Proof of employees' auto insurance will not be enough to protect your business in the event of an accident. It is vital to keep records of each employee's insurance policy declarations pages. Read on to learn why.
Why you need proof of employees' auto insurance coverage
If your business employs people who drive personal vehicles as part of their jobs, pay close attention to their insurance coverage. The amount of car insurance your employees carry affects your organization's risk. Ensuring employees maintain the appropriate level of car insurance decreases the probability of company insurance liability for a vehicle accident.
Here's why: if an uninsured or under-insured motorist causes bodily injury, the victims can face thousands of dollars of out-of-pocket medical bills. If that motorist was driving on behalf of an employer, the victims' attorneys will seek to secure payment for these injuries from the employer's insurance company under the legal doctrine of respondeat superior.
As a result, it's crucial that your organization maintain a vehicle policy that sets sufficient auto insurance limits and that requires management to obtain proof of each employee's coverage every six months.
Verifying employee insurance liability limits
Every car insurance policy includes a set of liability limits, or the limits of how much the insurance company will pay for each accident. Most states set very low minimum liability limits for motorists, so it is best to require employees to greatly exceed the state-minimum coverage.
Best practice is to require a 250/500/100 policy, or a $250,000 bodily injury limit per person, $500,000 total bodily injury limit for multiple victims, and $100,000 property damage limit. This level of coverage doesn't just protect the company; it also protects the employee in the event he or she is struck by an uninsured or under-insured motorist.
Many organizations think it is sufficient to get proof of auto insurance coverage by having employees submit pictures of their insurance coverage cards. However, those cards do not list the liability limits and other important information that an employer needs to keep on file.
Instead, you need to obtain copies of each employee's auto insurance declarations page. This page is typically found in the multi-page policy document that everyone receives when they obtain or renew a car insurance policy.
What is an auto insurance declaration page?
The first few pages of your insurance policy document summarizes types of coverage, liability limits, covered persons, deductible amounts, and coverage dates for each vehicle.
The auto insurance policy declarations are often summarized on the "dec page." These declarations can be summarized on one page, but the document often includes other important pages depending on your coverages and number of vehicles.
The insurance declaration page typically includes:
- The policyholder's name and address plus names of insured persons
- The insurance company’s name and contact information
- Information needed to report a claim
- Identification cards for the insured and property
- Types of coverages and limits of liability per coverage
- Deductibles per coverage
- Effective policy date and expiration date
Employers should keep a record of this information for each employee. It may seem like overkill, but let's explore why this data matters.
Why your employees' auto policy declarations pages matter
The insurance declaration pages provide proof that each employee is maintaining the minimum insurance requirements established by the company. If employees provide an insurance card it shows proof of insurance but not proof of the limits of liability. A lot of companies fall short by accepting an insurance card as good enough.
The extra step of obtaining the dec pages for each employee will go a long way to protect the company from general liability in the event of an at-fault accident. The company may still face liability if negligent entrustment has occurred, but that's a separate issue for a separate blog post.
Insurance renewals typically occur every six months. It is recommended that your company establish a written policy requiring employees to submit their insurance declaration pages twice a year.
Personal vs. business auto insurance for your employees
While most business uses of a personal vehicle are covered by a personal auto insurance policy, not all business uses are. Employees should inform their insurance company that their personal vehicle is used for business purposes so as to ensure coverage in the event of an accident during work hours.
It is also important to make sure your company's business insurance policy includes coverage for non-owned vehicles. This step is especially crucial in the event an employee decreases insurance coverage unbeknownst to you and causes an accident during work hours.
Auto insurance policy and company car allowances
If you institute a policy change that requires employees to increase their insurance liability limits, you should simultaneously increase their auto reimbursement or car allowance to offset the resulting premium increase. If the employee is just going from a 100/300/50 policy to a 250/500/100 policy, the increase will not be very great. But if the employee is increasing from a state minimum, often around 25/50/25, then the premium increase could be significant.
For further guidance on how to reduce company liability for auto accidents, improve driver safety, and reduce other risk factors, read our ultimate guide to mobile employee risk. Or schedule a risk audit to get a sense of how much risk your current policy involves.