Category: Risk Management
Many employers grapple with understanding just how insurance coverage work with employees that drive their own vehicles. Here’s a great article that explains it well and follows up on last week’s blog posting. Thanks to Scott Simmons for his permission to use it!
Business Use Of Employee’s Autos – An Insurance Perspective
I get asked certain insurance questions regularly. One such involves employee use of personal vehicles on company time. It’s a confusing topic filled with opportunities for misunderstanding.
Most personal vehicles are insured using a personal auto policy. Most businesses that own vehicles utilize a business auto policy. The following discussion is based on the above assumptions.
The Employee’s Insurance
Most personal auto insurance policies will provide protection for vehicles titled to individuals and used for a business purpose. The only exception is “livery” — carrying goods or people for a fee.
- Using the vehicle for livery will invalidate coverage under many personal auto policies.
- Share the ride expenses and mileage reimbursement does not jeopardize coverage.
- Delivery services including package delivery services, pizza delivery, and flower delivery are considered livery — coverage is excluded.
- General business use of a vehicle (picking up supplies, visiting customers, attending conferences) is not a coverage issue under most policies.
The insurance purchased on a specific vehicle is always primary. The policy covering a vehicle pays first before any other policy. If an accident occurs while an employee is operating their car on an errand for the employer the employee’s personal insurance is the primary coverage and should be looked at to provide protection.
Employees should check with their own insurance carriers to be sure of their coverage. Explain to the agent or insurer the business circumstances in which the vehicle will be used. Full disclosure of business use will prevent coverage problems once a claim occurs. Most insurance companies will not increase premiums for occasional business use. Salespeople using their cars primarily for business may find that their premiums are increased.
The Employer’s Insurance
The liability section of the Business Auto Policy provides protection for bodily injury and property damage for which the insured company is liable. Under common law employers are responsible for the actions of their employees. Employers must be sure that their policies provide coverage for “non-owned” and “hired” autos. The company is then protected if an employee causes and accident. If an employer does not own any vehicles “hired and non-owned” auto liability insurance is needed to provide the coverage outlined above.
The standard business auto policy provides no coverage for the employees that are sued even if the accident took place on company time. The intent of the business auto policy is to protect the company (employer) from suit.
Most insurers will add “employees as additional insured” for a small extra premium. Remember, the insurance on a particular vehicle is always primary. Therefore, any accident caused by an employee while driving his or her own car will be paid first by the insurer of that vehicle. If there is not enough coverage under the employee’s policy then the employer’s business auto policy will step in to pay the excess amount if the employer’s policy has been endorsed to include “employees as additional insured.”
Most business auto policies include no coverage for damage to an employee’s car. Coverage can be purchased. However, it is generally not worth the extra cost. It also does not change the fact that employee’s coverage is still primary. Even after buying the extra coverage, the business auto policy will only pay if there is no insurance on the employee’s vehicle.
Let’s walk through a few claims to illustrate how coverage will respond.
Mary Smith is driving her 1999 Chevy to the office supply store. She is doing an errand for her employer, ABC Manufacturing Co. Assume she has a personal auto policy with $300,000 of liability coverage and $250 deductible collision protection. Also assume that ABC has a business auto policy with hired and non-owned auto coverage at a limit of $1,000,000.
Example 1 – Mary causes an accident that results in damage to her car and damage to a parked vehicle in the amount of $5,000.
Insurance Response – Mary’s auto insurance pays for the damage to her car less the $250 deductible. Mary’s auto insurance also pays for the damage to the parked car. ABC’s insurance pays nothing.
Example 2 – Mary causes an accident that results in damage to her car and damage to a vehicle stopped at a stop sign. Damage to the other vehicle is $10,000. There are three passengers in the car. All three jump out of the car after the accident gripping their necks in agony. They sue Mary and ABC. The court awards the injured passengers $500,000 from Mary and $750,000 from ABC.
