Author: Chris Boggs
With the mobility that technology offers in the form of cell phones, PDAs, and laptops, the ability to conduct business away from the traditional office has exposed employers to hazards not considered or dreamed of just a few years ago. Employers are subject to an ever-increasing chance of being held vicariously liable for the actions of their employees working outside of the traditional office.
Technology has allowed us to escape the four walls that caged our predecessors; boundaries have been removed and replaced with the infinite. Efficiency and productivity have increased dramatically due to the ubiquity of cell phones, laptops, PDAs (personal digital assistants), BlackBerry devices, and on and on. Information truly is just a mouse click away, and rarely is anyone unreachable who wants to be reached. Employees can conduct business literally anywhere at any time.
But with all the advantages these technologies offer, the ability to conduct business away from the traditional office has exposed employers to hazards not considered or dreamed of just a few years ago. Employers are subject to an ever-increasing chance of being held vicariously liable for the actions of their employees working outside of the traditional office.
The answer proffered by most articles and experts to this potential increase in vicarious liability is the creation of more employment policies to address the “issue of the day.” Policies and procedures are not intrinsically bad, and, in fact, are necessary to create a level playing field for employees. The problem is that creating policies and procedures for every possible use and misuse of company property and time would require several volumes of manuals.
Employers need knowledge and understanding of the risks they face. This article will attempt to alert employers to the issues and arm them with information regarding some of the exposures they face when employees are conducting business away from the office.
Out of Site Should Not Equal Out of Mind
When employers lose direct contact with employees, they sacrifice much of their direct control over those employee’s actions. But loss of control does not relieve the employer of its responsibility for the actions of that employee. The principle of respondeat superior (Latin for “let the master answer”) provides that literally any act of an employee within the “course and scope” of his employment can create a vicarious liability problem for the employer, regardless of when or where the act occurs.
A Change in the Definition of “Course and Scope”
Several suits have been filed throughout the country to determine the extent of an employer’s vicarious liability resulting from the actions of an employee while away from the office on business. A 2002 Virginia case serves as a great example of the potential for a shift in the definition of “course and scope” that should concern most employers.
Using a cell phone to allegedly return client phone calls while on her way home around 10:00 p.m. in March 2000, an attorney accidentally swerved off the road and struck and killed a 15-year-old girl. The attorney ultimately pleaded guilty to felony hit and run, was sentenced to five years in prison (of which four were suspended), and was disbarred. The victim’s parents then filed a civil suit seeking $30 million in wrongful death damages naming the attorney and the law firm for which the attorney worked under the premise of vicarious liability.1
In October 2004, the case concluded with the court awarding a $2 million judgment against the attorney. The defendant law firm chose to settle out-of-court for an undisclosed amount.
The law firm’s decision to settle rather than risk a trial suggests that the previously understood breadth of “course and scope” is up for debate and may have been greatly broadened by this case. Defining “course and scope” is now very difficult at best.
Arguments For and Against Company Cars
An employer’s vicarious liability for the actions of employees does not cease at the office doors or at five o’clock. The use of automobiles to conduct business is as common as the use of cubicles.
Some positions require the use of an automobile to accomplish the tasks necessary to be successful in that particular job. Sales people, delivery people, inspection personnel, and others can’t do their jobs without a vehicle, and such employees are usually away from direct supervision.
This article is not primarily concerned with fleet risk management, but this section’s focus on the increased liability faced by employers when their employees are away from the office, unsupervised, requires that this issue be addressed.
The use of a vehicle for business purposes creates additional vicarious liability exposures for the employer, but does it make a difference in the degree of liability whether the vehicle is a company-owned car assigned to the employee or the employee’s personal vehicle for which he or she receives an auto allowance or mileage reimbursement?
Greater liability may result from the use of company-owned vehicles. The following paragraphs highlight the employer’s exposures , the advantages and disadvantages of the use of company cars, and a few insurance and risk management issues that should be considered when deciding between the options of providing a company car or paying an auto allowance.
Beyond vicarious liability employers that provide employees with company-owned vehicles could also be charged with negligent entrustment. “Negligent entrustment” is a legal theory that asserts that the employer allowed an unqualified person the use of a dangerous instrumentality (a vehicle) and that such employee was not qualified to operate such vehicle due to experience or history. It’s not enough that the employer entrusted the vehicle to the employee; employer negligence because it knew or could have reasonably uncovered information indicating the employee’s inability to be entrusted with the vehicle also must be proved.
Although the employer may be exposed to greater liability by providing company-owned vehicles, this option gives the employer more control in the use of the vehicle. This control increases the employer’s duty to other employees and the public in general to protect them from unqualified drivers. If adequate controls are not in place and an accident followed by a lawsuit occurs, the employer will likely be found negligent and be forced to respond, regardless of when and under what circumstances an injury occurs.
With a properly constructed, monitored, and enforced fleet management program, employers can control who drives the vehicle (only the employee), when the vehicle is being used (ranging from strictly for business purposes with limited personal use to unrestricted use with personal use reported), and who can ride in the vehicle (only the employee and possibly customers). Employers also have total control over the insurance coverage provided for the vehicles. None of these controls are available if the employee uses his or her personal vehicle on company business.
