Negligent Entrustment: The Hidden Risk Driving Up Your Insurance Costs

There is a critical need for businesses to proactively manage the risks associated with their company vehicles. One of the most overlooked but legally significant risks is the Doctrine of Negligent Entrustment.

As outlined in The 10 Laws of Insurance Attraction, if you, as an employer, are found to be negligent for allowing a driver with a history of problematic driving to operate one of your vehicles, you may face not only a larger settlement or judgment as punishment but also punitive damages that your insurance policy will likely not cover. Insurance underwriters closely examine the driving records of your employees because poor records indicate a higher likelihood of future accidents, which directly impacts your premiums.

In this article, we will break down the legal implications of negligent entrustment, how it affects your insurance costs, and the proactive steps you can take to protect your business from unnecessary liability and financial exposure.

Understanding Negligent Entrustment

Negligent entrustment occurs when a vehicle owner entrusts their vehicle to someone who is unfit or incompetent to drive it safely. This can include drivers with a history of reckless behavior, lack of proper licensing, or inexperience. The key element is that the owner must have known or should have known about the driver’s incompetence and still allowed them to operate the vehicle.

In the context of business, negligent entrustment can arise when an employer permits an employee with a poor driving record to drive a company vehicle. If the employee causes an accident, the employer may be held liable for damages, including medical expenses, lost wages, and pain and suffering. This liability can extend beyond compensatory damages to include punitive damages, which are intended to punish the employer for their negligence.

Legal Implications of Negligent Entrustment

The legal implications of negligent entrustment can be severe. Employers may face significant financial penalties, including increased insurance premiums or even policy cancellation. Moreover, negligent entrustment claims can lead to reputational damage, as news of such incidents can spread quickly and harm a company’s public image.

To establish a claim of negligent entrustment, several key elements must be proven:

1. Duty of Care: The vehicle owner must owe a duty of care to others on the road to ensure that their vehicle is not entrusted to an incompetent or reckless driver.
2. Knowledge of Risk: It must be shown that the owner was aware of the driver’s incompetence or recklessness, such as a history of DUI convictions, traffic violations, or a lack of a valid driver’s license.
3. Breach of Duty: The owner must have allowed the unfit driver to use their vehicle, disregarding the known risks associated with that individual.
4. Causation: It must be proven that the owner’s negligent entrustment was a substantial factor in causing the accident or resulting damages.

Allowing High-Risk Drivers and Punitive Damages

Allowing high-risk drivers to operate company vehicles can lead to punitive damages, which are intended to punish the employer for their negligence. Punitive damages can be substantial and are often awarded in cases where the employer’s actions are deemed reckless or egregious.

For example, if an employer knowingly allows an employee with a suspended license to drive a company vehicle and an accident occurs, the employer could face punitive damages. This is because they failed to take reasonable care to ensure that only competent drivers were behind the wheel, despite having knowledge of the employee’s driving status.

Case Study: Negligent Entrustment in Action

Consider a scenario where a delivery company hires a driver without conducting a thorough background check. The driver has a history of reckless driving but is allowed to operate a company vehicle. If the driver is involved in an accident, the company could be held liable for negligent entrustment. The company’s failure to properly vet the driver and ensure they were competent to drive a company vehicle could lead to significant legal and financial consequences.

 

Steps to Protect Your Company from Liability

To protect your company from the risks associated with negligent entrustment, consider the following steps:

1. Prescreen Drivers

• Before hiring new drivers or allowing them to operate company vehicles, thoroughly prescreen their driving records. This includes reviewing their Motor Vehicle Records (MVRs) for any violations or adverse rulings.

2. Regular Driver Reviews and Training

• Implement regular driver reviews and comprehensive training sessions. This helps to ensure that drivers are competent and aware of safety protocols. Annual MVR checks should also be conducted to monitor any changes in a driver’s record.

3. Maintain Vehicle Safety Standards

• Ensure that all company vehicles meet strict safety standards. Regular maintenance checks can help prevent accidents caused by vehicle malfunctions.

4. Document Policies and Procedures

• Document and enforce clear fleet management policies and procedures. This includes having a structured decision-making process for determining driver eligibility and maintaining detailed records of driver performance and training.

5. Zero Tolerance Policy

• Establish and enforce a zero-tolerance policy for driver misconduct. This sends a strong message that safety is a top priority and that any reckless behavior will not be tolerated.

6. Drug and Alcohol Policies

• Implement and enforce strict drug and alcohol policies. Ensure that all drivers understand the consequences of violating these policies, which can include immediate termination.

7. Continuous Monitoring and Improvement

• Regularly review and improve your fleet safety program. This includes staying updated on the latest safety technologies and best practices in fleet management.

Best Practices for Fleet Safety

Implementing best practices in fleet safety is crucial to minimizing the risk of negligent entrustment claims. Here are some key strategies:

• Use Telematics: Install telematics devices in company vehicles to monitor driver behavior, such as speeding or hard braking. This data can help identify high-risk drivers and provide targeted training.
• Driver Feedback: Provide regular feedback to drivers on their performance. This can help improve driving habits and reduce the risk of accidents.
• Safety Incentives: Offer incentives for safe driving practices, such as bonuses or recognition programs. This can encourage drivers to maintain a safe driving record.
• Compliance with Regulations: Ensure that all drivers comply with relevant regulations, such as hours of service rules for commercial drivers.

Conclusion

Negligent entrustment is a serious legal risk that business owners must address proactively. By understanding the doctrine and taking steps to ensure that only competent drivers operate company vehicles, employers can significantly reduce their liability exposure. Implementing robust safety protocols, regularly reviewing driver performance, and maintaining strict vehicle safety standards are crucial measures to protect your company from the financial and reputational consequences of negligent entrustment. In today’s litigious environment, proactive risk management is not just a best practice; it’s a necessity for businesses that rely on company vehicles.