The United States Census Bureau estimates that there are in excess of 10,000,000 auto accidents annually in the United States. Employers often wonder what responsibilities they have toward employees involved in auto accidents while using personal automobiles. There really are, after all, some tricky issues to work through.
Common questions I hear are:
- Does the employee or company auto insurance apply?
- Who pays for the auto damage deductible?
- Who is liable for injury to third parties?
- Does worker’s compensation apply?
So in this post, I’d like to walk you through some of these issues to help you assess the key factors in deciding your company’s obligations.
Damage to Employee Vehicles
You may have heard the auto insurance phrase, “insurance follows the vehicle,” meaning the first insurance to respond in an accident is that covering the very vehicle involved in the accident. This means, in most situations, your employee’s auto insurance will apply by virtue of its involvement in an accident.
Your company is actually helping employees pay for their insurance through mileage reimbursement programs. The IRS publishes an annual mileage reimbursement rate that most companies follow to compensate employees for use of their cars on company business. Embedded in this mileage rate, among other things, is the cost of automobile insurance.
So when a company provides mileage reimbursement, especially at the IRS published rate, employees have been reimbursed (incrementally) for their insurance costs. The company has no further premium or deductible obligation for the employee’s use of their personal auto used for business.
Post-accident, employees usually confirm they did have insurance, but want to know if the company is going to pay their deductible. A few companies have policies that voluntarily fund (or partially fund) an employee’s personal auto deductible. Most companies however, do not reimburse deductibles because they have covered the incremental cost of insurance. The deductible is simply a byproduct of the insurance.
The guidelines for worker’s comp coverage after employee injuries do not change in a car accident (in most circumstances). If an employee is on company business, then the injuries flowing from an auto accident generally arise “out of and in the course and scope of employment.”
There are circumstances that muddy these waters, however. For example, if an employee goes on a side trip or errand (dropping off dry cleaning, visiting a friend in the area) then the applicability of worker’s comp for the employee’s injury may come into question.
To further complicate things, the rules for establishing “course and scope” are affected by the specific facts surrounding the employee’s activities at the time of the accident.
Many states have long established that employees are not in the course and scope of employment while driving to and coming from work, under a principle commonly known as the going and coming rule. Like almost anything in law, however, the principle may be simple, but its interpretation and application, not so much.
Things that may convolute course and scope of employment while commuting to and from work include whether a “special errand” (for the employer) was integrated into the commute.
For example, if a manager asks an employee to drop off a document at a client’s office on the way home, the errand could make any injury from a car accident a covered worker’s comp claim.
In short, careful analysis of where the employee was driving and for what purpose must occur to assess the company’s responsibility for employee injury.
Damage or Injury to Third Parties
Companies can be held legally liable for injuries to third parties arising from employee car accidents. The tort of vicarious liability most often governs these claims against employers. Vicarious liability arises from a special relationship, such that exists between employer and employees.
It’s important that companies purchase auto liability coverage that includes employee-owned autos (“non-owned auto” coverage) if they allow employees to drive personal automobiles on company business.
If the company’s auto liability coverage extends to “owned autos only” and there is a claim or suit from an employee’s vehicle use, there is no coverage.
Properly scheduling the types of vehicles that may create liability is important because it not only extends to claims or suits against the company, but also to the employee’s liability in excess of the personal auto limits.
Given that statutory limits — those limits mandated by state law for personal auto liability — are typically very low ($15,000 per person and $30,000 per injury in California) there is a likelihood that the company’s auto policy will be involved in accident claims.
Get in Front of Claims
A risk assessment that analyzes the uses of all vehicles in your business can be used as the guidepost to developing a comprehensive risk management policy. You’ll want to be sure the policy addresses all aspects of employee auto accidents, including:
- Damage to the auto
- Injury to employees
- Liability to third parties
Since it’s likely that one or more insurance companies will be making a determination about company liability and employee injuries, it’s critical that those charged with risk management understand exactly how all aspects of an employee auto accident will unfold.
Also, an employee handbook covering the use of personal vehicles on company business will help employees understand their obligations and financial responsibilities in the event of an auto accident.
Speak directly to an employee post-accident to obtain a clear understanding of the purpose of the trip. Determine what the employee was doing at the time of the accident. These steps will help risk managers respond and direct with confidence following an accident.
With all the nuances that go into assessing auto collisions on company time, it’s important that you do your due diligence ahead of an accident by knowing the rules, obtaining the right coverage and clarifying how employees can use personal vehicles through company policy.