Basic Fleet Risk Management Considerations
Employers must practice some basic risk management procedures in the handling of their fleet to help avoid or adequately defend against any charges of negligent entrustment. These include:
checking motor vehicles reports (MVRs) at least annually on all employees entrusted with a company vehicle;
conducting ongoing driver training to assure that all employees are aware of the employer’s policies and procedures and to keep their driving skills sharp;
performing accident investigation to determine proximate cause and implementing proper corrective action, up to and including termination; and
requiring regular inspection of the vehicles. This will allow supervisors to confirm that the vehicles are being well maintained and are safe. This will also give a clue as to how the vehicle is being used and by whom. If there are baby seats in the back but the company has an “employee-only” policy, it is clear that this policy is being violated.
This is not an all-inclusive list of employer risk management controls. Each company will have specific controls it needs to implement.
Employees’ Use of Personal Vehicle for Business Purposes.
If the employer chooses to reimburse its employees for business use of their personal vehicles or to pay an auto allowance rather than provide a company car, the employer loses all of the control available when company-owned vehicles are provided. The employer can’t be found guilty of “negligent entrustment.” However, it can be found guilty of negligent hiring, negligent supervision, or negligent retention.
Negligent hiring, supervision, and retention charges stem from a due-diligence problem. Such charges allege that the employer didn’t adequately review the employee’s background, or it did not take adequate steps to correct behaviors that threatened fellow employees or the public that arose after employment began. Worse yet, the employer allegedly was aware of but chose to ignore the problems.
Some employer mistakes leading to charges of negligent hiring, supervision, or retention as they relate to the use of personal autos for company business are often a result of a lackadaisical attitude towards basic risk management practices that would be strictly followed if company-owned vehicles were provided.
Examples can include the following.
Employers tend to not check MVRs on an ongoing basis. In fact, the employee’s MVR may be checked only when the person is hired and never again. A person’s driving record can change very quickly for various reasons. MVRs should be checked regularly just as if employees were driving a company-owned vehicle.
The employer may not be aware when an employee has been in an accident on company time (unless a workers compensation claim results). The lack of information may cause problems if the company is ultimately sued as a result of the accident.
Employers have no control over who is in the employee’s car. If a client is in the car, the company may, again, be brought into the suit if an injury occurs.
Employers have no control over what is in the employee’s car. The employee may be carrying a weapon. If he or she discharges the weapon, in self-defense or not, and someone is injured, it is possible the employer could be held vicariously liable for that injury, depending on the circumstances regarding course and scope and any employment policies regarding the carrying of weapons.
One issue that must be adequately addressed when an employee is regularly using his personal vehicle is the amount of liability insurance coverage on the vehicle. This is important, because the employee’s personal auto policy will be the primary policy to respond in the event of an accident, covering the liability of the employee and the employer as an insured by definition.
Here is where the issue of the employer’s vicarious liability gets sticky. The best way to approach this issue is by way of example.
While using his personal vehicle driving from Client A to Client B for Company, Bob runs a stop sign and sideswipes Claimant, causing bodily injury of $500,000.
Bob has a split-limit auto liability policy with limits of $250,000 per person for bodily injury, $500,000 per accident for bodily injury, and $100,000 property damage (commonly shown as $250/$500/$100). He has a standard personal auto policy that includes as insureds Bob, any family member, and “any person or organization but only with respect to legal responsibility for acts or omissions of a person for whom coverage is afforded under this Part.”
Claimant will get $250,000 from Bob’s personal auto policy (remember that he has only a $250,000 per person limit). Where will the other $250,000 come from? Since Bob is an employee of Company and was involved in the accident while in the course and scope of employment, Company will likely be held vicariously liable for the additional $250,000. Coverage for this exposure would extend from the commercial auto policy by use of liability Symbol 1 — Any Auto or the use of Symbol 9 — Non-Owned Auto if any liability symbol other than 1 is being used.
Any time an employer has employees using their personal autos on company business, the employer should attach the Employees As Insureds (CA 99 33) endorsement to its commercial auto policy. This will accomplish two things. 1) Attaching the endorsement extends protection, in excess of the employee’s personal auto policy, to the employee. The unendorsed policy would protect only the employer. 2) Insured status is extended to the employee by attachment of the endorsement.
This is important because, in the absence of this endorsement, the employer’s commercial auto insurer could potentially subrogate against the employee for any loss caused by the employee leading to damages having to be paid by the commercial auto insurer. It is probably not most employers’ intention to have their insurer enter into subrogation action against their employees — especially since the employee’s personal auto policy protected and insured the employer in the first layer of coverage.
If employers prefer paying mileage or an auto allowance, they must pay just as close attention and apply the same risk management guidelines to that exposure as if they were supplying the vehicles. Additionally, they need to concern themselves with the limits of liability arranged by their employees on their personal auto policies.
When employees use company-owned or personal vehicles to further the employer’s business, the employer has very few defenses, other than “abandonment of employment,” against being held vicariously liable for the injury or damage caused by its employee when the employee is presumed to be acting in the course and scope of employment.
