30 minutes from
the airport, and coming across State lines.
So I appreciate this debate. I really appreciate this
issue, and hopefully there is some movement to some common
sense instead of the heated rhetoric that we are hearing.
Just a couple of questions. First one for Mr. Wagner. Is
there any way for a company, even one in a State without the
vicarious liability, to protect itself from the unlimited
damages that it might be exposed to because this peculiar legal
theory? It is really kind of--really--my colleague and friend
Bart Stupak kind of asked that question. I am asking it again.
Is there a way for rental companies to protect themselves in
this arena?
Mr. Wagner. Congressman, I think at the end of the day the
answer would have to be no, other than simply to go out of
business. There are steps that could be taken in the interim.
However, certainly--and Mr. Middleton outlined during his
testimony some of the steps that we take in terms of checking
for drivers' licenses, asking for insurance coverage, checking
drivers' records in certain situations. And we had a discussion
of insurance, whether we could simply insure for these losses.
But even with insurance, if you will find a company that will
ultimately underwrite the full extent of vicarious liability,
the premiums are going to be oftentimes prohibitive, and
ultimately the premiums charged are going to catch up and
reflect the claims that have been covered through settlement or
through judgment. So at the end of the day, the only sure way
to protect yourself against vicarious liability claims is to
simply go out of business.
We can tell renters that you are not allowed to take this
car into the other State. We can rent them smaller cars to
limit our exposure of the passengers, the number of passengers
that a car might have, but when they violate the rental
agreement, and they travel across State borders, and they cause
harm or they are harmed by a third party, the only way to--
there is no other way to ensure against that or to ensure that
vicarious liability will not reach that rental company.
Mr. Shimkus. Let me go to Ms. Faulkner, and, Mr. Middleton,
I will give you a chance to respond.
If this legislation had been enacted 3 years ago, might you
have been able to stay in business?
Ms. Faulkner. I absolutely would still be in business
today, and so would all my family and friends that worked with
me.
Mr. Shimkus. Is a car rental company permitted under New
York law to require your renters to purchase liability
insurance if they do not have their own personal car insurance?
Ms. Faulkner. Are they required to----
Mr. Shimkus. If they don't have personal liability
protection based on their own policy, they are renting the car,
they don't own a car, obviously New York a lot of people
probably don't have cars in the city, are they required to buy
insurance as they rent a car?
Ms. Faulkner. No, it is an option available to them, but it
is not required. We are required to rent to them with or
without insurance.
Mr. Shimkus. Let me then follow up. Mr. Middleton, you
heard Mr. Wagner's statement there is nothing a rental car
company can do to prevent itself from liability. Do you agree
or disagree with that?
Mr. Middleton. I disagree. One, they can go to the State
legislatures that have implemented these vicarious liability
statutes. They could ask for the very type of coverage to be
implemented in a situation where the renter--excuse me, the
person renting the car did not, in fact, have insurance. I have
heard no evidence that that has been attempted. That is where
it should be in the States.
And with regards to this idea to the question of whether
premiums would go down, the only statistics that this committee
has had today are the statistics that we have provided. The
statistics from 1996, a year in which Florida allowed vicarious
liability claims and California, the most populous State, had
controls on vicarious liability claims, reveals that even with
vicarious liability claims, the per day rental rate in Florida
for all companies was more than $4 a day cheaper than it was in
a State that had controls. It is--to suggest that those limits
are going to go down----
Mr. Shimkus. I appreciate your response.
Mr. Oxley. The gentleman's time has expired, but go ahead,
one more.
Mr. Shimkus. Thank you, Mr. Chairman.
Do you take the position that this has no interstate
commerce aspect to it?
Mr. Middleton. I take the position that the impact on
interstate commerce----
Mr. Shimkus. The question is--that is not the question. The
question is is this the purview of interstate commerce; is
renting cars that go across State lines, is that the purview of
interstate commerce under the interstate commerce clause?
Mr. Middleton. Not when there is no provable impact.
Mr. Shimkus. Your answer is no. Thank you.
Mr. Oxley. The gentleman's time has expired.
The gentleman from Minnesota Mr. Luther.
Mr. Luther. Thank you, Mr. Chairman.
