Who’s liable in rental cars?

On the evening of Nov. 29, 2000, Ethan Ruby, then 25 years old, was crossing Delancey Street in Manhattan when a sport-utility vehicle ran a red light and hit him, crippling the former college athlete.

The driver did not own the vehicle. It was rented from Budget Rent a Car.

A jury found Budget responsible for Ruby’s injuries, and in 2003 he was awarded $24.5 million. When the judgment was finally entered in New York state courts this year, it was set at $20 million.

Sixteen states, including California and New York, recognize vicarious liability -- in which car rental and leasing companies can be held liable for accidents involving their vehicles. But pending legislation in Congress would supersede state law and sharply limit the liability that rental and leasing companies have when their cars are involved in accidents.

Of course, the rental industry would like to see its liability limited; the companies argue that they shouldn’t be liable for the actions of their customers. The measure also would be a blow to trial lawyers, who make a lot of money suing companies with deep pockets. All of that fits neatly into the political framework of conservatives, who are backing the legislation.

But the issues involving liability in an auto accident are highly complex, and they affect not only rental companies but private owners of vehicles -- i.e., you and me.

When you buy automobile insurance for your private car, you are insuring both the vehicle and yourself. The collision and comprehensive coverage insures the vehicle, while the liability portion of the premium insures drivers when they are in their own car or somebody else’s car, according to Pete Moraga of the Insurance Information Network of California.

If another person uses your car and that person has an accident, then the issue of liability coverage gets complex, and insurers sometimes fight over who should pay for the damages. Ultimately, if the damages exceed the insurance limits, you could lose some or all of your personal assets.

The liability legislation, an amendment to a highway funding bill, was sponsored by Rep. Sam Graves, a Republican from Missouri, who just happens to have a rental car company -- Enterprise -- based in his state, according to Democratic critics.

You might know Graves from his prior legislation that designated a post office in the town of Marceline, Mo., as the “Walt Disney Post Office.”

I am tempted to think that Graves specializes in Mickey Mouse legislation, but perhaps that would be too harsh.

Opponents say Graves’ measure would leave little recourse to anybody injured in an accident involving a rental car; such vehicles are sometimes driven by people who don’t own a car and thus have no liability insurance.

Rental companies often offer such insurance with their rental agreements, but it can be expensive -- as much as $20 per day. And most of the time rental companies don’t ask to see proof of insurance if you decline to take their coverage.

“They will give a car to anybody who comes in with a driver’s license and a credit card,” said Marc Moller, the New York attorney who represented Ruby. “The rental companies want to make a profit but not take the responsibility that goes with it.”

There were no hearings on the Graves amendment, though it was debated briefly on the House floor.

During the debate, Graves argued that it’s unfair for rental car companies to be held liable for the actions of their customers and that nothing in his amendment would let them off the hook if the companies were in some way at fault.

“The fact that a company can be liable simply because they own the vehicle, even though they were not involved [in the accident], I think, is ridiculous,” Graves said.

He also insisted that, if his amendment passed, there would be no uninsured drivers in rental cars. But Rep. Jerrold Nadler (D-N.Y.) argued that under New York state law, rental car companies are forbidden from even asking if potential renters are insured.

If it were up to me, I would require every person renting a vehicle to have proof of at least $100,000 of liability insurance. You can bet the rental industry would object to that more than having to deal with vicarious liability.

The 218-to-201 vote to approve the Graves amendment followed party lines closely, including the California delegation. The Senate passed its version of the highway bill Tuesday.