Hidden Dangers of Vehicle Reimbursement: Increased Safety and Liability Risks

Many companies are under the impression that implementing an allowance or mileage-based vehicle reimbursement program will eliminate their liability exposure. Unfortunately, that could not be further from the truth. In fact, a vehicle reimbursement program may actually increase a company’s risk. When an organization decides to cede control of business vehicles to employees, the company must then live with the decisions that those employees make. And unfortunately for the company, those decisions won’t always be made with the best interest of the business in mind.

Under a vehicle reimbursement program, it’s nearly impossible for a company to be aware of the condition and maintenance history of every employee’s vehicle. Furthermore, a reimbursement program may actually lead to employees postponing necessary repairs out of ignorance, greed, or financial necessity. If the amount that a driver is being reimbursed is insufficient to cover his actual expenses, that driver may elect to postpone repairs. This could cause a huge liability for the company should that driver then become involved in an accident. Look no further than the Domino’s Pizza case cited in our previous article Negligent Entrustment: A Hidden Business Risk.

Additionally, when employees are in charge of selecting their own vehicle, they may opt for a vehicle that has fewer safety features than a typical company vehicle. This again could be out of ignorance or greed (an employee with a $500/month vehicle allowance opts for a $300/month vehicle and pockets the difference), however the result may be an accident that ends up being much more severe than it otherwise would have been if the vehicle was equipped with the latest in advanced safety technology.

When on a vehicle reimbursement program, it also becomes incumbent upon the company to ensure that every driver is carrying adequate insurance coverage to protect from liability in the event of an accident. For each driver on the road, the company should be tracking whether or not the driver is carrying business insurance, whether or not the company is listed as an additional insured, liability limits, uninsured/underinsured coverage, and their renewal dates. The administrative expense alone can be a nightmare, which is why often time’s companies on a vehicle reimbursement program fail to sufficiently monitor their employee’s insurance coverage, thus leaving themselves vulnerable.

However it’s not just the driver’s choices that could end up increasing the company’s risk exposure. The company’s actions, or lack thereof, play a crucial role as well. Many companies on reimbursement programs fail to see the need for an iron-clad vehicle policy that stipulates what is and what is not acceptable when driving on company time. It has also been our experience that when a company implements a vehicle reimbursement program, they often times only run a driver’s Motor Vehicle Report (MVR) on initial hire, and then rarely, if ever, thereafter. Additionally, companies on a vehicle reimbursement program tend to forego regular driver training programs. All of these decisions drastically increase a company’s, and potentially an owner’s or Board of Director’s, liability exposure in a negligence suit.

Unfortunately there’s no sure-fire way to avoid law suits. Regardless of whether your company is on a vehicle reimbursement program, or a company-provided vehicle program, when an accident occurs, an attorney is most likely going to go after the defendant with the deepest pockets. So if the potential for your company to be involved in a lawsuit is always present, would you rather be able to demonstrate that your company provided a vehicle with the latest in safety technology, regularly ensured that the vehicles were properly maintained and safe for road use, ran continuous checks to ensure that your drivers were competent, and provided drivers with regular training? Or would you rather just trust that your employees had it all covered?

Be sure to check back next week as we take a look at another Hidden Danger of Vehicle Reimbursement: Decreasing Driver Morale.