We all have seen it happen before — a good employee makes a terrible decision while at work or on their personal time, but what if he or she does it driving their personal vehicle while conducting business for his or her employer?
I suspect most of you are saying “what does that matter to my employer? It’s my car and my life, so what does this have anything to do with my employer?”
As a business owner, what are the ramifications for your company if the employee’s license is revoked, canceled or suspended due to alcohol, controlled substance or felony violations?
If the employee in question is a CDL driver and any of these scenarios occur, he or she will lose their driving privileges for one year. But what if he or she doesn’t hold a CDL, but instead drives a company vehicle or pick-up truck, or maybe even uses their own environmentally friendly family car to make bank deposits during lunch hour for their employer? What if the incident involves excessive speed and reckless driving? What happens then?
The truth is, employers are caught in the balance between a good employee and the potential for vicarious liability, which holds the employer responsible for the actions or omissions of another person – in this instance, your employees.
Consequently, you need to understand the “Doctrine of Negligent Entrustment” and the potential impact that your employees’ decisions can have on your business. In its general form, the Doctrine of Negligent Entrustment states:
“It is negligent to permit a third person to use a thing or to engage in an activity which is under the control of actor, if the actor knows or should know that such a person intends or is likely to use the thing or to conduct himself in the activity in such a manner as to create an unreasonable risk or harm to others.”
The legal interpretation of the principle of “negligent entrustment” is not founded upon negligence of the driver of an automobile, but upon the primary negligence of the entruster in supplying an automobile to an incompetent driver.
In other words, the employer knew or should have known of the employee’s incompetence, but in spite of this information, the employer entrusted the vehicle to the driver in the scope of his work. The employer may, therefore, be guilty of negligent entrustment.
In my world, the term negligent entrustment strikes fear in the eyes of every underwriter assuming such a risk. These types of claims costs can be enormous and punitive in nature, and business owners need to understand this risk and protect themselves from this exposure.
If Johnny is going through a divorce, has received a couple of prior DUI’s in the last 10 months and decides to stop off at the local tavern for lunch and ends up staying for a couple of extra hours drinking before returning home to his empty apartment, liability still rests with the employer. If Johnny crosses the center-line on his way home and strikes a church van full of kids, it still won’t matter if he was driving the company pickup or his own vehicle because liability can still rest with the employer.
Once an attorney is retained to represent the claimant(s) he/she will quickly discover that Johnny was driving the company vehicle or his personal vehicle for business use and they will work backward from there. Their mission will be to prove that the employer knew about Johnny’s terrible decisions (two DUI’s) and if not, they will try to prove that the employer should have known and entrusted the keys to a person with a known drinking problem.
If Johnny is driving his personal vehicle, his policy (if it’s still enforced) will become the primary insurance policy that will respond, and the company’s auto policy will become secondary. If Johnny only has the minimal state liability requirements on his own insurance policy, the company’s auto insurance policy will very quickly kick in for any costs or judgments that exceed Johnny’s insurance policy.
Hired and non-owned auto liability is a very real risk exposure for many employers today. To protect against it hired/non-owned auto liability coverage is an optional and fairly cheap upgrade that protects your business if it is liable for damages caused while an employee is using a personal or rented vehicle (not owned by your business) for business purposes.
It is very important to be proactive in managing your drivers and below are some helpful tips to better control your company’s risk exposure:
Here are some risk control recommendations to protect your company?
• Provide and document periodic driver training programs to be able to prove that safe driving behavior is not only expected but required.
• Develop a company policy to review your company drivers’ motor vehicle records (MVR) and you should review a minimum of three years. This should include all CDL drivers, company drivers and non-owned auto drivers and every driver should sign this company policy and be retained in their employee file.
• Evaluate MVR at time of hire and at a minimum annually thereafter, if not bi-annually. MVR’s cost per employee will range from $5 to $10 depending on which state.
• Establish guidelines for reporting major violations (such as DUI, reckless driving, chargeable accidents) immediately to their employer, regardless of whether the incident occurs in a personal or company vehicle.
• Develop a company policy for personal use of company vehicles that must be signed by the employee which usually restricts other family members from using the company vehicle. Many companies will even enforce a radius of use or number of miles they can drive the company vehicle from their home without permission.
• Develop a company policy for “occasional” drivers (for example, office employees who may drive to the bank or post office during the course of their work.)
• Develop a company policy for employees who may use their personal vehicles for company business (for example, outside salespeople). Requiring these non-owned drivers to carry minimum limits of $100K/300K/$100K insurance coverage on their personal auto policy before being able to use their personal vehicle for personal use. For example, office employees who may drive to the bank or post office during the course of their work using their own vehicle.
Additionally, employers have other options to manage or control the risk of an employee that may have multiple driving infractions or DUI’s, including placing that individual in a non-driving role within the company.
As an employer, it is important to remember that the consequences of allowing an employee with a less-than-stellar driving record can be of a great risk.
Due to the Doctrine of Negligent Entrustment, an employer must be address this exposure and take it seriously, because the potential liability to his or her company from allowing an employee with a poor driving history to operate any motor vehicles for work purposes can land a very good company into bankruptcy if the risk is not properly managed.
Be Safe, My Friends
Keven Moore works in risk management services and is an expert witness. He has a bachelor’s degree from University of Kentucky, a master’s from Eastern Kentucky University and 25-plus years of experience in the safety and insurance profession. He lives in Lexington with his family and works out of both the Lexington and Northern Kentucky offices. Keven can be reached at kmoore@roeding.com.