ELRAC, Inc. v. Ward, 99 N.Y.2d 64 (2002)
r
r
A rental car company cannot enforce an indemnification clause in its rental agreement to recover from the renter amounts paid to third parties for injuries caused by the renter’s negligence, up to the minimum insurance coverage the company is required to provide under New York Vehicle and Traffic Law § 370.
r
r
Summary
r
ELRAC, a rental car company, sought indemnification from renters for damages paid to third parties injured in accidents involving ELRAC’s vehicles. ELRAC’s rental agreements contained clauses requiring renters to indemnify the company. The New York Court of Appeals held that ELRAC could not seek indemnification for amounts up to the minimum insurance coverage mandated by Vehicle and Traffic Law § 370, which requires rental companies to maintain minimum liability insurance. The court reasoned that this requirement ensures financial responsibility for injuries caused by permissive users, including renters, and prevents rental companies from circumventing their statutory obligation through indemnification agreements.
r
r
Facts
r
ELRAC, a self-insured rental car company, included an indemnification clause in its rental agreements, requiring renters to indemnify ELRAC for liabilities arising from the renter’s use of the vehicle. Several incidents occurred where individuals driving ELRAC rental cars caused accidents, resulting in injuries to third parties. ELRAC, as the vehicle owner, was sued under Vehicle and Traffic Law § 388 and subsequently sought indemnification from the renters based on the rental agreements.
r
r
Procedural History
r
The cases, consolidated on appeal, involved various lower court decisions regarding the enforceability of ELRAC’s indemnification clauses. Some lower courts upheld the clauses, while one found it unenforceable. The Appellate Division rulings were split. The New York Court of Appeals granted leave to appeal to resolve the issue of whether ELRAC could enforce these indemnification clauses.
r
r
Issue(s)
r
Whether a rental car company can enforce an indemnification clause in its rental agreement to require a renter to indemnify the company for damages paid to third parties injured as a result of the renter’s negligence, when those damages fall below the minimum insurance coverage required by Vehicle and Traffic Law § 370.
r
r
Holding
r
No, because Vehicle and Traffic Law § 370 requires rental car companies to provide primary insurance coverage to renters up to the statutory minimum liability limits, and an indemnification clause cannot circumvent this statutory obligation.
r
r
Court’s Reasoning
r
The Court of Appeals reasoned that Vehicle and Traffic Law § 370 mandates that rental car companies maintain minimum liability insurance for their vehicles, which