Boom! Bang! Crunch! Ouch! No… this is not the beginning of another Batman TV episode. But it might be the beginning of a real-life nightmare for you and your employer. What am I referring to? An unnecessary crash created by an employee with poor to no qualifications to safely operate a vehicle for company business. Unfortunately, this situation occurs every day. Employees not properly screened and trained to perform driving duties create a severe liability exposure for employers called “negligent entrustment.” In this article, we’ll take a look at this issue — describe what it entails, potential exposure, and methods to avoid this potentially devastating liability.

$2,000,000 settlement

St. Louis, MO – A 17-year old female died and three others were injured severely when their vehicle was struck head-on. The plaintiffs contended that the defendant (company) was negligent because it knew its employees drove while under the influence of alcohol and it did nothing to stop it. The company also never communicated its business vehicle policy to the driver.

Broken trust

Negligent entrustment is a legal doctrine referring to the act of an employer leaving or requiring use of a dangerous item (firearms, vehicles, etc.) with an employee whom the employer knows or should know is unlikely to use it in a safe manner and potentially exposes others to unnecessary harm. By far, the most common cause of negligent entrustment is the business use of a vehicle. Liability exposure for this remains with the employer whether or not the employee is driving a company vehicle or a personal vehicle. Consider these scenarios that a business could be held responsible for:

• An employee performs company-sponsored, community volunteer services and drives to a print shop to pick up and distribute flyers;
• A part-time employee who makes deliveries in his/her own vehicle;
• A salesperson operating a personal vehicle for company business;
• A temporary worker who takes a company car to pick up mail at the Post Office.

Courts do not restrict tort action simply because the employee was not operating a company vehicle. Carefully review how your organization manages company-driving activities to fully understand where you exposures exist. An increasing number of negligent entrustment claims are filed each year. These claims are particularly attractive to plaintiffs’ attorneys because such claims authorize a jury to assess punitive damages in 49 states. It is no longer unusual to have verdicts and out-of-court settlements reaching $1 million or more. The motion to add punitive damages to these cases is commonplace and, if awarded, adds up to three times the amount (treble damages) of the underlying award. For many companies, a single negligent entrustment award with punitive damages can be debilitating, as in most of the states, punitive damages are not an insurable risk1. The employer is on the hook for the entire amount.

$6,075,000 verdict

Worster, MA – A man was killed while sitting in the passenger seat of a company-provided pickup truck, driven by an employee for work. The employee was driving too fast, lost control of the truck, veered off and collided with another driver. It was later discovered that the driver was operating the vehicle without a license and that the company had never conducted a background check of his driving record. The final settlement included $4 million in compensatory damages to the surviving family and $2.075 million in punitive damages.

Employee obligations

To summarize obligations relating to negligent entrustment, an employer must not allow an employee to drive who:

• lacks the appropriate skills to do so safely;
• has demonstrated at-risk behaviors (both on and off the job);
• is disqualified to drive as the result of regulatory actions;
• has not received adequate, ongoing driver safety training.

Important to all of this is a written document that states the company’s policy on this subject and includes details such as the minimum credentials that must met to be eligible to drive (legal, experience, and acceptable risk levels); procedures for ongoing credentialing reviews; unacceptable infractions (regulatory and employer policy) that result in immediate removal from driving duties; new hire and tenured driver safety training protocols; and remediation for increased risk level assessments.

The road to lawsuits

Failure to have a written (driver safety) policy in place creates an almost indefensible position if the employer ever needs protection from a negligent entrustment lawsuit. Of course, the corollary to this is that once a policy is in place, it must be followed and enforced. Make sure you regularly update your driver qualification files, training activities, and handling of risk-associated driving activities. These documents can be critical in the final outcome of a lawsuit.

Consider this scenario: A regional electronics distribution firm takes the precautionary steps of obtaining a motor vehicle record (driver history) before hiring new drivers. The employer leaves it up to each supervisor to determine what’s acceptable but generally instructs supervisors that a driver should have no more than two violations on their record over the past three years.

A hard-working, well-respected employee just finished his fifth anniversary with the company. When he started, he went through a similar screening process that everyone else does. At the time, he had no violations on his motor vehicle report but he did admit to his future supervisor that he had a couple of accidents in the past few years but they occurred while driving his own vehicle… never on company time.

One week after his fifth anniversary with the company, he was involved in a multiple-car crash that made the front page of the local newspaper. Numerous references were made to the driver’s employer and coverage included a photo of the damaged company vehicle with the employer’s name and logo plastered all over it. Turns out, and was subsequently reported on, that the driver had a string of accidents in recent years and his license was suspended. Notwithstanding the loss of any goodwill the employer may have had in the community, how do you suppose the company faired from a legal perspective? So what went wrong?

• "Once and Done” procedure to screen drivers (new hires only);
• No documentation of at-risk activities (multiple accidents) and appropriate remediation (safety training, written warning, termination, etc.);
• Lack of regularly scheduled audits to determine driver’s fitness to perform his duties (suspended license).

$8,000,000 verdict

Birmingham, AL – A female suffered severe injuries when her vehicle was struck by an employee of the defendant company. The plaintiff contended that the defendant (company) negligently and wantonly entrusted driving privileges to its employee because his past driving record included seven accidents and a suspension of his driver’s license.

Gap analysis

In all likelihood, the above incident occurred because no guidelines and procedures existed for management to identify and control exposure from at-risk drivers. An enforced company safety policy was absent. As we have now seen, losses resulting from an employer’s negligent entrustment can have dramatic, serious consequences. Too often, employers are totally surprised and overwhelmed by the financial and goodwill losses they are subject to. Now is a good time for your organization to revisit what you are doing in the area of driver risk management and safety. When you start this review, here are some of the key items to consider:

• Develop/update a fleet policy which includes a driver safety program;
• Include a policy on the use of all vehicles (corporate & personal);
• Document hiring procedures and standards;
• Specify driver orientation and training (new and tenured driver) protocols;
• Include accident reviews and regularly scheduled Motor Vehicle Record (MVR) reviews;
• Develop standards to evaluate crash reports and MVRs along with corrective actions ranging from additional training to suspension of driving duties;
• Document a vehicle inspection and maintenance program.

Stitch up these holes in your corporate pockets and you’ll have fewer “Boom, Bang, Crunch and Ouches” and a meaningful, defensible position to help keep your company’s financial integrity intact. Most importantly, having qualified personnel saves lives… those of your drivers and the people in the communities that your company serves.

Reference

1 MCCULLOUGH, CAMPBELL & LANE LLP THE INSURABILITY OF PUNITIVE DAMAGES 2004 www.mcandl.com.