Restaurant managers are trained to handle many responsibilities under dynamic and often unstable conditions. These professionals must maintain focus on food safety and quality, customer satisfaction, handling complaints, and scheduling personnel to keep up with erratic demand as it changes in real time.
In most cases, these professionals are not well-versed in the complex, downstream insurance exposures that can inadvertently be created by the actions or decisions they make to meet their business needs. Consider the following real-life scenario to better understand risk associated with employee-involved auto accidents to restaurants and how managers can improve their risk management program.
Setting the Table
On Saturday, the manager on duty (MOD) of a busy, sports-focused national restaurant in Illinois found themselves very low on chicken wings the morning of the Michigan versus Ohio State football game that was set to start at 2:00 p.m. They called their supplier to place an order but could not get a delivery scheduled until Monday.
In a bind, the MOD asked a crew member to drive to another restaurant, which was part of the same chain, to get more product. The employee waited until his lunch hour to pick up the wings, using his personal auto. He stopped at his house on the way back to eat lunch and walk his dog.
During his lunch hour—but on the way back to the restaurant—the employee was involved in an accident in which a bicyclist was struck and killed. The plaintiff filed suit against both the crew member individually and the employer, the restaurant. The plaintiff argued that the employee was an agent of the restaurant and was working within the course and scope of employment and for direct benefit to the restaurant at the time of the accident. To further complicate this matter, the employee only had state minimum liability limits on his personal auto.
The Tort Viewpoint
This scenario has dramatic adverse consequences to the restaurant and was, undoubtedly, a risk unidentified by the MOD. The risk might also be unrecognized by the chain’s national risk manager, who created a significant tower of insurance. In this scenario, the restaurant chain would be the target defendant due to its significant limits of insurance, and the plaintiff’s attorney would make every argument available that the employee was in the course and scope of his employment when the accident occurred. Typically, courts will deem this a question of fact for a jury to decide and would be reluctant to grant summary judgment for the restaurant chain employer.
There are certain factors considered by Illinois courts, including whether or not the conduct of the employee was the kind the employee was employed to perform, whether or not it occurred substantially within the authorized time and space limits, and whether the conduct was at least in part actuated by a purpose to serve the employer. Conduct of an employee is typically not within the scope of employment if it is different in kind from that authorized, far beyond the authorized time or space limits, or too little actuated by a purpose to serve the employer.
Illinois courts also recognize but distinguish between “a frolic” and “a detour.” A frolic is a pursuit of the employee’s personal business, which is unrelated to his/her employment. A detour is an employee’s deviation for personal reasons that is, nonetheless, seen as sufficiently related to employment. Generally, all of these issues are a question of fact for a jury to decide. As this is a specific state law question, the relevant state law regarding these issues should be analyzed when considering insurance coverage.
Given this scenario, the plaintiff’s attorney would argue that the conduct of the employee was sufficiently close enough to the type of work he was employed to perform, that he was requested to pick up the stock during business hours, and that he was only on a detour when he stopped at his house. Of course, the counterarguments are that the employee was not employed to pick up stock, that the accident occurred over the lunch hour when the employer has no control over its employees, and that the employee was on a frolic at the time of the accident.
Coverage Considerations
An employer’s commercial auto policy will often provide liability coverage for accidents involving “any auto” (covered auto symbol one). Alternatively, however, employers should make sure that their policy provides coverage for “non-owned” and “hired” or “borrowed” autos so that the employer is protected if an employee causes an accident while using his own personal auto or a rental car while acting in the course and scope of employment. The terms “hire” and “borrow” are not defined in the commercial auto policy, but courts will often use dictionary definitions to supply the meaning of undefined policy terms. In the context of auto insurance, the hiring of an auto has been interpreted to mean paying for the use or services of a vehicle. To borrow has been held to mean to “take something for temporary use or to receive temporarily from another...[or] obtain the temporary use of.”
If the employer’s policy covers any auto or non-owned, hired, or borrowed autos, then the employee’s auto would qualify as a covered auto for purposes of liability coverage. The employer would need to notify its commercial auto insurer of the claim and seek coverage under its policy for purposes of defense and indemnity.
