For what may be the first time –myths and 'urban legends' about Delivery Liability insurance revealed!
The insurance question Pizzeria Owners ask most frequently is about 'Delivery Liability*' insurance. (*The insurance term is Non Owned & Hired Auto Liability) "If my driver runs someone down, am I responsible? Am I covered?" "Isn't there a way to get around this?"
I recently did a small unscientific survey of Pizzeria Owners. I asked them what was the #1 concern facing them – what was it that kept them awake nights worrying. It was not Delivery Liability insurance. But I think it should have been….
You see, as a Pizzeria Owner – every time you send out a pizza for delivery – everything you own – all your assets, your home, your savings, your kids college funds, maybe even your wife's diamond engagement ring, EVERYTHING may ride on how that driver does the job.
The whole thing is based on the common law theory that the 'master is responsible for the acts of the servant.' It's true, you are responsible for what people do on your behalf. There's no way I know of to get away from it. But – the way you handle this 'risk' can make all the difference in your future.
Risk Management for the local Pizzeria Owner
Listen- the large Pizza Franchise companies have whole departments dedicated to Risk Management. They spend collective MILLIONS to decide how to handle this. You can and should use the same ideas to protect yourself.
A BRIEF DISCUSSION OF RISK MANAGEMENT:
There have been hundreds of books written on the topic of Risk management (I've read a lot of them too!) and you can boil down a lot of what's been said to a few sentences. In order to truly protect yourself in ANY situation where you or your business is at risk, here's the process you follow:
- Identify your risk: You can't ignore the problem. Look at what you face and see it for what it is. In this case – it's the fact that you have drivers using autos on your behalf for your business benefit – which makes you responsible for their conduct. They could run over a Harvard Law School Graduate or a carnival barker. You just don't know who it might be!
- Quantify your risk: Try to put a dollar value on what the worst case scenario is. For this exposure that may not be possible – it's a case of 'how high is up.'
- Eliminate your risk: If you can – just stop doing what it is that puts you at risk. You may decide that delivery is just too important to your business.
- Retain your risk: Just accept that this is a cost of doing business and pay the bills as they come in. This may work for things like glass breakage – but Delivery Liability IS NOT the place for this!
- Transfer Your Risk: If there is a way to get someone else to take this over – do it! Sometimes you can do this by contract (your landlord transfers a lot of risk to you in your lease!). For 99.9999% of Pizzeria Owners this means buying insurance!
So, what does one of the largest of the National Pizza Franchise company do about delivery liability? They make each and every franchisee buy liability insurance for not less than $1,000,000 – then they make the franchisee send proof of the insurance every year. If the franchisee doesnÕ't do it – It's a contract violation that can terminate the franchise! These guys are as 'Serious as a Heart Attack!' I know this because I've placed the insurance for my customers.
Myths and Urban Legends:
Still, people come up with almost hare brained schemes to deal with this. Here's some that I've heard of:
- "… I have my delivery auto registered in a separate company that owns nothing but the auto so I'm safe from claims" No, you're not. In most states common ownership of assets and shared operations may allow an injured person to come right back to you!
- "….The delivery person has insurance – I'm safe" No, you're not. If the delivery guy has little insurance or if it was just cancelled, you have nothing to protect you.
- "…. The delivery person doesn't work for me – they are independent contractors so I'm out of it" No, you're not. Just because YOU call someone an independent contractor for tax purposes does not make them one. In the end, a finder of fact' (translation: Court of Law) will determine this on a case by case basis.
- "…I've got all my assets in my wife's name – I'm judgement-proof.." No, you're not. Besides still being subject the process and the grief, these arrangements seldom stand up under legal attack.
A SIMPLE TEST: If you have any of these schemes in mind, take them to your attorney. Ask him/her if it will work. If they say yes – IN WRITING – you have something. In the past, I've offered to donate $50 to the charity of choice if anyone could produce such a legal opinion in writing. They just won't do it. And neither should you!
The bottom line: There are times when the result of the Risk Management process clearly says – "Just buy the insurance." This is just such a time. Here's why –
- You know you have the risk and you know what it is.
- You can't accurately put a dollar value on the possible maximum loss. A jury can award almost anything they want.
- You don't have the assets to pay serious claims yourself. One medium claim will bankrupt you!
- You can transfer the risk to an insurance company at a reasonable cost.
The single best thing you can do and the most cost effective is to buy high limit liability insurance. This comes into play over and above any insurance available from the driver's insurance coverage. Now, there are still some things you can do to reduce your costs:
Hire and keep good drivers: Let it be known – IN WRITING that you don't tolerate bad drivers. Have each driver give you a copy of their drivers abstract every six months – pay the driver to get it ($5). Be ruthless on this – reward good drivers and fire bad ones!
Consider a liability insurance deductible: You can keep your cost down by reimbursing the insurance company for small claims (Say $500 and under). WARNING: NEVER – NEVER – NEVER MAKE CLAIM PAYMENTS YOURSELF! You may void an insurance companyÕs defenses and put yourself on the hook!
Now, the final question is "What would this cost?" The short is answer is I just can't tell you! A few months ago I might have guessed between $600 and $900 per auto for some pretty decent limits. But… The insurance market place is in a 'readjustment phase' which means that there is really no way to tell what you will encounter in your area. But I can tell you this. Whatever it costs – you really should consider buying it!
This should help you take a good hard look at the problem and make some informed choices.
PJ Giannini is president of Association Agency (www.pizzasure.com)
Consumer Educator of The Year 2001 NJ, National Society of Agents for Consumer Education. Regional Director – National Society of Agents For Consumer Education. PMQ