Insurance Response – Mary’s auto insurance pays for the damage to her car less the $250 deductible. Mary’s auto insurance also pays for the damage to the parked car, $10,000. Mary’s insurance will pay her legal expenses and up to $290,000 of the judgment (her $300,000 limit of liability less the $10,000 paid for the damage to the other vehicle) Mary is responsible for the amount of the judgment above her insurance. ABC’s insurance pays their legal fees and the $750,000 award.
Example 3 – Same scenario as above except ABC’s insurance includes “Employees As Additional Insured.”
Insurance Response – Mary’s auto insurance pays for the damage to her car less the $250 deductible. Mary’s auto insurance also pays for the damage to the parked car, $10,000. Mary’s insurance will pay her legal expenses and up to $290,000 of the judgment (her $300,000 limit of liability less the $10,000 paid for the damage to the other vehicle) ABC’s insurance pays for the judgment against Mary in excess of her insurance plus their legal fees and the $750,000 award.
When I explain the above in person I get all kinds of comments – all some variation of, “It’s not fair!”
When I was younger, I would try and convince the other person in the conversation that, in fact, the way this works is fair. Now I just nod. The coverage response above is the way the insurance world works, right or wrong, like it or not.
Employers are free to respond in several ways:
- Provide a company car for company errands.
- Offer to pay the deductible for any accident that occurs to a personal vehicle.
- Pay larger mileage rates to compensate for the risk. The current (2013) rate set by the IRS is 56.5 cents per mile.
I urge the latter solution. A company car may not be feasible. Paying the deductible could lead to disputes over issues such as, was the accident work related? For example, a secretary who stops at the bank to make the company deposit before going to lunch has an accident on the way back to work after lunch. Is this work related?
Paying a reasonable mileage rate and informing employees of the issues is generally, in my opinion, the best solution. It recognizes the realities of the insurance world. The key to all this is to let employees know ahead of time what to expect.
My recommended approach is to send a letter to all employees outlining the way the world works. In that way everyone is operating on the same information.
Here is a sample letter:
From time to time it may be necessary for you to drive your personal vehicle on company business. The purpose of this letter is to remind/advise you of our policy regarding such.
All employees using their personal vehicle for approved business travel will be reimbursed for such use at a rate of <$.xx> per mile. This fee is intended to repay you for your expenses in operating the vehicle including the cost of gas, oil, tires, maintenance and the cost of insurance.
We require that all employees who drive personal vehicles on company business carry at least <$x00,000> of liability protection and uninsured motorist coverage. The purchase of comprehensive and collision insurance is at your discretion.
In the event of an accident while you are driving on company business you should look to your own insurance to protect you and your vehicle.
Remember, the auto insurance you buy is what will protect you on or off company time. Our company automobile insurance policy provides no coverage for your vehicle.
Should you have any questions regarding this memo please see your supervisor.
Comments and FAQ
This article is by far my most popular post. About two-thirds of my overall web traffic is on this page. I’m glad to be of service.
Here are a few questions that come out of the form below.
What Happens If My Employer Does Not Pay Mileage?
The insurance on the car driven is always primary. If you drive your car on your employer’s business your auto insurance protects you. Your employer’s insurance protects your employer. Paying mileage does not affect the insurance you have on your car. My suggestion that employers pay mileage goes to the transaction and fairness (IMO).
Does An Employer Have to Pay Mileage?
Not that I have ever heard. You make a deal with your employer. If you don’t like the deal, ask to change it or quit. Of course, you could talk with an attorney. My guess is that an employee asking the above question is looking for a reason to quit.
How Can I Be Sure My Insurance Covers Me?
Ask your insurance agent. I’m only giving general advice here. State laws vary. Different insurers handle things differently. Check with your agent.
I Have An Employee Who Will Not Drive Her Car On Company Business. What Should I Do?
Fire her or give her a raise. How the heck would I know? Deal with your employees as adults. If they do not meet your standard fire them. Conversely, you asking me this question tells me the employee probably has some doubts about your ability to manage. I’d tell them to quit.
I Need To Know If The Employer Has The Right To Ask For Our Driving Record Without Any Compensation For Using Our Personal Vehicles?
