Introduction

Motor vehicle accidents involving company vehicles often raise complex questions of liability and insurance coverage. Counsel must be prepared to evaluate not only whether an employer may be held vicariously liable for an employee’s conduct, but also whether the employee is entitled to coverage under the employer’s auto policy. In a recent Goldberg Segalla webinar, partners Christian A. Cavallo and Aaron M. Schiffrik explored these intersecting issues through a practical lens, offering guidance on how to assess liability exposure and coverage obligations in real-world scenarios.

Vicarious Liability: Understanding the Employer’s Exposure

The Legal Standard

Vicarious liability – rooted in the doctrine of respondeat superior – holds employers responsible for the negligent acts of employees committed within the scope of employment. Courts across jurisdictions apply a multi-factor test to determine whether the employee’s conduct meets this threshold:

• Was the conduct of the kind the employee was hired to perform?
• Did it occur within authorized time and space limits?
• Was it actuated, at least in part, by a purpose to serve the employer?

Outside the Scope: Common Exceptions

Counsel should be alert to scenarios where vicarious liability may not apply:

• Coming and Going Rule: Commuting is generally outside the scope of employment, unless the employer benefits from the travel (e.g., transporting tools or advertising via company vehicle).
• Intentional Conduct: Road rage or other personal acts of aggression are typically deemed outside the scope.
• Frolic vs. Detour: Minor deviations (e.g., stopping for coffee) may still fall within scope, while personal errands – especially those far outside a designated route – do not.

Strategic Considerations

Even when vicarious liability is unlikely, consideration should be given to offering a defense to the employee. Doing so may help preserve favorable testimony and avoid evidentiary gaps that could complicate summary judgment efforts against the employer.

Coverage Analysis: Is the Employee an Insured?

Covered Auto Status

The first step in evaluating coverage is determining whether the vehicle involved qualifies as a “covered auto” under the employer’s policy. This depends on the policy’s designation symbols:

• Symbol 1 (Any Auto): Broadest coverage, typically includes all autos connected to the insured’s business.
• Symbol 7 (Specifically Described Autos): Limited to vehicles listed on the declarations page.
• Temporary Substitute Autos: Coverage may extend to non-owned vehicles temporarily replacing a scheduled auto due to breakdown or servicing.

Counsel should verify whether the vehicle was scheduled or qualified as a temporary substitute and gather documentation to support that status.

Permissive User Status

Once the vehicle is deemed a covered auto, the next question is whether the employee qualifies as a permissive user. Courts recognize both express and implied permission:

• Express Permission: Direct authorization to use the vehicle.
• Implied Permission: Established through conduct, prior use, or access to keys.

Most jurisdictions follow the “initial permission rule,” allowing permission to cascade from the owner to subsequent users. However, states like Maryland may scrutinize whether the second permittee’s use benefited the first permittee, potentially limiting coverage.

Exceptions and Enforceability

Commercial auto policies often include exceptions to permissive user status, such as:

• Use by employees of auto repair businesses.
• Use by individuals moving property to or from the vehicle.

Counsel should assess whether these exceptions are enforceable in the relevant jurisdiction. In states like New Jersey, courts may invalidate such provisions, especially if they conflict with compulsory insurance laws.

Reservation of Rights and Strategic Defense

Offering a defense under a reservation of rights (ROR) can preserve the insurer’s ability to contest coverage. However, RORs carry consequences:

• Independent Counsel: May be required if a conflict arises between covered and uncovered claims.
• Collusive Settlements: The insured may settle with the plaintiff and assign rights against the insurer.

Consideration should be given to the strength of the coverage defense compared with the risks of issuing an ROR and ensure that any revocation of permissive use is communicated clearly and prior to the accident.

Conclusion

Motor vehicle accidents involving company vehicles demand a nuanced analysis of both liability and coverage.  Counsel must evaluate the scope of employment when assessing potential vicarious liability of the employer, whereas the insurer (or its coverage counsel) should evaluate permissive use and policy language to determine exposure and obligations.