Vicarious Liability Is Dead

Vicarious liability appears to be dead and gone. But wait. There may be a pulse yet. It's a faint one, though.

That's good news for auto finance firms and dealers who lease vehicles, particularly in states such as New York and Florida that until recently still had archaic vicarious liability laws on their books.

Under those laws — dating to early automotive days when mostly rich people owned cars that were chauffeur-driven — injured persons or the estates of persons killed in accidents could sue vehicle owners for damages even if the owners weren't driving. Later, that liability extended to lessors, because the law considered them as the true owners of leased vehicles.

Earlier in the decade, leasing all but stopped in some states after auto finance firms, banks and leasing companies started getting hit with multi-million dollar civil suit judgments stemming from lessees being involved in catastrophic accidents.

But in 2005, Congress passed a new federal transportation bill that superseded state vicarious liability laws. It led to a return of leasing in affected states.

Since then, “a solid line of appellate cases” have upheld the legislation ending vicarious liability, says Ken Rojc, a Chicago attorney who specializes in laws affecting auto finance.

“It's the end of the road for vicarious liability, so lessors can move ahead in states such as Florida and New York,” he says at a recent Consumer Bankers Assn. automotive finance conference in Orlando, FL. “If you are sued, you should be able to get it summarily dismissed.”

But in the legal world, just when an issue seems resolved, exceptions can pop up, offering the prospects of future litigation.

In this case, it has to do with legal exposure for knowingly leasing a car to a high-risk driver, Rojc says. “That's a lot different than blanket liability.”

A high-risk driver generally is considered someone with a scary driving record or exorbitant auto insurance premiums.

“But unfortunately, it will probably have to be litigated to define what a high-risk driver is,” Rojc says. “The question becomes how much due diligence must a lessor do to make sure a driver is clear.”