Protecting Your Business and Reducing Your Risk With Automobile Insurance Coverage

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1 Protecting Your Business and Reducing Your Risk With Automobile Insurance Coverage As attorneys who represent catastrophically injured people in Missouri and Kansas, we see far too many people with inadequate motor vehicle insurance coverage. Unfortunately, many of them do not learn that their coverage is inadequate until they have an accident and need to use it. To protect your business, your employees, and your family, you should review your coverage before you need to use it. It is important to understand insurance lingo when talking to your agent about coverage. Your agent can work with you to make sure that your coverage meets your needs for both your business and your family. The Basics: No-Frills Coverage That Meets the Letter of the Law (But Maybe Not Your Needs) As a matter of public policy, Kansas and Missouri both require motorists to maintain minimum levels of insurance coverage. In Missouri, every personal automobile policy must include coverage of at least $25,000 per person for bodily injury; $50,000 per accident for bodily injury; and $10,000 per accident for property damage. The bodily injury component of such coverage protects you and your family financially if you are sued by someone injured in an accident in which you were involved. It will pay legal and court costs and damages awarded up to the limits written into the policy. Bodily injury is for others, not you. State of Missouri Department of Insurance Educational Guide to Automobile Insurance, Liability Insurance Coverage, accessible at p. 4. By contrast, the property damage component of such coverage addresses your legal responsibility for damages that are caused to the property of others by collision with your car. The property damage component does not cover one s own property damage loss. In addition, every Missouri motor vehicle policy must include uninsured motorist coverage of at least $25,000 per person for bodily injury and $50,000 per accident for bodily injury. As its name implies, such insurance covers your bodily injuries and those of your passengers if you are hit by an uninsured motorist or hit-and-run driver who is responsible for the accident. An uninsured motorist is one who has not purchased the minimum automobile insurance required by law. In Kansas, every personal automobile policy likewise must include at least $25,000 per person for bodily injury; $50,000 per accident for bodily injury; $10,000 per accident for property damage; $25,000 per person of uninsured/underinsured motorist coverage; and $50,000 per accident of uninsured/underinsured motorist coverage. See Kansas Insurance Department, Auto Insurance, accessible at for a discussion of such coverage in Kansas. In addition, however, every Kansas policy also must include minimum personal injury protection ( PIP or No-Fault ) coverage. Such coverage pays for medical

2 Page 2 expenses, rehabilitation, funeral expenses, lost wages and in-house medical assistance for you and your passengers injured in an accident, regardless of who is at fault. Passengers who own their own cars collect under their own policy. The minimum requirements include at least $4,500 per person for medical expenses; $900 per month for one year of disability/loss of income; $2,000 for funeral, burial or cremation expenses; $4,500 for rehabilitation expenses; $900 per month for one-year disability/loss of income survivor benefits; and $25 per day for up to one year survivor benefits. Going Beyond the Basics: Matching Coverage to Your Needs While many people may be tempted to purchase only the bare-bones coverage required by law, this can prove to be a penny-wise/pound-foolish decision, particularly in a souring economy. A recent study released by the Insurance Research Council concluded that one in six drivers across the United States may be driving uninsured by 2010, as the economy deteriorates. Even before the economy unraveled, perhaps as many as 14% of Missouri motorists and 10% of Kansas motorists were driving uninsured (2007 statistics). If you or your employee are involved in an accident with someone who has broken the law by failing to obtain his or her own automobile insurance, your own uninsured motorist coverage may be the only money available to pay for any injuries that you or your passengers suffer. Even if the other driver has insurance, it may be only the bare-bones minimum. Either way, in an age of persistent medical inflation, the minimum insurance in the amount of $25,000 per person or $50,000 per occurrence may not cover even a short hospital stay, let alone an extended rehabilitation or lost income. Conversely, if you or your employee are at fault for an accident and maintain only the basic primary bodily injury liability coverage of $25,000 per person or $50,000 per accident, you may put your business or personal assets at risk for any judgment that exceeds your policy coverage. As such examples illustrate, minimum coverage is not necessarily the same thing as adequate coverage. To give your business and your family an added measure of protection, you may wish to consider the following. First, check to see whether your policy includes both uninsured AND underinsured coverage. They are similar but not identical. While uninsured coverage provides benefits for bodily injury in an accident with an uninsured driver or hit-and-run driver, underinsured coverage provides such benefits in an accident with another driver who has insurance, but whose insurance nonetheless is inadequate to cover your injuries. Underinsured coverage also provides such benefits if you have an accident involving an uninsured or hit-andrun driver that exhausts your own uninsured motorist limits. Although Missouri requires uninsured coverage, it does not require underinsured coverage. But you can buy underinsured coverage at additional cost, and it makes sense to do so if your budget provides. Kansas law mandates all automobile insurance policies provide both uninsured and underinsured coverage. Second, review your bodily injury liability coverage (the coverage that protects you if someone is injured and sues you for carelessness in an accident). If you only have the minimum coverage