I urge all my commercial clients to run motor vehicle records on their employees who expose the business to liability. If you drive to the office supply store and cause an accident your employer could be sued. Of course they must follow privacy laws and your state laws regarding the use of motor vehicle data. I think your driving record is relevant to your employer. Someone with four speeding tickets and two accidents in the past year has a problem – a problem I don’t want my client involved in.
Like I said, a great article. You can learn more about Scott by going to www.scottsimmonds.com/about/
In the age of technology, some businesses are opting away from issuing paychecks to employees. Instead, some are choosing to pay employees using payroll debit cards. This practice recently attracted scrutiny, however, after a former worker at a large fast-food chain filed a class-action lawsuit alleging employees were not offered the chance to be paid by check.
In response to the garnered attention, the Consumer Financial Protection Bureau issued a bulletin warning employers against using only payroll debit cards to pay workers. The Bureau said that employers cannot mandate that employees receive wages on a payroll debit card chosen by the employer and that workers must be able to choose their own form of payment for wages. As a result, employers must offer alternatives, such as direct deposit into a bank account or a paper check. Furthermore, if employees choose to be paid with payroll debit cards, they are entitled to protections such as disclosure of fees associated with the cards.
The Bureau found that payroll debit cards can carry fees that are not clearly disclosed. For example, fees may include a $1.50 minimum charge for an ATM withdrawal, $5.00 for an over-the-counter cash withdrawal, $1.00 to check the card’s balance, up to $1.00 for each online bill payment, and $15.00 to replace a lost or stolen card. These mandatory fees can cut into the employee’s earnings such that it may drop those earnings below the applicable minimum wage.
While the majority of states do not have actual laws governing payroll debit cards, the departments of labor for most states have weighed in with guidance for paying employees in this manner. If you currently utilize payroll debit cards, or are considering using them, please contact your Elarbee Thompson attorney to review state laws in concert with the Bureau’s recent warning bulletin.
Article provided courtesy of Worklaw® Network firm Elarbee Thompson (www.elarbeethompson.com)
In the recent case of Moradi v. Marsh, a Los Angeles Superior Court Judge ruled that an employer was responsible for an auto accident committed by an employee while running a personal errand on the way home from work. Normally an employer is not liable for accidents that occur when coming or going to work. The court’s synopsis was thus:
An employee of an insurance broker was required each workday to drive to and from the office in her personal vehicle. During the workday, the employee had to use her vehicle to visit prospective clients, make presentations, provide educational seminars, follow leads, and transport company materials and coemployees to work-related destinations.
On April 15, 2010, the employee left the office at the end of the workday and began driving in the direction of her home. She had decided that, on the way, she would stop for some frozen yogurt and take a yoga class. As the employee made a left turn at the yogurt shop, she collided with a motorcyclist.
The motorcyclist filed this action against the employee and her employer. The trial court granted the employer’s motion for summary judgment on the ground that the employee was not acting within the scope of her employment when she was making a left turn to get to the frozen yogurt shop. The motorcyclist appealed.
We reverse. Because the employer required the employee to use her personal vehicle to travel to and from the office and make other work-related trips during the day, the employee was acting within the scope of her employment when she was commuting to and from work. The planned stops for frozen yogurt and a yoga class on the way home did not change the incidental benefit to the employer of having the employee use her personal vehicle to travel to and from the office and other destinations. On the day of the accident, the employee had used her vehicle to transport herself and some co-employees to an employer-sponsored program, and the employee had planned to use her vehicle the next day to drive to a prospective client’s place of business. Nor did the planned stops constitute an unforeseeable, substantial departure from the employee’s commute. Rather, they were a foreseeable, minor deviation. Finally, the planned stops were not so unusual or startling that it would be unfair to include the resulting loss among the other costs of the employer’s business. Thus, under the “required vehicle” exception to the “going and coming” rule, the employee was acting within the scope of her employment at the time of the accident, and the doctrine of respondeat superior applies. Accordingly, the trial court erred in granting the employer’s summary judgment motion.