However, the standard commercial auto policy provides no coverage for employees who are sued, even if the accident took place on company time. This is because the intent of the commercial auto policy is to protect the employer and not the employee. The “Who Is an Insured” provision in a commercial auto policy includes “anyone using with [the named insured’s] permission a covered auto that the named insured owns, hires or borrows with exception of ‘the owner or anyone else from whom you hire or borrow a covered ‘auto.’” If the employer hired or borrowed the employee’s owned auto, then the employee would not be covered. Instead, the employee would need to look to his own personal auto policy for a defense and indemnity.
For a small additional premium, many employers add an “Employees as Insureds” endorsement to their commercial auto policy to extend liability coverage to employees who cause accidents while on the clock. The endorsement states that, for purposes of Section II – Liability Coverage, Paragraph A.1, “Who Is an Insured” includes “any ‘employee’ of yours...while using a covered ‘auto’ you don’t own, hire, or borrow in your business or your personal affairs.”
The purpose of the endorsement is to cover employees using, in the scope of their employment, their own cars that the employer has not hired or borrowed. Many courts have ruled that “in your business or personal affairs” means “in the course and scope of employment.”
Some employers also purchase, for a small additional premium, an “Employee Hired Autos” endorsement, which is designed to afford coverage to the named insured’s employees who are involved in auto accidents while driving autos rented under a contract in the employee’s name, with the named insured’s permission, and while performing duties related to the conduct of the named insured’s business.
Regardless of whether or not the employee qualifies as an insured under the employer’s policy, coverage provided by the employer’s policy will typically apply on an excess basis over the employee’s personal auto policy. This is because primary coverage usually follows the ownership of the auto involved in the accident. Furthermore, since the employee owned the auto in this particular situation, the employee’s policy would provide primary coverage to both the employee and the employer because a personal auto policy typically includes as an insured anyone who is alleged to be legally liable for the named insured/employee’s use of a covered auto. Therefore, under these facts, the employer should tender its defense of the claim to the employee’s personal auto insurer for defense and indemnity.
The potential outcomes of this claim scenario are as follows:
• If the limit of liability provided by the employee’s personal auto policy is adequate to fully cover the claim—The employer’s commercial auto policy will not contribute. However, the limit of liability provided by an employee’s personal auto policy is usually much lower than the liability limit provided by the employer’s policy.
• If the employee’s policy limit is inadequate to fully cover the claim for purposes of a settlement or judgment—The employer’s commercial auto policy will pay any excess indemnity owed above the personal policy limit.
• If the combined limits of the employee’s policy and the employer’s commercial auto policy are inadequate to fully cover a settlement or judgment—The employer will need to look to its umbrella or excess coverage to pay the excess portion of a settlement or judgment.
Additionally, if the employee is injured in the auto accident, he can file a workers’ compensation claim against the employer and might also make a demand for underinsured or uninsured motorist coverage. Each state has its own rules with regard to whether an insured can reject uninsured and underinsured motorist coverage or, if coverage is deemed mandatory by law, select limits for such coverages in amounts less than the full limit of liability for third-party claims. Each state also has its own uninsured or underinsured motorist coverage forms. Therefore, the employer and its commercial auto insurer should examine the particular state’s policy forms to determine whether the employee qualifies as an insured for uninsured or underinsured motorist coverage and whether the coverage applies.
Reducing Risk
Unfortunately, accidents can often happen when they are least expected and it is probably impossible to completely avoid or eliminate risks associated with employee-involved auto accidents on company time. Restaurants can create and impose policies that prohibit employees from using their own cars for work-related errands, but such a policy must be enforced with human resources consequences for managers and employees who violate these policies.
As the outlined scenario indicates, situations can occur where managers and employees disregard company policies. Therefore, restaurants should engage in risk transfer to mitigate the risks associated with employee-involved auto accidents. These risk transfer methods include mandating that employees have a driving for-hire endorsement on their personal auto policy, making sure that their corporate auto policies cover any auto, and paying the extra premium to include an “Employees as Insureds” endorsement on their commercial auto policies. Taking these proactive steps can help reduce the risk associated with employee-involved auto accidents and improve a restaurant’s risk management program.