It doesn't matter whether a business oversees a fleet of vehicles or just one or two company cars. It doesn't matter if an employee driver was in a MIST accident – minor impact, soft tissue – or a major pileup. All it takes is one lawsuit for a company to learn the hard way that there are some common misconceptions involving employee-operated automobiles on the job. But a little self-help before the inevitable employee car crash can go a long way in limiting the exposure of the company and its insurer to expensive claims and suits.
Here a couple real-life situations where the result might surprise you.
The warehouse supervisor at a distribution facility participated in the company mileage reimbursement program. The procedures for the mileage reimbursement program were spelled out in a few pages distributed to all employees. The handout included the warnings that driving under the influence was a violation of company policy; and that participation in the program meant the employee could not use a company car at the same time. The supervisor kept track of the miles he drove his personal car on company business and submitted monthly reports to be reimbursed for his mileage.
One Saturday night he ran a red light after drinking for hours at a Texas Hold 'Em tournament for charity, and "T-boned" a compact car driven by a teenage girl, who was seriously injured. He was driving a company van at the time. He claimed to be heading back to the office to finish up paperwork in advance of an early job Sunday morning. He borrowed the company van after work from the loaner fleet because his own car was in the shop for repairs. It turns out he did not even have a valid license due to a suspension for a previous OVI conviction.
He was fired and imprisoned, then sued by the young driver's family. His lawyer brought into the lawsuit the supervisor's personal auto insurer as well as the employer and its business auto liability insurer. The personal insurer ended up splitting the cost of settling the case with the company, which had a high self-insured retention. The supervisor paid nothing because he was now indigent.
How could this happen?
In another case, a worker directing traffic for a road stripe painting contractor was handing over his radio equipment and stop sign to another worker so he could go on lunch break and the other worker could take over directing traffic. An older woman was distracted by her cell phone as she approached the work zone on the rain-slicked highway. Not realizing she should slow down, she struck and injured both workers as they stood in the roadway. The injured workers successfully made a claim for underinsured motorists insurance (UIM) coverage under the employer's policy, even though they were standing in the road and not driving a vehicle, and even though the contractor's business auto policy did not even have an endorsement for UIM coverage.
Was this case an aberration?
Neither situation is far-fetched; in fact, both reflect the mainstream of insurance coverage rules applied to employee car crashes. The accidents were life-altering tragedies for many. From the perspective of the companies involved, it also could be said that the legal result in some way compounded the injustice of the accidents. Regardless, both situations offer insights into how a company can minimize exposure to claims and suits arising from bodily injury involving a company car.
Under a typical business auto liability policy, to be an insured an employee must be driving a covered auto with permission of the insured company. The issue of "permissive use" is the subject of numerous legal decisions.
Permission to use a vehicle may be express or implied. The main difference between express or implied permission is in their proof. Express permission is proved through specific words and acts by the company. Implied permission is proved circumstantially. An example of express permission would be if the employee called his supervisor, described his anticipated use of the vehicle, and was given permission to use it. Another example would be if the employee participated in a company car program and was on the job at the time of the accident. An example of implied permission would be if the company had no clear policy for use of vehicles and the employee's supervisor occasionally let employees borrow company cars for quick errands during the work day.
Whether express or implied, such permission must exist at the time of the accident and may not be based on the initial permission alone.
Under the "minor deviation" rule, coverage will be extended to the use of a vehicle with deviates only slightly from the use for which permission initially was granted. If the use of the vehicle is a "gross deviation from the scope of permission," no coverage is available. An example of the minor deviation rule is a case in which an employee of a trucking company requested permission to use the company truck to deliver a baby bed to his girlfriend's home, located a few blocks from the company. The supervisor consented and instructed the employee to return the truck to the parking lot immediately after delivery. The employee was involved in an accident approximately five hours later. In applying the minor deviation rule, the court found that the employee no longer had the company's permission at the time of the accident. The company consented to a quick and short delivery and instructed the employee to immediately return the vehicle. However, the employee kept the truck for the next five hours, running personal errands. This was clearly a gross deviation from the original consented purpose.
In the scenario described above, in which the warehouse supervisor ran the red light, he had no express permission to use a company van on that Saturday night, especially after drinking. The published company guidelines provided he was never to use company vehicles, given that he participated in the mileage reimbursement program. And the policy clearly stated drinking and driving was against company policy. Appropriately, the company terminated the driver. However, it still paid tens of thousands of dollars to settle the victim's lawsuit.
