Business use coverage Insurance Risk

Is my company exposed to employee accident liability?

If you have employees that drive their personal vehicle for work, you could be exposed to excess liability. In the event of an accident, a company can be held liable for property damage and injuries caused by employees.

Switching off fleets and allowance-based company car programs does not necessarily reduce employer liability. Legal issues can still arise through vicarious liability, even when employees are driving their own vehicle with personal insurance plans. Employers must, therefore, ensure that drivers have adequate insurance coverage for their business activities. 

Respondeat Superior and vicarious liability 

Respondeat superior[1] is a legal theory holding that employers are liable for employee activity when an employee is acting within the scope of employment.[2] Respondeat superior is most frequently used in civil cases where injury or property damage has been caused. Also, in these cases, employers and employees are often held jointly liable for damages.[3]

What counts as “within the scope of employment” can be surprisingly broad. One story even tells of an employee who caused an accident at 2AM while attending a conference in Alaska.[4] The employer was deemed liable for the damages because they had told the employee to network at the conference.

There are certain cases in which employers are not directly responsible. If an employee is on a personal errand, or has an accident while driving home from work, the employer will not usually be held responsible.[5]

There are several tactics that employers might use to reduce their liability.

One tactic is to put sound policies in place that govern employee activity, and encourage responsible driving. This should of course be done; however, accidents occur in unforeseen ways: it is impossible to write company policies to govern every imaginable situation.

Another tactic is to argue that an employee committed an act intentionally. This, however, could be difficult to prove, and neglects the fact that accidents happen to everyone.

Neither of these options are as effective as making sure employees who drive their own vehicles for work have adequate auto insurance. Legitimate accidents happen, and it is best practice to be protected for when they do.

Which insurance policy does my company need?

In many cases, an injured party will target employers because they have more money to cover the cost of damages. In choosing policies, then, it is important that the coverage value is high. It should be high enough to cover both extensive property damage and serious personal injuries.

Costs can quickly mount. Hospital stays, even short ones, are expensive. Yet mandatory minimum insurance levels, set by state governments, tend to be low.

In Florida, you can purchase as little as $20,000 in liability insurance. That figure is meant to cover both bodily injury and property damage. In reality, serious car accidents can cost more than a million dollars.[6]

Insurance companies need to be made aware of a driver’s risk profile before they issue a policy. They need to know the nature of the employee's work to determine which policy to issue. Insurers want to know whether an employee is using their personal vehicle for work, or only for pleasure.

All insurers have a specific “business use” designation. This endorsement alerts the insurer to the fact that the vehicle in question is being used for business purposes. The premiums associated with a business use endorsement are higher, but the coverage is necessary.

If a driver does not disclose that their car is being used for work, their insurer could refuse to pay a claim. They could argue that the policyholder misrepresented the nature of the driving.

How do I guarantee that my company’s risk is minimized?

Frequent reviews of employee insurance policies are necessary to mitigate risk. The best practice is to inspect each insurance document at renewal.

Verifying the insurance policies of hundreds or thousands of employees is burdensome. There are more than 100 auto insurance providers in the United States and all their policies look different. Many of these insurers use different codes for “business use” designations, further complicating the authentication process.  

If, however, you are with a vehicle reimbursement program provider like Cardata, this process can be automated. Ensuring that insurance policies are compliant with company standards, and that they adhere to industry best practices. Get in touch if you want to learn more!

 

 

Disclaimer: This article contains no legal advice. It is written purely for information and entertainment purposes. If you need legal advice relating to anything discussed in this article, contact a lawyer.

 

References

[1] https://www.britannica.com/topic/respondeat-superior

[2] https://www.wolterskluwer.com/en/expert-insights/employee-vehicle-use-liabilities-and-policies

[3] https://www.law.cornell.edu/wex/respondeat_superior

[4] https://www.youtube.com/watch?v=4SsH8z8-Ayo

[5] https://www.timesheets.com/blog/2017/01/employers-liability-employee-auto-accidents/

[6] https://www.theintelligentdriver.com/2020/08/26/what-is-the-average-cost-of-a-car-accident/

Further reading

https://orlandoautobody.com/car-accidents/statistics-and-costs-of-a-car-accident/