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As of June 11, 2026, the New York decision in O'Hare v. Eddo continues to affect how dealerships handle courtesy cars. The Appellate Division, Fourth Department, ruled that a no-charge loaner is not a “rental” under the Graves Amendment. That means the federal statute does not protect the dealership from state-law vicarious liability.
The Graves Amendment was designed to shield rental-car owners from state owner-liability claims. The statute does that by preempting state laws that would make vehicle owners responsible for the negligence of renters or lessees. For a dealership to receive that protection, the vehicle must be “rented or leased” to the driver. If the vehicle was merely loaned for free, the statute may not help.
New York law is especially important here. Vehicle and Traffic Law § 388 makes vehicle owners liable for the negligence of any person driving with the owner's permission. That rule goes far beyond the usual employer-employee relationship. It reaches a dealership when a customer drives a courtesy vehicle with the dealer's consent. The dealership may then have to answer for the customer's driving even if the dealership itself was not negligent.
That is exactly the situation addressed in O'Hare v. Eddo. A customer involved in an accident had been driving a vehicle supplied by a dealership while the customer's own vehicle was being serviced. The plaintiff sued the dealership as the owner. The dealership argued that the Graves Amendment barred the claim because the loaner was part of a rental or lease business. The Fourth Department disagreed.
The court's reasoning turned on payment. A rental or lease, the court said, requires consideration for the use of the vehicle. The loaner in O'Hare was given without any charge. It was therefore a gratuitous loan, not a rental. Without a rental or lease, the federal preemption statute had no role to play. The dealership remained subject to New York's broader owner-liability rule.
The practical effect is significant. A dealership can now be kept in a lawsuit even when the driver is clearly at fault. A jury still decides negligence and damages, but the dealership cannot use the Graves Amendment as an early-exit defense. This can increase litigation costs and settlement pressure because the dealership's assets and insurance may be available to satisfy a judgment.
The case also clarifies a common misunderstanding. Not every vehicle provided by a commercial business is a rental. If the customer pays nothing for the vehicle, the transaction may look more like a favor than a rental. Courts will focus on whether money or something of value was exchanged for the vehicle's use. Labels such as “loaner” or “courtesy car” are less important than the economic reality.
For dealerships that operate both a rental department and a service loaner fleet, the distinction can create uneven outcomes. A paid rental customer is covered by the Graves Amendment. A service customer who receives a free loaner is not. The same vehicle, handled through different administrative paths, can produce vastly different liability results.
Permission can also matter under Section 388. The law applies when the driver has the owner's express or implied permission. A dealer might argue that a customer exceeded the scope of permitted use. But courts generally read permission broadly in these cases. A written agreement that limits the borrower to specific purposes may help a dealer avoid broader permission being inferred. Without clear terms, the safer assumption is that a customer using the loaner has the dealer's permission.
Several questions remain open. The Graves Amendment does not define the terms “rents or leases.” O'Hare resolves the no-payment case, but it does not set a minimum rental price. Would a $1 per day charge be enough? What about a fee buried in a repair invoice? A court applying O'Hare's reasoning would likely ask whether the dealership received consideration for the loaner. The more identifiable the payment, the stronger the argument for immunity.
The phrase “free” also deserves close attention. Some dealerships describe loaners as free while charging a documentation fee, a cleaning fee, or a daily fee that is waived if the car is returned on time. A court asked to apply O'Hare would need to decide whether those charges were real or merely cosmetic. The economic substance of the transaction, not the marketing language, should control.
Another complication is that the Graves Amendment does not eliminate every legal theory against an owner. It targets vicarious liability, not negligent entrustment or defective maintenance. A dealership could still face claims if it knew a driver was incompetent or if the loaner vehicle was not properly maintained. Plaintiff's lawyers may plead alternative theories even when the Graves Amendment applies. O'Hare does not shut that door.
Dealerships that want to preserve the federal shield should review their loaner procedures. A transaction that is documented as a rental, with a stated fee and signed agreement, is more likely to qualify as a rental. A process that treats the vehicle as an accommodation is more likely to fall outside the Graves Amendment. The choice belongs to the dealership, but it must be deliberate.
There are also steps dealerships can take before handing out keys. Written loaner agreements can identify the authorized driver, limit the purpose of the trip, and require proof of insurance. Driver history checks can reduce the chance that a high-risk customer gets behind the wheel of a dealership vehicle. None of those steps restore the Graves Amendment, but they can reduce claims and improve the dealership's defense posture.
Insurance is another reason to focus on the distinction. Commercial auto policies often define covered vehicles differently from vehicles “rented to others.” After O'Hare, a no-charge loaner may not be considered a rental under federal law, and that classification may affect coverage. Dealerships should ask their insurance brokers whether their loaner vehicles are covered and whether an endorsement is needed.
O'Hare does more than resolve one dispute. It serves as a warning that the Graves Amendment is not a one-size-fits-all shield. A dealer that provides free loaners is not the same as a rental company. For plaintiffs, the decision keeps the dealership responsible. For risk managers, it makes the cost of a “free” loaner potentially very high.
This article provides general information only and does not constitute legal advice. Dealerships should consult counsel about the current effect of O'Hare v. Eddo on their specific loaner programs.
