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.
A sales rep 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 car insurance.
If your company includes employees who drive as part of the job, it’s essential you ensure each has adequate car insurance. Mobile employees face significant exposure to potential accidents. If you don't verify their car insurance, an accident on the job can cost your company significantly.
Employer liability for a car accident happens under the legal doctrine of respondeat superior (also known as vicarious liability). 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.
An organization's commercial auto insurance policy typically only covers vehicles owned, leased, or hired by the company. These are designated as Symbol 7 or Symbol 8 vehicles on a business auto policy. It may be worth discussing whether to add the personal vehicles of frequent drivers to the commercial auto insurance as Symbol 9 vehicles. These vehicles are non-owned, non-hired vehicles operated for business purposes.
Even if an employee carries sufficient personal auto insurance to cover an accident, an insurer might still reject the claim. If a personal vehicle is used for business, the insurer may require business auto insurance rather than personal auto insurance. The insurance company may reject the claim on this basis, leaving the employer liable.
If the vehicle is not a Symbol 9 vehicle, the company insurance may reject the claim as well. This could leave the company and employee paying out of pocket. For this reason, an organization could have frequent drivers purchase a business use endorsement on their personal policy or a business auto 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.
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. Make sure the insurance required of employees will not be exceeded by an accident. Require high coverages for bodily injury per person, bodily injury per accident, and property damage.
Some organizations only require employees’ insurance to meet the state minimum. Few state minimums can cover serious accidents. When an employee car accident causes injury, the average employer cost is around $74,000. But Florida only requires 10/20/10 insurance and California requires only 15/30/5, or:
If you only require your employees to carry the minimum and an accident results, your company could end up paying the difference. That's it's best practice to require 250/500/100 business auto insurance coverage. The employee handbook should clearly state that employees must carry sufficient personal car insurance to cover an accident.
A strong car insurance requirement is only as strong as your verification process. Only verification can confirm whether employees have valid, up-to-date auto insurance. Many organizations verify auto insurance during the hiring process. However, American workers face many financial pressures, and may reduce or drop insurance coverage at any time after hiring.
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. Here's how to verify car insurance routinely for each employee:
Institute the new insurance requirements along with an 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. This step is crucial if you require drivers to purchase a business auto policy or a business endorsement for their personal auto policy.
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.