Consider this scenario:
Your employee drives their own car to the post office to drop off the office mail. On their way back to work, their car is totaled in an accident and the employee is injured. Their personal car insurance lapsed last month. Could your business be liable?
The answer is yes.
Many businesses use vehicles they don’t own in their day-to-day operations. This includes rental vehicles (“hired”) as well as vehicles owned by their employees (“non-owned”). With the use of these vehicles comes a common automobile loss exposure that many business owners don’t realize is putting their business assets at risk. Here’s a look at the risks and the insurance options available.
Hired autos are vehicles your business leases, hires, rents, or borrows that are used in the course of doing business. Vehicles you lease, hire, rent, or borrow from any of your employees, partners, limited liability members, or household members are not considered hired autos.
If you were to rent a vehicle for business purposes and cause an accident, hired auto insurance can help cover the costs if a lawsuit was filed against your business due to the accident.
Non-owned autos are vehicles owned by employees and used for company business. Common instances that lead to non-owned auto claims include the following:
- Administrative employee using personal vehicle to run business errands, such as going to the bank or the post office once a week.
- Sales or customer service employees given an allowance for personal vehicle use in lieu of a company vehicle.
Non-owned auto coverage would apply if an employee in one of the above scenarios were involved in an accident and found negligent. Laws vary from state to state, but in general, if you are in the course of employment when the accident occurs and you are negligent, the employer is responsible.
Non-owned auto liability insurance would be applied after the employee’s personal auto limit is exhausted, so it is essential that the employee have appropriate coverage limits on their personal insurance.
What is Covered by Hired and Non-Owned Auto Insurance
Hired and non-owned insurance provides liability coverage for property damage and bodily injuries caused by you or your employees while driving for work. Here’s how it works:
- The coverage would apply if your business is sued for negligence due to an automobile accident.
- It does not pay for collision damages to the hired or non-owned vehicle.
- Hired and non-owned auto coverage can usually be added as an endorsement to your general liability insurance policy.
Why You Need This Coverage
In the event of an accident, you could be found negligent for various reasons, including:
- The employee’s insurance has lapsed.
- The employee only carries the minimum limits required by the state and the amount of damages exceeds this limit.
- The employee’s vehicle is not properly maintained.
- The employee’s driving record is below standard.
- Your company does not have any fleet controls or policies in place to address these issues with employee vehicles that are used for business purposes.
Risk Factors: How Negligence Arises in Hired and Non-Owned Auto Incidents
- Lapsed Insurance Coverage:
- This refers to situations where the employee’s insurance policy has expired or been canceled, leaving a gap in coverage. If an accident occurs during this period, the business may be held responsible for any resulting damages.
- Minimum State Insurance Limits:
- Some employees may carry only the minimum insurance coverage required by the state. If the damages from an accident exceed these minimum limits, the business might be held liable for the remaining costs.
- Inadequate Vehicle Maintenance:
- If an employee’s vehicle involved in a business-related accident is not properly maintained, and this lack of maintenance contributes to the accident, the business could be deemed negligent.
- Substandard Driving Record:
- Employees with a history of traffic violations, accidents, or a generally poor driving record may pose an increased risk. If the business allows such individuals to use their vehicles for work purposes and an accident occurs, the business might be held accountable for negligence.
- Lack of Fleet Controls or Policies:
- Businesses are encouraged to have proper controls and policies in place concerning the use of employee-owned vehicles for work. If a company lacks these controls or clear policies addressing issues like maintenance standards or driver qualifications, it could be considered negligent in the eyes of the law.
Understanding and addressing these potential reasons for negligence is crucial for businesses seeking to protect themselves from liability. By ensuring employees have appropriate insurance coverage, maintaining clear policies, and promoting safe driving practices, businesses can mitigate the risk of being found negligent in the event of an automobile accident involving hired or non-owned vehicles.
The purpose of hired and non-owned auto insurance is to protect your business. Don’t let a gap in coverage leave your business assets at risk. Contact us today to discuss this important coverage.