Auto subrogation and car dealerships are no strangers to one another. Car dealerships and their insurers routinely seek to hold vehicle test drivers, customers, and other permissive users liable for physical damage to the dealers’ courtesy and rental vehicles and as well as for damages to third parties resulting from the negligent operation of dealership vehicles. Unfortunately, the rules with regard to which coverage is primary for first-party and third-party claims are complex and depend on a nuanced comprehension of case law, statutes, and insurance policy language. They do not lend themselves to black or white answers. When the negligence of a test driver or other permissive user causes damage to the dealership vehicle, a third person, or other property, the owner’s insurance carrier may have subrogation and/or indemnity rights to recover the damages from the permissive user. Knowing when you can and cannot subrogate is indispensable to any successful auto subrogation program.
Whether a dealership can subrogate against permissive users for damage they cause to a dealership vehicle has not been directly ruled on in many states. The “majority” rule in the jurisdictions which have ruled on this issue states that the owner of a car who has allowed a permissive user to operate his vehicle, can subrogate for property damage caused by the permissive user’s negligence, provided that the permissive user does not qualify as an “insured” under the collision coverage of the dealership’s policy.
A related issue is whether or not a dealership can be held vicariously liable for the negligence of its customers while operating dealership courtesy cars and other vehicles. While Massachusetts does not have vicarious liability for the owner of a vehicle, § 85A does provide for a rebuttable presumption that the owner of a vehicle is vicariously liable for injuries caused by the driver of the vehicle.[1] In a Massachusetts Supreme Court decision decided on June 27, 2023, Maria Garcia was a pedestrian struck by a courtesy vehicle owned by a dealership (MBF Auto, LLC) and driven by the unlicensed wife of a customer of the dealership. Garcia sued the dealership and the customer alleging negligence, negligent entrustment, and vicarious liability of the dealership. The courtesy vehicle had been illegally parked with the key in the ignition and rolled through a red light after customer’s unlicensed wife got in the driver’s seat and attempted to move the vehicle.
The dealership filed a Motion for Summary Judgment on the negligent entrustment cause of action, which the court granted. The plaintiffs relied on § 85A, contending that, as the owner of the courtesy vehicle, the dealership was presumptively vicariously liable for the injuries caused by the customer’s wife. The trial court granted summary judgment and the issue on appeal was whether an automobile dealership that includes an automotive service center and provides a “courtesy” vehicle to its customer while conducting repair work on the customer’s car is entitled to the protection set forth in 49 U.S.C. §30106 (Graves Amendment). The Graves Amendment prevents rental car companies from being held vicariously liable for torts committed by customers driving their rental vehicles. Where a rental car company proves that the rental car was rented or leased, the Graves Amendment preempts state vicarious liability law such as §85A. In this case, the defendant wasn’t a rental car company, but rather, an automobile dealership that has an automotive service center and provides a “courtesy” vehicle to its customer while conducting repair work on the customer’s vehicle. The Massachusetts Supreme Court held that the Graves Amendment preempts the rebuttable presumption normally established by §85A.
The fact that the automobile dealership may have been negligent in the training of its employees to orally explain usage restrictions contained in the written contract for a courtesy vehicle did not technically cause the accident. The Supreme Court confirmed that in order to prevail on a negligent entrustment claim, it is necessary to prove that the defendant owned or controlled the automobile, and that the defendant gave the driver permission to operate the automobile. In addition, a claim of negligent entrustment also requires proof of the incompetence of the person to whom the vehicle was entrusted, and proof of the defendant dealership had knowledge of that incompetence.
The plaintiff also argued that in order trigger the protection afforded to rental car companies pursuant to the Graves Amendment, the dealership must have “rented” or “leased” the vehicle.[2] In other words, the owner must have received consideration in exchange for the car. The dealership countered that the courtesy vehicle was part of a larger transaction to perform repair work on the customer’s car even though the courtesy vehicle itself was not delineated as a separate line item in the service deal. The plaintiff argued that the courtesy vehicle was not billed separate from the repair work, and thus wasn’t “rented” or “leased.” The Supreme Court held that the dealership did receive consideration for the courtesy car as part of the servicing transaction to repair the vehicle. Moreover, the court noted that the person to whom the vehicle was entrusted was not operating the vehicle at the time of the accident.
For questions about auto subrogation involving dealership loaner or “courtesy” vehicles, contact Gary Wickert at gwickert@mwl-law.com.
Gary Wickert is an insurance trial lawyer and a partner with Matthiesen, Wickert & Lehrer, S.C., and is regarded as one of the world’s leading experts on insurance subrogation. He is the author of several subrogation books and legal treatises and is a national and international speaker and lecturer on subrogation and motivational topics.
[1] M.G.L.A. 231 § 85A.
[2]49 U.S.C. §30106(a).
