Rental Car Liability Insurance Changed Forever by the Graves Amendment

Image Attribution: Auto Rental News

I dare say that the passing of a new car rental insurance law in 2005, called the Graves Amendment (GA), was and still is unbeknownst to most people outside the rental car industry! At the time, the new law basically gave rental car companies such as Hertz, Avis, Enterprise etc., a free pass when it came to personal injury and damage liability claims, often referred to as vicarious liability. Unless of course, the rental company was found to be negligent in carrying out their responsibilities e.g. a rental car was not in a road worthy condition, or allow an impaired driver to get being the wheel.

In December 2003, a jury awarded $24.5 million in damages against Budget Rent A Car under New York’s strict vicarious liability law, after an accident involving a Budget car resulted in a 25 year man being paralyzed from the waist down. Thereafter, the rental companies appear to have collectively argued that the previous law was costing renters $100M in rental costs annually, given claims such as the example with Budget Rent A Car.


Financial Responsibility Limits

Now, thanks to the Graves Amendment, rental car companies are only responsible for the state minimum liability limits, (aka Financial Responsibility Limits) which vary widely between states and act as secondary insurance i.e. only kick in once your primary insurances are exhausted (that’s if you have such primary insurance)

For example, in Illinois, the limits are as follows:

• Bodily Injury (BI) & Property Damage (PD) Liability = $25,000
• Uninsured Motorist (UM) = $50,000
• Under Insured Motorist (UIM) = $20,000


"It’s not that I’m so smart, it’s just that I stay with problems longer." Einstein

It doesn’t take Einstein to work out that $25K in (BI) liability is not going to go very far if for example, a person is seriously injured, or even killed, by the driver of the rental car. So, if you only had the state minimum liability, and you caused $500K in bodily injury to the other driver, you would be responsible for all expenses above $25K e.g. $475K liability is on you!

For renters who don’t have an auto or umbrella liability policy, not having adequate liability coverage is not only a scary prospect, but could potentially ruin their life, as least in a financial sense.

And drivers who do have adequate liability coverage, still risk hefty policy premium increases if they ever had to claim for bodily or damage liability resulting from a rental car accident.


Know Your Liability Risks When Renting A Car

I’m not suggesting that renters should know about the Graves Amendment etc before renting a car, but I think they should be aware of at least the following:

  • If you have an auto policy, make sure you check what your liability limits are to ensure they are well above the state minimums.

  • If you don’t have an injury and damage liability policy, and rent often, consider buying a non-owners policy that includes well in excess of the state minimum liability levels. I purchased a non-owner policy, though it only covers the state minimum liability – which would come in handy if I was driving a friends car for example, though it doesn’t give me any more liability coverage than the rental car companies state minimum liability coverage limits.

  • You are well within your rights to merely rely on the state minimum liability coverage that the car rental company is obliged to provide. However, if you want that extra bit of peace of mind you could consider purchasing a supplementary liability policy for around $10 a day. (Our company is in the process of sourcing a liability coverage which will be more affordable and convenient to purchase than coverage from the rental car company)

Hertz Reminds Us of Why Exists!

And in case you needed a reminder, don’t fall for the rental car companies damage insurance options (CDW). It seems like a crime that Hertz can charge $32 per day for damage coverage, whereas you can purchase coverage on from just $7,99 per day. Buy before you arrive at the rental counter, and just decline the “optional” coverage offered to you at the pickup desk.


About the Author: Steve Sherlock is a licensed insurance agent for P&C/A&H and is licensed in all 50 US states, and is the co-founder and CEO of Pablow Inc. a Usage Based Insurance (UBI) platform.