F. Doug Hoyle, Loss Control Director
As Mr. Smith noted in his letter, the commercial auto market is fraught with costly claims. Medical and repair costs are not the only factors that can drive up the cost of claims. Allegations of negligent entrustment in a claim against an insured’s employee driver can turn into huge settlements.
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 commercial auto claims, 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 compensatory and, in some cases, 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 a policy does cover punitive damages, the size of a negligent entrustment settlement may exceed automobile liability/umbrella liability policy limits.
With 95 percent of automotive accidents caused by human error, it is clear that driver selection must be a paramount concern for the companies we serve. They should consider:
- A fleet safety policy: Employers can develop and implement a formal policy that includes minimum driver qualification standards and disciplinary guidelines.
- A job application: Applicants should be asked to list all driving violations or accidents for the past five years and to authorize the employer to obtain and review motor vehicle records (MVR) on a regular basis.
- Proof of license: Before a person is allowed to drive a vehicle for company purposes, employers should 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: All drivers should be required 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. A disciplinary action policy can help 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: Employees must be 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; employers must pay special attention to histories of drug- or alcohol-related crimes.
In this difficult auto insurance market, it pays for your clients to review their fleet safety and risk management programs and policies and make the effort to improve them (where needed). If an accident occurs, this will help limit their exposure to a negligent entrustment judgment. For your clients unsure of how to proceed, the PLM loss control team is available to assist in developing or improving their company’s safety programs and policies.