All employers have an auto exposure, even if they do not provide company vehicles or regularly have employees using vehicles on a regular basis to conduct business. If employees go to the post office or run errands for the employer, the employer subjects itself to vicarious liability for bodily injury or property damage caused while the employee is performing services for the employer. All employers should confirm that they are protected from this exposure by the presence of hired and non-Owned auto coverage which can be a part of the auto policy or extended by endorsement to the general liability policy if no auto policy is purchased.
If employees regularly travel overnight on business, especially if they travel in pairs or as a group, employers must emphasize that the in-office guidelines, such as those involving sexual harassment, alcohol and drugs, Internet use, and weapons, apply while employees are away from the office.
Particular attention needs to be paid to the sexual harassment policies, especially when members of the opposite sex travel together. When there are few co-employee witnesses around, some employees may make comments, advances, or threats that might not otherwise be made.
Employers should reiterate the company’s zero-tolerance policy regarding sexual harassment. The employer may want to make “Business Travel and Sexual Harassment” a subsection of the current sexual harassment policy.
Employees must be aware and understand that they are expected to demonstrate the same level of respect and professionalism toward other employees while away on company business as in the office and that any breach of those requirements will meet the same punishment as if the misdeed had been committed in the office.
Liability imposed on employers as a result sexual harassment and other such acts mentioned in the above paragraphs would be covered by an employment practices liability (EPLI) policy. Employment Practices Liability policy coverage can be obtained as a stand-alone policy or as a endorsement to a directors and officers (D&O)policy.
If coverage is obtained as an endorsement to the D&O policy, employers must confirm that employees are included as insureds and that certain exclusions are eliminated (such as insured vs. insured).
This article has been an attempt to alert employers of their potential vicarious liability for injury or damages caused by their employees when they are not under direct, day-to-day supervision. Such knowledge should lead to action, but what is the best action take?
Employers should perform the basic five-step risk management process regarding their exposure to vicarious liability for the actions of their employees away from supervision on company business. The steps are:
1. identify the exposures;
2. analyze the potential for loss from those exposures identified;
3. decide the best way(s) to avoid, mitigate, or finance the risk;
4. implement the decision; and
5. monitor the programs initiated.
Once this process has been completed, the most effective answer might be to create employment policies to address the exposures. If the employer chooses to develop policies and procedures to govern the actions of its employees while away from the office, the activities that the employer must anticipate are countless.
Since the possibilities are endless and no manual can address every issue, any personnel manual should contain general principles regarding the expected conduct of the employee and emphasize that the employee must act in a manner that is in the best interest of the company. This allows the employer to react quickly to situations not contemplated when the employee manual was constructed.
There are two stumbling blocks in promulgating any new employment policies. 1) An employer can’t just create new rules without explanation and training. Employees have to and need to be informed of the reasons for the new rules and should be updated on these rules regularly. 2) The employer must also spell out the punishments for violation of said rules.
An employer must remember that if it undertakes to limit its liability by creating policies and procedures for employees while they are traveling on business, it must be willing to enforce the rules every time and at every level of the organization. Employers unwilling to enforce the rules under these conditions may be better off choosing to take their chances and hope for the best. Creating a well-intentioned policy that is not enforced is worse than no rule at all.
Allowing the violation of a stated employment policy without the consistent enforcement of the disciplinary actions prescribed in the employee manuals may lead to charges of negligent supervision or negligent enforcement by injured third parties. Internally, such perceived inequity or favoritism may lead to low morale or charges of discrimination.
Being aware of the employer’s potential liability for traveling employees is the first step in the battle to limit damages. Employers must decide now how they are going to handle this exposure, because it appears the extent of vicarious liability may have been redefined, making the employer its employees’ keeper — or, at least, responsible for their actions.
1 Yoon v. Wagner et al. See Roberts, Sally, “Employers face risk of cell phone suits,” Business Insurance (July 16, 2001)
Christopher J. Boggs, CPCU, ARM, ALCM, LPCS, AAI, APA, is an Account Executive and Risk Management Consultant with Dean, Heckle & Hill, Inc. in Matthews, North Carolina. Boggs has held various positions over his 16-plus years in the insurance industry. His background includes loss control, risk management, claims management, and insurance production. Additionally, Boggs taught insurance on a full-time basis and continues to teach on a contract basis for various insurance agent associations. A graduate of Liberty University in Lynchburg, Va. with a degree in journalism, Boggs has vigorously pursued insurance education completing the Chartered Property Casualty Underwriter (CPCU), the Associate in Risk Management (ARM), the Associate in Loss Control Management (ALCM), the Legal Principles Claims Specialist (LPCS), the Accredited Advisor in Insurance (AAI), and the Associate in Premium Auditing (APA) designation program. Boggs can be reached at firstname.lastname@example.org or at 704-847-4438.
Reprinted with permission from The John Liner Review,
Volume 20, Number 2, Summer 2006.
Copyright 2006, Standard Publishing Corp., Boston, MA.
All rights reserved.