Whether a rental car company can enforce an indemnification clause that passes liability for third party injuries onto renters when the damages are below the minimum amount statutorily required to be covered by insurance.

No. A rental company can only enforce an indemnification clause when the damages are above the minimum insurance amounts required under Vehicle and Traffic Law § 370.

This decision resolved four separate disputes stemming from accidents involving ELRAC rental cars and injured third parties. In each case the injured third party sought damages from ELRAC, who in return sought indemnification from the renter. ELRAC based its claims for indemnification on signed rental agreements requiring indemnification from any claims arising out of the renter's use of the vehicle. The Appellate Division found for ELRAC in each case. The Court of Appeals consolidated the cases, granted leave, and reversed, remitting the cases to the Supreme Court in order to reapply the clarified standard.

The Court based its decision on Vehicle and Traffic Law § 370, Vehicle and Traffic Law § 388, and indemnification law. Section 370 requires rental car companies to obtain insurance and sets a minimum standard for liability insurance. Section 388 states that an owner of a vehicle may be held civilly liable for any damage caused by any permissible user of the vehicle. The Court found that, as owner, ELRAC is clearly liable to injured third parties under § 388. Additionally, because § 370 requires rental companies to obtain minimum insurance, ELRAC is not permitted to enforce indemnification from its renters where the total damages are below the minimum amount required for liability. The Court rejected the argument that self-insurance negated the minimum requirements, as Section 370 imposes the same requirements regardless of the source of insurance. In addition, the Court found that the policy behind the antisubrogation rule prevents self-insurers, such as ELRAC, from passing losses to renters in order to avoid the obligation to cover damages up to the minimum liability for its statutory insurance. However, the Court acknowledged that ELRAC may enforce the indemnification clause, if otherwise acceptable, for amounts above the statutory minimum, reasoning that ELRAC has no obligation to insure at higher levels and may therefore freely contract to indemnify itself from such claims.