What is “Negligent Entrustment” and what does it mean for your bank?

In today’s litigious environment, negligent entrustment suits and verdicts are increasing. Large settlements are common and judgments often include punitive damages. The costs of developing and implementing a safety and risk program are minimal when compared to the emotional and financial costs of negligent entrustment.

What is Negligent Entrustment?1
Negligent entrustment is a legal doctrine that permits an injured plaintiff to recover damages when an employer has provided access to a company vehicle to a person that it knew or should have known posed an unnecessary risk to other motorists. The accident does not need to occur while the driver is working.

Negligent entrustment can occur when a bank employer provides a vehicle to an employee (or their spouse) without taking reasonable efforts to ensure that the driver (1) remains validly licensed; and (2) is free of a past history of crashes, tickets and other indicators showing a careless disregard for the public. A bank employer need not actually be aware of these problems. All that must be shown is that they should have known.

A bank’s liability may even extend to employees who use their own personal vehicles to conduct any kind of bank business. If a driver is involved in an accident while using his or her personal car to do something as simple as visiting the post office to mail some contracts, picking up lunch for a meeting, or heading to the airport to catch a plane to a business conference, the bank could be held responsible.

Negligent entrustment claims are particularly attractive to plaintiffs’ lawyers because such claims authorize a jury to assess punitive damages in 49 states. The specter of punitive damages drives up settlement values because the range of possible verdicts is so broad.

Punitive damages are all the more threatening to a bank’s wellbeing because they are almost never recoverable by insurance proceeds.

Examples of Negligent Entrustment2

A woman was leaving evening services at her local church when she was struck by a drunk driver. The driver was operating his company vehicle while under the influence of alcohol at the time of the accident, and had a history of DUI convictions. The victim, who was the primary source of income for a large family, died from her injuries about two weeks later.After a lengthy trial that generated plenty of bad publicity, the company was found to be guilty of negligent entrustment, and was forced to pay the victim’s family $5 million in damages.
A 19-year-old student was turning left at an intersection when a pickup truck traveling in the opposite direction struck his car and killed him. The student’s mother sued the company that owned the truck, alleging that the company had negligently entrusted the vehicle to the driver, who had a history of several motor vehicle citations.The jury awarded the plaintiffs $2.75 million.
In Texas, a driver who was operating his company-provided vehicle above the posted speed limit, disregarded a red light and collided violently with the rear end of a minivan. The driver of the minivan, a father of four children, was killed. The investigation into the accident revealed that the driver who caused the crash had a history of reckless driving both before and after being hired, and even had his license suspended for several months. The suit contended that, by failing to investigate the driver’s record before allowing him to use the company vehicle, the company had committed negligent entrustment.The family of the victim settled with the company out of court for $3.85 million.

Steps to reduce exposure to Negligent Entrustment2
Negligent entrustment investigations typically focus on two main issues:

whether the employer has established sound vehicle safety policies, and

whether the employer has appropriately enforced those policies. This usually means that in order to avoid liability, an employer is required to not only have a documented and enforced vehicle safety policy, but also to take meaningful steps to determine if a potential driver has an unsafe driving record (e.g. accumulation of speeding tickets, DUI conviction, suspended license, etc.) that may indicate that he or she is a potential risk on the roads.

Therefore, it is incumbent on any bank that has company-owned vehicles or allows employees to drive their own vehicles on bank business to ensure that it takes the following steps:

Establish and consistently enforce a formal (written) driver safety policy.

Clearly communicate your safety policy to your drivers 

Once a year, run motor vehicle record (MVR) checks on all drivers who operate a company-owned or personal vehicle for company business.

Provide regular driver safety training courses,

The bank should be prepared to reinforce its safety policy frequently and apply it without exception to ensure its effectiveness. While there’s no way to guarantee that a negligent entrustment accident will never occur, establishing and enforcing a solid safety and risk management policy will go a long way towards limiting liability if an accident does occur.

For more information about Negligent Entrustment or our P&C insurance suite, including Mortgage Protection and Force Placed/Foreclosed Property coverage, you can reach our P&C Team at 800-274-5222 or

1. “Negligent Entrustment” (2015: Reprinted with the permission of Data Driven Safety, Inc.
2. White paper, “Avoiding negligent entrustment: Limiting your liability on the roads” (2015: Reprinted with the permission of Wheels, Inc.