If you have employees that drive a personal vehicle for work, their level of car insurance coverage could form a major risk factor for your organization. It is vital to put in place policies that protect the company from liability for car accidents.
Do your employees carry sufficient auto insurance?
Any organization with employees who drive a personal vehicle for work purposes has a vital interest in the insurance coverage of those workers. 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 the employer 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, 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).
Auto insurance rates in 2021 for employees
Yahoo! Finance recently reported that average insurance premiums in the United States have decreased in 2021 by 1.7% – the first time in a decade. But this does not guarantee that all of your organization's employees will maintain sufficient insurance to protect themselves and the company in the event of an accident.
Given the economic pressures many households are facing in 2021, this is exactly the set of conditions most likely to lead people to reduce their expenses by reducing their insurance premiums. It is more essential than ever that organizations with mobile employees set auto insurance minimums and verify every six months that employees are complying.
Most car insurance premiums renew every six months. In this new year, some people are going to reduce their coverage in order to save money. Others already did so in 2020. The overall national decreases are insignificant. And some states, like New York, are actually seeing increases.
Let's look at how to craft an employee auto insurance verification policy that you can enforce.
How to create an employee business auto insurance verification policy
To guard against liability for employee accidents and potential lawsuits, you need a thorough insurance verification process. Here's how to develop this policy and reduce your exposure to risk.
1. Calculate the costs of an employee car accident.
Employer liability could extend to property damage, medical expenses, and legal expenses. If there’s a fatality, it can cost in excess of $500,000. A victim’s family could receive millions in punitive damages should a lawsuit occur.
The required minimum insurance coverage needs to be high enough to prevent excess costs being applied to the employer. The limits to bodily injury per person, bodily injury per accident, and property damage together form the maximum amounts the insurance company will pay in each of those categories.
For these three categories we recommend that employers require 250/500/100 policy limits in business auto insurance coverage.
2. Ignore state minimum insurance coverage.
State minimum insurance coverage may be enough to cover a fender bender, but in most states it's not high enough to cover an accident with significant injuries or property damage. 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. But few state minimums even equal this amount.
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 $10,000 in injury protection and $10,000 in property damage! If you only require your employees to carry a state minimum and an accident results, your company will probably end up paying.
3. Make business car insurance verification part of your car allowance or reimbursement policy.
A strong car insurance requirement is only as strong as your verification process. If you don't stay proactive and verify coverage regularly, you run the risk of an under-insured employee causing an accident.
The easiest way to do this is to require employees to submit their insurance declarations page from their auto policy after every renewal and tie it to their car allowance or reimbursement. If they do not have an up-to-date dec page on file, they do not receive their car reimbursement.
Instituting this policy could feel punitive to employees. It will help to provide a modest boost in the car allowance or reimbursement to ensure that everyone can afford to maintain adequate coverage. This small expense will be well worth it to avoid the larger expense of liability for an accident.
4. Verify employee auto insurance bi-annually.
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.
While the easiest way to verify insurance is to require submission of the declarations page every six months, there are other ways to do it. You can also require employees to keep their insurance company's name on file and assign someone to call each employee's insurance company and verify that the employee has x amount of coverage.
However, putting the onus on employees to keep an up-to-date proof of insurance on file and tying it to their compensation will save administrative time.
Instituting an employee vehicle safety policy
Employee 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. This is called negligent entrustment and is governed by the respondeat superior concept, just like insurance liability is.
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.