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"Negligent entrustment"--now those are two words that can (and should) strike fear into a risk manager's heart.

Why? Because her company could be liable for punitive damages if an employee has a collision while driving for work purposes in either his own or a company-supplied vehicle.

The principle of negligent entrustment is not based on negligence of the at-fault driver, but on negligence of the employer for supplying a vehicle to a driver who is not subject to any assessment, license record checks, driver safety training and ongoing activity/performance monitoring.

Insurance will cover the costs of physical damage and liability. But here's the real rub: Commercial automotive insurance typically doesn't cover punitive damages. If a court awards punitive damages, depending on the jurisdiction, the financial responsibility for those damages might be the sole responsibility of the employer--the employer with "big pockets."

"More and more companies are on the firing line for negligent-entrustment lawsuits, as the victims and their attorneys can be assured a larger payout if they win," says Ed Dubens, president of Interactive Driving Systems, a global provider of fleet risk management solutions. "Organizations with high profiles are especially vulnerable to claims of negligent entrustment, whether they're true or not."

"Negligent entrustment implies you knew, or should have known, that you put an unsafe driver behind the wheel of your company vehicle," says Martin Schofield, vice president of product safety/liability for Hilti Inc., a manufacturer of commercial construction products based in Tulsa, Okla. "This picture should set off alarm bells at every level--injury to person, property loss, punitive damages, productivity, company reputation. ... No matter how you look at it, taking steps to identify and address potentially high-risk drivers is the right thing to do."

EXPENSIVE PRECEDENTS

A sampling of past cases demonstrates what could be at stake with negligent entrustment.

In the 2004 case of Brooks v. Hancock, a 19- year-old student was turning left at an intersection when a pickup truck traveling in the opposite direction struck his car and killed him. The student's mother sued the company that owned the truck and employed the driver, the company's owner and the driver, claiming the driver was driving too fast.

The suit alleged negligent entrustment of the vehicle to the driver, who purportedly had a history of motor-vehicle citations. The jury awarded the plaintiffs $2.75 million in the case.

In another 2004 case in Harris, Texas, an employee was speeding in a vehicle provided by his company, disregarded a red light and collided with the rear end of a minivan. The driver of the minivan--a father of four children--was killed.

Later investigation showed the company driver had a history of reckless driving, before and after being hired. He had caused several accidents and had had his license suspended. The suit contended the company was negligent in its entrustment of the vehicle to the defendant in light of his driving history, which the defendant employer never investigated.

In addition, the employer failed to have any fleet management program in effect to monitor its drivers. Following mediation, the family of the victim settled for $3.5 million.

In still another case in Worcester, Mass., a jury awarded $6.35 million to the family of a man 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 1990 settlement included $4 million in compensatory damages to the surviving family and $2.075 million in punitive damages.

Could it happen to you?

Consider whether your company operations involve any of these scenarios:

* Sales or service people drive company or personal vehicles.

* Contract employees (e.g., security guards) use a company vehicle to make rounds.

* Temporary employees drive company vehicles to go to the post office.

* Employees' family members drive company vehicles.

* Employees ride in personal vehicles to travel between sites or visit clients or suppliers.

Many employers might fit those scenarios. So many risk managers, then, should know who is driving their company's vehicles, and whether it's a good idea or not.

"The climate today is such that the law says a company that entrusts an employee with a vehicle should know if that employee is qualified to drive it," says Jim Colangelo, manager of risk and safety products for PHH Arval, a vehicle collision management services provider based in Sparks, Md. "It's no longer an excuse to say you didn't know about prior accidents or violations."

"There have been plenty of companies that hide their heads in the sand and later have to shell out big bucks because of the irresponsible actions of employees driving company vehicles," he adds. "So ignoring warning signs just because it's your best salesperson, a key executive or a hard-working service person can be a disaster for the company."

FLEET STRATEGY INGREDIENTS

Dave Wagner, vice president of human resources at Owens Corning, which has a fleet of more than 1,200 vehicles, sums up the higher goal of a fleet risk management strategy: "The safety of our drivers is paramount. It's not merely about the negligent entrustment and risk issues. We truly want our drivers to return safely to their families each evening."

