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Negligent Entrustment: What You Need to Know and How to Avoid

All, Property & Casualty

As a business owner, you’re likely aware of the many risks and liabilities your business is subject to. But, did you know that if you have drivers on your team, you could be liable for any accidents or damage they create?

Automobile accidents are an expensive liability for companies that rely on the use of vehicles for their business. These risks have only increased in recent years due to distracted driving and a legal concept called negligent entrustment.

What is negligent entrustment?

Negligent entrustment means you’ve entrusted an employee with a poor driving history to drive on the company’s behalf (whether it is a commercial vehicle or a passenger vehicle, and whether it is owned by the company or not). Poor driving history could include moving violations or accidents your driver was responsible for causing.

It’s your responsibility as a business owner to take reasonable steps to learn about that driver’s background before he or she gets behind the wheel or your vehicle.

The focus of negligent entrustment suits is primarily on the employer and the policies and practices in place (or not in place) at that business. In commercial automobile operations, a case of “negligent entrustment” may arise when an employer allows an employee to use a vehicle while knowing that the use of the vehicle by such person creates a risk of harm to others.

In these types of situations, an employer can be charged for acting in an inattentive or careless fashion or without completing required process steps. It’s important to know that negligent entrustment suits and verdicts are increasing, settlements tend to be extremely large, and judgments can often include punitive damages.

The total amount in verdicts from 2017-2020 exceeded $4.5 billion dollars. The highest individual settlement in 2020 was $410 million dollars and in 2021 reached $1 billion dollars. In Wisconsin, the top verdict in 2020 was approximately $38 million dollars. These nuclear verdicts can be avoided by putting the appropriate risk management strategies and practices in place to minimize and control the inherent risks employers face.

Theories of employers’ liability

Two other theories exist regarding employer liability that are closely related to negligent entrustment:

1. Respondent Superior: holds an employer responsible for the conduct of an employee while the employee is acting within the scope of his/her employment
2. Negligent Hiring: holds an employer responsible for the conduct of an employee if the employer failed to use due care in hiring and retaining such employee

An example of a circumstance involving negligent hiring would be failure of an employer to check a driver applicant’s driving record when it would have revealed a poor driving history, or learning of a “poor” rating through the driver applicant’s motor vehicle report and allowing that person to drive anyway.

Circumstances surrounding negligent entrustment cases

In the case of commercial auto operations, charges of negligent entrustment often arise after a collision where the employee or contractor was dispatched without due regard for their qualifications or ability to safely operate the vehicle. Although the driver’s own negligence in causing the accident is usually the primary issue, the two main focuses of investigation of a negligent entrustment charge are:

  • A company’s policies
  • A company’s actual practices

In other words, do the theories (the policies) and the facts (the actual practices) match? Basic questions are asked, such as:

  • Does the company have a policy regarding driver selection and training?
  • Did the management team adhere to the terms of that policy?
  • Bottom line, did the insureds practice what they preached?

The nuts & bolts of negligent entrustment

When does an incident potentially turn into a case or claim alleging negligent entrustment? The following elements are typically present:

  • The driver was incompetent
  • The employer knew or should have known of this incompetence
  • The employer must have entrusted the vehicle to the driver
  • The driver was negligent on the occasion in question
  • The driver’s negligence proximately caused the crash

In order to prove that the employer knew or should have known of the driver’s incompetence, all pertinent employment records of the driver are typically reviewed by the plaintiff’s counsel. They also do a thorough investigation of the driver’s background, including his or her driving record. If the employment records do not contain an accurate and complete driving history of that employee, the plaintiff’s attorney will assert that the employer “knew” or should have known of the incompetence. If the plaintiff’s counsel independently discovers records indicating incompetence, the employer should have been able to discover the same facts.

Furthermore, if the driver was performing within the scope of his or her job duties and the vehicle was not taken without permission, the vehicle was presumably entrusted to the driver by the employer.

And finally, in order to show the driver’s negligence proximately caused the crash, investigations by “expert witnesses” often play a major role. However, the easiest way to prove negligence is through a citation that was issued to the driver, the driver being criminally charged, or the driver ruled to have been “at-fault” after a presentation of evidence.

Reduce your exposure and avoid negligent entrustment

The potential of exposure to negligent entrustment losses can be reduced through the following:

  •  Driver recruiting and selection practices to include pre-screening all individuals granted permission to drive for company business
  • New hire evaluation and orientation
  • Ongoing driver review and training
  • Post-accident reviews and training
  • Annual MVR checks on drivers
  • Driver conduct policy and enforcement of a zero tolerance policy for driver misconduct
  • Vehicle maintenance program
  • Establishment and enforcement of drug and alcohol policies
  • Thorough and detailed documentation of all of the above

Negligent entrustment, and other associated vehicle safety lawsuits, are increasingly becoming a concern for companies. By understanding the risk associated with drivers, developing and implementing a safety and risk management program are minimal when compared to the emotional and financial costs of negligent entrustment. Reach out to your M3 account executive or risk manager to discuss your current policies and practices, and how they can be updated to reduce your exposure.

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