Beware of liberal language

Risk & Insurance, April 1, 2004 by Charles H. Cox

Fleet safety concerns are on the minds of insurance companies these days, and they should be on the minds of any organization that owns or operates vehicles. Other driver-related issues are important for any fleet safety program as well.

Who should be allowed to drive company-owned or personal vehicles on behalf of your organization? There was a time when organizations took a rather relaxed approach to answering this question based, in part, on the very liberal, "Who Is an Insured" provision contained in the standard business auto policy.

It is true that the policy covers as an insured anyone (with a few exceptions) while using, with permission of the Named Insured, a covered auto that is owned, hired or borrowed by the Named Insured. As broad as this is, organizations need to consider the potential exposures created by those who have permission to drive owned, hired or borrowed autos.

It should go without saying that drivers must have acceptable driving records in order to drive a vehicle in the course of their employment. But other criteria should be considered as well. The driver of any vehicle must hold the appropriate license for the type of vehicle being driven and, in some cases, should have to pass a physical examination.

Educational institutions struggle with the issue of student drivers transporting other students, particularly when multipassenger vans are involved. Should students have a minimum number of years' driving experience? Should they be at least 19 or 20 years old? Should they have completed a defensive driving course within the past year and passed a written and driving test for the type of vehicle being driven? The answer to each of these should be a resounding "yes." In addition, vehicle keys should be kept under lock and key and given only to those student drivers who have been approved.

Are executive officers or other key employees provided with a company car? If so, does the permission granted to them to drive the company vehicle extend to their spouse and/or their children? In the absence of a formal policy indicating something to the contrary, blanket permission to use the car will likely extend to family members. This, however, may not be what you want.

Vehicle use policies should clearly indicate who, if anyone, besides the employee, has permission to drive the vehicle. Generally speaking, use by spouses should be limited and use by children should be prohibited. The most conservative approach is to limit use by the employee only. Keep in mind that if use by family members is permitted, you will probably want to run MVR checks on the additional drivers. Some may balk at the idea of incurring this additional expense, but remember, their loss experience becomes your loss experience.

The Incidental Exposure Trap

Another key area of potential loss is the use of employees' personal autos on behalf of your organization. Although often an incidental exposure, it can also be larger than an organization's owned auto exposure and may need to be carefully assessed. When employees, or volunteers for that matter, use their personal auto on company business, their own personal auto policy's liability coverage will cover the employee and the company on a primary basis for third-party claims, with the company's auto liability insurance applying excess of the coverage for the company only.

Another concern is the level of insurance coverage the employee maintains on his auto. Some organizations require employees driving their personal cars on company business to maintain the minimum statutory limits, but those limits may be as low as $20,000 per accident. Organizations and their insurers will want employees to carry reasonable levels of liability insurance. What constitutes "reasonable" may be subject to debate. Some commercial auto insurers require employees driving personal autos on company business to maintain at least $300,000 or more of liability insurance. This may be impractical in many cases, and a limit of $100,000 may actually be more reasonable.

Columnist Charles Cox is principal of Aldrich & Cox. He can be reached at riskletters@lrp.com.