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