I know most employers would be surprised to learn that they have such an exposure. One more reason to make sure your insurance act is together. Remember, primary insurance is always with the vehicle owner. Secondary insurance is with the employer. Read your business policies carefully to understand your coverages and responsibilities. Here are some of the elements present where an employer has such liability:
- The vehicle is required to do the job.
- Use of the vehicle provides at least some incidental benefit to the employer.
- The employee will frequently use the car for office errands or to drive directly to a customer location.
- The employee was involved in a foreseeable minor deviation from her route going home.
Note that this exposure exists for workers comp and liability cases but not for wage and hour purposes.
“Plaintiff Quincey Gerald Keeler filed this pro se lawsuit, his seventh, against Defendant ARAMARK alleging twenty-five claims of various, and occasionally fictitious, forms of wrongful termination, defamation, and conspiracy to commit civil wrongs and torts.”
Turns out Mr. Keeler’s lawsuit campaign began in 2008 and five years later they are still being dragged through the courts. Apparently Mr. Keeler became hostile when “he believed ARAMARK was retaliating against him by declining to offer him overtime shifts and by not featuring him as an ‘Employee of the Month’.” Concerned about his threats and intimidation he was terminated.
Only good news is that Mr. Keeler’s case was kicked out of court on a Summary Judgment motion and according to the court “Keeler specifically represents that ‘This is the last and final Keeler v. ARAMARK case.’” One can only hope so.
To read Quincey Gerald Keeler v. ARAMARK, click here.
In the most recent newsletter we discussed the challenges of working with alcoholics. A case out of California brings home why this is such a risky liability exposure. In the case of Purton v. Marriott a bartender, who was drinking at a company holiday party, drove home drunk and then decided to come back to the party to drive another drunk employee home. It was on that trip that he rear-ended Dr. Purton at approximately 100 MPH, killing him. He pleaded guilty to gross vehicular manslaughter while under the influence of alcohol and received a six-year prison sentence. To keep the story short, the court ruled that the bartender’s actions where attributable to the employer as a foreseeable cause of allowing him to be intoxicated and drive. There are some courts that rule the harm itself had to take place while acting in the course and scope of employment. In California, Washington and other more “liberal” states the rule is that only the alcohol consumption had to occur during work hours.
Bottom line: Don’t let your employees drink and drive in any jurisdiction.
According to a Department of Health and Human Services investigation, AHP committed the following errors:
- AHP impermissibly disclosed the EPHI of up to 344,579 individuals when it failed to properly erase photocopier hard drives prior to sending the photocopiers to a leasing company.
- AHP failed to assess and identify the potential security risks and vulnerabilities of EPHI stored in the photocopier hard drives.
- AHP failed to implement its policies for the disposal of EPHI with respect to the aforementioned photocopier hard drives.
Without admitting any fault they agreed to pay a handsome penalty. To see the Resolution Agreement click here.
Bottom line: Good risk management practices considers a wide range of exposures and risk that can be created by surrounding technologies (i.e. copiers, internet, social media, storage, disposal) and based on various information sources (financial or health information, trade secrets, R&D, etc.).
In a recent Webinar I did with DFEH head Phyllis Cheng she shared this graph of claims filed in California in 2011. And it got me to thinking. It made me want to ask… just how bad is that?
There are roughly 16 million workers in California. In 2011 roughly 18,000 cases were filed with the DFEH (the new 2012 numbers will be closer to 21,000 but as of this writing were not published yet). Let’s assume that is one half the claims universe since claims like overtime, wrongful termination and the like don’t need to involve the DFEH. So… 16,000,000 divided by 42,000 gets you one claim per year, of some kind, per 380 employees. Many of the DFEH and other claims are dismissed as without merit. The really good cases get pulled out of the DFEH system and dragged into court. Employees win more than half the cases that go to trial with the average jury verdict hovering around $250,000, the average settlement around $75,000. And that doesn’t include attorney’s fees. Of course you can–and should–insure against these claims so that your exposure does not exceed your deductible limit of, say, $25,000. The cost of that insurance is approximately $150 per year per employee, which comes out to a $57,000 annual premium. Keeping on one poor manager you are afraid to fire due to a potential lawsuit will more than eat up that premium cost.
