Fleet Liability: ‘Felony’ Fleets & Negligent Entrustment

If you’ve read the news recently, you know that organizations have lost millions of dollars in lawsuits directed against fleet management personnel and the operation of fleet assets. These suits are associated with embezzlement, fraud, and negligent entrustment.

Of the many issues confronting today’s fleet management organizations, there are two that hold great risk but probably are not getting the attention they deserve: (1) felonies and crimes committed by fleet employees, such as embezzlement and fraud; and (2) negligent hiring, supervision, training, and retention, which fall under the heading of negligent entrustment. Both of these issues can be viewed as two sides of the same coin — failure of the fleet manager to properly supervise and perform his or her duties. Under today’s legal system, the fleet manager could be held liable under both criminal and civil bodies of law.

By looking closer at these issues, fleet managers will have a clearer understanding of what liabilities their organizations face resulting from the malfeasance or negligence of employees. To understand how the doctrine of negligent entrustment can affect fleet operations, we have to first look at the basics of tort law.

What is Tort Law?

A “tort” is a civil wrong. West’s Encyclopedia of American Law defines tort law as “a body of rights, obligations, and remedies that is applied by courts in civil proceedings to provide relief for persons who have suffered harm from the acts of others.” Negligence, the most common tort, has the most risk for fleet managers, since negligence awards can be very large and fleet managers deal with a subject that is inherently dangerous — the operation of a motor vehicle. 

Negligence is based upon a duty of care. When one engages in any activity, that person is under a legal duty to act as an ordinary, prudent, reasonable person would act. It should be remembered that negligence law is, at its base, a way to spread the risk fairly. So, it is logical that courts tend to stretch the scope of negligence liability to cover innocent injured parties when a defendant has been negligent. 

The applicable standard of care is the reasonable person standard of ordinary prudence under similar circumstances. For fleet professionals, it is judged as what the reasonable, prudent fleet professional in the field of fleet management would do under similar circumstances. So, generally, for the organization to assume negligence liability for the acts of the fleet or fleet department, the court must find that the fleet organization’s behavior was not consistent with the standards in the fleet industry. 

As an example, if a driver is involved in a crash, and the other party claims the driver was not competent to operate the vehicle and the organization was negligent in hiring the driver, the standard of care would be whether the fleet department (or other responsible organization) properly checked driver motor vehicle records (MVRs); had reasonable safety programs; had appropriate and current driver policies and procedures consistent with other similar fleet organizations in its geographic territory; and of course, whether or not the organization acted in accordance with those programs, policies, and procedures.

The employer can be held liable for negligence either directly due to the employer’s negligence under the doctrine of negligent entrustment (i.e., negligent hiring, negligent supervision, negligent training, or negligent retention) or under the doctrine of respondent superior (vicarious liability). The Restatement of the Law Third Edition, Agency, Section 2.04, defines respondent superior as follows: “An employer is subject to liability for torts committed by employees while acting within the scope of their employment.” The negligence or fault of the employer is not an element of the respondent superior claim. If the employee has no liability, then the employer can have no vicarious liability. In this article, we are focusing on direct liability under the doctrine of negligent entrustment.

What is Negligent Entrustment?

Negligent entrustment is the legal doctrine that one who entrusts a dangerous article to one who is reckless, too inexperienced, or too incompetent to use it safely is liable. In such cases, the one entrusting the dangerous article to such a party bears the responsibility for liability. Generally, one must prove five elements to establish the tort of negligent entrustment: 

1. That the owner (or lessee in most fleet leases) of the vehicle entrusted the vehicle to the driver
2. That the driver was unlicensed, reckless, or incompetent
3. That the owner or lessee knew of or should have known that the driver was unlicensed, reckless, or incompetent
4. That the driver was negligent in the operation of the ­vehicle
5. That the driver’s negligence was the proximate cause of the damages suffered.