Mr. Wagner, just a couple of questions to make sure I
understand this. Now, in those five States that we are
referring to here, could a customer that is renting a car come
up and waive all insurance? If there was no vicarious
liability, or let's say this bill passed, then could the
customer still waive insurance and therefore not provide any
coverage in the event that the vehicle would then go out and
hit someone?
Mr. Wagner. Congressman, if I understand your question
correctly, I would have to answer no. There is no way that
ultimately the customer could waive all insurance if this bill
would pass. Every State in the country save one, and I am not
entirely sure if I--it may be Mississippi or Alabama, one of
those two States--has in place financial responsibility laws;
requires minimum amounts of coverage that all car owners are
required to have and maintain a vehicle. And so when a customer
comes in, if they own their own car, they are likely going to
be carrying financial responsibility on that vehicle, and the
rental car company itself will be carrying financial
responsibility, so that the injured party out there will
ultimately be able to claim against the driver, the renter's
insurance or ultimately against the rental car company's
minimum financial responsibility. So they cannot waive that.
Mr. Luther. I am curious, though, because it seems to me by
just initialing places in the form, you can waive all of this
insurance. And let's say that you applied, and you didn't have
a car of your own. You might have a driver's license, but you
don't have a car of your own, so you have no insurance. Or
let's say that you have a car, but you are one of those people
who just doesn't insure. That is a big problem in our country
is uninsured motorists. Now, would it be possible for that
person----
Mr. Wagner. What you are speaking to--and you are right, I
did not address this directly--are the products that are
offered by a rental car company, oftentimes referred to as
supplemental liability coverage, supplemental liability
products, accident insurance, personal injury-type insurance.
Those are products that are provided often by a rental car
company, which frankly we haven't mentioned much about today.
That is a precautionist, a safety measure or an opportunity
that is offered to each rental customer that they can come in
and for a fee buy insurance to cover their liability. But if
they choose to decline that and waive it, and they sign the
appropriate lines where they knowingly decline that, still the
State financial responsibility laws that I mentioned apply. If
the renter has insurance on his own vehicle----
Mr. Luther. Let's say now there is no----
Mr. Wagner. They have no vehicle, then the rental car
company itself is required in all but, as I said, one of
those--one State to cover the vehicle itself, so that the
injured party--and that is a public policy that has been
established in States across the country, that the injured
party is always going to have some opportunity to recover at
least the State financial responsibility minimums that are
imposed by law. And that is the context in which these issues
are dealt with in State insurance codes. Vicarious liability is
unrelated to insurance coverage.
Mr. Luther. Of course, a lot of those coverage limits are
very low. They are very inadequate. Today I think many of those
State limits are extremely inadequate compared to what the real
cost is if a person is injured.
Did you have a response? Mr. Middleton, you wanted to
comment.
Mr. Middleton. Only with regards to these supplemental
coverages. It is very important for everyone to know that the
supplemental coverages offered by the car rental industry are
peddled with great zeal and that, in fact, they represent--
there is a 70 percent margin on all the supplemental coverages.
In fact, Alamo has 23 percent of their total revenues are
derived from these supplemental insurance products that they
try to push upon the customer. So there are a lot of these
supplemental coverages that are actually, in fact, being
purchased and which go to help compensate the innocent people
who are injured.
Mr. Wagner. Mr. Congressman, may I just--I don't think we
are here to debate the merits of supplemental liability
coverage, but I will tell you that typically in the industry
practice--and you can certainly check with the Auto Rental
News--is when a liability policy is covered, offered, it
provides coverage for that injured party, the driver who may be
the renter or an independent third party, up to $1 million,
from zero to $1 million, and for a fee of maybe $9, $10, $8.
That is a product that may have value for which only a small
percentage of the customers take.
Mr. Luther. My final question, if I could just ask, is if
we would pass Federal legislation, would it make sense to at
least then provide some minimum threshold out there,
recognizing that there are all these State statutes that are
probably in most people's views here on the committee very
inadequate in terms of compensating a truly injured person?
Should we then also have kind of a minimum standard as to what
this coverage ought to be?
Mr. Wagner. If you are asking me, we have heard a couple of
suggestions for language adjustments, and I think that all of
those, including your suggestion, are worthy of consideration.
