Tuesday, March 20, 2012

Car Insurance and Other Matters to be Addressed When Asking a Nanny to Use Her Own Vehicle for Work

This article comes to us from Tom Breedlove from Breedlove & Associates. Tom discusses some insurance issues to be cognizant of when asking the nanny to use her own vehicle for work related tasks, including transporting the children.

We would add that another related issue to be mindful of is that many nannies do not have newer vehicles, which could pose some safety concerns. You need to make ceretain the car is in excellent mechanical condition and the nanny is truly comfortable using it for work, and has the proper insurance in place. Of course, if the nanny offers to use her own vehicle, the family should cover wear and tear, reimburse for gas and any additional cost for added insurance. All these matters need to be properly addressed well before the nanny starts her new job.

The Legal Review shares findings from real-world situations
in an effort to illuminate potential tax and legal landmines
and how to help families avoid them.
Most caregivers are asked to drive as a regular part of their job -- using either the family's car or their own car. Either way, the errands and excursions can create exposure for families if auto insurance is not properly addressed.
In this issue of The Legal Review, we've created a hypothetical case in order to illustrate the potential issues related to on-the-job automobile usage.

The Situation
A family hires a full-time nanny to take care of their 2 children. The family knows they will need the nanny to perform regular driving duties so they search for -- and find -- a candidate who has her own car and auto insurance.
Once the nanny says she has her own vehicle and insurance, the family moves to the next item on their checklist. They don't give another moment's thought about auto insurance because they assume that the nanny's coverage is adequate.

The Law
The state laws for auto insurance vary widely -- with each state having its own requirements for minimum coverage in the areas of liability and property damage.
Within each state, the various insurance providers typically have some latitude to include or exclude certain "extraneous" provisions. What's covered by one provider may be excluded by another -- and use of a vehicle by a nanny for "business" purposes (as opposed to personal use) falls into the category of "extraneous" provisions. The bottom line: to truly understand what's covered and what's not, you have to call your insurance agent.
If an employer asks an employee to drive as a regular part of the job, it's important for the employer to understand their coverage -- and that of their employee -- because of a legal concept known as "vicarious liability." Generally, employers are vicariously liable for the acts of their employees. That means that, if the nanny were to hurt someone while driving on the job, the employer may have secondary liability for damages caused by their employee.

The Mess

One day, the nanny is in a hurry to get the kids across town to a very important piano recital. In trying to beat a red light, the nanny hits an oncoming vehicle. The passenger in the other vehicle is injured.

The family now finds out that the nanny's insurance policy is a "basic" policy, which means that it only meets the state-required coverage minimums. In this particular state, the minimum required coverage is:

  • $25,000 Bodily Injury Per Person
  • $50,000 Bodily Injury Per Accident
  • $25,000 Property Damage

The injured party sues for $25,000 in property damages and $100,000 in liability for medical bills, lost wages and pain & suffering.

The Outcome

The plaintiff wins the lawsuit and is awarded full damages.

The nanny's auto insurance provider covers the property damages and liability up to the limits. (Note: Some insurance companies may deny this claim on the grounds that the accident happened during "business" use and, therefore, does not fall under the personal use stipulations of the policy).

Because the nanny is under-insured, the employer is responsible for the balance of the damages because they are held to have vicarious liability for the actions of their employee. The employer's insurance company does not pick up the tab because the nanny was not included on the family's policy.

How the Whole Thing Can Be Avoided

Obviously, this case is extreme. But it's not out of the realm of possibility given the number of serious accidents on our roads and the litigious nature of our society.

The good news is this kind of nightmare scenario is easy to avoid. Families who have an employee driving on their behalf should contact their insurance agent and discuss auto insurance coverage for their nanny -- regardless of whose car will be used.
The family and their agent should look at the nanny's coverage and the family's coverage collectively. Once a variety of factors have been analyzed (i.e. who's car is being driven, how many business use miles will be driven as a regular part of the job, what are the liability limits for each policy, etc.), the agent can provide a customized recommendation for minimizing exposure from auto accidents.

If you have additional questions about this or any other aspect of household employment tax and labor law, please call 888-BREEDLOVE (888-273-3356) or visit us online. We're here to help.

Tom Breedlove's Signature
Tom Breedlove
Breedlove & Associates, LLC