In determining whether negligent entrustment exists, the court will apply the reasonable person standard (in this case, the reasonable fleet manager). To protect the organization from negligent entrustment liability, the fleet manager should ensure that he or she take all reasonable steps generally taken by prudent fleet managers. It is recommended that the fleet manager:

• Have and communicate to all drivers a formal fleet policy, including a safety policy
• Have and communicate to all drivers a fleet policy on the proper use of all vehicles
• With Human Resources, have a formal, documented hiring procedure with established driver standards (including background checks and MVR requests)
• Implement a driver training and orientation program, including periodic refresher courses
• Adopt a mandatory vehicle inspection program (e.g., driver vehicle inspection report)
• Have documented vehicle maintenance policies and procedures and enforce them
• Have an accident (crash) review and enforcement and clean driving reward program communicated to all drivers
• Implement regular MVR checks
• Conduct drug screenings during hiring and periodically during employment. 

The above steps are basically “good” management and supervision. If the fleet manager implements and maintains the above good fleet management practices, he or she will greatly reduce the risk of being liable for negligent entrustment. Even in such cases where fleet is not responsible for each of these functions, the fleet manager should at minimum ensure the function is being performed, and the division of responsibility is clearly defined. Otherwise the organization’s liability risk is significant (See the sidebars for examples where organizations were held liable under the doctrine of negligent entrustment and employees were alleged of or charged with fleet-related crimes).

For government fleets, the doctrine of sovereign immunity (immunity of the governmental entity from liability or the limitation of liability) may apply to limit government fleet liability, but both federal and state governments have tort claim acts that ensure liability exists for all U.S. governments to varying degrees. It is imperative that fleet managers understand the specific waivers to sovereign immunity adopted in their jurisdictions, as federal waivers vary greatly from each state. Refer to the Federal Tort Claims Act (FTCA) for more information on tort liability limits, and the National Conference of State Legislatures (NCSL) for a comprehensive list of state tort claims acts and access to more information regarding those acts.

Preventing a ‘Felony’ Fleet

To prevent crimes by fleet employees, fleet managers need good management and supervision at all levels of the fleet organization, excellent communication, and frequent contact and transparency throughout the fleet group or agency. Every fleet organization should have regularly scheduled internal and external audits (announced and surprise) to ensure that crimes are not being committed. Otherwise, the enterprise leaves itself susceptible to becoming a “felony” fleet. 

Negligent Entrustment Liability Examples

'Felony' Fleet Examples

Negligent Hiring, Training & Supervision. In 2018, a jury in Texas found the driver of a tractor-trailer and the trucking company that owned the vehicle liable for an accident the driver caused. The company was found negligent for hiring the driver in the first place, violating its own safety policy, and then failing to train and supervise adequately. The company was held liable for $75 million of the $101 million judgment. — Freight Waves, July 23, 2018 Liability for Suspended License/Multiple Violations. In 1997, a 23-year-old male was hit by a semi-truck owned by a commercial trucking company. He sued the trucking company for negligent hiring, retention, and supervision. The truck driver during the previous nine years had 21 violations and was driving with a suspended license. The trucking company settled for $1.6 million. — Driver Monitoring, April 9, 2018 Negligent Vehicle Operation, Training & Supervision. In Delaware, an ambulance driver was involved in an accident that killed a motorcyclist. The motorcyclist’s family sued the ambulance company for negligent entrustment along with negligent vehicle operation, training, and supervision. The company settled for $5 million. — Fleet Financials, November 22, 2011

Theft. The State of Nevada is conducting a probe into $1 million in commercial truck tires that were charged to Douglas County, Nev., but never made it to county vehicles. The county’s vehicle maintenance director, who would have been responsible for ordering the tires, died in a car collision shortly after the allegations surfaced. — The Record Courier, September 26, 2018 Embezzlement. A former City of Palm Springs, Calif., fleet services manager who used about $25,000 worth of city equipment for personal use pleaded guilty to embezzlement. The employee had work performed on his personal vehicles, including purchasing parts and having his vehicles painted and maintained. — Palm Desert Patch, May 15, 2018. Mail Fraud. A former fleet manager at Mylan Laboratories was named in a 10-count indictment in 2010. The indictment alleged that the employee defrauded the company by deliberately not using the leasing company’s acquisition and disposal services. Instead, he entered into agreements with car dealers and caused the leasing company to purchase vehicles from the dealers at inflated prices. The dealers would then pay him a kickback. — Automotive Fleet, July 19, 2010.

 

About the Author: Janis Christensen, CAFM, is director of Corporate Fleet Consulting Services at Mercury Associates Inc. She can be reached at jchristensen@mercury-assoc.com.