But I will also add as a footnote that precisely the type of
matter that is considered in the State capitals are the dollar
limits, and we see every year legislative efforts and success
to raise those minimum financial responsibilities.
Mr. Luther. Mr. Chairman, not to belabor this, but I served
in the State capital for 20 years, and I can tell you how
difficult it is to get those raised and the lobbying that goes
on. I think most of them in this country are very inadequate
for the real cost today to a family that is injured. And that
is--our concern here has to be looking out for those consumers.
Mr. Wagner. I understand. I think we are saying the same
thing with respect to us going to the State capitals and trying
to address vicarious liability.
Mr. Luther. Thank you very much.
Mr. Shadegg [presiding]. I would recognize myself next. I
thank the chairman for putting me in the Chair to do this. I
just want to begin. My time is very short.
Mr. Middleton, I want to begin by nailing down two
questions that I think Mr. Shimkus got you to answer, but I
want to be sure you answered. First, I believe you acknowledge
in your view there is no effect on interstate commerce?
Mr. Middleton. None that has been proven.
Mr. Shadegg. None.
Mr. Middleton. None that has been proven.
Mr. Shadegg. Proven. I like the lawyer's word. I am a
recovering lawyer myself.
And you say that there are no effects on rates, there is no
cost to this?
Mr. Middleton. None that has been shown.
Mr. Shadegg. This is just a comment. I am puzzled as to why
ATLA is in here to the wall fighting this if there is no cost
here. It is a little difficult for me to understand.
I am out of time. I need to move into my 5 minutes. I will
let you to respond to that later if you would like.
Have you read this bill?
Mr. Middleton. Yes, I have read it.
Mr. Shadegg. Have you read the operative section of the
bill on page 7?
Mr. Middleton. I don't have a copy of the bill with me here
today.
Mr. Shadegg. If you turn to page 7 and you look at lines 13
through 18, that is the operative section of this bill. That is
where we go at and address the law of vicarious liability. And
actually I think the key words are on line 17 and 18--actually
the key words are really on line 17, and it says--basically
says you cannot be held liable, and there are four words,
``solely by reason of'' being owner of the car.
So ATLA's position here today is acknowledging that the
current law makes someone liable and makes them pay damages
just because they own the car. That is what we are doing to the
rental car companies. They simply own the car; therefore, they
are liable. You believe that to be a reasonable stand?
Mr. Middleton. I believe it to be reasonable in this
context, Mr. Congressman: It is reasonable if the State
legislatures have looked at this--let me finish, please.
Mr. Shadegg. Your State legislature argument deals solely
with interstate commerce, and you are simply wrong about that.
Let's not deal with that. If you have a defense other than
that, you can give me the defense other than that.
Mr. Middleton. The defense is that the reason vicarious
laws are in place is because it has been determined that if a
company is dealing in a marketplace and is having a potential
impact upon the risks that are raised for those citizens,
then--that is the background and the importance of vicarious
liability--is that those people as a result of the agency
relationship, then those people should maintain a certain level
of responsibility. They are making money off of the system----
Mr. Shadegg. I am afraid I have got to move on. First of
all, I think you are wrong about the theory underlying
vicarious liability. The reality is there was a time in America
when there was no social infrastructure network, when somebody
who might be injured by somebody that was without any resources
might not have been compensated at all. That era is gone. What
I want to talk about is you say in that context ATLA believes
passionately--because I have been working with ATLA--that HMO
immunity under ERISA is immoral, that it is wrong, that in no
circumstances should we allow a health care company in America
governed by ERISA to injure or kill someone and walk away and
say, hey, too bad. That flies in the face of the philosophy of
my party, and I think the philosophy of this Nation, which is
individual responsibility. ATLA says it is immoral and that
HMOs are out there killing people today.
The example I used is Mrs. Corkrum's baby, whom United
Health Care killed and walked away and said, too bad, Mrs.
Corkrum, too bad, Mr. Corkrum, you recover nothing. ATLA says
that is wrong, but you turn the flip side of absolute immunity
given to the HMOs under ERISA, as interpreted by the United
States Supreme Court, you turn that around, the other extreme
is vicarious liability, which is strict liability for doing
nothing wrong.