Note: The EEOC claims some 100,000 discrimination claims were filed with it in 2012.
While getting the stats for work comp claims was more difficult, what I could find indicated there roughly 780,000 workers’ compensation claims filed each year in California. Most claims (around two-thirds) are for medical care only, with no cash indemnity payments. Approximately 20 percent of claims are for temporary disabilities. Permanent partial disability claims account for about 14 percent of total claims – 10 percent are minor disabilities and four percent are major disabilities. Death benefits and permanent total disability benefits each account for about one-half of one percent of total workers’ compensation claims. According to the rating bureau, the average lost work claim cost roughly $68,000 (and there were roughly 260,000 of them.) Of course these claims are always insured and in 2010, employers paid an average of $2.37 per $100 of payroll for policies.
Bottom line with risk management is to analyze, mitigate, and insure against it where possible.
In the case of Gregory v. Cott, a California court had to decide whether a homecare worker attacked by an Alzheimer’s patient can sue the family for negligence. Two out of the three appellate judges deciding the case thought that homeworker had “assumed the risk” of that violence and that her only remedy would be workers’ compensation. The dissenting judge felt that this was going too far and essentially stated “Given the increased risk of harm to Ms. Cott’s in-home caregivers, fairness demands to caregivers bare responsibility for that risk, and not shift the burden of loss to the hapless worker who happened to be assigned to the home of one suffering from Alzheimer’s disease rather than, for instance, one recovering from foot surgery….[T]he claims at issue here should be subject to the usual laws of negligence, including the comparative negligence, if any, of plaintiff.”
My comment: What is interesting is that neither judge discussed the possibility that this claim was governed by workers’ compensation exclusivity. In addition, it’s very possible that the employee could have sued the employer for lack of proper training in how to deal with potentially violent Alzheimer’s patients.
We recently hosted a webinar with Rick Betterley of the Betterley Report. Rick is the foremost expert on Employment Practices Liability Insurance (EPLI) coverage. Here are some of the notes from our webinar with him as well as from the Betterley Report. To learn more about the Betterley Report, go to Betterley.com.
To begin with, there has been an increase in rates as well as in retentions (the deductible an employer has to pay). While there hasn’t been much change in coverage, underwriters are raising rates anywhere from 10-25%. The EPLI industry is a $1.6 billion business. According to Rick, underwriters are not very excited about insuring employee leasing and temporary staffing companies, educational and religious entities, public entities, law firms, investment banks, and the entertainment industries. Also considered undesirable employers are extended care (nursing home) facilities, real estate/property management companies, auto dealers, and technology companies. What this tells me is that all of the above mentioned entities could greatly benefit from using HR That Works!
One of the greatest concerns is the ability of an employer to select the counsel they would like to use should they get sued. Of course the insurance agencies would like to make their lives simple and work solely with one of the nationwide law firms and not with your local counsel. However, if they are qualified, chances are that during negotiation you can name those local attorneys as your panel counsel. As you can well imagine, we highly recommend you use one of the Worklaw® Network firms that helps support the HR That Works program.
One of the greatest concerns in terms of exposure are class action wage and hour claims. Most insurance companies have been very reluctant to underwrite these claims except for the cost of defense. They will not underwrite indemnification (payment of the underlying wage claim) because they feel that is greatly within an employer’s control (why bother paying for overtime when you can simply have the insurance company do so for you if ever get sued). In April, Aon announced a wage and hour coverage for large employers. Unfortunately, this coverage is not available yet for small employers, but perhaps Aon has kicked off a trend.
As Rick reminds us, most larger employers have EPLI coverage; however, for most HR That Works sized employers it’s more like a 50/50 proposition. Our advice is this: Don’t go bare and negotiate for some EPLI coverage and, if necessary, with a high retention rate.