Employee Use Of Vehicles On Company Business

Do you know what your business’ automobile liability policy covers?  Do your employees?

The subject is as much a concern as it is to their employees who drive autos on the job as it is to their employers.  The two most frequently asked questions are (1) What happens if the employee drives his or her own car on company business and is involved in an accident? and (2) What happens to the employee’s insurance if he or she has a wreck in a company car?  These concerns focus on liability issues, such as whose insurance will apply, and who will pay for damage to a vehicle.  The answers vary, depending on whose vehicle is being used, the employee’s or the employer’s.

Employee Use of Personal Vehicle

Employees who use their personal vehicles for business often assume that they are covered under the employer's automobile policy, at least for liability.  They are usually wrong.  Standard commercial auto policies do not provide coverage for a person using his or her own vehicle, even thought that person may be on business for the insured organization.  For additional premium, insurers will endorse commercial auto policies to extend coverage to employees while on company business in the employee’s personal auto, but few employers take this step.  Most risk management and insurance authorities discourage organizations from providing direct auto liability coverage to employees for use of their personal automobiles.

Some employees may wish to have employees sign this type of acknowledgement for responsibility for personal vehicle.

Instead, such authorities recommend that organizations require their employees to carry minimum limits of liability insurance and to provide their employer with certificates of insurance verifying coverage.  These minimum limits ideally should be sufficient to protect the employer’s primary liability insurance policy from claims.  Usually, this amount would be $1 million.  Although many employers likely will not be able to demand this high a minimum, many ask for limits in the $300,000 to $500,000 range.  Employers should clearly point out to employees that such limits may not be adequate and that the employee should seriously consider even higher limits.

Many states have compulsory automobile liability insurance laws.  Therefore, each employee using a personal vehicle on employer business already is required to have his or her own liability coverage in those states.  Covering those employees through employer-purchased coverage would be redundant and would waste premium dollars.  More than that, it would violate a principle of risk control-that liability should rest with the party in the best position to control the loss.  Certainly, this party is the employee in the case of vehicle operation.

The insurance industry also seems to follow this risk-control principle.  A basic concept of auto insurance is that “insurance follows the vehicle.”  Most personal auto liability policies provide coverage to the employer (or any other party for whom the insured is performing a service) for vicarious liability when the employee uses his or her own car on business.  From the way these coverages are structured, one might reasonably conclude that the insurance industry generally intends to provide employee auto liability coverage for business usage through the employee’s policy, rather than the employer’s.  Of course, damage to the vehicle is covered under the employee’s insurance.

As might be expected, using one’s own vehicle on company business usually will increase the insurance premium.  If the business use of a vehicle for an employer is only occasional and incidental, many people will not report it to their insurers.  But, most insurers require such reporting and include a question about business use on the annual policy update form.  If employees report that they use the vehicle for business purposes--even if infrequently--there usually will be additional premium due.  The charge will vary from insurer to insurer, but most insurers will say that the charge is small.

It is a good idea to have employee’s sign a form acknowledging that they are aware of the legal responsibility arising out of their vehicle for company business.  The form should make clear that the employer will not provide insurance.  Also, the employee should be aware of any requirement to maintain liability insurance.  Confirmation of this knowledge through an acknowledgement for (see sidebar for example) may help to prevent future problems and disputes between employer, employee and their respective insurers.

Although the employee may be liable for causing an accident, the employer also can be sued, if only because the employee was on company business.  We have heard of employers asking employees to sign assumptions of liability making the employee entirely responsible for any loss.  Having the employee agree that they are solely liable won’t keep the employer from being sued.  It is unlikely that the employer can transfer all of its liability to the employer.

Use of Employer-Provided Vehicle

Some employers provide pool vehicles for employees to use on business.  One source recommends the use of pool vehicles because the employer can control mileage cost, vehicle usage, quality of maintenance, inspections and operation safety equipment, insurance and other critical factors.  Also, it is easier to enforce policies regarding speed limits, use of safety belts and other operating procedures when the employer provides the vehicle.

For many smaller employers, this is not a practical alternative because of cost.  Besides the obvious expense of the vehicle, ownership of property is in itself a risk.  Smaller companies often can afford neither the risk nor the capital outlay.

If the employer provides vehicles for use by employees on company business, the employer needs a commercial auto policy with adequate limits.  If some employees will use their own vehicles on company business, then the employer’s auto policy should include coverage symbol 1 (any auto) or coverage symbol 9 (non-owned autos).  If many use their personal vehicles on company business, the employer may wish to consider an endorsement to provide excess coverage above the employee’s policy.

If the employer does not own any vehicles, bus asks employees to use their vehicles on company business, the employer should have non-owned auto coverage endorsed onto the employer’s general liability policy.

Whether covered under a general or auto liability policy, an employer should make sure that the umbrella covers auto liability, including non-owned autos.

When business requires an employee’s use of a vehicle, either their own or the company’s, clear policies, guidelines and factual information will help avoid misunderstandings and claim confusion.

General Guidelines For Employee Business Auto Use

A few simple statements may help clarify the business-auto-use issue for employees.  Not all of the following apply in all situations.  Obviously, it would be best if the employee were made aware of these points prior to assuming the job duties.

• Taking the wheel of an automobile is a significant responsibility.  Whether one’s own auto or that of another, the driver is accountable for his or her actions.
• A chargeable accident probably will affect your insurance premium, no matter whose vehicle you are driving.
• The state may require you to have auto liability insurance if you drive an auto.  Your employer requires you to have liability insurance if you drive your own auto on company business.
• If you are responsible for an accident while driving your own car on company business, your insurer will defend you and the company. 
• If you drive the company’s vehicle, the company’s insurance will cover you, the company and the vehicle.
• If you are injured while driving a vehicle on company business, your injuries may be covered under workers’ compensation.  If you are on your way to or from work, you may not be on company business.
• If a fellow employee is injured while riding with you in your auto on company business, that employee may be covered under workers’ compensation.  You may be personally liable to that fellow employee, however, if his or her injuries result from your negligence.
• If the vehicle is your property, you are responsible for obtaining property insurance for it.  Your property insurance will cover damage to your property (although your insurer may pursue a liable third party to recover repair costs).  The company is not responsible for damage to your auto, unless caused by the company’s negligence.
• A mileage allowance is intended to cover your cost of operating your vehicle on company business, including the cost of insurance and the cost under any deductible you have chosen.

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