The Hidden Dangers of Fleet Risk Management

 

Saturday, Jul 18,2009, 8:52:05 AM   Click:

In the construction industry, we assume that there are risks ev-erywhere. We strive to limit our exposure by buying insurance to cover these risks. But we have all seen at one time or another, we thought that the risks are covered are not sufficiently insured. This is often the case in the automotive claims. Roof Problems auto insurance are rarely focused on the industry. This is probably because most of us operate under the assumption that no claim will be beyond our automotive business or personal auto policy to our policy. The assumption is partly true, but as they say, the devil is in the details. In the case of insurance, the risk exposure lies in the details. The risks associated with using third party trucking and employee personal vehicles for commercial purposes have been addressed during the construction of financial management of the Association (CFMA) to the annual conference of the fleet of a session entitled Risk Management - The hidden dangers, by Greg Stefan of Arch Insurance Group (gstefan@archinsurance.com).

Third-party trucking risks. We are always paying attention to subcontractors' insurance. Stefan suggests that we should devote the same level of attention to the insurance of the haulers we retain to move our materials or waste from one place to another. Why? If there is a serious accident, the victim will come looking for all of the deep pockets to sue, including your construction company if the accident involving the hauler occurred on or close to your construction site. There are instances that will bring inyourgeneral liability policy or workers' compensation policy that you should considerand work to protect against. As you know, any claim that involves these policies results in increases in losses due to attorney defense costs and possibly actual payments to plaintiffs.

There is generally an assumption that the auto liability insurance will cover an autorelated loss without any spillover to other insurance coverage. There may be spillover in instances where there are questions of negligence. For example, a hauler leaving your site and injuring a motorist while pulling into traffic may present questions of negligence in proper design of the entry to the highway from the site or the failure to provide adequate directional devices or flag people.

A contractor's workers' compensation insurance may also be looked to, Stefan suggested, in instances where a hauler who is killed is a sole proprietor without coverage. The contractor's workers' compensation policy may be required to cover the claim. The surviving spouse may also sue the contractor for failing to maintain a safe workplace, and the contractor's general liability insurance will need to respond to the claim.

What should you do? Stefan suggests that your first and best defense is having a contraci with your hauler, not just a purchase order or some document that your hauler provides. The contract needs to:

* Spell out minimum levels of insurance. Don't rely on state minimums for this requirement. Consider that interstate haulers' minimum coverage starts at $750,000 and coverage requirements increase from there, depending on the material being transported. Intrastate haulers' insurance requirements are based on individual state requirements and can be as low as $50,000.

* Require insurance certificates and additional insured endorsements. Keep in mind that most policies do not provide additional insured coverage unless it is required in a written contract.

* Have hold-harmless and indemnification provisions (this is also sometimes a precursor to insurance coverage for an additional insured).

* Have specific language describing the scope of work, including when the hauler's work begins and ends.

* Clearly express that the hauler is not an employee of the contractor.

While it is impractical to have a contract for each load taken or delivered, Stefan suggests that a master contract or an annual contract would also work. However, he points out that in the event your hauler subs out a haul, you are still left with potential risk because the sub may not have the same insurance as your vendor.

Stefan also suggested that precontract due diligence will help reduce potential risks. Possible ways to check out the hauler are to review its insurance coverage in advance and look at its workers' compensation experience modifications to see what the accident record looks like.

Business use of an employee's personal vehicle. Another area of exposure for contractors that Stefan pointed to was employees using their own vehicles for company purposes. More companies are cutting back on their fleets and providing monetary allowances for staff to use their own vehicles. Insurance issues relative to their use for business purposes need to be adequately addressed.

The contractor's business auto coverage covers nonowned autos, which includes an employee's vehicle. However, in general, the policy does not insure the driver of the vehicle if he or she or a member of his or her family owns the vehicle. Therefore, the employee is not entitled to defense or indemnity under the business's auto policy. Stefan says that third-party plaintiffs in these cases successfully include the employer in the suit by arguing that it is vicariously liable for the acts of the employee, requiring the business auto insurer to respond and defend the company. If the employer is found legally responsible for the acts of the employee, the business auto policy provides excess coverage to the employee's personal auto policy.

Stefan suggested the following riskreduction strategies for employee use of personal vehicles for business purposes:

* Know your employees' personal auto liability limits: Stefan points out that it is really important to know in advance what your employee's limits of coverage are because this is your "layer" of protection before your limits of coverage are tapped. Consider paying a larger allowance and require employees to increase their limits. The coverage should be verified annually. He also suggests having the employee advise the insurer that his or her vehicle will be used for occasional or limited business use.

* Check employees' motor vehicle record (MVR): An employee's MVR should be checked upon hire and thereafter annually to ensure you are comfortable with his or her safety and vehicle operation history.

* Establish rules of use: These rules should make clear the company's policy about items such as cell phone use while driving, seat belt use, and driving while under the influence. Also consider requiring a mileage log in such a way that business-related trips can be separated from personal use of the vehicle.