Federal Law Always Trumps State Law
Since the U.S. Constitution was first written a principle engraved in the founding document was that federal law preempts state law if the two laws are in conflict.
The Supreme Court of Florida was asked a question by the Florida’s Second District whether the preemptive scope of the federal law known as the Graves Amendment, 49 U.S.C. § 30106 (2006), which provides that the owner of a motor vehicle who leases the vehicle shall not be vicariously liable for harm that results from the use, operation, or possession of the vehicle during the lease. Specifically, the Supreme Court considered whether the Graves Amendment preempts liability under section 324.021(9)(b)(1), Florida Statutes (2002), which defines when a long-term lessor remains the owner of a leased motor vehicle and thereby subject to vicarious liability for damages caused by the vehicle under Florida’s dangerous instrumentality doctrine. In Alejandro Rosado v. Daimlerchrysler Financial Services Trust, Etc., et al, No. SC09-390 (Fla. 04/04/2013) the Florida Supreme Court answered the question.
On January 15, 2003, the LaMondue Law Firm, located in Virginia, leased a vehicle from Tysinger Motor Company, who later assigned the lessor’s interest to DaimlerChrysler Financial Services Trust (DaimlerChrysler). The four-year lease required the law firm to insure the car for not less than $100,000 per person and $300,000 per accident in bodily injury coverage and $50,000 in property coverage. The law firm permitted Terrell Parham to drive the vehicle, and on June 29, 2003, Parham crossed the median of a Florida highway and collided with a car driven by Alejandro Rosado. The day before the accident, the insurance policy on the vehicle lapsed for nonpayment.
Rosado, who sustained injuries in the collision, filed suit in Florida against Carl LaMondue, who executed the lease, the law firm, Parham, and DaimlerChrysler. Rosado alleged that because DaimlerChrysler had failed to comply with the insurance requirements of Florida Statutes, DaimlerChrysler was vicariously liable for Parham’s negligent operation of the car under Florida’s dangerous instrumentality doctrine.
DaimlerChrysler moved for summary judgment, contending that its liability, if any, should be based on Virginia tort law and that if Florida law applied, the Florida statute was preempted by the Graves Amendment. The trial court concluded that Florida law applied but that the Graves Amendment did preempt the statute and granted summary judgment in favor of DaimlerChrysler.
The Second District affirmed the trial court’s ruling that the Graves Amendment preempted the statute.
Under the Supremacy Clause of the United States Constitution, U.S. Const. art. VI, cl. 2, state laws may be preempted by federal laws in three situations: (1) where express federal statutory language so provides; (2) where federal law has so thoroughly occupied a legislative field as to create a reasonable inference that there is no room for the state to supplement it; or (3) where a state law conflicts with a federal law.
The Graves Amendment, titled “Rented or leased motor vehicle safety and responsibility,” was first enacted in 2005 and provides in part:
(a) IN GENERAL. – An owner of a motor vehicle that rents or leases the vehicle to a person (or an affiliate of the owner) shall not be liable under the law of any State or political subdivision thereof, by reason of being the owner of the vehicle (or an affiliate of the owner), for harm to persons or property that results or arises out of the use, operation, or possession of the vehicle during the period of the rental or lease, if –
(1) the owner (or an affiliate of the owner) is engaged in the trade or business of renting or leasing motor vehicles; and
(2) there is no negligence or criminal wrongdoing on the part of the owner (or an affiliate of the owner).
