One case in particular, Hutcherson v. Progressive Corp., 984 F. 2d 1152 (11th Cir. 1993),¹ caught my attention and inspired this commentary.

In Hutcherson, a truck driver (Hutcherson) pulled his rig into the emergency lane of Interstate-75 and stopped to check the refrigeration system. While conducting his inspection, a truck owned by another company (TABS) and driven by Carl Hicks swerved out of the right lane, struck and killed Mr. Hutcherson. Accident investigators discovered that Hicks was under the influence of amphetamines at the time of the accident.

Progressive Corp. insured the TABS vehicle under a commercial fleet policy; however, in addition to insuring TABS, Progressive also offered its insured trucking companies a program through which it provided risk management advice by supplementing internal safety programs.² TABS took advantage of this additional service.

Of course, there are good reasons for Progressive's interest in encouraging loss control efforts in trucking because large vehicles can be a substantial road hazard. The National Highway Traffic Administration (NHTSA) reports that in 2006, 385,000 large trucks were involved in crashes, 4,732 of which involved fatalities. Altogether, large trucks were involved in 12 percent of all fatalities in 2006, the latest year for which statistics are available.

Passenger vehicles are especially vulnerable to large trucks. According to NHTSA, when a passenger car and a truck collide, the data show 1,583 fatalities in passenger cars compared to 36 in the large trucks. The comparable injury numbers are 41,000 and 3,000, respectively. Better risk management techniques, if followed, could benefit the public and reduce claims payments.

Several risk management measures imposed by federal and state regulatory schemes set safety standards for both large commercial vehicles and their drivers. In addition to satisfying several motor vehicle safety requirements, trucking companies must also require that drivers undergo road tests; pass tests of physical ability, including hearing and vision tests; demonstrate that they have no mental or physical disorder that could adversely affect driving ability; and must show no evidence of driving impairment from drug consumption.

Amphetamines are among the controlled substances specifically prohibited unless a physician has evaluated the driver and advised that the particular substance will not adversely affect driving ability. Laws place the burden of complying with these standards on the trucking companies and the drivers. Trucking companies are free to set their own requirements in addition to those demanded by regulators. Vehicle owners are required to purchase minimum insurance limits.

It was this federal-state-industry mix of risk control measures that Progressive apparently sought to improve by stepping out of an insurance company's ordinary role of risk bearer and assuming a broader commitment, that of risk manager. Specifically, here is the aspect of Progressive's program that backfired. Among the regulatory standards is a trucking company's duty to examine the 3-year driving record of all new employees with driving responsibilities. As part of its safety management efforts, Progressive went beyond the 3-year motor vehicle driving records and ordered Motor Vehicle Records on Mr. Hicks covering a longer period. Progressive's search uncovered a 5-year-old driving while under the influence (DUI) conviction and multiple felonies. Based on these findings, Progressive consulted with TAB officials and requested placement of Hicks on a watch status for a 6-month period. Watch status meant that Hicks could drive TAB vehicles. The fatal accident occurred during the watch period.

The Widow's Claim against Progressive

A wrongful death lawsuit seeking punitive damages was filed against TABS and Progressive by Hutcherson's widow. The suit alleged that Progressive was liable to Hutcherson under the Restatement (second) of Torts Section 324A (1965) for having assumed a duty normally performed by the trucking entity, TABS. The Restatement states:

One who undertakes gratuitously or for consideration, to render services to another which he should recognize as necessary for the protection of a third person or his things, is subject to liability to the third person for physical harm resulting from his failure to exercise reasonable care to protect his undertaking if:

(a) his failure to exercise reasonable care increases the risk of such harm; or

(b) he has undertaken to perform a duty owed by the other to the third person; or

(c) the harm is suffered because of reliance of the other or the third person upon the undertaking.

In applying 324A(c), the court held that the widow-plaintiff showed that Progressive's well-intentioned risk management efforts, while not replacing TABS' safety program, nevertheless would enable a jury to infer that TABS itself would have more closely monitored its drivers absent the substantial monitoring which was provided by Progressive.

