To see how hired and non-owned auto exposures could involve your business, consider these loss scenarios…
Sally Jones works for ABC Tech and drives to the bank each week, as a requirement of her job. One day, Sally drives to the bank and makes a deposit. On her way back to the office, she runs a red light, causing a collision with another vehicle. Both vehicles are totaled. There are serious injuries to the other vehicle’s occupants, one of whom is a small child. Sally is charged with failure to stop for a red signal light.
The subsequent investigation revealed that:
- Sally carried only the state-mandated minimum limits of $50,000 of automobile liability coverage.
- Sally’s MVR showed that she had three speeding tickets within the last two years and had been cited for failure to yield at an intersection. TECHNOLOGY BEST PRACTICES 1 Look Under the Hood of Your Business for Common Auto Exposures TECHNOLOGY BEST PRACTICES / Look Under the Hood of Your Business for Common Auto Exposures 2 As a result of the collision, the following actions take place:
- The other driver and the other driver’s insurance company bring a claim against Sally and her insurer under Sally’s policy.
- Sally’s insurance company pays its policy limit of $50,000. However, the total value of the claim is set at $1,000,000.
- The other driver hires an attorney and names Sally and ABC Tech as co-defendants in a lawsuit, seeking the remaining damages and alleging that:
- Sally was negligent for failing to stop for a traffic control device, driving recklessly and speeding.
- ABC Tech was negligent for failing to perform due diligence before permitting Sally to operate a motor vehicle on company business – and for not securing a copy of Sally’s MVR, not properly evaluating it, and not properly supervising the employee.
- ABC Tech is vicariously liable for Sally’s actions because Sally’s negligence occurred while she was performing a work-related errand.
If the plaintiff is successful in the lawsuit, ABC Tech could potentially be responsible for $950,000 in damages:
$1,000,000 Total claim value
– $50,000 Sally’s policy limit
$ 950,000 Damages ABC Tech would have to pay
What’s more, if the jury determines that punitive damages are warranted, the costs could be two to three times the $950,000 underlying damage amount.
Requiring employees who drive on company business to have adequate liability limits is important, but it’s not enough. Employers also need to verify that the required limits are maintained.
The following scenario is based on a true situation, although the names and some of the facts have been changed. It demonstrates why businesses should also verify that employees carry adequate liability limits for the personal vehicles they use on company business.
Joan Smith, a manager for XYZ Medical Technology, was driving home in her personal vehicle from an industry trade- show. While negotiating a curve, Joan lost control of her minivan, crossed the median, returned back through the westbound lanes, and came to rest more than 60 feet into the woods. The front-seat passenger, Joan’s 10 year-old daughter, Cindy, was ejected and landed 110 feet from the vehicle. Cindy was not wearing a seatbelt and died en route to the hospital.
As a result of the accident: • Cindy’s father, Joe, made a wrongful death claim against Joan, his ex-wife. • Joe’s attorney used an economist to estimate Cindy’s future loss of income (without regard to consumption). Damages included the loss of enjoyment of life for the deceased. • A survival action included damages for recovery of Cindy’s medical expenses before she died, and for her pain and suffering. XYZ required employees who drive their personal vehicles on company business to carry a minimum limit of $300,000 of personal liability coverage. However, Joan’s personal auto policy had limits of only $25,000/ $50,000. XYZ’s insurance company established a $1,500,000 reserve to pay for the claim and litigation. This case reinforces that employers should have a procedure to verify that required limits are in place for employees who use personal vehicles on company business. This should be an ongoing process, not a one-time risk management function. In this case, however, even if Joan had carried the required limits, XYZ would have had some exposure in an accident this serious. Other risk management steps discussed below are designed to minimize the chances of this type of accident occurring.