ATLANTA A U.S. appeals court has upheld the federal preemption of state laws that imposed vicarious liability for traffic accidents on the companies that leased the vehicles to the users who had the accidents.

The federal law, adopted three years ago and known as the Graves Amendment, says that a lessor of a motor vehicle, if it is in the business of leasing motor vehicles, may not be held liable for the negligence of its lessee merely because it is the vehicles owner, state laws to the contrary notwithstanding.

In a nutshell, the Graves Amendment preempted laws in 12 states for commercial vehicles and 13 states for autos that allowed an accident victim to sue not just the driver and renter of a vehicle, but also the renting or leasing company that owns the vehicle. (See Sept. 1, 2005, Bus & Motorcoach News.)

The legislation was designed to protect the interests of leasing and rental companies that can lose their business when lawsuits arise as a result of bad accidents. The law was expected to decrease losses by leasing companies and reduce their insurance costs, enabling them to expand their leasing ability and keep their rates under control. This was seen as being positive for the motorcoach industry.

In the appeals court case, the lessees negligence allegedly caused the accident at issue but there was no claim the lessor had been negligent itself, either in renting the car to the lessee or for any other reasons.

The lessor sued for a declaratory judgment that the Graves Amendment overrode the Florida law that would otherwise have conferred vicarious liability upon it.

The injured parties argued that the savings clause in the amendment that provided that it did not affect state financial responsibility requirements for motor vehicle lessors applied here, since the caps that Florida put on the vicarious liability of a lessor depended on a lessors insurance coverage. The court ruled that this connection was irrelevant and that granting the argument would, moreover, allow any state to avoid the preemption.

The court opinion wound up with an explicit finding that the amendment was constitutional under the commerce clause of the U.S. Constitution even where, as in this case, both the rental and the accident took place in a single state.

The entire area affected by the amendment, said the court, was largely interstate in nature, and within Congress purview to regulate.

Five other cases have been filed challenging the Graves Amendment. In four of the cases the decision has been in the lessors favor; the final case, in New York, is still pending.