Car accidents a key source of liability for businesses his past year, injuries and deaths caused by motor vehicle accidents rose for the first time in over a decade. When discussing this issue with local State Farm agent Matt Portz, he told me that State Farm processes 42,000 auto accident claims per day. The recent rise in accidents related to deaths and injuries likely is due to lower gas prices (more cars on the road) and an increase in distracted driving (cellphone use). In their day-to-day operations, businesses are exposed to risks that could lead to lawsuits. However, the risk of litigation arising from auto accidents often is overlooked. No matter the type of business you operate, when your employees are driving their cars in the course and scope of their employment, you as their employer can be responsible for injuries resulting from their negligence. This is called vicarious liability. Employers who do not carry workers’ compensation insurance can be liable for their employees’ injuries if those injuries are the result of the employer’s negligence. Let’s imagine a worst-case scenario. You need to get a product to a client by 5 p.m. At 4:45 p.m., you finally have it ready. The customer is across town. It usually takes 20 minutes to get there. You tell your employee the product has to get there by 5 p.m., and you hand your employee the keys to your car. Trying to follow your instructions, the employee runs a red light and has an accident that causes significant injuries to your employee and the driver of the car he hit. Both your employee and the other driver are hospitalized for a
Sam BURKE | COMMENTARY
few days and miss several weeks of work. Without the proper protections in place, an accident like this could hurt or bankrupt many small businesses that could be liable for the injuries to both parties. In this scenario, what are the right protections? Generally, the answer is not a good lawyer but the right insurance products. First, if they carry workers’ compensation insurance, employers are not liable to their employees for injuries those employees suffer in the workplace or in the course and scope of their employment. In the above scenario, it is possible the employer who told the employee he needed to get across town in 15 minutes when the employer knew the trip would take 20 minutes could be found to have negligently instructed the employee. If the employer carries no workers’ compensation insurance, the employee’s own negligence in running the red light could be ignored and the employer held responsible for 100 percent of the damages, if it were determined the employer was negligent in instructing the employee to rush across town. Generally, workers’ compensation insurance provides payments to injured employees that covers medical ex-
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This two-vehicle accident occurred near the intersection of Industrial and Sycamore streets. Businesses’ risk of litigation arising from auto accidents often is overlooked. penses, lost earnings and lost earning capacity. If an employer has workers’ compensation insurance, the employee is barred, in almost all circumstances, from suing their employer for work-related injuries. There are drawbacks to workers’ compensation insurance. It can be costly, and not all health care providers accept workers’ compensation insurance. However, the cost is low for many businesses and the reduction in potential liability can be well worth the cost. Merely being involved in a lawsuit can cost small businesses tens of thousands of dollars, and those legal expenses are rarely in the budget or business plan. As for the injuries to the driver of the car your employee hit, it is important that you have auto insurance covering your business. This can be
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purchased in conjunction with commercial general liability coverage or separately. It is important to know that commercial general liability coverage likely will not cover claims that your employee or a third party would make in the event of an auto accident. You need to have separate auto coverage to protect against third-party claims. Also, because your business could be liable for accidents in the course and scope of your and your employees’ work, the limits of coverage need to be sufficient to protect not only you individually but the business. For most small businesses, combined coverage (auto coverage and excess coverage, often called umbrella coverage) of $1 million will be sufficient. If your business has a value exceeding $1 million,
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consider additional excess coverage. Often, people assume this amount of coverage will be cost-prohibitive. However, usually the cost to increase property damage and injury limits on auto policies is a few dollars a month. In other words, the cost to most businesses is negligible. In addition to making sure your insurance has sufficient limits, you need to make sure you have the proper type of policy language. In our example, the employee borrowed your car. In this scenario, you will need to have had permissive use coverage. Permissive use just means that the insurance applies to persons driving your car with your permission. Some policies, especially policies marketed at the lowest costs, will not include permissive use coverage. This can have signif-
icant unintended consequences if you allow employees to operate your car for workrelated purposes. It is also recommended for businesses to obtain policy riders for non-owned and hired auto coverage. This ensures that if the employee in our scenario had been in his own car (which might not be a covered auto identified on the business’s policy) or a rental car, the business’s auto policy would still provide coverage. Another area of coverage that is often overlooked is uninsured and/or underinsured motorist coverage. Texas has very low legal limits for auto liability coverage. $25,000 in coverage is all that is required. This amount of coverage will not be sufficient in the event of any significant injury. Uninsured/underinsured coverage applies when the responsible party has no insurance or insufficient coverage to pay for the damages and injuries caused by the responsible third party. For example, in our earlier scenario, if we reverse the cause of the accident and your employee had been hit by a driver running a red light, and that driver had no insurance, the business’s uninsured motorist coverage would be available to pay for your employee’s injuries and damages and property damage to your company vehicle. Another important consideration related to auto insurance is the timing and types of settlements that occur. In the case of any claim on an auto liability policy, the insurance company responsible for paying the claim will expect to make only one payment, and BURKE | CONTINUED ON PAGE 11
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