The New York State Court of Appeals recently held that the state’s Vehicle and Traffic Law (VTL) 370 is preempted by the federal Graves Amendment to the extent it requires vehicle rental companies to provide primary liability insurance coverage up to New York State’s minimums of $25,000 for bodily injury and $10,000 for property damage.
Anyone who has worked for a car rental company or personally entrusted their vehicle to another person may already be familiar with VTL 388, which imposes unlimited vicarious liability on a vehicle owner for negligent conduct by an entrusted driver. The Graves Amendment preempts state laws like VTL 388, shielding rental and leasing companies from the statutory vicarious liability. VTL 370 had so far survived the Graves Amendment, however, even though it required rental companies to provide minimum liability insurance which “inure[d] to the benefit of the driver.”
The Court of Appeals’ decision in Second Child v. Edge Auto, Inc.1 comes in spite of the Graves Amendment’s exception for state laws that “impos[e] financial responsibility or insurance standards” on vehicle owners, and state legislatures traditionally have wide latitude in regulating the insurance industry. Second Child was narrowly decided by a four-judge majority, which held that VTL 370 primarily functions as a vicarious liability statute that is impossible to separate from VTL 388’s unlimited vicarious liability clause.
Writing in dissent, Chief Judge Wilson argued that VTL 370 did not impose the kind of unlimited vicarious liability that prompted Congress to pass the Graves Amendment and that New York State’s decision to require rental companies to insure renters up to the state’s modest minimum liability insurance requirements was protected by the McCarran-Ferguson Act2, Rather than making rental companies vicariously liable, the Chief Judge reasoned, VTL 370 was merely intended to provide injured parties with a guaranteed source of recovery regardless of the fault of the renter.
The court was careful, however, to leave open the possibility that VTL 370 could be interpreted to require rental companies to act as secondary, but not primary, insurers or that New York State could impose nonliability insurance requirements on rental companies. Of course, neither the Graves Amendment nor any New York State law relieves a rental company from its own negligence resulting from, for example, insufficient maintenance of a rented vehicle. The New York State legislature has considered vast changes to the state’s car insurance regulations over the past few years and could consider a replacement for VTL 370 in the coming years.
If you have any questions regarding the content of this alert, please contact Alec Herbert, associate, at aherbert@barclaydamon.com; Matthew Larkin, Torts & Products Liability Defense Practice Area chair, at mlarkin@barclaydamon.com; or another member of the firm’s Torts & Products Liability Defense Practice Area.
12026 N.Y. Slip Op 02436 (N.Y. April 23, 2026).
2The McCarran-Ferguson Act is a federal reverse preemption law that renders federal laws ineffective to the extent they are “construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance.”