Potential Coverage Gap from Domestic Employees’ Owned Autos

If you have a domestic employee, such as a gardener, housekeeper, or nanny, who drives his or her own auto while working for you, there is a potential for you to incur liability arising from their driving that would not be adequately insured. If your employee negligently causes an accident, you as the employer can be drawn into the lawsuit and held liable. Your employee’s own insurance, if any, will protect you up to its policy limits, but you are on your own after that. And your personal auto policy may not respond to cover the difference. The courts have ruled in different ways on these types of loss situations.

For example, assume your housekeeper negligently injures someone in a serious accident in her own vehicle while out buying groceries for your household. Further assume she has low liability limits or even no auto liability insurance. If she is sued, the injured party may uncover information about you, her employer, and how her driving in this incident was related to her employment with you. As a result, your “deep pockets” may just get you named in the lawsuit.
If you engage domestic employees or contract workers who may drive their vehicles in their work for you, the following tips may prove helpful.

Ask any employees or prospective employees to provide you a current copy of their driving record. The employee can order this online through http://www.dmv.org/driving-record.php. If they do not have a good driving history, do not allow them to run errands for you.
If the domestic employee has a good driving record and you ask her to occasionally use her own car to run errands, ask for a copy of her current auto policy and verify that it has at least moderate liability limits.

Ask your insurance agent to confirm with your auto insurance company underwriter that your PAP policy will provide a defense and cover judgments in excess of your employee’s limits if you are ever named in one of these suits. If possible, get a copy of a letter from the underwriter.

If the domestic employee has an excellent driving record and a sterling employment history with you, consider having her use your auto to run errands to avoid any question that your PAP will protect you if she negligently causes an accident while working for you.
Periodically review your employee’s driving record and auto insurance policy.
Consider procuring a personal umbrella policy that will normally provide coverage on top of your PAP. However, if the loss is not covered under your auto policy but is covered under the umbrella form, you would only be responsible for the retained limit or deductible amount, which ranges from $250 to $1,000.

Copyright 2008, International Risk Management Institute, Inc. (www.irmi.com) reproduced with permission.

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