If you are a business owner and you have one or more employees who use their cars for business matters, you need to be aware of the rules governing employees’ use of vehicles. These rules not only pertain to reimbursements and deductions, but to employer liability as well. (Note that this is not for the employee commuting to and from work.)
Liability: Employee’s Side
An employee’s personal car should be covered by his or her personal auto insurance policy. Usually, a personal auto insurance policy will protect a vehicle that is titled to an individual, but used for a business purpose.
The exception to this is “livery,” meaning carrying persons or goods for a fee. Using a vehicle for livery will frequently invalidate coverage. This includes taxis, limos, and delivery services (such as pizza or flower delivery).
Things that will not invalidate coverage:
-Ride sharing expenses and reimbursement
-“General” business use of a vehicle (e.g., picking up supplies, visiting customers, attending conferences, etc.)
If an accident occurs while an employee is using their car to run an errand for his or her employer, the employee’s personal insurance will be looked to first to provide protection. There is always the possibility that the insurance will deny coverage because the car was used for “business.”
Employees should contact their insurance carriers to disclose business use of their vehicle to prevent coverage issues in the event of a claim. Occasional business use should not increase premiums. If the vehicle is used primarily for business (e.g., the employee is a traveling salesman), premiums may be higher than they would be otherwise.
Liability: Employer’s Side
Just because a vehicle is titled to an employee does not mean that the employer will be free of liability in the event that the employee gets into an accident while out on business. The employee’s personal insurance will pay out first, covering part of the damages owed, but the employer will still be on the hook for the rest.
An employer can be liable for an employee’s auto accident if the employee was acting for the employer at the time of the accident. In legalese, this is called the doctrine of respondeat superior. This doctrine makes an employer responsible for an employee’s actions while the employee is working—including a car accident.
To illustrate, say an employee is on the way to visit a client when he or she gets into an accident. The employer could be vicariously liable for the accident, because the employee was “working.”
In determining whether an act occurs “within the scope of employment,” the courts will often examine the following factors:
1. Whether the act at issue is commonly done by employees working for the employer or similar employers.
2. The time, place and purpose of the act.
3. Whether the employer had, or should have had, reason to expect that the act will be perpetrated by the employee.
4. Whether the instrumentality by which the harm was inflicted was furnished by the employer to the employee.
5. The extent to which the employee departed from the normal method of accomplishing an authorized result.
6. Whether the act in question was seriously criminal.
If your employees use their personal vehicles for business purposes fairly regularly, you should contact your insurance agent and add coverage for a “non-owned auto liability” endorsement to your business auto coverage. This will provide coverage in the event an employee gets into an accident with his or her personal vehicle while doing something work-related and the employer is liable.
The Deductible: Another Issue
Even if the employee’s insurance covers the accident, and the employer is not brought into the matter, there is a question of whether the employer should have to reimburse the employee for the deductible.
There are two good opposing philosophies:
1. No, the employee should pay. The employer had no control over the accident.
2. Yes, the employee would not be at the accident location, except for doing the work.
It is better to be prepared for such a possibility with insurance. Call your insurance company today and make sure you have adequate coverage. You do not want a disgruntled employee, and you do not want to be in Court deciding liability. You need to be at work earning money.