The decision is a major victory for the rental industry, reinforcing the broad protections Congress intended when it enacted the Graves Amendment in 2005.
On April 23, 2026, the New York Court of Appeals issued a significant decision in Second Child v. Edge Auto, Inc., 2026 NY Slip Op 02436, holding that the federal Graves Amendment (49 USC § 30106) preempts New York Vehicle and Traffic Law (VTL) Section 370 to the extent that the statute has been interpreted to require rental companies to provide primary liability insurance coverage to renters up to the statutory minimum liability limits. The decision is a major victory for the rental industry, reinforcing the broad protections Congress intended when it enacted the Graves Amendment in 2005.
Background
VTL Section 370 requires rental companies to carry liability insurance covering every vehicle they own. Under VTL Section 388, vehicle owners are liable for damages resulting from the vehicle’s use when the driver had the owner’s permission to operate it. In ELRAC, Inc. v. Ward, 96 NY2d 58 (2001), the Court of Appeals held that these two statutes, read together, required rental companies to provide primary insurance to their renters up to the minimum liability limits provided by the statute.
In 2005, Congress enacted the Graves Amendment to combat rising costs and lawsuits in states that imposed vicarious liability on rental companies. The Graves Amendment preempts state laws that impose vicarious liability on rental companies for injuries resulting from the negligent use or operation of a rented vehicle.
At the same time, the Graves Amendment includes a savings clause that saves from preemption state laws that “impos[e] financial responsibility or insurance standards” on vehicle owners or “impos[e] liability on business entities engaged in the trade or business of renting or leasing motor vehicles for failure to meet the financial responsibility or liability insurance requirements under State law.”
The Dispute
In 2019, plaintiff Second Child rented a truck from defendant Edge Auto Inc. Second Child’s employee sideswiped another car while driving the truck. After the damaged vehicle’s owner sued, plaintiffs brought this action seeking to recover costs from Edge Auto up to Section 370’s statutory minimums, arguing that Edge Auto was required to provide insurance on a “primary and non-contributory basis.”
The trial court held that the Graves Amendment preempts Section 370’s primary insurance requirement but does not supersede Section 370 insofar as it requires rental companies to carry a specified minimum amount of insurance for their vehicles. The Appellate Division affirmed.
The Court of Appeals Decision
In a 4-3 decision authored by Judge Madeline Singas, the Court of Appeals affirmed.
The court held that Section 370’s primary insurance requirement works “in tandem” with Section 388’s vicarious liability scheme: Because Section 388 imposed vicarious liability on rental companies for their renters’ negligence, Section 370 required them to insure against that liability up to the statutory minimum. But both Sections 370 and 388 were passed before the enactment of the Graves Amendment’s preemption of any state law that imposed vicarious liability on a rental company for the acts of a rental driver. As a result, the court concluded that it would be an “absurd result” to require rental companies to insure against liability that federal law preempts. The court further emphasized that interpreting the savings clause to protect Section 370’s primary insurance mandate would effectively “workaround” the Graves Amendment and allow Section 370 to stand in for vicarious liability laws.
The court clarified that the Graves Amendment does not free rental companies from all liability: States may still impose liability on rental companies for damages arising from their own negligence or criminal wrongdoing. Nor does the amendment restrict Section 370’s requirement that rental companies maintain minimum insurance obligations for the privilege of registering and operating a motor vehicle.
The court left open the question of whether Section 370 can be read as requiring rental companies to provide secondary insurance coverage or other kinds of coverage apart from liability insurance, noting that such issues were not before it.
The Dissent
Chief Judge Rowan D. Wilson, joined by Judges Shirley Troutman and Caitlin Halligan, dissented. The dissent argued that established federal preemption principles—including the presumption against preemption of state police powers and the heightened protections of the McCarran-Ferguson Act—should have compelled a different result. The dissent contended that Section 370 is squarely a “financial responsibility” law within the meaning of the savings clause and imposes a different obligation from Section 388’s vicarious liability scheme. The dissent warned that the majority’s holding would increase costs for consumers and could leave New Yorkers without a remedy in rental car accidents.
The Bottom Line
This decision is a win for the rental industry, and its implications extend beyond New York. The Court of Appeals, the state’s highest court, has now squarely aligned New York with the growing national consensus that the Graves Amendment preempts state laws that, in form or effect, impose vicarious liability on rental companies for damages caused solely by a renter’s negligence. This includes any attempt to impose such liability through insurance requirements that would make the rental company the primary insurer of a rental customer.
For More Information
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