Leased car stolen whilst being used privately: who pays?

Employers are by no means always able to recover the cost of damage to a leased car caused whilst it was being used privately from the employee, even if this has been agreed in writing in advance.

Employers can insure a leased car against damage caused by the employee’s wilful misconduct or deliberate recklessness. Most employers opt for this ‘all-inclusive’ option, even though it means paying a higher premium. According to the Supreme Court, the requirement of good employment practice means that an employer cannot recover uninsured damage of more than a minor nature from the employee if such damage would have been covered by standard insurance. Standard insurance only excludes cover for damage caused by wilful misconduct or recklessness. It is important for employers to be aware of this, particularly during this holiday period, when many employees use their lease cars privately for travel.

Theft during private use

In the case in which the Supreme Court ruled, the employer sought to recover the cost of damage caused by the theft of a lease car from its employee. The employee had left the key to the lease car on a bunch of keys in the lock of the front door of a friend’s house, whilst the (expensive) car was parked a few metres away. The car was stolen whilst being used for private purposes, outside working hours. Private use had been authorised, subject to a monthly fee. The leasing company charged the employer for the loss because, in its view, the employee had been grossly negligent. The insurance policy taken out by the employer with the leasing company did not cover damage to the leased car caused by wilful misconduct, gross negligence, recklessness or carelessness.

The employer sought compensation from the employee for the damage and invoked the lease agreement. This stipulated, amongst other things, that the employee is liable for damage resulting from fault, wilful misconduct or gross recklessness, and that the damage would be recovered by deduction from his salary.

Negligent, but not liable for damages

The employee argued that he was not liable for the damage. It was established that the employee had not acted intentionally or with deliberate recklessness, as he had not been aware that he had left the bunch of keys in the lock of the property and had not been required to take into account the consequences arising therefrom. He had, however, been negligent. Ultimately, the Supreme Court ruled that the employee was not required to compensate the employer for the damage. The Supreme Court added that the situation would be different if the employer were to give the employee a choice between, on the one hand, comprehensive insurance and, on the other, limited insurance with the possibility for the employer to seek recourse against the employee for any damage not covered. The additional costs of comprehensive insurance could then, where applicable, be charged to the employee.

In this case, the following factors were particularly important:

• The insurance was unusual and the damage would have been covered under standard insurance;
• The employee had, in essence, no choice (as to which insurance policy was taken out); he was presented with the standard arrangement that his employer had with the leasing company for all the company’s leased cars;
• The employee did not need to be aware of the risk he was running, including the fact that, in the event of theft whilst using the car for private purposes, he would be liable for the full amount of the loss;
• That this constitutes an unacceptable risk, given that private use had been agreed and the employee pays a contribution for this, all the more so because the risk the employee was running is also uninsurable for him.

Consequently, in this case, the uninsured loss could not be passed on to the employee, even though this had been stipulated in writing in the lease agreement beforehand.

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