Loss Control - Negligent Entrustment

Negligent entrustment of company vehicles

Negligent Entrustment is a legal concept and exposure that could put your company's assets at risk. Business owners should be aware of this potential liability.

Negligent Entrustment is best defined as "entrusting a vehicle to an individual without ensuring the individual has a valid driver's license" or "allowing the person to drive a company vehicle despite the individual's past driving history, known or unknown." The result of a negligent entrustment judgment is often punitive damages awarded by the jury. Many insurance policies do not cover punitive damages (some states do not allow punitive damages to be covered by insurance). Even if your policy does cover punitive damages, a negligent entrustment judgment may exceed your automobile liability/umbrella liability policy limits.

What can you do to avoid negligent entrustment exposure and enhance your fleet and driver program?

• Your job application should include a place to list all driving violations or accidents for the past 5 years.
• As part of the application package, include a waiver authorizing the employer to obtain and review motor vehicle records (MVR) on a regular basis.
• Verify the individual has a valid driver's license. Require the license be for the state in which the business is physically located. Inspect the license and make a photocopy for the personnel record.
• Conduct periodic reviews of your driver's MVR. Your insurance agent or commercial auto carrier typically conducts an annual MVR review of the drivers; however, recent legal rulings prevent them from actually providing you a copy of the MVR. You should personally conduct a driver MVR review 6 months after policy renewal. This will permit you to see the actual MVR and violations. There are inexpensive web based services that can be used.
• If the individual has lived in other states in previous years, check the driver's records for those states.
• In addition to MVR reviews, a background check should be performed as part of the hiring process.
• Never permit an employee who does not have a valid driver's license and an acceptable driving record to operate a company vehicle.
• Implement a written policy noting specific restrictions to address personal use of company owned vehicles. A sample policy with various wording options is available from Westfield risk control.
• Periodically review safe vehicle operating criteria and behavior with drivers. Establish expectations for the operation of your company vehicles.  

We encourage you to evaluate the status of your company's risk management programs and policies and make enhancements where needed. Your efforts will go a long way towards minimizing your company's exposure to negligent entrustment issues and help control insurance costs.