Who's Responsible for Employee Car Accidents?

Who's Responsible for Employee Car Accidents?

by Steve Adam King, February 2017

When employees get into accidents while driving their own cars at work, who pays?

Here’s where commercial auto insurance and personal auto insurance meet at a very tricky intersection.

Let’s say Nikki owns a high-end clothing boutique. Ethan works for her – on the floor and sometimes behind the wheel. When Nikki has a track lighting fail one morning, she sends Ethan out for new halogen bulbs. He drives to the hardware store in his own car. But after completing the errand, he also decides to swing by a grocery store and grab a few deli items. Mission accomplished, he pulls out of the parking lot and collides with Daniel, a cyclist. Daniel will be okay, but he does have some injuries – and his bike needs serious repairs.

So who pays?

Let’s back up (like Ethan probably should have) and define personal and commercial auto insurance.

Personal auto insurance covers your own vehicle if it injures other people or damages property. This coverage is called Bodily Injury Liability and Property Damage Liability – and it’s legally required in all states if you own or operate a vehicle. (You can also add Collision and Comprehensive coverage to cover your own losses if your car is damaged or stolen.)

Commercial auto insurance covers any vehicles owned by your business. Like personal auto insurance, it covers company vehicles if they injure other people or damage property. (You can also add Collision and Comprehensive coverage.) On top of that, many business owners choose to add Non-Owned Vehicle insurance – which safeguards employee vehicles that may be used on the job.

So back to Nikki and Ethan. Who pays?

There’s a technical answer. Both Primary and Excess insurance coverage get involved because of Vicarious Liability.

But let’s untangle the terminology and start by saying:

“Insurance follows the car.”

Daniel’s insurance company will go to Ethan’s personal auto insurance first because it’s directly associated with the car. (This is the “Primary insurance.”) The goal? Recover the full costs of the damages to Daniel and his bike. Fortunately, Ethan has kept up his payments. But depending on his coverage limits, that still might not be enough. So Daniel’s insurance company will look for the nearest deep pockets – in this case, the high-end clothing boutique that employs Ethan. (This is the “Excess insurance.”)

But wait – wasn’t Ethan on a personal errand? We’re back to that tricky intersection. Courts often rule that personal trips like the one Ethan took are considered “detours” from a work-related task – and an employer still has Vicarious Liability. That means Nikki may be held responsible for the actions of her employee. Since there’s usually a higher cost for business owners (and maybe a hit to their reputations) to contest this in court, Nikki may choose to pay up.

Here’s where Non-Owned Vehicle insurance kicks in. If Nikki’s commercial auto insurance only covers her company-owned vehicles, she could be on the hook for an out-of-pocket payment. But she’s protected now if she also insured Ethan’s car. (In some cases, damages may exceed those limits too. Nikki’s agent may recommend Umbrella coverage – which adds an extra level of protection above the limits of all other coverage.)

The good news – both employers and employees can lessen (mitigate) the risks of this type of situation:

Business owners with employees who drive for work will want to:

  • Have business insurance covering both owned and non-owned vehicles.
  • Run Motor Vehicle Records before hiring.
  • Require annual proof of personal auto insurance.
  • Consider conducting drug tests (before and after hiring).
  • Be extra vigilant hiring drivers with less than nine years of driving experience (they’re more likely to have been in accidents – and/or not kept up with insurance payments).

Employees who may be driving their own cars for work will want to:

  • Maintain personal auto insurance coverage (at least Bodily Injury Liability and Property Damage Liability – which is legally required).
  • Agree to employer requests for Motor Vehicle Records, annual proof of insurance, and/or drug testing.
  • Remember they’re representing their employer behind the wheel.

Of course, whether you own a business or drive for one, you’ll want to consult an expert who can steer you to the right answers for your specific situation.

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