Your employees likely operate vehicles for tasks like client visits, product deliveries, or bank and post office runs. Larger organizations often provide vehicles for these tasks, but small and midsize companies may not have that luxury.
“Most companies are conscious of the risks associated with employees operating corporate-owned vehicles. What they aren’t aware of, however, are the significant risks created by the operation of vehicles the company doesn’t own,” says Chris Zito, president at Zito Insurance Agency, Inc.
Smart Business spoke with Zito about the risks of employees using personal vehicles for business-related activities and how companies can better protect themselves and their employees.
What are the liability risks of employees using personally owned vehicles in the scope of business?
An employee is considered an ‘agent’ of the corporation when using his or her vehicle to perform duties on behalf of his or her employer. This opens the door for the employer to be named as a defendant in a lawsuit due to a claim caused by the employee-owned vehicle.
The employee’s personal auto policy limits are typically primary and, without inclusion of ‘non-owned auto liability’ on the employer’s policy, may be the corporation’s only insurance protection. It is common for employees to carry auto liability limits that are much lower than what the employer would normally carry, leaving the company with a significant exposure.
If the employer carries non-owned auto liability, it is important to know that the standard coverage protects only the company/employer.
In cases where an employee’s job description requires him or her to use his or her personal vehicle on a regular basis, endorsements can be added to the employer’s auto policy to provide additional coverage for the employee — in excess of the employee’s personal policy.
What about operation of vehicles not owned by employees?
Similar to the vicarious liability companies are exposed to by an employee using his or her vehicle for work, a similar exposure exists for vehicles operated directly or indirectly on behalf of the company, such as:
■ Independent contractors hired to perform repairs, e.g., office equipment technicians, painters or landscapers.
■ Third-party transportation services hired by the company, e.g., express delivery services, couriers, contract or common carriers.
■ Rental vehicles operated by employees in the course of business.
Aside from liability, what other risks should employers be aware of?
One risk is damage to a rented vehicle. Most rental contracts hold the renter responsible for any damage sustained while the vehicle was in the renter’s possession — typically regardless of cause or fault.
When including coverage for rented vehicles in a policy, it is important that the coverage limit provided be adequate to cover the replacement value of the most expensive vehicle likely to be rented in the course of business.
In addition to the cost of the repairs to the rental vehicle, many rental agreements also hold the renter responsible for the loss of rental revenue incurred while the vehicle was out of service. In cases of severe damage where extended repair times are required, insurance coverage is often inadequate.
How can employers minimize their non-owned vehicle risk?
■ Establish a minimum level of auto liability coverage required by all employees who regularly use their own vehicles as part of their job description.
■ Run motor vehicle reports on employees who may operate vehicles in the scope of employment.
■ Thoroughly read rental agreements before signing.
■ Request certificates of insurance from contractors and suppliers to ensure they maintain adequate levels of auto liability. ●
Insights Business Insurance is brought to you by Zito Insurance Agency Inc.