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9 Steps to Avoid Negligent Entrustment

October 7th, 2011 Posted in Uncategorized

Agents can provide meaningful service to their clients by warning them about the risks of negligent entrustment.

Negligent entrustment arises when one party (the entrustor) is held liable for negligence because he provided another party (the entrustee) with a dangerous instrument, and the entrusted party caused injury to himself or a third party, or damaged property, with that instrument.

One way a business can find itself at risk of negligent entrustment is by allowing an employee to drive a vehicle on company business, when management knows or should know that the driver intends or is likely to drive the vehicle in such a manner as to create an unreasonable risk of harm. This can happen when the employer chooses to overlook the fact that an employee has a history of substance abuse, anger management and/or reckless driving.

The legal theory supporting negligent entrustment is that the company has a legal duty to investigate the driving records and qualifications of all potential drivers, and take action to prevent drivers from operating vehicles in an unsafe manner during the course of company business.

With general liability coverage there is a specific exclusion for “bodily injury or property damage arising out of the ownership or entrustment to others of any aircraft, auto or watercraft owned or operated or rented or loaned to any insured.” No matter how much general liability coverage an insured carries, there will be no coverage for a negligent entrustment incident.

Unlike general liability, a business auto policy has no exclusions for negligent entrustment. Yet even with coverage, an insured may not have enough insurance if one of its employees is involved in a harmful accident.

Because anyone with permission to drive a vehicle on company business is classified as being an insured, it is important for a company to define its permission policy before an incident occurs. Otherwise the insurance provider will do so after a claim has been filed. The rule of thumb in creating a permission policy is to ensure flexibility without creating a personal use permission policy that is too broad.

When it comes to negligent entrustment, it is also important to remember that punitive damages are not insurable in most states. Since punitive damages are meant to punish employers, to do otherwise would be against public policy.

Following are some guidelines for your clients to use to avoid the potentially devastating consequences of negligent entrustment:

  1. Read the literature on negligent entrustment to understand the risks.
  2. Teach by example, especially when driving with young employees.
  3. Put clear safety policies in writing.
  4. Enforce clearly defined driver guidelines with zero tolerance.
  5. Pre-screen all individuals who are granted permission to drive on company business.
  6. Monitor and enforce drug and alcohol policies.
  7. Review the driving records of all those with permission to drive on company business annually.
  8. Mandate training modules for all at-risk drivers.
  9. Maintain company vehicles to meet stringent safety standards.

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