The court reasoned that when Progressive informed TABS of Hick's additional infractions, and TABS placed him on watch status without conducting its own independent investigation, TABS relied on Progressive's determination and opinion that this action was sufficient at the time. Accordingly, in relying on Progressive, TABS permitted "the safety services provided by Progressive to supplant safety activities that TABS otherwise would have conducted."

Under 324A(c), it was unnecessary to show that Progressive completely assumed TABS' duties. TABS' reliance on Progressive was shown by evidence that its own safety personnel failed to conduct an activity they would normally perform because of Progressive's actions. (If this is your initial acquaintance with this case, now is a good time to pause for a deep breath.)

Implications of the Decision

As insurers adopt and experiment with ways of curtailing claims costs, this case may represent a shot across the bow of any company choosing to move beyond the traditional insurance functions of indemnification and defense. After all, the insuring agreement of most liability policies promises in one form or another, "We will pay …" and "We will defend…." It does not promise that the insurer will "advise" or "prevent" losses, or engage in any loss control functions for the insured's benefit. Indeed, even the duty of mitigating losses under standard insurance policies rests with the insured, not the insurer. Further, an insurer that steps outside traditional functions assumes a liability that most likely is not absorbed by the premium charged.

Additionally, since many insurance agencies are now climbing aboard the "risk management" bandwagon, Hutcherson suggests cause for extreme caution. A producer's job is to sell. Enough risks are absorbed under that task alone without adding risk management to the services offered, or more specifically, risks assumed.

Caution also is warranted for insurers that insist on cutting claims costs by forming managed care-type programs with contractors, body shops, and other service providers in homeowners and automobile insurance. During the claims stage, if reliance of the insured can be shown, and the insured, in turn, suffers harm as a result of following the directions given by an insurer, no matter how well intentioned the practice may be, the insurer may regret the day risk managing triumphed over or simply augmented traditional risk bearing.

Instead of adopting new ventures, Hutcherson suggests that insurers may best serve their customers by becoming more adept at underwriting, administering claims, defending, and indemnifying insureds against loss.

Finally, sometimes a fine line separates good re-underwriting and good risk management. For example, an insurer updating its records on a particular risk may have a checklist of items for periodic review involving direct contact with policyholders. Policyholders may interpret some of the items inquired about as a suggestion that the insurer is directing them to make certain changes. Consequently, an insurer needs to make sure policyholders understand the process is for the insurer's benefit, not the insureds', that it is designed to allow the insurer to decide if and on what terms it chooses to bear risk, not manage it.³

¹A similar result is found in Judy S. Tooley, et al. v. Hill Truck Line, Inc., Great West Cas. Co., Harold M. Hickey, Willard Boggs, Alice Boggs Tom Boggs, Nebraska Eng'g Co., Beverly McMinn, Alexander and Alexander, Inc., and Salvatore Campione, U.S. District Court for the District of Kansas (1992 U.S. Dist. LEXIS 15421).

²Typically, "risk management" is the process of identifying loss exposures, analyzing them, examining various techniques of dealing with them, selecting appropriate techniques, implementing, and then evaluating a "plan" which is subject to revision in light of experience. Among the techniques commonly described in the literature are loss control, avoidance, retention, non-insurance transfer, and insurance. Insurance, then, is a technique of managing risks by transferring them to another party, an insurance company. See the discussion in Eric A. Weining, et al., Personal Insurance (Malvern, PA: American Institute of Property Casualty Underwriters/Insurance Institute of America, 2002), Chapter 1.

³The Insurance Services Office, Inc. (ISO), 1998 Common Policy Condition D and State Farm's Condition 11 applicable to Section I and II of its Homeowners Policy are suggestive of policy terms addressing this issue. This language is provided in Exhibit 1.

Exhibit 1: CG 00 01 10 01 Commercial General Liability (CGL) Insurance Policy Form