Automobile Lessors Beware: Vicarious Liability in Three States

Each plaintiff separately appealed the grant of summary judgment and the Rhode Island Supreme Court combined the two cases on appeal. The sole issue before the appellate court was whether Rhode Island's two vicarious liability statutes, the Owner-Liability Statute and the Lessor-Liability Statute, apply to leasing companies, who lease motor vehicles on a long-term basis while retaining record ownership.

In examining the Owner-Liability Statute, the court noted that owners of motor vehicles may be vicariously liable for the acts of others: 'whenever any motor-vehicle shall be used, operated, or caused to be operated, upon any public highway of this state with the consent of the owner, or lessee, or bailee, thereof, express or implied, the driver thereof, if other than the owner, or lessee, or bailee, shall in the case of an accident, be deemed to be the agent of the owner, or lessee, or bailee of the motor-vehicle, unless the driver shall have furnished proof of financial responsibility in the amount set forth in Chapter 32 of this Title, prior to the accident; and for the purposes of this section, the term 'owner' shall include any person, firm, co-partnership, association, or corporation having the lawful possession or control of the motor-vehicle under a written sale agreement.' (emphasis added).

The plaintiffs argued that Chase and Gold Key are subject to the statute because they are the registered owners of the vehicles. Conversely, Chase and Gold Key argued that they were not 'owners' of the leased vehicles because they did not have lawful possession or control of the vehicles.

The court began its analysis by determining that the definition of 'owner' under Rhode Island's Motor Vehicle Statute is defined as 'a person who holds legal title to the vehicle.' The court also noted that in an earlier decision, it had broadened this definition to include those who have possession and control of a vehicle, but are without legal title. The court reasoned that this prior decision did not intend to exclude record owners from the definition of 'owner.' The court next analyzed the statutory language, 'the term 'owner' shall include,' and concluded that the phrase 'shall include' does not restrict the general definition of the term 'owner,' but rather, expands it. To support this conclusion, the court pointed to a forty-year-old decision, in which it was explicitly held that the word 'owner,' as it is used in Rhode Island's vicarious liability laws, is to be given a 'broad, comprehensive meaning consistent with the purpose of the statute.' This forty-year-old case was based on reasoning that the state legislature intentionally drafted Rhode Island's vicarious liability laws with less stringent language in order to give 'more adequate security against financial loss to those injured in motor vehicle accidents, where one of the motor vehicles involved was operated by a person other than the owner,' and as such, was intended to ensure that victims in motor vehicle accidents have avenues of recovery and do not bear the financial burdens of their injury.

In an important point, the court held that the explicit language of the Owner-Liability Statute does not differentiate between a long-term lessor or a short-term rental agency when determining ownership. As title holders to the motor-vehicles in question, both long-term lessors and short-term rental agencies are deemed owners under this statute, and thus, may be held vicariously liable as owners under Rhode Island's Owner-Liability Statute.

After determining that long-term lessors are owners for purposes of the Owner-Liability Statute, the court next looked at whether long-term lessors were also subject to Rhode Island's Lessor-Liability Statute. This statute holds an owner of a 'for-hire vehicle' (a term that includes leased vehicles) liable for the negligence of an operator, and specifically provides that: 'any owner of a for-hire motor-vehicle or truck, who has given proof of financial responsibility under this chapter, or who, in violation of this chapter, has failed to give proof of financial responsibility, shall be jointly and severally liable with any person operating the vehicle for any damages caused by the negligence of any person operating the vehicle by or with the permission of the owner. Nothing in this section shall be construed to prevent an owner, who has furnished proof of financial responsibility, or any person operating the vehicle, from making defense in an action upon the grounds of contributory negligence to the extent to which such defense is allowed in other case ' The term 'lessor' shall include any entity in the business of renting motor-vehicles pursuant to a written rental agreement.' (emphasis added)

Chase and Gold Key argued that this statute did not apply to them because, as long-term lessors, they were not engaged in the business of 'renting motor-vehicles, pursuant to a written rental agreement.' The court soundly rejected this argument, and held that the terms 'owner' and 'lessor,' as they are used in Rhode Island's Lessor-Liability Statute, are not limited solely to entities who provide short-term motor vehicle rentals, but instead, provide a specific example of a 'lessor.' In addition, the court found that the interchangeable use of the terms 'rent' and 'lease' throughout its motor vehicle code demonstrates that the Rhode Island legislature did not intend to distinguish between the two terms for the purpose of determining which type of entity would be liable. The court observed that this result was consistent with prior decisions, and therefore, held that the Lessor-Liability statute will impose vicarious liability on the owner/lessor for the wrongful conduct of the rentee or lessee, regardless of whether the owner/lessor was negligent in the leasing/renting of its motor vehicle.

