Massachusetts High Court Finds Federal Law Exempts Dealers From Liability For Loaner Vehicles

The Massachusetts Supreme Judicial Court (SJC) recently joined a majority of other courts in holding that the Graves Amendment, 49 U.S.C. § 30106 – which generally protects rental car companies from being held vicariously liable for torts committed by customers driving rental vehicles – also protects car dealers who provide customers with loaner vehicles while their cars are being serviced.

In Garcia v. Steele, 492 Mass. 322 (June 27, 2023), the SJC affirmed summary judgment dismissing tort claims under Massachusetts law against a New Jersey dealer that had loaned a vehicle to a customer while his vehicle was being serviced.  The dealer provided the customer with the loaner vehicle after the customer showed his driver’s license and proof of insurance and signed a “courtesy car agreement” agreement that identified the make, model, year, license plate number, and "car number" of the loaner vehicle and set forth a “rate” of “$0.00” per mile for the loaner vehicle. 

The agreement also specified that the customer would not take the loaner vehicle beyond a 100 mile radius from the dealership and that he was the only person authorized to drive it while in his possession. The customer nevertheless drove the loaner vehicle from New Jersey to Boston, Massachusetts, where he left it in a drop-off only zone with the engine running, the turn signal on, and his unlicensed wife sitting in the passenger seat while he entered a building to run an errand.  When a parking officer told the wife to move the vehicle, she moved into the driver’s seat, pushed a button, and the vehicle rolled into a nearby crosswalk, striking a pedestrian and causing severe injuries.

The injured pedestrian filed suit and asserted, among other things, a claim against the New Jersey dealer under a Massachusetts law which establishes a presumption that a registered owner of a vehicle is liable for the driver’s actions. The dealer successfully moved for summary judgment, arguing that Massachusetts law was preempted by the federal Graves Amendment, which provides that an owner of a vehicle that “rents or leases” the vehicle to a person “shall not be liable under the law of any State . . . by reason of being the owner of the vehicle” for harm arising out of the use of the vehicle during the period of the rental or lease, if the owner “is engaged in the trade or business of renting or leasing motor vehicles” and “there is no negligence or criminal wrongdoing on the part of the owner.”

The SJC affirmed the dismissal of the claim against the New Jersey dealer on appeal.  The court rejected the pedestrian’s argument that the dealer did not “rent or lease” the loaner vehicle because it provided the vehicle as a courtesy and received no consideration from the customer for its use, finding the dealer had received consideration “in the form of acquiring the opportunity to perform the repair work” on the customer’s car. The court also rejected the pedestrian’s argument that the dealer was not in “the trade or business of renting or leasing motor vehicles,” finding that the dealer maintained approximately 125 vehicles in its “loaner car fleet” and regularly provided loaner vehicles to its customers.

In extending the protection of the Graves Amendment to car dealers who provide loaner vehicles for service customers, the SJC joined a majority of state and federal courts that have considered the question, including the Eleventh Circuit in Thayer v. Randy Marion Chevrolet Buick Cadillac, LLC, 30 F.4th 1290 (11th Cir. 2022). A Florida state court reached the opposite conclusion in Romero v. Fields Motorcars, Inc., 333 So. 3d 746 (Fla. 5th Dist. Ct. App. 2022), although in that case, the court’s decision that a loaner vehicle was not “rented or leased” by a dealer to a customer appears to have been driven by the language of the loaner agreement, which explicitly stated that it was “solely for the purpose of creating a bailment which allows Customer to use the Vehicle.”

Loaner vehicles provide tremendous convenience to service customers and can help new car dealers generate substantial customer goodwill and loyalty.  A properly drafted loaner agreement can help dealers provide added value to service customers while ensuring dealers enjoy the protection from liability for customer use of those vehicles afforded by federal law to businesses that rent or lease vehicles to customers.