Key Takeaway
New York Appellate Term rules permissive use statute prevents rental companies from seeking indemnification from renters for accidents by unauthorized drivers.
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ELRAC LLC v Duque, 2016 NY Slip Op 26169 (App. Term 1st Dept. 2016)
This is not a no-fault issue but something that has always worried me in my own life. Assume like many people you rent a car. Furthermore, assume you let someone drive it who is not on the rental contract. That someone else gets into a car accident. Under New York law, the rental company is primary for the standard 25/50/10 and $50 PIP.
Assume the rental company pays our monies to settle the third-party liability and/or PD case. Now, the rental company wants their money back from you, the renter. The theory for recovery is that you breached the contract through allowing someone drive the vehicle.
It was thought in the subrogation circles that this was a viable basis of recovery. The Appellate Term has now held otherwise and appears to be applying the anti-subrogation rule (an insurance carrier cannot generally recover from its own insured the amounts it pays out on the insurance contract covering the insured)
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The theory is that the rental car is self-insured; the coverage is not contractual but forced upon the rental car company; and the vehicle was used outside of the scope of contractual use between the renter and rental company. The Appellate Term disagreed and stated the following:
“Section 388 of the Vehicle and Traffic Law states that the owner of a motor vehicle may be held civilly liable for any damage caused by the owner or any permissive user of the vehicle. Vehicle and Traffic Law § 370 requires rental car companies to provide insurance for their vehicles, including minimum liability coverage of $25,000 for bodily injury, and further requires that such insurance “inure to the benefit” of any permissive user of the vehicle (Vehicle and Traffic Law § 370). As a result of the interplay of §§ 370 and 388, a rental car company such as Enterprise is prohibited from seeking indemnification from its renter “for amounts up to the limited liability requirements” of the Vehicle and Traffic Law (Elrac, Inc. v Ward, 96 NY2d 58, 73 , rearg. denied 96 NY2d 855 ). Since the underlying claim is for a sum considerably less than the statutory minimum of $25,000, the action must be dismissed. To allow Enterprise to pass on the $9,000 cost to its insured would permit Enterprise to avoid the coverage it was statutorily bound to provide (id. at 77).”
I am curious if instead of bringing suit under a breach of contract, the rental company can bring suit under a “fraudulent procurement” theory. This of course requires ELRAC to assert that the vehicle would not have been rented to the renter had it knew the ULD was operating the vehicle. Assuming this is answered in the affirmative, then a Kaplun type recover is appropriate.
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Legal Context
Why This Matters for Your Case
New York law is among the most complex and nuanced in the country, with distinct procedural rules, substantive doctrines, and court systems that differ significantly from other jurisdictions. The Civil Practice Law and Rules (CPLR) governs every stage of civil litigation, from service of process through trial and appeal. The Appellate Division, Appellate Term, and Court of Appeals create a rich and ever-evolving body of case law that practitioners must follow.
Attorney Jason Tenenbaum has practiced across these areas for over 24 years, writing more than 1,000 appellate briefs and publishing over 2,353 legal articles that attorneys and clients rely on for guidance. The analysis in this article reflects real courtroom experience — from motion practice in Civil Court and Supreme Court to oral arguments before the Appellate Division — and a deep understanding of how New York courts actually apply the law in practice.
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Material Misrepresentation in Insurance Policy Procurement
An insurer may void a policy ab initio if the insured made a material misrepresentation during the application process. Under New York Insurance Law 3105, the misrepresentation must be material to the risk — meaning the insurer would not have issued the policy or would have charged a higher premium had it known the truth. In no-fault practice, misrepresentation defenses can eliminate coverage entirely. These articles analyze the legal standards, the burden of proof on the insurer, and the case law governing rescission based on misrepresentation.
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Disclaimer: This article is published by the Law Office of Jason Tenenbaum, P.C. for informational and educational purposes only. It does not constitute legal advice, and no attorney-client relationship is formed by reading this content. The legal principles discussed may not apply to your specific situation, and the law may have changed since this article was last updated.
New York law varies by jurisdiction — court decisions in one Appellate Division department may not be followed in another, and local court rules in Nassau County Supreme Court differ from those in Suffolk County Supreme Court, Kings County Civil Court, or Queens County Supreme Court. The Appellate Division, Second Department (which covers Long Island, Brooklyn, Queens, and Staten Island) and the Appellate Term (which hears appeals from lower courts) each have distinct procedural requirements and precedents that affect litigation strategy.
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