New York Court Ruling on Graves Amendment and Rental Insurance
On April 23, 2026, the New York Court of Appeals delivered a landmark ruling in the case of Second Child v. Edge Auto, Inc., under case number 2026 NY Slip Op 02436. The court determined that the federal Graves Amendment (49 USC § 30106) preempts New York Vehicle and Traffic Law (VTL) Section 370, which mandated rental firms to offer primary liability insurance up to state statutory limits. This decision reinforces the protections originally set by Congress in the Graves Amendment of 2005, providing clarity on rental companies' insurance obligations.
VTL Section 370 historically required rental companies to maintain liability insurance for vehicles they own, reinforcing this requirement under VTL Section 388. This obligation was highlighted in the 2001 ELRAC, Inc. v. Ward decision, which required that these companies provide primary insurance coverage. The introduction of the Graves Amendment aimed to reduce the financial burden of state-imposed vicarious liability on rental entities by preventing states from holding these companies liable for damages caused by a renter’s negligence.
The case began when Second Child rented a truck from Edge Auto Inc. in 2019 and subsequently faced a legal challenge following a sideswipe incident. Plaintiffs claimed that Edge Auto was responsible for providing primary insurance coverage as dictated by Section 370. However, the trial court found that the Graves Amendment preempts the primary insurance requirement of Section 370, while still recognizing the obligation for rental firms to maintain a certain level of insurance coverage.
The Appellate Division upheld this decision, and the Court of Appeals affirmed in a closely divided 4-3 decision, penned by Judge Madeline Singas. The court concluded that while Section 370 intended to reinforce vicarious liability under Section 388, the primary insurance requirement is overridden by the federal statute. Thus, New York's laws mandating primary coverage were deemed incompatible with the Graves Amendment's intent to limit liability on rental companies for damages caused by renters. However, states may still enforce financial responsibility for a company's own negligence.
The dissenting opinion, authored by Chief Judge Rowan D. Wilson and joined by Judges Shirley Troutman and Caitlin Halligan, argued that preemption principles were misapplied. They highlighted the McCarran-Ferguson Act, emphasizing the precedence of state regulation over insurance matters, viewing Section 370 as falling within the financial responsibility laws protected by the act. Despite this contention, the ruling aligns New York with other states recognizing the Graves Amendment's authority over local laws enforcing vicarious liability through primary insurance requirements, marking a significant legal evolution with wider implications for the rental industry.