As initially stated in this article, this decision is based solely upon Rhode Island statutes. Companies in the business of automobile leasing must be aware of this additional risk, and potential liability, when leased vehicles are involved in accidents in Rhode Island. Similar vicarious liability statutes currently exist in New York and Connecticut, although the New York legislature is currently attempting to pass a bill that would exempt lessors, who are record title holders, from the definition of the term 'owner' under New York's Vehicle and Traffic Laws. Notwithstanding, lessors should ensure that they are adequately protected by their auto insurance, gap insurance and excess liability insurance, as well as named as an additional insured on their lessee's insurance, and review their lease documentation for proper indemnification provisions. This Rhode Island decision has caused an uproar in the automobile leasing industry, with lessors alleging that this extension of liability ultimately affects consumers as leasing companies will either stop leasing in Rhode Island (and other states with similar laws) or will increase lease rates, thereby making the historically less expensive leasing option obsolete.

Pauline P. Clark is an attorney at the Philadelphia office of Blank Rome LLP. She concentrates her practice in commercial lending, healthcare receivable financing, equipment leasing, bankruptcy, workouts, and creditors' rights, primarily representing banks, commercial finance companies and other institutional lenders.

A Rhode Island Supreme Court decision has caused lessors to think twice about leasing motor vehicles in the State of Rhode Island. In Oliveira v. Lombardi , 794 A.2d 453 (R.I. 2002), the Rhode Island Supreme Court held that two automobile leasing companies may be held vicariously liable under Rhode Island's vicarious liability statutes for the negligence of drivers operating motor vehicles titled in the leasing companies' name.

The court took a somewhat unique position in combining two cases with similar legal and factual issues. The plaintiff in the first case suffered severe injuries when her car was rear-ended by a teenager driving his father's car leased from Chase Manhattan Automotive Finance Corporation, the registered owner of the motor vehicle. In addition to suing the driver's father, the plaintiff sued Chase as the owner/lessor under Rhode Island's vicarious liability statutes. The plaintiff in the second case also suffered severe injuries in an accident involving a leased motor vehicle, but the lessor in this case was Gold Key Lease, Inc. The plaintiff sued the lessee, the third party operator (as permitted by the lease agreement), and Gold Key. Similar to the Chase case, the plaintiff alleged that Gold Key, as the record owner of the vehicle, was subject to Rhode Island's vicarious liability statutes.

At the trial level, both Chase and Gold Key were granted summary judgment. In granting summary judgment, the Chase court stated that the Rhode Island legislature did not intend to hold long-term vehicle lessors liable for the negligence of the operators of the leased vehicles, because such financiers do not possess and control the automobiles financed. The court further reasoned that Rode Island's vicarious liability statutes apply to short-term rental motor vehicles, rather than long-term rentals, because owners of short-term rentals assert control over the vehicle. In granting summary judgment, the court concluded that the term 'owner' as used in the vicarious liability statutes is a limited definition that does not include persons not in control or possession of the vehicle.

Each plaintiff separately appealed the grant of summary judgment and the Rhode Island Supreme Court combined the two cases on appeal. The sole issue before the appellate court was whether Rhode Island's two vicarious liability statutes, the Owner-Liability Statute and the Lessor-Liability Statute, apply to leasing companies, who lease motor vehicles on a long-term basis while retaining record ownership.

In examining the Owner-Liability Statute, the court noted that owners of motor vehicles may be vicariously liable for the acts of others: 'whenever any motor-vehicle shall be used, operated, or caused to be operated, upon any public highway of this state with the consent of the owner, or lessee, or bailee, thereof, express or implied, the driver thereof, if other than the owner, or lessee, or bailee, shall in the case of an accident, be deemed to be the agent of the owner, or lessee, or bailee of the motor-vehicle, unless the driver shall have furnished proof of financial responsibility in the amount set forth in Chapter 32 of this Title, prior to the accident; and for the purposes of this section, the term 'owner' shall include any person, firm, co-partnership, association, or corporation having the lawful possession or control of the motor-vehicle under a written sale agreement.' (emphasis added).

The plaintiffs argued that Chase and Gold Key are subject to the statute because they are the registered owners of the vehicles. Conversely, Chase and Gold Key argued that they were not 'owners' of the leased vehicles because they did not have lawful possession or control of the vehicles.

