Know Your Auto Exposures
Do you know that you could be liable for accidents caused by your employees while driving their own vehicles for business?
- Your street and roads department supervisor drives his own vehicle to a repair project to check on progress before heading home for the day.
- A group of law enforcement officers are asked to stop by the gun range on the way home from their shift.
- An administration employee for the county commissioners is going to lunch and is asked, as is frequently the case, to stop by the store to get supplies.
- A social services worker drives her own vehicle every day for client home visits.
If an accident occurs in any of these scenarios, your automobile policy can be brought in to pay the remainder of the damages after the employee’s personal automobile insurance limits have been exhausted. The exposure is called Non-Owned Auto Liability and it can contribute to significant expenses for your entity.
The occasional use of an employee’s vehicle is not unexpected but it should be minimized to reduce the overall likelihood of claim participation. The more challenging issue is displayed above in the fourth example where an employee uses their own vehicle daily to conduct business for you. The remainder of this document is focused on this regular use of the employee’s vehicle for business.
What do we mean by the term Non-Owned Auto?
It is as it sounds – liability for autos that are not owned by your entity. The term “non-owned auto” in an automobile policy refers to autos that you do not own, lease, rent or borrow and that are used in connection with your business. It is the use of an employee’s personal vehicle by the employee to conduct business activities for their employer under the approval and/or knowledge of the employer.
What about the employee’s own policy?
Any employee driving their own vehicle should have his/her own auto insurance; it will respond first as the primary coverage. The employer’s auto liability insurance will only kick in to cover damages above the policy limits of the employee’s personal insurance, but only up to the employer’s policy limit.
In some states, the minimum limits required for insurance coverage on a personal automobile insurance policy can be as low as $10,000/$20,000. The employee may not wish to purchase higher limits than what is required by the state. Should the damages from an at-fault crash result in losses greater than that amount, the employer could be held liable for those damages. Therefore, it is important to have the employee who drives their own vehicle for company business supply limits of coverage as suggested by the entity’s insurance agent/broker.
You should know, many personal auto liability policies will exclude coverage if business operations are involved. In these cases, your organization will still be excess, but there might be no underlying coverage.
What can you do to eliminate or reduce non-owned auto losses?
First and foremost, if you are not comfortable allowing an employee to drive your entity’s vehicle, you should not let that employee drive his/her own vehicles for business. Just as you review the driving records of drivers assigned a company vehicle, you should review the motor vehicle records of employees who use their own vehicles for business purposes. Driver behavior behind the wheel does not vary between work and personal life. If the driver does not meet your driving standards, do not let them drive any vehicle for business.
Second, recognize that an employee’s personal vehicle may not be as well maintained as a company-owned vehicle and may not be road ready when needed. The employee could also be uninsured, underinsured, not have a valid driver’s license or have a poor driving record.
If you knowingly allow a poor driver to drive and a serious crash occurs, charges of “Negligent Entrustment” may be filed against you. Negligent Entrustment means to assign someone a trust or duty in an inattentive or careless fashion or without completing required due process steps. If proven, you can be held liable for damages including punitive damages, which may be non-insurable based on state public policy.
When use of a personal auto is required for business purposes, use sound risk management practices to minimize the liability exposure:
- Treat the operation of an employee-owned vehicle the same as that of a company-owned vehicle.
- Require the driver to frequently inspect the vehicle to assure road readiness and verify proper maintenance has been conducted. This would include having the employee keep all maintenance records.
- Maintain a copy of the employee’s valid driver’s license.
- Screen the employee’s motor vehicle record for acceptable driving performance.
- Require employees to carry acceptable automobile liability limits, as prescribed by your agent/broker.
- Obtain a copy of the declaration page of the employee’s personal automobile insurance policy for the driver’s file.
- Perform a “road test” with the employee to assure proper driving ability and basic defensive driving skills.
- Include non-owned drivers/employees in driver training sessions and fleet safety meetings.
- Implement a written cell phone and electronics distracted driving policy.
- Require the employee follow the entity’s driver rules/standards.
- Require the driver to sign an acknowledgment for responsibility of primary automobile insurance.
MVR checks should be done at the time of hire for all employees who will routinely drive on company business, including all non-owned drivers. In addition, they should be re-evaluated every 12 to 16 months to ensure their driving record remains acceptable. You should never rely on someone else (insurance broker or carrier) to determine driver acceptability. Adopt your own criteria for acceptable Motor Vehicle Records (MVRs) and determine if an employee should be allowed to drive on company business. You – as the employer – will be held accountable if legal action is taken against you due to an accident caused by an unacceptable driver.
If you need assistance developing these programs, or would like additional information on the topics discussed in this article, please contact OBGRRiskControl@onebeacongov.com and a Risk Management Consultant will be in touch.