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Federal Highway Bill Eliminates Vicarious Liability for Leases

Aug 17, 2005

The New York rule on vicarious liability, which made the lease company liable for injuries caused by a lessee while driving the leased vehicle, has been pre-empted by a provision hidden in the recently passed federal Highway bill. As a result of New York’s unique rule making leasing companies liable in personal injury actions, most major finance companies have adopted policies not to lease vehicles to New York residents.The inability to lease vehicles in New York led to the promotion of the “red carpet” or “smart-buy” programs, balloon financing arrangements, which resemble leases in that they give the buyer the option of returning the vehicle to the lender, in lieu of making the balloon payment, as an alternative to leasing. Proposals to do away with the vicarious liability law had been pending for the past several years in the New York Legislature, coming close to passage on at least one occasion.The new federal law makes these efforts moot, as the federal law “pre-empts,” or overrides, New York State law. GMAC and Chrysler Financial have already announced they will resume leasing vehicles to New York residents.Ford’s finance arm is expected to do so as well.Presumably all lenders that have been refusing to lease in New York will now resume doing so.