I don't understand how you can come in here on the one hand
and say ERISA is completely wrong because it allows HMOs to
kill people and walk away and not be accountable, and then you
turn around and come back to the same Congress and say, but
another law that says we can hold innocent parties, in this
case a rental car company that did nothing, absolutely nothing,
wrong, we want to be able to hold them liable for something
they did that--for nothing they did. They are an innocent
bystander.
I just can't even imagine that you can take that
hypocritical stand, and I will tell you I am fighting to the
wall on the ERISA issue to try to get the business community to
wake up and say you cannot continue to defend a policy which
says that HMO health care companies can kill people and maim
people and walk away and just say, too bad, there is no
recovery, the Congress granted absolute immunity, and then turn
around and come in here and say, Avis or Hertz or Budget or
whoever you are, you did nothing wrong, but you own this car.
Remember, go back to the language of the bill. Solely by
reason of being an owner. This isn't a question about their
negligence in renting the car. If you guys came in here and
said if they are negligent in renting the car, if they rented
to a drunk, if they rented to a multiple-convicted reckless
driver, they ought to held liable, you damn bet. I will be on
your side of that fight. But I tell you this is a serious
mistake on your part, which I believe is indefensible.
Mr. Middleton. May I respond?
Mr. Shadegg. Sure.
Mr. Middleton. The difference between HMOs--and I have
great respect for your stand on the HMO issue, but the
difference between ERISA preemption with regard to HMOs and
what we are dealing with here is there is nobody in any State--
we are talking about tens of millions of people, as the
Congressman is aware, who have been impacted by the ERISA
preemption. Here we are talking about what essentially five
State legislatures have seen fit to do based on other policies
which are intertwined with their own State-regulated insurance
statutes and which for their peculiar reasons they seem to feel
is necessary to maintain. The impact, rather than on all 50
States and the District with the ERISA, is here we only have a
tenth of the jurisdictions involved at all.
Mr. Shadegg. So ATLA is okay to defend an immoral policy
because some State legislature they've been able to
successfully win that argument in already.
Mr. Middleton. I think it is a matter of the State
legislature.
Mr. Shadegg. It is not immoral to hold me accountable for
doing nothing wrong, to make me pay millions of dollars in
damages when I have done nothing wrong? If you don't think that
is immoral, here's the bill I am going to introduce: A bill
that says for anyone injured by an accident in which a rental
car company rented a car to someone, and that someone
negligently entrusted the car to someone else who killed
someone, therefore the rental company was not liable for that,
recovery may be had against a class consisting of all trial
lawyers in America. It is as logical to hold all trial lawyers
in America liable to pay the damages to that person innocently
injured as it is to hold the rental car company liable, isn't
it?
Mr. Middleton. No. And I am glad you are a recovering
lawyer, Congressman.
Mr. Shadegg. My time has expired.
The Chair recognizes Mr. Deutsch.
Mr. Deutsch. Thank you, Mr. Shadegg. I always kind of enjoy
these hearings for a couple of reasons. One, I get to hear my
Republican colleagues argue in favor of Federal Government
involvement sometimes, and then on the other side. The whole
Patients' Bill of Rights issue that Mr. Shadegg alluded to, you
know, he as well as many of his colleagues all of a sudden,
even though there is ERISA in terms of pension issues, which
they don't want to touch, now it is not a States right issue.
Whenever we start talking about States rights issues, I am
consistently reminded that consistency is the hobgoblin of
small minds. I do think, though, that Mr. Shadegg----
Mr. Shadegg. Those small minds of the trial lawyers then.
Mr. Deutsch. It includes yours, though, when you talk about
what you just talked about in terms of the HMOs. Let me just
mention this in specific, that I think Mr. Shadegg did get to a
point which I think needs to be clarified, the whole issue of
fault. You know, fault is not the only thing that we put
liability on in the judicial system, and, Mr. Shadegg, there is
a vast majority of States that have no-fault automobile
insurance, no-fault automobile insurance. Now, if you want to
describe no-fault automobile insurance as immoral, that is your
entitlement to do, but I think--again, I don't know the exact
number of States that have no-fault insurance, but there is a
large number of States that have it for some excellent policy
reasons, some excellent policy reasons in terms of reducing
unnecessary litigation and reducing consumer costs of insurance
sufficiency, best ability to pay, all sorts of reasons.
