F. Doug Hoyle, Loss Control Director
When you ask someone to drive on behalf of your company, you are passing on both a massive responsibility and, arguably, your implicit trust. When that trust is considered misplaced, the concept of negligent entrustment applies—one which could have expensive repercussions for companies whose employees operate vehicles or machinery.
Negligent entrustment occurs when one party allows another to engage in an activity, like driving a car, when the first party knows or should know that the second lacks the knowledge or experience to safely do so, creating a risk of harm to others. (Please keep in mind the legal definition varies from state to state). This is often applied to claims involving motor vehicles, but it may apply to heavy equipment and potentially dangerous tools.
A negligent entrustment lawsuit can cost a company millions of dollars when a jury awards the plaintiff punitive damages. Many insurance policies do not cover punitive damages, and some states do not allow punitive damages to be covered by insurance. Even if your policy does cover punitive damages, the size of a negligent entrustment settlement may exceed your automobile liability/umbrella liability policy limits.
However, 95 percent of automotive accidents are caused by human error. That means companies can reduce the risk of errors by addressing driver selection. Companies should consider:
- A fleet safety policy: Develop and implement a formal policy that includes minimum driver qualification standards and disciplinary guidelines.
- A job application: Ask applicants to list all driving violations or accidents for the past five years, and ask them to authorize the employer to obtain and review motor vehicle records (MVR) on a regular basis.
- Proof of license: Before allowing anyone to drive a vehicle for company purposes, obtain, inspect, photocopy and put on file proof of a valid driver’s license. If the individual has lived in other states during the previous five years, obtain drivers’ license information for those states so that the driving records for them can be checked as well.
- Incident reporting: Require all drivers to report any motor vehicle violations or accidents in which they are involved as soon as practical after they occur. This includes incidents involving personal vehicles. Consider having a disciplinary action policy to address accidents or violations identified during MVR reviews but not previously reported to management.
- Motor vehicle records should be reviewed for all drivers at least once a year. These reviews should also include any employees authorized to use a personal vehicle for business purposes (outside salespersons, travel for errands, etc.) as well as any non-employees authorized to drive a company vehicle (e.g., employee’s spouse).
- Correct licenses: Be sure that your employees are properly licensed, certified and/or trained on all of the vehicles and equipment which they use.
- Criminal background checks should be performed for all employees; pay special attention to histories of drug- or alcohol-related crimes.
Evaluating the current status of your company’s fleet safety and risk management programs and policies and taking the effort to improve them (where needed) will help limit your company’s exposure to a negligent entrustment judgment. It will also help control your future insurance costs. Your PLM loss control representative is available to assist you with developing or improving your company’s safety programs and policies.
