Are employees driving their own vehicles a business risk?

By Tony Hopkins,  CPCU, CIC, CRM

If your employees drive their personal vehicles for work, your business is at risk of financial liability in the case of an accident. In this article, we focus on non-owned autos (an exposure faced by nearly every company), what it is and how to reduce your risk to loss.

In the insurance industry, “non-owned autos” carry a specific definition and have a specific relevance for how coverage applies.  Non-owned autos are vehicles that a company does not own, including employees’ vehicles that are used in connection with the business.

Most commercial auto policies include coverage for non-owned autos on an “excess” basis, meaning that the employee’s insurance is “primary” (pays first) and the business’ non-owned auto policy is “excess” (pays second).

You might not even be aware of your company’s non-owned auto exposure. Any time an employee operates his or her own vehicle for company business, it is considered to be a “non-owned auto” exposure for the company. Although the company does not own the vehicle, the fact that the employee is operating the vehicle for business purposes puts the company at risk for non-owned auto liability. Non-owned auto exposures arise in many forms, such as, when employees are:

• Driving for sales calls
• Taking deposits to the bank
• Picking up lunch for an office event
• Delivering something to another company’s place of business
• Running corporate errands

Due to the nature of the position, salespeople are the most common non-owned auto exposure for most businesses as salespeople use their vehicle to visit customers and prospects on a daily basis (at least we all hope!).

WHY NON-OWNED AUTO IS A LIABILITY ISSUE

• Auto Liability – if an employee is driving for company business and gets into an accident, the company is liable for damage in excess of the employee’s personal auto policy limits.
• Workers’ Compensation – if an employee is injured in an auto accident during company time, the claim will be included in the experience modification calculation and will negatively impact claim history, increasing premiums.
• Negligent Entrustment – is a cause of action in tort law that arises where one party (the entrustor) is held liable for negligence because they negligently provided another party (the entrustee) with a dangerous instrumentality, and the entrusted party caused injury to a third party with that instrumentality. For example, If a company hires a salesperson with a poor driving record who causes an accident, the company could be liable for punitive damages because they were grossly negligent. Be sure to check for proof of insurance and employee driving records at least annually.
• Distracted Driving & Cell Phones – the number of distractions that employees have on the road today are more than ever.  The majority of drivers on the road today seem to be distracted by something, most of the time it’s cell phones, but also includes GPS systems, radios or anything that may divert a driver’s attention from the road.  Your employees are likely part of this epidemic.

How to protect your company

The two easiest and most effective ways to protect your company are to purchase a non-owned auto insurance policy and to create a program for employees that drive their own vehicles on company business. Here are important parts of a successful non-owned auto program:

• Develop a system to identify those employees that do – or could drive on behalf of the business, in their own vehicles
• Require employees to carry personal insurance on their vehicles (at a minimum, $500,000 in liability is recommended)
• Obtain proof of employees’ personal insurance coverage annually
• Ask employees to sign MVR authorization forms (to avoid privacy law issues), allowing your company to pull their Motor Vehicle Records
• Run Motor Vehicle Records annually, or sign up for an employer notification program, if available in your state
• Establish driver eligibility guidelines, which state the number and type of violations or accidents that disqualify employees from driving eligibility
• Implement and enforce a vehicle use program, which includes a signed consent form that outlines acceptable practice for driving on company business.
• Maintain hired and non-owned auto liability and umbrella liability policies
• Periodically audit files for proof of maintained insurance and acceptable driving records
• Educate your employees on safe driving, to include a discussion about distracted driving, defensive driving, following proper distance and driving in weather

With the abundance of industry-specific exposures facing companies today, there is little time to devote to general issues. Addressing your non-owned auto exposure in this way will quickly and inexpensively free up more time to devote to other issues facing the company while providing peace of mind that your financial exposure is kept to a minimum.

Conclusion

Non-owned autos are being driven in your business every day and pose a risk to your business.  Taking these simple steps will help keep your employees safe, reduce your risk and future insurance premiums.