So I think, you know, we need to go beyond just fault. I
think something does bother us, though, about saying companies
should be vicariously liable when there is, in quotes, no
fault.
I think Mr. Middleton, at least in some of your testimony,
is really getting at the heart of this. I had the honor and
distinction of serving as chairman of my State insurance
committee when I was in the State legislature, and I at least
tried to use policy issues. I think what you alluded to in your
testimony a little bit is what legislatures could be going
through. Let me emphasize could be going through on the policy
side of why to implement this; that, I think, if this committee
is doing our job, we really should be looking at--to some
extent to really be looking at the policy side, that, in fact,
do these types of legislation end up really creating a better
policy outcome, I mean, really testing, creating less risk.
There are policy reasons for it.
And Mr. Wagner, I think, responded a little bit trying to
say that, well, you know, we would be doing these checks of
drivers' records and things like that anyway.
Mr. Middleton, I want to give you the opportunity to really
try to elaborate on that, just in terms of from a policy
perspective, taking away--and I think that is really what
bothers me, that we acknowledge that there isn't fault, but if
you can kind of maybe elaborate why in this setting, even
though there is not fault from a policy perspective, it would
make good public policy to do that.
Mr. Middleton. Well, it stands to reason that if you put
more and more cars on the road in any particular State
regardless of what the vicarious liability statute is, is that
you are going to have a situation where you have more
likelihood of having collisions or accidents.
What the underlying policy of vicarious liability is,
whether anybody wants to admit it or not, is that the
relationship is twofold. It is a relationship of the rental car
company in this context to the person renting the car and who
is in the best position to control that risk, and also how that
impacts the other citizens of each particular State. You put
more people on the road; you don't increase the number of
uninsured motorists, but there is a greater likelihood created
that the uninsured motorists are going to be involved in a
collision.
Who is in a position to compensate the person who is
absolutely innocent? Who is the person who gets collided with
or run over as a pedestrian? The company has decided, made a
marketing decision, to come in and utilize a system in that
State. They know what the law is of vicarious liability. They
say, you know what, in spite of this, we can make money off of
this. They come in, they increase the road usage. They
decrease, as a result of that, with the millions of cars on the
roads, the--they increase the likelihood of collisions and harm
done to people. Then our society, through our State
legislatures, has decided that in certain States, based on what
they see as important, they are going to impose that cost upon
the company that is doing the marketing and doing the business
in that State.
Mr. Deutsch. Mr. Wagner, if you could maybe respond in a
sense, and this is really sort of follow-up to Mr. Shimkus's
questions or comments, is there any way of dealing with the
problems that Mr. Middleton just addressed without completely
repealing vicarious liability through legislation like this? Is
there any way of dealing with it differently than this? Is it,
in fact, an either/or, these are the options?
Mr. Wagner. Congressman, I don't know that it is a black
and white, either/or situation. Certainly the problems that Mr.
Middleton addressed, the number of cars on the road, you know,
there may be more cars on the road than 10 years ago, 15 years
ago. Certainly cars tend to be safe for now, and they tend to
wear longer, so I think you see manufacturers addressing issues
related to more cars on the road.
The issue of--that he talked about about these people
exercised a marketing judgment to come into the State and
conduct business, Ms. Faulkner happened to be in New York when
she started her business. She may have been born or raised
there. I work for Enterprise Rent-A-Car. I was born and raised
there. I think that people have a right to establish a business
in the State that they are in without having to move out of the
State. I think Ms. Faulkner has talked from time to time of
actually leaving the State of New York.