3 Page 3 of $25,000 per person/$50,000 per accident, think hard about whether this coverage really is adequate. As the Missouri Department of Insurance points out, persons injured as a result of your driving can, and often do, sue for damages greater than [the minimum policy requirements]. You may be personally responsible for damages not covered by your policy. Consider higher limits of coverage, which are usually available at a moderate increase in price. State of Missouri Department of Insurance, Liability Insurance Coverage, Educational Guide to Automobile Insurance, accessible at publications/auto1.pdf, p. 4. Ideally, you should consider maintaining this coverage at $300,000 per person, $500,000 per accident. But if you cannot do so, then you should maintain coverage of at least $100,000 per person/$300,000 per accident. Only you know your circumstances and your tolerance for risk. Third, ask your agent to add medical payments coverage to your policy in the maximum amount possible if you live in Missouri. Medical payments coverage covers medical bills you incur if involved in an accident without regard to who is at fault for the accident. In Kansas, that type of coverage is called personal injury protection and is required by state statute but it is not required in Missouri so ask for it. Fourth, consider carrying an umbrella policy in addition to your primary policy. An umbrella policy is one that protects you against excess personal liability after you have exhausted the limits of your primary policy. Although they are not free, most umbrella policies are comparatively inexpensive and they can offer added peace of mind to those with high incomes, and those who have accumulated substantial assets over time. An umbrella policy provides an additional $1 million to $5 million of liability insurance. Umbrella coverage is essential for businesses with assets that could be subject to collection or garnishment if an accident resulted in a judgment against your company. An umbrella policy can include uninsured and underinsured coverage as well. The insurance company providing umbrella liability coverage will probably require you to maintain certain limits on your underlying insurance coverage. The same company usually issues both policies. Umbrella coverage will only cover claims made against you by someone you injure unless you request that the policy be written to cover you. Ask your agent for coverage that covers your injuries if you or an employee are involved in an accident with an uninsured or underinsured driver. Read the Fine Print Whatever you do, make time to read and understand your policy. Reading an insurance policy is not anyone s idea of enjoyable light reading but it is important. Contrary to conventional wisdom, what you do not know can hurt you. For example, did you know that your insurance policy could contain a so-called step-down provision that allows your insurance company to reduce the coverage available under your policy to the bare minimum when a non-relative permissive user has an accident while driving your car? Many people don t know this. They just assume that the coverage they bought say $100,000 per person/$300,000 per accident applies to such permissive users as well. What a surprise to discover that instead of the $100,000 per person/$300,000 per accident you counted on to be available, the available coverage is only $25,000 per person/$50,000 per accident. This could have huge implications for your business if

