The aftermath of a vehicle collision that causes injuries, property damage or even death is the wrong time for a company to discover that the employee who caused the crash has a long history of traffic violations. The result can be a costly jury award or settlement ratcheted upward by the legal liability known as negligent entrustment.

The negligent entrustment concept may make companies responsible for their employee's behind-the-wheel behavior. When businesses send employees out on the road, whether in a company vehicle or a personal car, they should be confident that their drivers have clean records and up-to-date training. Failing to investigate motor vehicle records prior to hiring an employee, or ignoring poor driving performance once the person is on the payroll, can be a devastating indication of a company's negligence if a lawsuit is filed.

Just a few examples can demonstrate how expensive poor driver safety practices can be. Negligent entrustment was a factor in an $11 million settlement in December 2007 for a Florida crash that killed four when a fuel tanker truck slammed into a car and exploded, incinerating the vehicle and its passengers. Although the company claimed their employee was a safe driver, the plaintiff's attorney proved the driver had 10 traffic violations, including a ticket for driving 80 mph in a 55-mph zone.   

In another case, a Tennessee jury awarded $6.8 million to the parents of a 17-year-old who died when a truck rammed into the back of her car on a freeway. Testimony at the 2002 trial showed that the transportation company ignored not only the eight accidents and six moving violations the driver had in the three years before he was hired, but also failed to remove him from duty after he was involved in two more accidents and accumulated another four tickets in the months before the fatal crash. 

But sometimes the company's driver does not have to be at fault for negligent entrustment to come into play. A 1994 settlement in New Mexico required the driver's employer to pay $2.6 million based on the employee's undesirable driving record, even though he did nothing wrong to cause the accident involved in the case.   

However, negligent entrustment can come into play even when an employee's main function does not involve driving. Something as commonplace as an administrative assistant sent out for pizza in her own car to provide lunch for a company meeting can trigger liability. Other examples include employees driving home in their own cars while using cell phones to call in to a business meeting; an employee's family member or friend driving a company car that is assigned to the employee; a typical office employee making a quick trip to take company mail to the post office; and contract employees, such as security guards, using company vehicles to perform their rounds.

The frequency of accidents is also a wake-up call for companies. The National Highway Traffic Safety Administration (NHTSA) found that crashes involving employees, either on  or off the job, but in a company vehicle, averaged more than 620,000 per year from 1998 through 2000. 

In fact, motor vehicle accidents are consistently the leading cause of work-related fatalities across the United States. Looking at data from 2002 through 2007, the Bureau of Labor Statistics found that an average of 1,371 workers died each year from crashes on public highways. Another 330 died in crashes off highways or on industrial premises. 

And finally, companies need to be aware that costs are high, not just from negligent entrustment liability, but also from the ripple effect of any crash. In a 2003 study, the NHTSA estimated that motor vehicle accidents cost employers $60 billion annually for legal expenses, property damage, medical care and lost productivity. As the federal agency noted, accidents also drive up the cost of workers compensation policies, general liability coverage, and health and disability insurance.

The direct costs of vehicle accidents as a result of legal proceedings also have been increasing rapidly in recent years. Marsh's Limits of Liability 2007 report, an annual summation of the impact of liability on companies, noted that in 2004, 2005 and 2006, the top 100 jury awards across the United States frequently came from cases involving vehicle crashes. The top award in 2006 for liability in a vehicle accident was $46 million in a case against a trucking company that involved two deaths.

Adding to cost concerns for businesses should be the fact that commercial auto insurance may not cover punitive damages-a pitfall that may leave them painfully exposed if a jury seeks to punish them for negligent entrustment.

All of these factors -- the number of employees driving on behalf of their companies, the frequency of accidents and the expensive results -- are risks that companies need to manage.

 
Written by Karen Healey: Karen Healey is director of product management for PPH Arval's environmental, risk and safety services.

The above article is reprinted from the June 2010 edition of Risk Management Magazine.