But risk managers need more than wishful thinking, they need the nuts-and-bolts policies in place. To limit a company's exposure to negligent entrustment claims and increase the safety of its fleet, Colangelo recommends following these best practices:

Avoid negligent hiring. Check the motor-vehicle records of anyone who will operate a company vehicle, including driving records for every state of residence for at least the past five years. Note that, because motor-vehicle records are protected by the Driver's Privacy Protection Act and the Fair Credit Reporting Act, a signed consent form authorizing your company to obtain motor-vehicle records is required. If you are considering a prospective employee/driver with three or more violations or a DUI violation, remove them from consideration. Also, carefully inspect and photocopy the prospect's driver's license to include in the file. Failure to obtain readily available information is indefensible.

Avoid negligent retention. Motor-vehicle records for full-time, part-time, temporary or contractual employees should be checked annually through a formal review process. Employees with an unfavorable driving record should be removed from positions that require the operation of a company vehicle. Failure to remove them can constitute negligent retention and can be seen as condoning illicit activity, which can expose your company to negligent-entrustment claims and jeopardize liability insurance indemnification.

Your swift action to remove unfit employees from driving status in an equitable manner can protect your company and the public from unnecessary risk.

Institute a clear, formalized driver safety policy and adhere to it. It should include fundamentals such as driver recruiting and selection standards; new hire orientation and training; requirements for adherence to local, state and federal laws; ongoing driver assessment and training; postaccident reviews and training; and disciplinary standards. The policy should include sections on drugs, alcohol, prescription medications, personal use of company vehicles, distractions and road rage.

The policy should be clearly communicated to anyone who could be driving for business purposes in a company car or in a personal vehicle. The driver safety program should address general safe driving practices for all drivers, as well as provide programs targeted at drivers with specific identified issues.

Enforce disciplinary action consistently when criteria are not met. Be ready to reinforce your driver safety policies frequently, and apply them across the organization without exception. As soon as you start making exceptions for outstanding employees or executives, you undermine your program.

IMPLEMENTING A STRATEGY

"We perform a motor-vehicle records review prior to every fleet assignment," says Hilti's Schofield. "If our criteria are not met, the individual cannot be hired or promoted to a fleet position. For fleet drivers, we conduct a periodic MVR review, require a biannual defensive driving course, and check driver records in the event of an at-fault accident or receipt of an unsafe driving complaint.

"Our fleet safety policy provides graduated disciplinary action that goes all the way up to permanent revocation of fleet driving privileges. And these actions are automatic, with no potential for a waiver," he also says.

Owens Corning checks drivers' motor-vehicle records and requires each driver to complete online driver training courses every year.

The importance of such measures cannot be stressed enough.

"Creating a robust fleet risk management strategy requires a little bit of thought and some strong leadership to make it happen," says Dubens of Interactive Driving Systems, a global company with offices in the United States, the United Kingdom and Belgium.

"The costs of creating a cohesive fleet risk management strategy are miniscule compared to some of the jury awards made today," he says. Think of fleet risk management as a strategy to be put in place and reviewed annually like an insurance plan. You may not be able to eliminate an award for damages, but if your company can show it has been 'diligent' and followed best practice from orientation to the time of the incident, it greatly reduces the risk of being found negligent."

Colangelo agrees. "Protecting yourself from the huge liabilities that can result from negligent entrustment has an added benefit--it's also a big step down the road toward reducing overall costs for your fleet," he says.

With the average total cost of accidents per million miles driven in the United States at $128,000, according to the National Highway Traffic Safety Administration, "The fewer accidents you sustain, the fewer your costs for vehicle repair, workers' comp, replacement rental, lost productivity and other hidden costs," says Colangelo.

"And when it comes right down to it, having a safer fleet is just the right thing to do, because it saves the lives of your employees and of people in the communities where they drive."

LYNN BERBERICH is vice president of product management for PHH Arval, a vehicle collision management services provider based in Sparks, Md.

April 1, 2007

Copyright 2007© LRP Publications