So you can say, sure, you exercised marketing judgment or
decision to come into the State and open up a business, but I
think that that is skirting the fundamental issue here that we
are talking about about fault notwithstanding, the discussion
of no-fault insurance, the relationship between the rental car
company and the customer, that is not the same as an employer-
employee, a master-servant. What you have here is a rental car
company that receives a potential customer, has about 2 or 3 or
4 or 5, 10 minutes, whatever time is taken to look at that
person, check to see if they have got a valid license, check to
see if they carry insurance, size them up, have them fill out
the contract, see if they are going to agree to the terms of
the contract, sign up the other authorized drivers that are
going to be using the car, and then off they go. It is not--we
are not the ultimate insurer. We do not hold ourselves out to
be in the insurance business in the sense of underwriting any
damages that ultimately result from their giving the car to a
neighbor, an unauthorized driver and ultimately going on.
So there are a lot of responses to the things that we have
heard back and forth here and the comments that Congressman
Shimkus made and Congressman Luther made in terms of are there
some areas in the middle. There may be.
Mr. Deutsch. Thank you.
Mr. Shadegg. The time of the gentleman has expired. The
Chair would recognize the gentleman from Tennessee Mr. Bryant.
Mr. Bryant. Thank you, Mr. Chairman. I am always amazed
when I hear, and I think unfairly, this debate that the
Republicans are always for States rights, and we are so
hypocritical when we want to bring something to the Federal
level. That is an unfair argument. I see so many times my
colleagues on the other side who we believe want to Federalize
everything, but yet when we bring up States rights, they argue
no, big government has a role in this, and just seeing the
delight and throwing it up in our face that we are the only
ones that are hypocritical.
I think no party has a monopoly on hypocrisy up here. I
think Mr. Frank has it right when he says the parties agree
with the level of government that agrees with them. We think
the level of government that agrees with us ought to be the one
to control it. Let's put aside that argument of hypocrisy.
And, Mr. Middleton, I know you represent the trial lawyers.
I was a civil defense lawyer. And believe me, if you guys
didn't file lawsuits, I wouldn't have any work to do. So I come
from that system, and I understand the need for people to be
able to sue fairly to collect damages, but I sincerely believe
in sponsoring this bill that this is unfair. I have listened to
your arguments. I have read other statements about it, and I
simply disagree. The no-fault system was set up in some States
to facilitate the adjustment of claims as much as possible,
bypass trial lawyers, find those people that are truly injured,
and get the money to them as quickly as possible through a no-
fault system. Whether that has accomplished that or not,
whether that is beneficial where the plaintiff actually gets
more money quicker out of it than having to go through a long,
drawn-out lawsuit, I don't know. We are not here to judge the
no-fault, but that is why that system is in place.
I look at all these examples that I brought out about where
a car company, a truck rental company is held liable simply
because they rent a perfectly good truck, not defective, to a
perfectly competent driver, not intoxicated, not in any other
way impaired, and somehow this person goes out and has a wreck,
and they are held at fault. The individual who rented the car
should have had insurance that the injured plaintiff could have
gone against. If that person was uninsured, the injured party
most likely had some sort of uninsured coverage in their own
policy or underinsured coverage. So it is not as if the injured
plaintiff goes wanting for some source of money. But yet these
five States and DC have come in and said, well, we are going to
overlook the fact of liability insurance possibly that the
driver had, we are going to overlook the fact that the
plaintiff could have uninsured insurance, and we are going to
look for the deep pocket. We are going to look for the big
company out there. Everybody knows they make a lot of money.
Again, I just don't accept as valid your overall societal
argument that big companies, when they come into a market,
ought to be responsible for damages even though there is
absolutely no fault there.
Also, the issue of comparison of rates. I am not sure, and
maybe you believe you are right on this, but when you compare
Florida rates of rental cars to what cars rent for out in
California, I am not sure we are talking apples and apples.
Maybe we are talking apples and oranges, because the tort
system in Florida, the State tort system in Florida, is
certainly different than the State tort system in California.
California, I think, probably has consistently higher verdicts
out there that are factored in, in normal plaintiff/defendant
lawsuits, that are factored into the car companies. Certainly
their cost of doing business, the taxes they pay in the State
and all these other issues are factored into what they rent a
car for every day. So simply to say, well, you can rent a car
cheaper in Florida than you can in California, so therefore
this whole argument that the car companies make that vicarious
liability costs them money is a bogus argument, I don't think
that is true. I think, again, there are a lot of costs that go
into how much those cars rent for other than the fact that the
cars can be held--the companies can be held vicariously liable.
