Steering Clear of Nonowned Automobile Risks...Steering Clear of Nonowned Automobile Risks September 2016 • Lockton Companies L O CKT O N CO M P ANIES TOM METER, CS, AS, ARM-, CFS

Steering Clear of Nonowned Automobile Risks

September 2016 • Lockton Companies

L O C K T O N C O M P A N I E S

TOM METZNER, CSP, ASP, ARM-P, CFPS

Vice PresidentSenior Loss Control Consultant

[email protected]

Managers and executives at all

levels, including risk managers,

often fail to fully understand

the extent of risk involved with

employees driving on company

business.

A company executive asks an administrative assistant to pick up

a food order for a company meeting. This isn’t unusual, since the

executive will frequently ask her assistant to run errands—such

as going to the post office, stopping by the bank, or picking up

clients at the airport. Because the assistant gets reimbursed for

mileage, she frequently takes her own car instead of the pool car.

The company executive made a decision to benefit their employer, but didn’t take time to consider the potential liability associated with the assistant running errands.

Source: NIOSH Center for Motor Vehicle Safety

Motor vehicle crashes are the

leading cause of work-related deaths in the US. 18,716

work-related crash fatalities

between 2003 and 2012.Source: US DOT, National Highway Traffic Safety Administration: Traffic Safety Facts, 2014

In 2014, there were 32,675 people killed in

motor vehicle crashes on US roadways.

An additional 2.3 million people were injured in crashes.

Source: Centers for Disease Control and Prevention/NIOSH: Distracted Driving at Work

For all drivers (occupational and

nonoccupational) and all age groups,

persons 20 to 29 years old

were most often: � Involved in a fatal crash.

� The driver in a fatal crash involving distracted driving.

� The driver in a fatal crash involving the use of a cell phone specifically.

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UNDERSTANDING NONOWNED AUTO LIABILITYThe insurance industry defines nonowned automobiles as vehicles that are used in connection with the named insured’s business but are not owned, leased, hired, rented, or borrowed by the named insured. In the scenario above, this vehicle is owned by an employee and used for company business. This definition applies whether the vehicle is used occasionally or on a daily basis.

A company can take steps to help control this exposure when simply prohibiting driving personal vehicles on business isn’t an option.

Even if a company doesn’t have company vehicles, it can still have a driving exposure with leased vehicles or nonowned vehicles as was the case in the example above.

Often, employers mistakenly think that they are avoiding liability by requiring employees to use their personal vehicles for business purposes. While some of the exposure can be shifted to the employee, the company can’t fully transfer its legal liabilities. In fact, this thought process can backfire.

Some personal automobile insurance companies will consider adding a business use rating to cover the employee when they are driving their personal vehicle for business use. The underwriter will require details, including the purpose and amount of time the vehicle is used for business. A business use rating could be an option for sales people or realtors, who use their vehicle to perform their jobs.

A delivery company was found

liable for a car accident after

one of its drivers turned into

the path of a pickup and the

two vehicles collided. The

court ruled that although the

driver was an independent

contractor, he was still subject

to daily control by the delivery

company thus making the

company liable.

Regardless of your industry,

it is important to understand

the exposures associated with

nonowned auto liability.

September 2016 • Lockton Companies

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Employers occasionally request to be listed as additional insureds on employee auto policies. However, because the employer has no insurable interest in the employee’s automobile, personal automobile insurance companies do not want to accept the company’s liability by adding them as an additional insured. This approach may result in an employee having a business use exclusion placed on his or her policy, basically forfeiting coverage for a collision when the employee is driving on company business. Some personal auto policies proactively exclude coverage when the vehicle is used in the scope of business. In either of these cases, the employer’s assumption that the employee’s policy would protect the company is incorrect. The reality? These provisions on the personal policy means there is no coverage. This is when the employer’s nonowned auto policy would come into play.

Even if the driver’s personal auto policy is primary, any significant collision can far exceed these limits. Employers may try to specify minimum limits of liability for the driver to carry on his or her personal automobile policy. This can present an issue when the driver is carrying only state minimums, which can be as low as $10,000 like in the state of Florida. Taking this approach can create additional complications. Sometimes, employees don’t want their employer to know what limits they carry; other times, they want additional compensation to purchase higher limits.

NEGLIGENT ENTRUSTMENTBeyond insurance considerations, the driving habits of the employee need to be scrutinized. Under the negligent entrustment doctrine, courts have awarded multimillion-dollar lawsuits against companies that have permitted employees to drive their personal automobiles on company business or are provided company vehicles, when the employees’ driving records are of concern.

An employee slammed his company-owned vehicle into another

car, injuring the occupants and killing one. The charges against

the employee included running a red light, speeding, and vehicular

manslaughter. The employee’s employer was also charged. While the

employee was not on company business at the time of the accident, a

Georgia jury found his employer guilty of negligent entrustment due to

the 15 speeding tickets on the employee’s driving record. They awarded

the plaintiff $15 million.

It’s worth noting that negligent

entrustment settlements could

be considered punitive and may

not be covered by insurance.

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September 2016 • Lockton Companies

WHAT STEPS CAN EMPLOYERS TAKE TO

CONTROL THEIR AUTO RISK?For an employer with a driving exposure, the first level of control involves a written vehicle safety program that’s consistently applied to all drivers. The minimum essential controls may appear daunting, but there are a number of fleet management vendors with low-cost programs that manage many of these requirements with a simplified program. Lockton can assist with identifying service providers.

Beyond the controls used to help improve driver selection, consideration should be given to vehicle controls, such as:

� Maintaining the vehicle in a safe, roadworthy condition.

� Regularly scheduling and documenting inspections by a manager who has been trained to complete the form.

� Installing onboard devices that capture triggering events, such as excessive acceleration, hard braking, speeding, and crashes.

Certain insurance companies have special requirements for insureds that have driving exposures, so it’s important to confirm what these requirements are and that they’re strictly enforced.

CONCLUSION

Prohibiting employees from driving on company business is the surest way to avoid the nonowned auto

exposure, but this is unrealistic for many organizations. Lockton can provide guidance as to your auto liability

insurance carrier’s nonowned auto coverage as well as a vehicle safety program that will help ensure that your

operation has performed the due diligence needed to protect the company’s assets.

TYPICAL REQUIREMENTS � Motor Vehicle Record/background checks

� Driver conduct policy

� Cell phone policy

� List of approved drivers

One company agreed to a $5.2 million dollar settlement

when its employee, driving for work, caused an accident that

resulted in a woman losing her arm. The employee was using

a cell phone and speeding at the time of the accident.