Millions of people use their personal vehicle or a rental car to drive for work. They meet with customers, visit offices or job sites, run errands for their employer and travel for work-related events. These drivers go by a number of different classifications, including reimbursable, casual and, as the insurance industry refers to them, hired and non-owned drivers. This category of drivers represents one of the most high-risk groups for businesses today. Read on to discover how companies should properly address hired non-owned liability.
Who Are Hired and Non-Owned Auto Drivers?
It’s not uncommon for businesses to use vehicles they do not own in their day-to-day operations. These vehicles typically fall into two main categories:
- Hired Auto: Vehicles a company leases, hires, rents or borrows that are used in the course of doing business.
- Non-Owned Auto: Vehicles owned by employees that are used for business purposes.
There are different types of drivers that fall into each of these categories. Hired autos can include employees who rent a car on a business trip to visit a conference or customer.
Non-owned drivers include a wide range of drivers, such as:
- Employees who use their personal vehicle to run errands for the company, such as going to the bank or post office, picking up supplies at a store, delivering items to another location, making client visits and even grabbing coffee or lunch for the office.
- Employees who are given an allowance to use their personal vehicle in lieu of receiving a company vehicle. These typically include sales reps, gig drivers or those who drive to and from various job sites.
Common Myths about Hired and Non-Owned Drivers
There are several myths surrounding hired non-owned liability that must be debunked. Some of the most common falsities include:
- Our company is only responsible for incidents that occur in company-owned vehicles.
- Our company is only responsible for incidents that occur with employees who are hired as full-time drivers.
- The employee’s personal insurance will cover the costs related to incidents involving hired and non-owned vehicles.
- Our company’s commercial auto policy will cover any crashes involving non-owned vehicles.
- Our company is better off not knowing which hired and non-owned drivers are high-risk.
All of these myths are easily debunked by the legal doctrine, Respondeat Superior. According to Cornell Law, this doctrine holds an employer or principal, “legally responsible for the wrongful acts of an employee or agent, if such acts occur within the scope of employment or agency.”
Put into layman’s terms: when you hire someone, you take on liability for whatever happens in the course of their employment.
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11 Critical Steps to Protect Your Company Against Hired and Non-Owned Auto Risk
Main Risks Associated with Hired Non-Owned Liability
Over the last several years, many companies have moved towards a hired and non-owned approach to help curb costs associated with managing fleets. With commercial auto rates on the rise along with repair, maintenance and new vehicle costs, many companies have determined that offering employee allowances is a more cost-effective method to manage drivers. While this can be true for safe drivers, it’s the risky ones that put companies at risk both legally and financially.
It’s critical to note that companies cannot shed liability through driver allowances, reliance on a driver’s personal insurance or the fact that these individuals are not driving company-owned vehicles.
Let’s dive into this in more detail.
Insurance Coverage
Some of the greatest risks surrounding hired non-owned auto drivers stem from misconceptions about insuring them. Many companies falsely believe that an employee’s personal auto insurance will provide proper coverage if an incident occurs. It’s believed that any costs incurred will be covered by the employee’s insurance plan. Ideally, this approach would shield the company from any liability and cost much less than insuring that driver through the company’s commercial auto policy.
The problem is, if the company is not actively vetting insurance plans to ensure each employee maintains a certain level of coverage, the company can be on the hook for more expensive crashes.
To save money, a large percentage of the population only meets the required compulsory liability limits set by their state. These state minimums can range anywhere from $40,000 to $60,000. If your employee causes a serious crash while driving on behalf of the company and damages exceed their limit, there’s a strong chance the company will be responsible for the liability exceeding the employee’s coverage.
Nuclear verdicts, or extreme jury awards exceeding $10 million, are on the rise, presenting even more risk for companies with hired and non-owned drivers. According to the Travels Institute, from 2015 to 2019, the average verdict in the National Law Journal’s Top 100 Verdicts more than tripled from $64 million to $214 million. If an employee with a $40,000 liability limit on their policy caused a $100 million nuclear verdict, it would be catastrophic for a company.
According to the Insurance Journal, one in eight U.S. motorists is uninsured, and in five states over 20% of drivers are uninsured. With such high rates of uninsured and underinsured motorists, companies are taking a huge risk relying on their employees to carry not only the right type of coverage, but also a valid plan. While your employees may know they need to carry insurance, similar to a valid driver’s license, sometimes plans expire creating a lapse in coverage. Imagine if one of your employees got into a crash on company time in between coverage?
Little Visibility into Driver Risk
When fleet drivers are hired, they will typically go through certain protocols to ensure they’re truly qualified to drive. This usually includes a background and pre-hire MVR check to analyze driver behavior and prove they have a valid driver’s license. Upon hire, these folks must typically acknowledge the company’s driver safety policy, as well as enroll in some sort of ongoing monitoring so the company has timely visibility into their driving behavior.
It’s not uncommon for these best practices to go out the window when it comes to hired non-owned liability. Since many hired and non-owned drivers do not drive as part of their normal job function, they likely will never receive the driver safety policy, nor will the company pull an MVR for them. This is especially true in cases when an employee is asked to run a quick errand.
Automobile negligent entrustment can come into play here. According to CNA, employers have a responsibility to know if an employee is too inexperienced or incompetent to drive a vehicle safely. Employers can be found liable if the employee’s record of reckless or dangerous conduct was known to the employer or if the employer could have easily discovered this record by conducting a diligent search. This can arise from employees driving company-owned vehicles, personal vehicles or other vehicles on company business.
If someone is going to drive on behalf of your company, even for a quick errand, you must ensure they meet your company’s safety standards before getting behind the wheel.
Less Control Over Vehicle Safety
While the vast majority of crashes are the result of dangerous driving behavior, vehicle malfunctions do still cause crashes. This is why ongoing maintenance is a vital component of driver safety, especially for vehicles that rack up mileage on work-related trips.
When companies own fleet vehicles, it’s much easier for them to ensure they’re held to a certain safety standard. They have more control over ensuring important maintenance occurs, including:
- Checking tire pressure and tread depth, as well as ensuring the right seasonal tires are on each vehicle
- Performing proper routine maintenance, including oil changes, fluid checks, tire rotations and brake checks
- Checking that windshield wipers and all lights work properly
- Ensuring all safety recalls are addressed in a timely manner
Unfortunately, you cannot assume your employees will hold their vehicles to the same safety standard. A study of 2,000 American car owners found that 25% of drivers feel they “take a risk each time they hit the road, as their vehicle is currently in need of repair or no longer runs well.” 68% of cars in this study had at least one current issue.
More importantly, you have very little control over how safe your employees’ vehicles truly are. When purchasing fleet vehicles, companies can ensure they have key safety features like side airbags and lane change alerts and lack risky things like blind spots. These requirements become much more difficult to enforce when employees are selecting their vehicles.
Steps Your Company Can Take to Protect Itself
While many companies may decide that the risks outweigh the pros for certain types of hired and non-owned drivers, there are steps you can take to ensure the right safety protocols are in place to protect your employees and overall company against the risks these drivers present. These include:
- Ensuring your company has the right insurance coverage
- Ensuring your employees have the right insurance coverage
- Monitoring the driving behavior of ALL employees
- Drafting specific components of your driver safety policy to cover hired and non-owned liability
- Assigning required driver training courses for ALL employees
- Performing random audits to ensure ongoing protection
To learn more about each of these steps, download our convenient checklist!
