Commercial Auto, the Good, the Bad and the Ugly

Many companies are not sure where their exposures start and stop as it pertains to employees using their own auto in the course of business. Here is a quick list of the most common (but not all) exposures that could have an employer in hot water if they do not have the right or enough coverage.

  • Employees that run errands on lunch for company purposes (examples; going to the bank, taking mail to post office, purchasing office supplies)
  • Employees that visit clients
  • Employee making a delivery to a client

If you are cringing at your desk or frantically pulling out your commercial auto policy to review, hang in there, I will tell you what to look for next.

Hired and Non Owned Auto is a coverage either found on your GL (General Liability) policy or possibly on its own policy, covering these exposures as well as a fleet or other vehicles used for your business.

  • Hired – This is the rental of a vehicle in the company’s name for company business. Not for when an employee’s leases a vehicle, but for the exposures of an employee traveling for business and renting a vehicle to get to and from meetings.
  • Non- Owned – Is the use of a personal vehicle by an employee or volunteer for company related business.

You may be asking yourself, what is the concern for my business?! I thought employees were responsible for properly operating his or her own vehicle! If an accident occurred, wouldn’t my employees’ personal auto policy respond? The answer is yes, it would. But wait there’s more! The ugly to this is that your company could be brought into the situation under vicarious liability. Here are some examples an action might be brought against you as the employer if the employee;

  • Does not carry personal auto insurance or only carried state minimum limits
  • Did not properly maintain vehicle
  • Has a motor vehicle report (MVR) that has infractions

Claim Example:

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.

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.

AAAHHHHHH!

Bottom line, an employer’s commercial auto exposures are real. Working with the right agent will help identify your exposures, provide options on minimizing risk and negotiate with carriers on the coverage’s you need!

Claim scenario taken from The Hartford, common auto loss file

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