The court began its analysis by determining that the definition of 'owner' under Rhode Island's Motor Vehicle Statute is defined as 'a person who holds legal title to the vehicle.' The court also noted that in an earlier decision, it had broadened this definition to include those who have possession and control of a vehicle, but are without legal title. The court reasoned that this prior decision did not intend to exclude record owners from the definition of 'owner.' The court next analyzed the statutory language, 'the term 'owner' shall include,' and concluded that the phrase 'shall include' does not restrict the general definition of the term 'owner,' but rather, expands it. To support this conclusion, the court pointed to a forty-year-old decision, in which it was explicitly held that the word 'owner,' as it is used in Rhode Island's vicarious liability laws, is to be given a 'broad, comprehensive meaning consistent with the purpose of the statute.' This forty-year-old case was based on reasoning that the state legislature intentionally drafted Rhode Island's vicarious liability laws with less stringent language in order to give 'more adequate security against financial loss to those injured in motor vehicle accidents, where one of the motor vehicles involved was operated by a person other than the owner,' and as such, was intended to ensure that victims in motor vehicle accidents have avenues of recovery and do not bear the financial burdens of their injury.

In an important point, the court held that the explicit language of the Owner-Liability Statute does not differentiate between a long-term lessor or a short-term rental agency when determining ownership. As title holders to the motor-vehicles in question, both long-term lessors and short-term rental agencies are deemed owners under this statute, and thus, may be held vicariously liable as owners under Rhode Island's Owner-Liability Statute.

After determining that long-term lessors are owners for purposes of the Owner-Liability Statute, the court next looked at whether long-term lessors were also subject to Rhode Island's Lessor-Liability Statute. This statute holds an owner of a 'for-hire vehicle' (a term that includes leased vehicles) liable for the negligence of an operator, and specifically provides that: 'any owner of a for-hire motor-vehicle or truck, who has given proof of financial responsibility under this chapter, or who, in violation of this chapter, has failed to give proof of financial responsibility, shall be jointly and severally liable with any person operating the vehicle for any damages caused by the negligence of any person operating the vehicle by or with the permission of the owner. Nothing in this section shall be construed to prevent an owner, who has furnished proof of financial responsibility, or any person operating the vehicle, from making defense in an action upon the grounds of contributory negligence to the extent to which such defense is allowed in other case ' The term 'lessor' shall include any entity in the business of renting motor-vehicles pursuant to a written rental agreement.' (emphasis added)

Chase and Gold Key argued that this statute did not apply to them because, as long-term lessors, they were not engaged in the business of 'renting motor-vehicles, pursuant to a written rental agreement.' The court soundly rejected this argument, and held that the terms 'owner' and 'lessor,' as they are used in Rhode Island's Lessor-Liability Statute, are not limited solely to entities who provide short-term motor vehicle rentals, but instead, provide a specific example of a 'lessor.' In addition, the court found that the interchangeable use of the terms 'rent' and 'lease' throughout its motor vehicle code demonstrates that the Rhode Island legislature did not intend to distinguish between the two terms for the purpose of determining which type of entity would be liable. The court observed that this result was consistent with prior decisions, and therefore, held that the Lessor-Liability statute will impose vicarious liability on the owner/lessor for the wrongful conduct of the rentee or lessee, regardless of whether the owner/lessor was negligent in the leasing/renting of its motor vehicle.

As initially stated in this article, this decision is based solely upon Rhode Island statutes. Companies in the business of automobile leasing must be aware of this additional risk, and potential liability, when leased vehicles are involved in accidents in Rhode Island. Similar vicarious liability statutes currently exist in New York and Connecticut, although the New York legislature is currently attempting to pass a bill that would exempt lessors, who are record title holders, from the definition of the term 'owner' under New York's Vehicle and Traffic Laws. Notwithstanding, lessors should ensure that they are adequately protected by their auto insurance, gap insurance and excess liability insurance, as well as named as an additional insured on their lessee's insurance, and review their lease documentation for proper indemnification provisions. This Rhode Island decision has caused an uproar in the automobile leasing industry, with lessors alleging that this extension of liability ultimately affects consumers as leasing companies will either stop leasing in Rhode Island (and other states with similar laws) or will increase lease rates, thereby making the historically less expensive leasing option obsolete.

Pauline P. Clark is an attorney at the Philadelphia office of Blank Rome LLP. She concentrates her practice in commercial lending, healthcare receivable financing, equipment leasing, bankruptcy, workouts, and creditors' rights, primarily representing banks, commercial finance companies and other institutional lenders.