I wonder, too, Ms. Faulkner, you were in business in New
York. Does New York State--does the New York State Legislature
require a person renting a car to have insurance?
Ms. Faulkner. No.
Mr. Bryant. They don't mandate that you must have insurance
before you rent a car?
Ms. Faulkner. No. As a matter of fact, we can't
discriminate against someone that doesn't have insurance.
Mr. Bryant. And I say this halfway joking, Mr. Middleton. I
don't think this is possible, but do you think it would solve
our problem if after the company went through the checklist and
made sure they had a perfectly good working car, not defective,
and a competent driver, that perhaps they would send a Hertz
employee along with that rental car? Would that solve a
problem?
Mr. Middleton. No. I think one way to address this would be
to require proof of other insurance if you are not going to
subscribe to the optional coverages. But let me just----
Mr. Bryant. You are saying the States don't--at least in
New York didn't require insurance?
Mr. Middleton. That is why they have this vicarious
liability. That accentuates the situation that I said that you
can't simply look at this one statute. You have to look at how
those particular State legislatures that allow vicarious
liability have interwoven it with their other insurance
regulations that they have implemented, because the reason
they--I assume. I am not from New York. You can't tell from my
accent, I know. I am your neighbor in Georgia. But with regards
to what the legislature has decided, since they can't mandate
that they show proof of insurance, then their legislature has
decided that vicarious liability, I can only assume by looking
at it because it dovetails perfectly, should be kept in place.
But there is one other thing I would like to mention. That
is, with regards to the Florida rates, those rates were based
on 1996 figures at a time when Florida had complete vicarious
liability, and California had caps on vicarious liability and
applied only to base rates.
Mr. Bryant. You think that is the only factor that these
companies take into consideration when they set their costs?
Mr. Middleton. No, I don't. I think what we ought to do----
Mr. Bryant. You think Florida--the cost of business is as
expensive in Florida as it is in California?
Mr. Middleton. I imagine it is.
The other problem with the rental car industry in Florida
is they rent to a greater percentage of foreign nationals, rent
vehicles to a greater percent of foreign nationals than any
other State in the Union, and who but the rental car companies
should be held responsible for the marketing decision to rent
to those people when those people leave the country and you
can't attach any insurance that they have or any other assets
they have for harm that they may cover?
So you have to look at all of these reasons in a particular
State. That is why we say it should really be left to the
States. We think that they have given an analysis to this
that--I have a great belief that Congress is really charged
with doing very noble things. I have great respect for this
body that I sit before today. And I don't see where if you only
have 10 percent of the States that have implemented a certain
statutory relief, that you should--that Congress should engage
in something like that when we don't have the statistics before
us.
I would love to see the statistics broken down on actual
vicarious liability costs, and we don't have those, so the only
thing that we can rely upon is the extrapolation total
revenues, total amounts paid in collision costs and the fact
that no SEC disclosures have revealed any concern whatsoever
for any of these large car companies, rental companies, of any
problems with liability coverage.
Mr. Bryant. I appreciate the extended remarks you have
given. I think, again, the companies are here in Washington
asking for relief, for whatever reason, that is not--they can't
get that in these individual States. I have my own theory on
why trial lawyers are so successful in the States, as they are,
I might add, very effective, probably the most effective lobby
in Washington, DC, from what I can tell.
But I think it boils down to an issue of fairness in terms
of fault. I think our system inherently, and should be
inherently, a fault-based system. I think there are some rare
exceptions out there. Again, I made my living because you guys
file lawsuits, but I think there is some balance here, and I
agree with Mr. Shadegg, I think this one goes a little too far,
and I am certainly willing to risk my old law firm's cases that
we had defending what few they might have been in this
particular instance to take that position. I guess it is just
one of those issues I think good people can simply disagree on.
I thank you.
Mr. Middleton. I appreciate your comments.
Mr. Shadegg. I thank the gentleman.
The time of the gentleman has long since expired, but he is
the sponsor of this legislation. I want to thank all the
witnesses for your thoughtful testimony. There are probably
some gray areas here. We appreciate your help. The committee is
adjourned.
[Whereupon, at 11:50 p.m., the subcommittee was adjourned.]