(b) FINANCIAL RESPONSIBILITY LAWS.–Nothing in this section supersedes the law of any State or political subdivision thereof-
(1) imposing financial responsibility or insurance standards on the owner of a motor vehicle for the privilege of registering and operating a motor vehicle; or
(2) imposing 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 Florida statute provides that:
1. The lessor, under an agreement to lease a motor vehicle for 1 year or longer which requires the lessee to obtain insurance acceptable to the lessor which contains limits not less than $100,000/$300,000 bodily injury liability and $50,000 property damage liability or not less than $500,000 combined property damage liability and bodily injury liability, shall not be deemed the owner of said motor vehicle for the purpose of determining financial responsibility for the operation of said motor vehicle or for the acts of the operator in connection therewith; further, this subparagraph shall be applicable so long as the insurance meeting these requirements is in effect. The insurance meeting such requirements may be obtained by the lessor or lessee, provided, if such insurance is obtained by the lessor, the combined coverage for bodily injury liability and property damage liability shall contain limits of not less than $1 million and may be provided by a lessor’s blanket policy.
The statute does not require insurance or its equivalent as a condition of licensing or registration. It also does not require an owner/lessor to meet any financial responsibility or liability insurance requirements under state law, and the liability contemplated – i.e., vicarious liability for damages caused by the negligence of lessees – does not flow from any failure to meet such requirements. Rather, the statute preserves Florida common law vicarious liability by deeming short-term (less than one year) lessors to be “owners” for vicarious liability purposes, while limiting their exposure to damages for such claims. Therefore, it conflicts with and is thus preempted by the Graves Amendment.
The Florida Supreme Court has previously rejected the premise that the definition of “owner” in the statute renders a long-term lessor such as DaimlerChrysler not an owner for purposes of the dangerous instrumentality doctrine. A long-term lessor in Florida is by default the owner of the leased vehicle and, as a result of its status as owner, subject to vicarious liability stemming from the operation of that vehicle by the lessee.
A long-term lessor who chooses not to obtain the insurance outlined by section the statute will not incur any new or additional liability as a result of that decision. The plain language of the statute does not require insurance or its equivalent as a condition of licensing or registration and does not require an owner/lessor to meet any financial responsibility or liability insurance requirements under state law. Rather than requiring a lessor to purchase insurance, the statute creates an option. A long-term lessor who chooses not to obtain the insurance outlined by the statute will not incur a new financial obligation. Such a long-term lessor will continue to face the existing vicarious liability and financial responsibility imposed by Florida’s common law and other statutes. A long-term lessor who does not obtain insurance will be in the same financial position as he or she would have been if the statute had never been enacted.
Section 324.021(9)(b)(1) is not a law that imposes “financial responsibility or insurance standards on the owner of a motor vehicle for the privilege of registering and operating a motor vehicle” or “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.” Rather than imposing financial responsibility or insurance standards, the statute creates a process by which long-term lessors can avoid the default financial responsibility imposed upon them by Florida’s dangerous instrumentality doctrine. As a result, the Graves Amendment preempts section 324.021(9) (b)(1), Florida Statutes (2002).
An automobile lease is a form of financing the purchase or use of an automobile. To the lessor and the lessee the possession and use of the vehicle is transferred to the lessee just as the possession and control of a vehicle passes when a conditional sale purchase occurs. The Florida Legislature attempted to hold the lessors of an automobile vicariously liable for the operation of the vehicle by the operator but did not hold the conditional sale seller vicariously liable. The U.S. Congress, by the Graves Amendment, made clear the intent of the U.S. Government that long term lessors should not be held vicariously liable for the actions of the Lessee.
The Florida Supreme Court agreed and appropriately preempted the statute.
© 2013 – Barry Zalma
Barry Zalma, Esq., CFE, has practiced law in California for more than 40 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally, for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.
He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.
Mr. Zalma recently published the e-books, “Zalma on California Claims Regulations – 2013″; “Rescission of Insurance in California – 2013;” “Random Thoughts on Insurance” a collection of posts on this blog; “Zalma on Insurance Fraud – 2012″; “Zalma on Diminution in Value Damages – 2012,”“Zalma on Insurance,” “Heads I Win, Tails You Lose — 2011,” “Arson for Profit” and others that are available at www.zalma.com/zalmabooks.htm.
Mr. Zalma can also be seen on World Risk and Insurance News’ web based television programing.