This result happened because there was a real question whether or not the driver had implied permission. Depositions in the lawsuit revealed that the keys to the company vehicles were kept in an easily accessible place and any employee was allowed to borrow a vehicle to drive on the grounds of the facility while working. Further, the district manager knew employees would occasionally take the vehicles off site, for commuting or other personal reasons. This was justified on the basis that sometimes the employee needed a pickup truck or a van on a job first thing the next morning, as opposed to his personal car. Implied permission was not far-fetched under these circumstances
Most surprising to many is the common rule that driving under the influence does not automatically take an employee out of the course and scope of permission. A sales person might be expected to drink with clients. An employee might be expected to drink at a firm holiday party. But even when an employee is on his or her own time and drinking with friends, any kind of connection to the office or home base can be enough to implicate implied permission. In the case described here, the employee claimed to be on a work errand at the time of the accident, which could not be disproved. Other factors included that the employee also claimed that he "never got the memo" saying he was not supposed to ever drive a company vehicle if he participated in the mileage reimbursement program. He did not see this as double-dipping, more as a job benefit. The company did not do regular updates of employee driving records, and so never knew his license was suspended at the time of the accident. For all these reasons, the company was compelled to settle the case with the employee's personal auto insurer. Thus, the rule of implied permission cost the company.
In the other case involving the two road crew workers who collected UIM insurance, the coverage rules seem counterintuitive. First, to collect UIM insurance under his employer's policy, an employee has to be using the company vehicle. What many companies do not realize is that courts define "use" broadly to include any close relationship to the vehicle, whether or not the employee is actually in the vehicle. For instance, an employee was found to be using a company car when he exited the vehicle on the side of the highway and walked to check on a stranded motorist with a flat tire. The court said he intended to return to the vehicle when he was struck and killed, and so he had a close relationship in time, space and intent to the car. In another case, an employee was found to be using a car when he was standing outside the driver's side, and reached in across the lap of another driver who was having trouble changing gears. The employee shifted into reverse for the driver, and the car then ran over his foot because the negligent driver did not have her foot on the brake.
Similarly, in the highway accident, the road crew member who was picking up the equipment had left the company pickup running near the site of the accident, with the front door open. The worker he was relieving so that person could take his lunch break intended to get in the vehicle and drive him 100 yards down the road, drop him off, and continue on to McDonald's. Both were thus found to be using the vehicle at the time they were standing in the roadway, struck and injured.
As unusual as this situation sounds, there are many cases where employees recover UIM insurance without actually driving or even being a passenger in the car at the time of an accident.
Further, as in the road crew case, an employee can recover UIM benefits even if the employer's policy does not have a UIM coverage form. This is because many states require that UIM coverage be read into auto liability policies if there is no definitive proof the company intended to reject such coverage. This rule also applies in many states to excess or umbrella liability policies which follow form to underlying business auto coverage or otherwise provide auto liability excess coverage. If there is no waiver form attached to the policy, a court might read UIM coverage in the policy up to the maximum liability limits, regardless of what the insurance company and the business intended.
These cases suggest a few tips companies can keep in mind to lessen exposure. First, an internal document spelling out the business' company car policy is not worth much if it is not regularly and uniformly enforced. Gaps in enforcement create an argument for implied permission. The one time an office assistant is allowed to borrow the company car to take a client to the airport, contrary to company policy, could end in a litigation headache. Businesses could even consider offering employees incentives for reporting of company car violations. Employees should be asked to sign any updates to company car policies, as opposed to just acknowledging receipt of the company's motor vehicle policy at the inception of employment. Employees found violating company car policy should be disciplined, even if no accident resulted. One person should be given oversight responsibility for use of company cars, in addition to that person's other responsibilities; an HR manager is ideal for this role. Regular updates of the driving records of employees can be made. All of these steps can minimize the risk of a finding of "implied permission" when an accident happens.
While UIM insurance might not seem to be the problem of the company, as opposed to its insurer, the company can get dragged into litigation and see its premiums rise when the availability of UIM coverage is uncertain. At the time of renewal, a business should see how much it costs to add UIM coverage in those states where it is not required. UIM coverage may not be as expensive as liability coverage.
In any state, regardless of whether or not UIM coverage is required, a company should ask its broker to provide it with a waiver of UIM coverage form or a letter making clear the company does not want UIM coverage, if that is the case. This should help prevent confusion when a claimant asks a court to read UIM coverage into a policy as a matter of law, especially as the laws regarding UIM coverage always seem to be changing.
The solution to avoiding legal problems arising from employee use of company cars is not to eliminate company cars. Any time an employee is driving their personal car on company business, coverage issues can arise.
Isn't it true that, because of risk management and quality of life concerns, many companies hold annual seminars on workplace discrimination and harassment that basically reinforce common sense rules everyone should have learned in kindergarten? In light of the legal and insurance hassles awaiting the unprepared employer whose team drives on the job, a "Safety Town" refresher course every so often also might help.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
