It's important to protect your business by requiring and verifying employee auto insurance coverage. Here's why—and how to do it.
Why businesses should set and verify employee auto insurance coverage
It’s an HR manager’s worst nightmare. A sales rep running late to meet with a client runs a red light and T-bones a minivan, sending a family of four to the hospital. He was driving his own personal vehicle, and he was driving uninsured. Now the company faces a major lawsuit—all because they never took the time to verify their employee’s car insurance.
If your company includes employees who drive as part of the job, it’s essential that you ensure each of them has adequate car insurance. Mobile employees spend a substantial amount of time in their car, increasing their exposure to potential accidents. If they don’t carry sufficient insurance, an accident on the job can cost your company significantly.
Employer liability for an employee-involved accident can arise under the legal doctrine of respondeat superior (also known as vicarious liability). In short, an organization can be held responsible for the actions of an employee acting on behalf of that organization. If an uninsured or under-insured employee causes an accident, the victim can file a claim with the employer's insurance company.
What's more, even if an employee driver carries sufficient personal auto insurance to cover an accident, and insurer might still refuse to cover the accident. If a personal vehicle is used more for business driving than for personal driving, the insurer may require business auto insurance rather than personal auto insurance. In the event of an accident, the insurance company may reject the claim on this basis, leaving the employer liable for the costs of the accident (again, on the basis of respondeat superior).
How to create an employee business auto insurance verification policy
To guard against a costly ordeal you need a thorough insurance verification process. Here's how to develop this policy and minimize your risk exposure.
1. Know the potential costs of an employee car accident.
Start by learning exactly how expensive an employee car accident could be. Employer liability could extend to property damage, medical expenses, and legal expenses. If there’s a fatality, it can cost you in excess of $500,000. And if punitive damages are awarded to the victim’s family, that amount could easily reach the millions.
You want to make sure that the minimum insurance coverage that you require of employees will not likely be exceeded by any accident. The three coverage categories to pay attention to are the limits to bodily injury per person, bodily injury per accident, and property damage—in other words, the maximum amount the insurance company will pay in each of those categories.
2. Require employees to go beyond state minimum insurance coverage.
Some organizations only require their employees’ insurance to meet the state minimum. This may be enough to cover them, but not to cover you. When a mobile employee is involved in an accident that results in injury or damage, the average cost to their employer is around $74,000. Unfortunately, in a number of states, the car insurance minimum falls far below that threshold.
For example, California’s requirement is a limit of 15/30/5, or:
- $15,000 for the injury or death of 1 person per accident
- $30,000 for the injury or death of 2 or more persons per accident
- $5,000 for any property damage per accident
Meanwhile, Florida only requires 10/20/10!
If you only require your employees to carry the minimum and an accident results, your company could end up paying the difference. That's why we recommend you require 250/500/100 business auto insurance coverage. If that seems too high, you could go with a 100/300/50 policy, but that's riskier.
3. Prioritize business car insurance verification.
A strong car insurance requirement is only as strong as your verification process. Verifying adequate insurance must be a top priority. Through verification, you can confirm whether or not your employees have valid, up-to-date auto insurance that will mitigate your organization’s risk.
Many organizations verify that an employee is properly insured during the hiring process. But do they continue to check on a regular basis? American workers face many financial pressures, and it can be tempting to save money by reducing or dropping insurance coverage. If you don't stay proactive and verify coverage regularly, you run the risk of an under-insured employee causing an accident.
You will help your cause if you institute the new insurance coverage requirements along with a modest increase in your employees' car allowance or reimbursement. This will go a long way toward motivating employees to maintain sufficient coverage.
4. Verify employee auto insurance every six months.
Most car insurance policies renew every six months. If you follow the same schedule, you will likely catch any changes in coverage soon after they are made.
Verifying insurance is a simple process. During the hiring process, you should have gotten the name and number of the employee's insurance agency. (If not, go ahead and ask for it as part of your vehicle safety policy change.) Once you have that information, it's as easy as assigning someone to call each employee's insurance company and verify that the employee has x amount of coverage.
If an employee changes insurance companies, this will add an extra step of finding out from the employee the name of the new company. So it helps to require employees to update your organization when they switch insurers.
Alternately, you can require employees to submit proof of insurance coverage every six months as a condition of employment.
Verifying car insurance as part of a business vehicle safety policy
Once you establish a routine process for verifying insurance, it will get easier over time. Note, however, that insurance verification is only one aspect of reducing employer liability for an accident.
If the accident was found to be the result of the employee's negligence, your company can be sued for damages on that front as well. (Respondeat superior, again!) Not only will this hurt your organization financially—it can also destroy your reputation.
Learn more about how to protect your company from negligent entrustment lawsuits and other risks from employee car accidents through our guide to mobile employee risk. Our guide will help you create a robust business vehicle safety policy that not only protects from accidents after the fact but also prevents employee car accidents in the first place.
Contact us to learn more about our corporate reimbursement governance plan and how you can reduce risk by employing a proactive approach.