The Car and Truck Fleet and Leasing Management Magazine

Negligent Entrustment Issues Using Fleet Vehicle Transport Services

August 2005, by Janis Christensen, CAFM

Different Methods of Transporting Fleet Vehicles
Vehicles are transported via four different methods:

1.Casual Driver:
For transport of vehicles less than 10,001 lbs. (non-commercial vehicles), any driver who meets certain requirements (depending on the transporter) will deliver the vehicle. Delivery dates depend on driver availability.

2.Professional Driver:
For transport of commercial and non-commercial vehicles, a professional driver employed by the transporter delivers a vehicle within a guaranteed time. The vehicle is typically enroute within 48 hours.

Excess mileage and wear are avoided and the vehicle is shipped via open or closed trucks. Truck types range from flatbeds to auto carriers to enclosed vans and trailers.

Vehicles are dropped off at a rail facility and transported via a bi-level railcar that holds up to 10 vehicles (passenger autos, minivans, pickups, or SUVs) or a tri-level railcar that holds up to 15 passenger automobiles.

Regardless of the transport method, condition reports are completed when vehicles are picked up and delivered. When a vehicle is picked up, the fleet must certify that the vehicle is fully serviced for transport and when the vehicle is delivered, any claim for transport damage must be noted in writing. The transporter’s contract may limit certain damage to the vehicle during transport. For example, the contract may exclude Ònormal wear and tearÓ which includes small scratches, scuffs, dents, or abrasions. A uniform straight bill of lading allows the transporter to carry the vehicle from state to state. It is typically the governing documentation regulating the transport of the vehicle. Obtaining Proper Insurance
Transporters are regulated under interstate commerce rules and are frequently referred to as "ICC Carriers." The Interstate Commerce Commission’s control over interstate trucking, however, ceased in 1994 and the agency was terminated at the end of 1995. Insurance policy endorsements must be prescribed by the Federal Motor Carrier Safety Administration (FMCSA) and approved by the Office of Management & Budget (OMB). In completing the authorized form, the transporter provides information about its insurance policy to which the endorsement is attached. Whenever required by the FMCSA, the transporter must furnish the FMCSA a duplicate of its policy and all endorsements. Some transporters do not provide primary insurance, but instead only provide coverage over and above the fleet’s insurance. The transporter’s public liability coverage is usually published as $1 million. Typically the transporter releases the fleet and fleet management company (if the legal owner) from liability if the transporter’s driver is injured while operating the vehicle. Fleets should never accept promises that the transporter is "fully insured," particularly if the vehicle is driven by a casual driver. The fleet should always obtain a written contract and carefully read the terms and conditions. It is recommended that the fleet obtain a certificate of insurance and make sure the transporter’s insurance is primary. Most transporters require drivers to be 21 years of age. Drivers ages 16 to 25 are classified as "youthful drivers" by most insurance companies. Therefore, many risk managers recommend the operation of fleet vehicles be limited whenever possible to drivers who are over 25, including transport drivers. The Role of the Fleet Management Company
As part of its product offerings, the fleet management company may provide a service to contract with a transporter on behalf of its fleet customer. Unless additional agreements exist to the contrary, the hiring of a third-party transporter by the fleet management company creates a voluntary bailment. A voluntary bailment is made by one giving to another, with (his or her) consent, the possession of personal property to keep for the benefit of the former, or of a third party. Once a bailment exists, the fleet management company becomes the bailor and the transporter becomes the bailee for hire. The person giving the possession of personal property, usually under an expressed or implied "contract of bailments," is called the bailor. If the fleet management company is the legal owner of the vehicle, it typically has a hold harmless indemnification clause in the fleet’s lease agreement. The intent of the agreement is to hold the fleet management company harmless from negligent entrustment by the fleet and its agents. The fleet management company typically requires the fleet to name the fleet management company as an additional insured in the fleet’s insurance policy.
The fleet management company should initiate a contract with the transporter that contains a hold harmless indemnification clause as well as a requirement to name the fleet management company as an additional insured under the transporter’s insurance policy. In addition, the fleet management company should secure contingent liability insurance for risk avoidance if the insurance provided by the fleet or the transporter becomes insufficient or not available. For example, a contingent liability policy would protect the fleet management company in the event a fleet organization declared bankruptcy. The fleet management company may pass through the actual transportation costs to the fleet, or the fleet management company may elect to add a surcharge to the actual cost in order to recover administrative and billing expenses. {+PAGEBREAK+} Negligent Entrustment
Negligence is the failure to exercise ordinary care to avoid injury to another’s person or property when one has an actual or constructive duty to that person. Whether one is negligent depends in large measure on all of the surrounding circumstances and failure to use due care. One is liable for negligent acts or negligent failure to act when such negligence is the proximate cause of the injury. For negligence to be a proximate cause, it is necessary that some injury to a plaintiff’s property must have been a foreseeable result of negligence.
A party claiming damages has the burden of proving each of the following propositions:

1. That he has sustained injury;

2. That the party from whom he seeks to recover was negligent; and

3. That such negligence was a proximate cause of the injury sustained by the claiming party. In states where contributory negligence is the rule, a cause of action will not succeed if the claimant was partially negligent or if there is third party negligence. However, states that have adopted comparative negligence uniformly accept negligent entrustment cases where the claimant can prove the bailee was a proximate cause of the injury or damage.
The theory of negligent entrustment provides that the owner (or person in control of the vehicle and responsible for its use) is negligent in entrusting it to another and can be held liable. It may be possible for the fleet manager to be held responsible for the negligence of transporter drivers, depending on all circumstances involved. Negligence in Bailment Cases
In a negligence action by a fleet or fleet management company against a transporter for damage to the vehicle, the fleet or fleet management company may create a presumption of negligence by establishing essential elements of the bailment for hire and, if successful, the burden of rebutting the presumption of negligence is shifted to the transporter.
When a bailment for hire exists, the bailee becomes responsible for the safe keeping of the vehicle. Generally, a fleet or fleet management company is not liable to third persons for injuries directly caused by negligent use of the vehicle by the transporter, unless the fleet or fleet management company has been negligent in making the bailment. An individual injured in an automobile accident may bring a claim or lawsuit to recover the following:

1. Actual damages (expenses associated with property damage and medical costs).

2. Economic damages (lost wages and earning capacity).

3. Emotional and physical pain and suffering.
Respondeat Superior
Respondeat superior applies only if the employee was acting Òwithin the scope of employmentÓ when the injury or damage (tort) occurred. The tort is within the scope of employment if the tortfeasor was acting with intent to further the employer’s business purpose, even if the means chosen were indirect, unwise, or even forbidden.
There are two tests to determine the existence of respondeat superior:

1. Control Test:
Act of employee was committed with the implied authority, acquiescence, or subsequent ratification of the employer.

2. Enterprise Test:
In furtherance of the employer’s business, even though the employer may not have control of the employee’s actions. If the above two tests are met, the employer (including the fleet manager) may be held liable for driver negligence. To that end, negligence is the most important legal principle for a fleet manager to understand. The fleet should enact appropriate policies to reduce the negligence risk. Fleet managers should be certain that adequate policies and procedures exist and are enforced to provide safe transportation and safety education training for their drivers. If fleet managers outsource to transporters, they should be certain that transporter drivers are also adequately trained to operate fleet vehicles. Independent Contractors
An employer who hires an independent contractor is not generally liable for the torts of that person. However, in four principal situations the selection of an independent contactor will not insulate the employer from liability:

1. Employer’s Own Liability: Negligence in the selection of the contractor.

2. Non-delegable Duties: Certain responsibilities cannot be delegated to a third party, although the court has not given any obvious criteria to determine these duties.

3. Inherently or Intrinsically Dangerous Situations:
Those who employ an independent contractor will also be liable when the work involves a peculiar risk of harm that calls for more than ordinary precaution. This exception does not apply when the independent contractor’s negligence is deemed collateral to the risk, in other words, not recognizable in advance as particularly likely to occur or as calling for special precaution.

4. Illegal Activities:
Employers who contract for the performance of an illegal act are vicariously liable for any damage even if the party is an independent contractor. Vehicles Stored by the Transporter
It is possible that the transporter may store a vehicle in a parking facility after it is picked up from the fleet and before it is transported to its new location. It is also possible that the vehicle may be stored during its transport and before it is returned to the fleet. Under these circumstances, if the storage facility is not owned by the transporter, a new bailment is created, with the transporter becoming the bailor and the storage facility becoming the bailee for hire. In any claim involving loss or damage to a vehicle in a parking facility, it is important to examine the basic relationship between those using the facility and its owner or operator. Is the relationship one of renting space typical in park-and-lock situations or does it involve a bailment of the vehicle between the lot and the other party? The bailment issue revolves around whether control over the vehicle had been given to the lot operator. In the typical park-and-lock situation, in which the auto owner retains the keys, the relationship will be considered as renting the space. The storage facility is expected to provide parking attendants and does assume control and custody of the vehicles parked. Expectations of the parties and their conduct can cause differing legal relationships to arise, with consequent different legal results. In any event, it would be prudent for the fleet management company or fleet, as the case may be, to protect its rights by contractual indemnification in storage situations by having the transporter retain full responsibility for all damages and injuries even if a third-party storage facility is used by the transporter.
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