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Righting a Wrong in Arizona

Arizona is one of a super minority of states in which auto rental companies are required by statute to pay for the negligent acts of their renters. Look for new legislation in the coming weeks that proposes to change that.

January 18, 2012

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In Arizona, if a car renter gets in an accident and injures a third party, it’s the car rental company that is first in line to pay any liability claims, not the renter’s auto insurance policy. Similar to the old days of vicarious liability doctrine (outlawed by the Graves Amendment, a federal law passed in 2005), the law in Arizona still holds rental companies accountable for things that are not their fault and beyond their control. If the renter has insurance to cover the claim, and is already paying premiums to cover them, the rental company should not be on the hook when protections are already in place!

Where do the other states stand on this issue? The American Car Rental Association petitioned the Arizona law firm Gust Rosenfeld to find out. The law firm found that the liability of a rental company in any given state for third-party claims for damages and injuries caused by their renters is classified into one of five broad categories:

1. Primary: The rental company is the primary source of recovery. Additional liability may be satisfied by the renter or the renter’s insurer.

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2. Joint and Several: The rental company is jointly and severally liable with the renter.

3. Secondary: The rental company is only liable to the extent that liability is not satisfied by the renter or the renter’s insurer.

4. Governed by Contract: The state doesn’t regulate the liability of rental companies. Liability is therefore handled by contract between the rental company and the renter.

5. No Liability: The rental company has no liability for liability issues caused by the renter.

So how does Arizona fit into this landscape? Only three other states – Delaware, Florida, and Michigan – have similar statutes. Arizona is a recent convert to this fringe group as the current law was passed in 1997.

Arizona’s statute is even more onerous, however, because it also prohibits rental companies from shifting primary liability to the renter or obtaining any subrogation rights against the renter for the renter’s authorized use of the vehicle. And so Arizona stands uniquely alone: it is the only state in the Union that statutorily requires rental companies to be primarily liable for third-party claims for damages or injuries caused by an authorized renter, prevents them from the shifting their liability to the renter and prevents them from obtaining any subrogation rights against the renter for the renter’s authorized use of the vehicle.

Since 1993, no other state has followed Arizona’s lead in mandating primary liability for rental companies. In fact, every state legislature since 1997 that has dealt with this issue has taken some action that shifts primary liability to the renter, not the rental company. In 1997, Louisiana made the renter primarily liable. Oregon eliminated rental company liability entirely in 2003. Utah enacted its new scheme of primary renter liability in 2007. Minnesota did so in 2007, and North Dakota followed suit in 2011.

But new legislation is being proposed to right this wrong. The proposal would simply hold negligent renters responsible if they have valid auto liability insurance that would cover damages or injuries they caused to a third party. The proposed law would still ensure that a third party is compensated if the renter is uninsured or underinsured. The rental car company would still be liable in situations where the renter does not have valid auto liability insurance.

The bill should  be introduced to the Arizona House of Representatives by Feb. 1. For car rental companies in Arizona, stay tuned and be ready to voice your support to your Congressperson. For the rest of us, we’ll keep this on our watch list and hope that Arizona gets with the program.

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Author Bio

Chris Brown

Executive Editor

Chris Brown is the executive editor of Business Fleet Magazine and Auto Rental News. Through these publications, online newsletters, trade events and associations, Chris covers all aspects of the fleet world, including fleet management, manufacturer fleet activities, the fleet leasing industry, vehicle remarketing, rental industry news, car rental taxation and legislation.

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