A considerable loss

Automobile loss exposure can be a balance sheet buster if not managed properly

When people think of the risks most prevalent in the roofing industry, they often visualize falls, exposure to fires caused by torch use and property damage involving water intrusion during roofing operations. But owning and operating commercial vehicles is a significant and growing operational risk for roofing contractors. The increase in the number of commercial vehicle lawsuits and escalating dollar amounts of jury verdicts related to automobile accidents involving commercial vehicles increases the risk of financial loss for roofing contractors.

Costly exposure

A severe automobile claim has the potential to actually exceed your insurance coverage policy limits. Whether your company has a few trucks or 250, there is potential for a multimillion dollar lawsuit the moment a truck leaves your shop.

A related area of financial risk exists when an employee or independent contractor is operating his or her own vehicle in a work-related capacity. My company has seen an increase in the number of roofing contractors who offer automobile reimbursements to employees who drive personal vehicles in lieu of corporate-owned vehicles.

Typically, if an employee is involved in an accident while using his or her personal vehicle for business purposes, the insurance carrier that will respond first is the one that holds the employee's personal automobile insurance policy. In the event of a lawsuit by a claimant injured in an automobile accident, several issues can affect the availability of insurance coverage provided by the employee's individual personal automobile insurance.

There are some risk-control recommendations to protect you and help contain your financial loss that may result from the exposure of employee-owned vehicles being driven for company business.

For one, my company suggests if employees drive their own vehicles for business purposes, they should have insurance limits of at least $100,000 per person and $300,000 per accident for bodily injury and property damage.

In addition, a copy of the employee's personal automobile insurance policy should be kept on file. You can ask an insurance adviser to review employees' personal automobile policies. The adviser should identify policy exclusions or coverage limitations that may limit the availability of insurance coverage for your company.

Protecting yourself

Some personal automobile insurance policies exclude coverage for business use. If an accident occurs while an employee is operating his or her personal vehicle for company business, the personal insurance provider may deny payment to the claimant. If the employee's personal automobile policy denies the third-party claim, it is likely your corporate insurance provider may be required to provide coverage.

A key provision of a comprehensive commercial automobile insurance program is to have hired auto and non-owned automobile liability coverage, which regularly is included in the scope of coverage provided by corporate automobile insurance providers. Typically, the cost of insurance protection for hired auto and non-owned auto liability coverage is nominal.

It is wise to invest premium dollars in umbrella and/or excess liability protection that extends coverage over the underlying automobile insurance coverage. Usually, such limits available to roofing contractors range from $1 million to $10 million in coverage limits.

If there is an automobile claim involving a third party that exceeds the employee's personal insurance coverage limits, the claimant's attorney often will seek additional insurance limits by taking legal action against your company. If your automobile insurance provider is forced to respond to a claim for a non-owned or hired automobile, there is likely to be a negative financial ramification on your insurance renewal, such as cancellation of your automobile coverage. The insurance provider also may significantly increase the annual automobile premium to absorb defense costs or monetary settlements resulting from non-owned automobile accidents.

At the very least, the loss experience of your corporate automobile insurance policy will be negatively affected by a non-owned or hired automobile claim that is included in the automobile experience rating formula for the following 36 months.

Other effective risk-control disciplines essential to control commercial automobile loss frequency and severity include:

  • Rigid guidelines for acceptable driver motor vehicle reports
  • Written and enforced fleet safety programs
  • Restriction on personal usage of corporate-owned vehicles
  • Vehicle monitoring and/or tracking system
  • Electronic device usage policy

Distracted driving

The National Highway Traffic Safety Administration (NHTSA) states distracted driving is a dangerous epidemic on U.S. roadways. NHTSA reports that in 2011 alone, more than 3,331 people were killed in distracted driving crashes and 387,000 were injured in distracted driving crashes. And according to CNA Insurance Co., rear-end automobile accidents have claim costs that are, on average, 30 percent of the entire automobile claim expense in the roofing industry.

To protect employees and other drivers, my company recommends you implement a zero-tolerance policy relative to employees texting, emailing and talking on hand-held electronic devices while driving for company business. In the event of an automobile accident involving a vehicle used for business, one of the common action plans taken by the plaintiff's attorney is to request the vehicle driver's cell phone records to determine whether the driver was using an electronic device before or at the time of the accident. There clearly is an increase in financial loss exposure to you if your employee was distracted by an electronic device while driving a vehicle.

We recommend your management team communicate in writing a corporate policy to eliminate the use of electronic devices while operating a vehicle or machinery and include a statement of acknowledgment that confirms employees have read and fully understand the usage policy.

At a minimum, the electronic device usage policy should require employees to:

  • Turn cell phones off or silence them before starting the vehicle
  • Pull over to a safe place if a call must be made or received while in the vehicle
  • Inform clients, staff members and industry providers that an electronic device usage policy exists and provide a brief explanation of why calls, texts and emails may not be returned immediately by employees while they are driving
  • Require employees to clearly communicate logistics and other scheduling issues before leaving the office or shop; logistic preparation will reduce employees' need to communicate with the office until they arrive safely at their job sites

By implementing an effective electronic device usage policy, you will illustrate to your insurance provider that you are proactively addressing the issue. Controlling distracted driving will reduce the potential for serious bodily injury claims. Future automobile premiums typically will increase as losses are paid by the insurer.

The existence of an electronic usage policy is emerging as a core underwriting review for acceptability when certain insurance carriers consider workers' compensation coverage for roofing contractors. A serious automobile accident often leads to a severe workers' compensation claim. A workers' compensation provider's loss exposure for medical, wage loss and impairment benefits for multiple roofing company employees being transported is severe. And workers' compensation losses will elevate future premiums for at least 36 months.

A final caution

The roofing industry is inherently risky. There is no reason for you to expose your company to more risk than is necessary. By implementing some risk-management controls and crafting an effective zero-tolerance policy for electronic device use while driving, you will be better protected against large losses.

Rob Foote is managing partner of Roofing Risk Advisors LLC, a division of Frank H. Furman Inc., Pompano Beach, Fla.



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