4 Page 4 you allow your employees to periodically drive your vehicle and then one of them is involved in an accident. Or did you know that your insurance policy could contain a so-called household exclusion clause that restricts the coverage available to family members who live in the insured s household? The purpose of such an exclusion is to prevent collusion where family members living under the insured s roof attempt to collect on a policy when the insured is the negligent party responsible for inflicting the injury. Although the Kansas and Missouri Supreme Courts have ruled that their states respective laws prevent an insurance company from enforcing a household exclusion clause against the minimum liability insurance coverage mandated by each state s law, insurance companies are allowed to enforce such clauses beyond the minimum. You should also make sure that your policy covers you for the type of work you do in your business. Many policies have exclusions for automobiles used as a delivery vehicle. If you utilize delivery vehicles in your business, make sure that your policy covers them and all the possible employees who might be driving those vehicles. Reducing Your Risk There are a number of things you can do as a business owner to reduce your risk if you have employees driving either company vehicles or their own personal vehicles to perform workrelated tasks. The liability is the same for the company whether an employee is driving a company-owned vehicle or their own vehicle. It may be easier to reduce your risk if employees are driving company-owned vehicles because at least the company controls the maintenance and upkeep of the vehicle and can place some restrictions on its use. To reduce your risk as a business owner, begin by knowing what laws and regulations apply to your company vehicles. For example, if you operate commercial vehicles in your business that weigh more than 10,000 pounds, then the Federal Motor Carrier Safety Regulations apply to the use of those vehicles. Failure to follow the requirements of the Federal Motor Carrier Safety Regulations can result in large fines or huge liability for your company if one of your company vehicles is involved in an accident. Hiring employees for driving tasks who have clean driving records is essential. You don t want to hire drivers who have been charged with driving while intoxicated, had numerous traffic tickets, or been involved in too many accidents. Routine driving record checks are imperative if you have employees driving their own or a company vehicle to accomplish work tasks. Develop a regular procedure for doing this and stick to the schedule. You may want to decide how frequently you check the driving records based on how many vehicles you have on the road and how well you know the employees driving those vehicles but you should at least be checking driving records every six months. Checking more frequently obviously gives you more protection. If your company has numerous cars on the road, you may want to subscribe to a service that constantly monitors driving records and sends you a report when there is activity such as an accident, a violation or a ticket. A random drug and alcohol testing program for employees who perform driving tasks for your

5 Page 5 company will reduce your risk. The key to this type of program is to make it random so that an employee who may be an abuser cannot avoid the test. Failing to identify and deal with employees who are driving while drunk or drugged could result in punitive damages being awarded against your company if such an employee is in an accident; you have a duty to have a system in place to detect this type of situation and remove an employee from driving if necessary. Utilizing written policies that promote safe driving and outline when a company car may be used by an employee and for what purpose will also reduce your company s risk. If you allow employees to drive a company car for personal use when they are not performing work tasks, make sure you insure it to cover this type of use because if the employee is in an accident, the company will be responsible. Make sure you train your employees on the company s policies and expectations. It is not enough just to have the policy in writing in a manual in your office. You have to make sure that your employees have a copy and have been trained on what the policies mean and how to apply them. Review your company s activities and promotions to make sure that they do not inadvertently lead to unsafe driving by your employees. For example, if you own a pizza deliver business that guarantees 30 minute delivery, you are encouraging your employees to drive fast to make the delivery. This type of promotion could result in punitive damages being awarded against your company because you deliberately encouraged your employees to drive in an unsafe manner to accomplish your business tasks. One of the greatest risks in the current business environment involving company vehicles is the use of cell phones. The National Highway Traffic Safety Administration estimated in 2005 that nearly one million vehicles at any daylight moment are being operated by someone using a handheld cell phone. Some studies have shown that it is more dangerous to talk on a cell phone than to drive drunk. To avoid liability for cell phone usage, create a written policy, train your employees on it, and then enforce it. Have your employees sign an acknowledgement that they have read and understand the policy. Demonstrate your commitment to the policy through your own behavior so that your employees do not see you talking on the cell phone while driving your vehicle and know that if you call them on their cell phone when they are driving that you do not expect them to answer the phone. Conclusion Protecting your business and your family with adequate insurance coverage is money well spent. Schedule a meeting with your insurance agent every six months to a year to review your coverage and make sure it meets your needs. You can use this checklist for the meeting with your agent: Questions to ask your Agent 1. Does my insurance policy include uninsured and underinsured coverage?

6 Page 6 2. Do I have medical payments or personal injury protection coverage on my policy? How much? Can I get more coverage? 3. Are my policy limits at least $100,000/$300,000 or preferably $300,000/$500,000? 4. Do I have an umbrella policy and does it include uninsured and underinsured coverage to cover me and my employees if I am injured? 5. Does my policy include a permissive user clause or a household exclusion? If so, did I ask to have it removed? 6. Does my policy include the type of work I do? Are there any exclusions that exclude tasks performed by my employees?