What is a Rental Car Company’s Liability When Their Renter is Involved in a Car Accident?

Las Vegas is an exciting and wonderful city. We live in city that also attracts a lot of visitors. These visitors often rent cars. Given the amount of visitors we regularly have in our city, we have perhaps more rental cars on the road than other average cities.


But, what happens when one of these car rental drivers causes an accident to one of our residents?  What is the car rental company’s liability in this scenario? There are two main statutes and three cases that have come out of the Nevada Supreme Court, that tell us what the rights and responsibilities are for rental car companies in these situations.
 
The first statute is NRS §482.295. This statute requires car rental companies to have insurance before their rental cars hit the road. In these cases, car rental companies are called “lessors”, while the driver’s who rent these cars (via a short term lease), are called the “lessees”:

NRS §482.295. Registration by short-term lessor: Proof of financial ability to respond to damages. The Department or a registered dealer shall not register a vehicle intended to be leased by a short-term lessor until the owner demonstrates to the Department the owner’s financial ability to respond to damages by providing evidence of insurance as that term is defined in NRS 485.034. 

So, before a car rental company can even register its rental cars, it must show proof of insurance to the DMV.  It’s counterpart, NRS §482.305, provides more information as to what type of insurance coverage the rental company must have, which is $15,000 per person/$30,000 per accident:
 
NRS §482.305. Short-term lessor not providing coverage jointly and severally liable with short-term lessee for certain damages; notice to lessee of extent of coverage; dismissal of action against lessor if coverage provided.

      1.  The short-term lessor of a motor vehicle who permits the short-term lessee to operate the vehicle upon the highways, and who has not complied with NRS 482.295 insuring or otherwise covering the short-term lessee against liability arising out of his or her negligence in the operation of the rented vehicle in limits of not less than $15,000 for any one person injured or killed and $30,000 for any number more than one, injured or killed in any one accident, and against liability of the short-term lessee for property damage in the limit of not less than $10,000 for one accident, is jointly and severally liable with the short-term lessee for any damages caused by the negligence of the latter in operating the vehicle and for any damages caused by the negligence of any person operating the vehicle by or with the permission of the short-term lessee, except that the foregoing provisions do not confer any right of action upon any passenger in the rented vehicle against the short-term lessor. This section does not prevent the introduction as a defense of contributory negligence to the extent to which this defense is allowed in other cases.
      2.  The policy of insurance, surety bond or deposit of cash or securities inures to the benefit of any person operating the vehicle by or with the permission of the short-term lessee in the same manner, under the same conditions and to the same extent as to the short-term lessee.
      3.  The insurance policy, surety bond or deposit of cash or securities need not cover any liability incurred by the short-term lessee of any vehicle to any passenger in the vehicle; but the short-term lessor before delivering the vehicle shall give to the short-term lessee a written notice of the fact that such a policy, bond or deposit does not cover the liability which the short-term lessee may incur on account of his or her negligence in the operation of the vehicle to any passenger in the vehicle.
      4.  When any suit or action is brought against the short-term lessor under this section, the judge before whom the case is pending shall hold a preliminary hearing in the absence of the jury to determine whether the short-term lessor has provided insurance or a surety bond or deposit of cash or securities covering the short-term lessee as required by subsection 1. Whenever it appears that the short-term lessor has provided insurance or a surety bond or deposit of cash or securities covering the short-term lessee in the required amount, the judge shall dismiss as to the short-term lessor the action brought under this section.


Pursuant to NRS §482.305, if the rental car company does in fact have the minimum insurance policy limits, then the judge will dismiss them as an actual party to the case. In addition to these two statutes, there are three main cases that have come out of the Nevada Supreme Court to address these issues. The three cases are Alamo, Salas and Hall. 

Decided in 1998, the Nevada Supreme Court in Alamo, stated that the at-fault driver’s personal policy provides primary coverage to the injured party. By contrast, the insurance coverage provided by the car rental company is deemed to be "secondary," i.e., excess coverage. Alamo Rent-A-Car v. State Farm, 953 P.2d 1074 (Nev. 1998).  Alamo held that if the at-fault driver did not have their own personal policy covering an accident, then the rental car company "will step in and compensate the victim up to the minimum limits." 

Just two years later, in 2000, the Nevada Supreme Court wrote the Salas opinion.  In Salas, the Court determined that if the at-fault driver had insurance, but it was insufficient to compensate the injured party for their losses, then the rental car company’s insurance would also come into play. Salas v. Allstate Rent-A-Car, 14 P.3d 511 (Nev. 2000).  This is called “dual” or "stacked" coverage. The Salas Court stated that “[s]ound public policy dictates that a short-term lessor of motor vehicles may be required to compensate the victim, at least up to the statutory minimum, in cases where the lessee's personal insurance does not fully compensate the victim(s).”
 
The trilogy of cases ends with Hall.  In Hall, the Nevada Supreme Court clarified the car rental company’s liability. The Court in Hall determined that the separate coverage provided by the rental car company, is based upon the liability of the at-fault driver. Hall v. Enterprise Leasing, 122 Nev. 685, 137 P.3d 1104 (2006). In short, Hall held that Nevada is not a "direct action" state, but rather, allows actions by injured persons against the car rental company’s insurance policy, only after a judgment against the at-fault party has been obtained. 
 
In Hall, the injured party settled with the at-fault driver and then sought to seek additional compensation from the car rental company. The Court did not allow this. Based upon the holding in Hall, the car rental company’s liability arises from the liability of the at-fault driver. So, you CANNOT settle with the at-fault driver, without first seeking and preserving your rights of recovery against the car rental company’s insurance.

Next time, we will discuss the use of social media sites after being involved in a car accident.