N.Y.’s Vicarious Liability Costly for Consumers and Auto Dealers

New York’s so-called vicarious liability law affecting car leasing firms costs consumers more than $130 million a year and has led to a 36 percent decline in the number of vehicles leased in New York each year, according to auto dealers.

The Alliance of Automobile Manufacturers (Alliance), the New York State Auto Dealers Association (NYSADA) and the Greater New York Automobile Dealers Association (GNYADA) are fighting to repeal the state’s law that allows lessors of cars to be sued along with the lessee if the lessee gets into an accident.

New York is the only state with unlimited vicarious liability. Connecticut and Rhode Island repealed similar vicarious liability laws in 2003.

The auto groups said that car buyers and lessors in New York have paid an additional $132 million since automakers and banks began pulling out of leasing in May 2003 because of the liability exposure. These additional costs are derived from the extra sales taxes paid by consumers who were forced out of leasing and by the higher lease acquisition fees that New York consumers are charged.

More than 19 automakers and every major retail bank in New York have stopped or curtailed car leasing. Automakers still offering leases add additional charges to help offset the potential cost of vicarious liability lawsuits, the auto dealers claim.

The business groups reported that virtually every segment of the industry has seen a decrease in the number of vehicles leased. In 2003 new car and light truck leasing in New York decreased by 36 percent while the rest of the country experienced a decline of 18 percent. Minivans experienced a 52 percent drop, SUV leases declined 44 percent, and entry- level vehicles saw a 53 percent reduction in leases. The most dramatic change appeared in the mid-size pickup category with a reduction of 89 percent in leases.

In addition, the groups said, vicarious liability has contributed to the closing of 70 leasing companies since September 2000.

The groups are supporting legislation that would eliminate leaser liability in the case of a negligent driver, for whom the leasing company is not responsible. The same legislation would ensure the lessor does remain liable for defective parts.

The state Senate has passed S.397 to change the law. But thus far, the Assembly has refused to act on similar legislation, A.1042.

“Last year, more than one- fourth of the vehicles purchased in the state of New York were financed by leasing,” said Bob Vancavage, president of the New York State Auto Dealers Association. “Since GM left the leasing business in May, a number of our dealers have seen a significant drop-off in their business. We are very concerned that if action is not taken … many of our dealers – as well as other small businesses and consumers who rely on leasing – will be financially devastated.” NYSADA represents more than 1,100 car and truck dealers.

“Because the Assembly has failed to protect consumers and pass much-needed reform, New York consumers are losing the ability to affordably lease cars and trucks,” said Kris Kiser, vice president of state affairs for the Alliance, whose members include BMW Group, DaimlerChrysler, Ford, General Motors, Mazda, Mitsubishi Motors, Porsche, Toyota and Volkswagen.

“Consumers are effectively paying a ‘trial lawyers tax’ because of this ridiculous and antiquated law,” said Mark Schienberg, president of the GNYADA, with 650 franchised automobile dealership as memebers.

“It is unfathomable why New York consumers’ choices are limited, and they are losing their right to lease cars. How is that good for consumers, retailers or the economy? Consumer choice is at stake here,” Schienberg added.

Trial lawyers see the issue differently. The New York State Trial Lawyers Association (NYSTLA) has offered its own analysis and solution.

Trial lawyers claim that vicarious liability ensures that victims of accidents involving leased cars and uninsured or underinsured drivers are fairly compensated for their injuries.

It is also important because it encourages leasing firms to screen bad drivers, they maintain.

NYSTLA refutes the industry claim that vicarious liability is a major issue. They claim that although there are more than 700,000 leased vehicles in New York, there were only 216 vicarious liability lawsuits pending in January 2003.

NYSTLA has proposed a plan to create a tax-exempt fund paid for by a $500 one-time fee per lease. NYSTLA estimates that based on the industry-supplied figure of 225,000 vehicles leased in New York in 2002, the $500 would generate approximately $112 million, enough to buy a master aggregate vicarious liability policy of more than $1 billion to cover all vicarious liability claims.

Topics New York Auto Legislation