Employee Auto Insurance: A Risk Management Guide

Written by mBurse Team Member   |   May 16, 2023 7:00:00 AM

It’s an HR manager’s worst nightmare. While working, an employee causes an auto accident with injuries. And the employee was uninsured. This is why businesses should mandate and verify employee auto insurance coverage. Here's how to do it.

Employer liability from employee auto insurance

A sales rep running late to meet 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 major liability – 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.

Risk calculator

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, an 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 manage your risk exposure.

1. Know the potential costs of an employee car accident. 

Employer liability could extend to property damage, medical expenses, and legal expenses. The average company costs of a fatality or injury are $500,000 and $74,000, respectively. Property damages add up as well.

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 for each. 

2. Don't risk the state minimum insurance coverage. 

Some organizations only require their employees’ insurance to meet the state minimum. Few state minimums are high enough to cover serious accidents. When an employee car accident causes injury, the average employer cost is around $74,000. That exceeds most state minimums. For example, California requires only a 15/30/5 policy, 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.

3. Minimize risk with auto insurance verification. 

A strong car insurance requirement is only as strong as your verification process. Verifying adequate insurance must be a top priority. Only verification can confirm whether employees have valid, up-to-date auto insurance.

Many organizations verify auto insurance 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.

It will show good will if you institute the new insurance requirements along with a modest increase in your employees' car allowance or reimbursement. This will help employees maintain sufficient coverage and protect the company from violating labor codes like California's Section 2802.

Labor Code self audit

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.

You can require employees to submit proof of insurance coverage every six months as a condition of receiving their car allowance or mileage reimbursement. The employees simply upload a current image of their auto insurance declarations page when it renews. If they neglect to do so, their auto reimbursements cannot be generated until the dec page is updated.

Auto insurance and business vehicle safety policies

The insurance verification process will get easier over time. However, verification is only one aspect of a larger vehicle safety policy deigned to reduce company risk from accidents.

If the accident is found to result from 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 how to protect your company from negligent entrustment lawsuits and other risks through our guide to managing mobile workforce 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.

Your company and the tax reform and mobile employee risk

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