Key Points

  • The Graves Amendment, 49 U.S.C. section 30106, preempts Vehicle Code section 17150 when it is used to impose vicarious liability on rental car companies based solely on ownership.
  • The Graves Amendment's savings clause covers only laws conditioning registration and operation on proof of insurance or similar financial responsibility, and laws imposing liability on rental companies for failing to meet state insurance requirements; section 17150 is neither.
  • Section 17151's liability cap is irrelevant once section 17150 is preempted, because section 17151 imposes no liability of its own.
  • A rental car company that rents to a licensed driver showing no signs of unfitness is not liable for negligent entrustment merely because it did not verify the renter's auto insurance; any such duty is for the Legislature to create.
  • The panel followed Tavares v. Zipcar (2026) and the Minnesota and Connecticut supreme courts, and distinguished the Nevada Supreme Court's Malco decision.

A California appeals court held on Oct. 29 that a federal statute bars injured motorists from suing rental car companies under the state law that makes a vehicle's owner liable for crashes caused by anyone driving the vehicle with the owner's permission.

A three-justice panel of the Second Appellate District, Division One, unanimously affirmed a pretrial judgment for Midway Rent-A-Car Inc. in a suit brought by Torin O'Brien, who was in a crash with Eddie Loza three days after Midway leased Loza a car. Justice M. Kim wrote the opinion, joined by Presiding Justice Rothschild and Justice Weingart.

The decision holds that the Graves Amendment, a 2005 federal law that shields vehicle rental and leasing businesses from liability based solely on their ownership of a vehicle, preempts, or overrides, Vehicle Code section 17150 when that statute is applied to rental companies. The panel also held that a rental company owes no duty to check whether a customer carries auto insurance, rejecting the second theory O'Brien pursued. The court certified the opinion for publication.

Section 17150 imposes vicarious liability, meaning liability for another person's conduct, on an owner for injuries caused by "any person using or operating the same with the permission, express or implied, of the owner." A companion provision, Vehicle Code section 17151, caps that liability at $15,000 for one person's death or injury and $30,000 per accident when the driver is not the owner's agent.

The Graves Amendment, codified at 49 U.S.C. section 30106, provides that an owner in the business of renting or leasing vehicles "shall not be liable under the law of any State" because of its ownership, so long as the owner itself committed no negligence or criminal wrongdoing. A savings clause, a provision that carves certain laws out of the preemption, preserves state laws imposing "financial responsibility or insurance standards" for registering and operating a vehicle, and laws penalizing rental companies that fail to meet state insurance requirements.

Both sides agreed the preemption clause would excuse Midway if it applied. O'Brien argued that the savings clause protected sections 17150 and 17151. Justice Kim wrote that the clause "self-evidently does not include Section 17150," because the statute has nothing to do with proof of insurance or with penalizing a rental company for failing to carry it. "Section 17150 imposes vicarious liability on vehicle owners solely because they own the vehicle," Justice Kim wrote.

The panel adopted the conclusion of Tavares v. Zipcar, a 2026 Court of Appeal decision holding that the Graves Amendment preempts section 17150. While agreeing with O'Brien that Tavares did not bind it, the court said it would "take this opportunity to contribute to the jurisprudence." Once section 17150 falls, the panel said, section 17151's cap is irrelevant.

O'Brien relied on Wildman v. Government Employees' Insurance Co., a 1957 California Supreme Court decision, to argue that the two statutes form part of California's financial responsibility laws. The panel said Wildman made no such holding and that the federal question turns on Congress's intent. "The question is whether Congress preempted that purported public policy or scheme by enacting the Graves Amendment," Justice Kim wrote.

The court also rejected O'Brien's contention that its reading would require rental companies to buy insurance that would never pay out. The Graves Amendment does not apply when the rental company is itself negligent, the opinion said. "In such situations, Midway's insurance (or self-insurance) would presumably be available," the court wrote. It held that O'Brien had forfeited a related argument about uninsured motorist coverage by failing to cite authority or develop it.

In a reply brief, O'Brien cited a 2024 Nevada Supreme Court decision, Malco Enterprises of Nevada Inc. v. Woldeyohannes, which held that a Nevada statute survived the Graves Amendment. That statute penalizes rental companies that lack the insurance Nevada requires for registration. California's statute, by contrast, "simply makes a car owner vicariously liable (subject to the limits established in Section 17151) in a way preempted by the Graves Amendment," the panel wrote. It found support in 2010 decisions of the Minnesota and Connecticut supreme courts holding their states' owner-liability statutes preempted.

On negligent entrustment, a claim that arises when an owner hands a vehicle to a driver whose incompetence it knew or should have known, the panel found no evidence against Midway. The trial court had found that Loza held a driver's license, matched its photograph and did not seem unfit to drive. "O'Brien points to no evidence that Loza displayed any incompetency, inexperience, or recklessness that was either known or should have been known to Midway," Justice Kim wrote.

O'Brien argued instead that Midway had a duty to confirm renters carry insurance, contending that "[t]o allow rental car companies to make money by renting a vehicle they own to uninsured motorists, while being immune from liability as an owner, goes against public policy of this state." The panel held that any such new duty "should be addressed to the Legislature," quoting a 1988 decision, Osborn v. Hertz Corp.

The Legislature has already regulated car rentals without imposing that duty, the court said. The Vehicle Code requires rental companies to inspect a renter's license and keep records of it. "[W]e have found no section that requires a rental car company to check whether a renter has automobile insurance," the panel wrote.

O'Brien sued Midway and Loza in Los Angeles County Superior Court in May 2023. Judge H. Jay Ford III granted Midway summary judgment in April 2024.

Michael R. Parker of M.R. Parker Law represented O'Brien. Midway was represented by Richard Scott of The Molino Firm.

The appeals court affirmed the judgment and awarded Midway its costs on appeal. Loza, who was also named as a defendant, was not a party to the appeal, and the opinion does not address O'Brien's claims against Loza.