Hey Buddy, Can You Lend Me a Car?

Does your dealership have a “loaner” program for customers who bring their cars in for repair? If so, do you have a written policy regarding your loaner practices and the appropriate forms to be signed by the customer in case the customer is involved in an accident that harms others?
Before you turn over the loaner car keys, do you investigate the customer? Do you ask for a copy of his or her driver’s license? Do you check the motor vehicle administration records to determine whether the license is suspended or valid?

Should you? You can bet your grandmother’s cornbread recipe that if your customer hurts someone else with your car, a lawyer will try to claim that you are responsible – that you “negligently entrusted” the car to the person who actually caused the harm. A recent case discusses the duty of a lessor in a similar setting.

Jude Sone leased a car from Enterprise Leasing Company of Norfolk/Richmond, LLC, in Virginia and drove the car to Maryland where he was involved in an accident that injured his passenger, Bertrand Essem. Essem sued Sone for negligence and sued Enterprise for negligent entrustment. Enterprise moved to dismiss the claim against it, and the Maryland federal trial court granted the motion.

Essem claimed that Enterprise should have known that Sone’s driving privileges had been suspended or revoked in Virginia and that Enterprise was negligent in failing to ensure that Sone was licensed to operate the car it rented to him. The court concluded that the test Essem proposed was not appropriate and instead found that in order to state a claim for negligent entrustment, Essem must allege that Enterprise knew or should have known that Sone was likely to use the car “in a way that put others at risk of physical injury.”

The court found that although suspension or revocation of a driver’s license could indicate that a driver is unfit to drive, a license could also be suspended or revoked for “a benign unpaid traffic ticket.” Therefore, the court found that Sone’s car accident was not “reasonably foreseeable based on the license suspension or revocation.” Moreover, the court found that neither Maryland nor Virginia law required Enterprise to look beyond Sone’s “facially valid” driver’s license to check his driving history.

So, what’s a dealer to do? Is it safe, from a liability standpoint, to rely on this case and simply verify that a customer has a license that appears valid on its face? Should the dealer inquire of the customer whether the license is still valid? If it isn’t, should the dealer inquire further about the reason for the invalidity and determine whether that reason indicates that the customer would use the car in a way that would put others at risk of injury?

Remember that this is a Maryland case, and cases in other jurisdictions might well have unfavorable outcomes for dealers. Some states may have laws or regulations addressing the dealership’s duties regarding loaner cars. Dealers, and even Maryland dealers, should work with the dealership’s attorney to determine what the law on negligent entrustment is in the dealer’s state and to fashion a loaner policy and the documents to be used in loaner transactions to be sure that the dealer is as protected as possible. Involving the dealership’s insurance company in the process is also a good idea.

tom-hudsonThomas B. Hudson, Esq. (tbhudson@hudco.com) is the Publisher of Spot Delivery(r), a monthly legal newsletter for auto dealers, and the Editor in Chief of CARLAW(r), a monthly report of legal developments in all states for the auto finance and leasing industry.  He is also a partner in the Maryland office of Hudson Cook, LLP. Spot Delivery and CARLAW are produced by CounselorLibrary.com LLC.  For information, call 410-865-5411 or visit www.counselorlibrary.com.

Copyright (c) 2014 CounselorLibrary.com LLC. All rights reserved.  This article appeared in Spot Delivery(r). Reprinted with express permission from CounselorLibrary.com.