June 9, 2003
By Walter Olson
THE most heartfelt goal of Speaker Sheldon Silver's Assembly majority, it sometimes seems, is to keep the state safe for the activities of the New York State Trial Lawyers Association (NYSTLA). And now the cost is about to hit home for thousands of New Yorkers trying to do something people elsewhere in the country take for granted: Lease a new car.
In recent months, the financing arms of GM, Ford and Honda have all said they'll stop leasing cars in New York rather than go on operating under the state's peculiarly harsh liability law. Other automakers are eyeing their example. Chase, the state's leading independent provider of auto leases, will pull out July 1; according to an official, it's been hit with lawsuits demanding more than $1 billion.
With other lenders such as Bank One already gone and smaller banks unwilling to face the liability risks, that leaves "virtually no" independent leasing companies to step into the gap left by the big automakers' departure, according to Charles Territo of the Alliance of Automobile Manufacturers.
The crisis has been building for years. Under the state's "vicarious liability" law, when a leased or rented car gets into an accident, those hurt can sue the leasing company with no need to show that it was in any way at fault. After the 1989 one-car crash that killed Billy Martin, the Yankee manager's widow used the law to sue Ford Motor Credit, which had leased him the car, even though the family friend who was at the wheel was later convicted on alcohol-related charges.
The law dates back to the 1920s; a recent report for the state Bar Association explains that it was originally aimed at giving owners of livery and chauffeured vehicles a reason to be careful about who they hired as drivers. But car-lease providers aren't even allowed to check applicants' driving records. Today, the law serves one purpose only: providing deep pockets. "The public policy is that we want to provide a financially responsible source when somebody has been injured," NYSTLA's Jeff Lichtman has said.
But at what cost? Nearly every other state has either ditched "vicarious liability" entirely or at least capped the damages that the car's titular owner must pay: California, for example, limits liability to $35,000.
Only New York, Connecticut and Rhode Island impose wholly unlimited liability - a sweet deal for trial lawyers, who otherwise usually find their expectations constrained by a driver's insurance policy.
The same law has wrought havoc on the short-term car-rental business: Try to reserve a Hertz or Avis vehicle in Brooklyn or The Bronx, and you may face a surcharge of $60 or $80 a day over what the same car would rent for in the rest of the country.
As claims have spiraled in recent years, GMAC and other lease providers tried to stem their losses in similar fashion by imposing higher in-state "acquisition fees," with New Yorkers asked to pay $1,000 instead of the $400-$600 typical elsewhere. But even that proved at best a stopgap.
Matters came to a head last year, when Rhode Island's high court upheld a suit against Chase over an accident caused by one of its lessees, and a jury ordered the company to pay $28 million. Since the number of leased vehicles on the road in Rhode Island is estimated at just 25,000, lessors would have to hike fees by $1,000 a customer to recoup the cost of that one verdict over three years - to say nothing of the other suits they face.
That did it: companies threw in the towel and began pulling out of the three unlimited-liability states.
Trial lawyers wield less clout in Hartford than in Albany, and on Wednesday the legislature there passed and sent to Gov. John Rowland a bill to bring the state's law into line with those of the majority 47 states, upon which Chase promptly announced that it would start writing leases again for Nutmeg State drivers. A similar bill has passed Rhode Island's Senate and is considered to have good chances of enactment.
That would leave New York as the last holdout: While the state Senate has passed a bill repealing the doctrine and Gov. Pataki is considered favorably disposed, it's hit the usual wall of opposition in Silver's trial-lawyer-dominated Assembly
Last Monday, NYSTLA tried to take the offensive with a press conference at which it accused the leasing industry of being poorly managed and claimed that "vicarious liability has had nothing to do with" its in-state losses. That would come as a surprise to locals who say payouts under the New York law last year cost GM at least $50 million and Ford $34 million.
The trial lawyer group also claims that the auto-leasing business "has dramatically contracted nationally, in vicarious liability and non-vicarious liability states," but doesn't explain why GM, Ford, Honda and Chase are happy to go on writing business in the other 47 states (make that 48, with Connecticut).
And NYSTLA points out that only 215 claims were recently pending under the New York law - but forgets to mention that the amounts demanded in that "mere handful" of suits exceed $1.5 billion.
Such huffing and puffing hasn't even been enough to convince NYSTLA's brethren in the 75,000-member state bar association, which this year horrified the lawsuit lobby by endorsing change in the law.
Perhaps despairing that Albany will see reason, Ford has begun promoting a program in which it sells its customer a car, then promises to buy it back after three years when a "balloon" loan comes due. It's an awkward, expensive program that gives most consumers a much worse deal than they'd get from a conventional lease, but does manage to sidestep the liability law.
If it's the only deal available next time you visit an auto dealership, remember to write and thank Speaker Silver - care of his day job at a leading personal-injury law firm.
Walter Olson is senior fellow at the Manhattan Institute and author of "The Rule of Lawyers."
©2003 New York Post
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