Carmack 101 and Onerous Shipper Contracts

While most insurance personnel have heard of Carmack, they have no idea of what it means. I thought the communication from Big Truck TV that legal pro Henry Seaton discussed is pretty succinct and helpful.( Note the questions and answers are all by Henry and not from this author.)

1. What is the Carmack Amendment and when was it adopted?

Since 1910 we’ve had a statute called the Carmack Amendment which provided a fairly level playing field on cargo claims; it provided that the motor carrier was the virtual insurer of the goods being delivered, but he was only liable for the destination market value. And most importantly, for claims mitigation, that the consignee was required to accept the shipment and mitigate the damages unless the shipment was “practically worthless”.

2.Why has the Carmack Amendment lost some of its relevancy?

As a result of deregulation and the contract venue, shippers are changing those rules of the game in their contracts. I call it, “Reject It, Crush It and Dump It.” They are placing additional onerous burdens on motor carriers and here’s basically how it works. They put in the contract that the shipper will not have the duty to mitigate and that whether or not they are going to mitigate the loss is at their sole discretion and not subject to any standard or “reasonableness”.
That type of language in a contract means that if you arrive at a shippers loading dock and the refrigerated shipment is 1 degree warmer than the shipper thinks it should be, they can reject that shipment, crush it and dump it and you have no say. So that perfectly good food stuffs shipment that could be mitigated, that could be a $300 claim, is now a $40,000 claim, and the carrier has no right of inspection, no right of salvage, no right to mitigate the damages. It’s those kinds of provisions in contracts that shapes the battlefield and creates a lot of the damage.

3. How can I protect my company from “Reject It, Crush It and Dump It”?

The first thing that I do in reviewing contracts is to redline out the “sole discretion” and put in the Carmack Amendment with a duty to mitigate so we can address any claims as a contract issue. Part of the shippers’ problem is they have been delayed in terms of claims adjustment; it’s remained as open unresolved issues; the last thing they want to do is call a lawyer in and make a big deal out of it. What you should do is go to them business to business and say, “Look, if we have a cargo claim, we will agree to mediation to resolve the issue. We don’t want you to crush it, but at the same token we’re not going to just deny the claim. We’re going to find a business relationship to resolve the claim, to get the good product into the commerce stream and to pay you the legitimate claim.” And I think if you explain the whole Carmack regime, a shipper can understand that it is a fair way to resolve claims.

Shippers Requiring Better Insurance Coverage- Federal Express and Microsoft

In watching submissions,I am seeing several contracts that are requiring better insurance coverage- and therefore as a result changing the current transportation insurance environment.

Case in point are Federal Express and Microsoft.

Federal express is requiring $5 million commercial auto liability out of their contract haulers to haul on their behalf. Likewise they are requiring a $500,000 limit on motor truck cargo and the deletion of the employee dishonesty exclusion.

Microsoft is now requiring a $1 million crime insurance policy.

While our firm has the ability to accomodate these type of requests, the ultimate price is borne by the trucker and they must decide if the revenue and the profitability from that revenue is worth it.

CSA 2010- The Second Look- A Game Changer

While the jury is out on when it will actually roll out, based on the information that I have picked up from my friends at Zurich, CSA 2010 is a game changer. I thought in the interest of brevity I would present what the deal is with some editorial pejorative that might help you and your people understand what the current game is and what the game is changing to.What has been presented by the goverment and others is confusing - and nobody really has their arms around it. So here we go:

CSA 2010 represents a radical departure from the way DOT currently evaluates carriers. The upshot is that there will be new liability implications to the trucker that an insurance company will have to get their arms around very quickly.

The goal of CSA 2010 is to simply reduce truck crashes, injuries and deaths. There are today 2 fatalities per 100 million vehicle miles which is a sharp reduction from a zenith of 6 fatalities per 100 million miles a short time ago. BUT the crash rate has only dropped very marginally- and that simply is not good enough evidently for the DOT.

CSA 2010 will establish a better data gathering mechanism that will use ALL roadside inpections and ALL crash result. DOT will be able to intervene sooner when there is a problem. The other big deal is that the new system WILL PROVIDE HISTORICAL DATA ON DRIVERS, and that is new.

What is not changing? 2 things:
1) no rules are changing and hours of service changes will occur
2) the current ISS inspection selection will still exist

So what is changing? 3 things:
1) a new safety measurement system (SMS)
2) a new intervention process by DOT
3) a new safety fitness determination (SFD)- THEY WILL BE DOING AWAY WITH RATINGS OF SATISFACTORY, CONDITIONAL AND UNSATISFACTORY

CSA 2010 will be evaluating many more carriers than DOT does presently and less of it will be done on site

INDIVIDUAL DRIVER EVALUATIONS WILL OCCUR WHERE A CARRIER (OR YOU) WILL BE ABLE TO GET A DRIVERS 3 YEAR EMPLOYMENT HISTORY. Bad drivers will have less opportunity to wander from job to job undetected.

SMS- SAFETY MEASUREMENT SYSTEM
- use crash rcord AND all roadside inspections
- weighs from 1 to 3 the severity based on the relationship of crash to risk ( more later on this)
- CALCULATES 7 BASICS( BEHAVIOR ANAYLSIS AND SAFETY IMPROVEMENT CATEGORIES)

What are the 7 BASICS?
1) UNSAFE DRIVING
2) FATIGUED DRIVING
3) DRIVER FITNESS
4) CONTROLLED SUBSTANCES
5) VEHICLE MAINTENANCE
6) CARGO ISSUES
7) CRASH INDICATOR

THE BIGGEST DEAL IN DETERMINING SCORES IS COMPARING THE NUMBER OF CRASHES TO THE NUMBER OF POWER UNITS- SO THE BIGGEST THING YOU CAN DO TO HELP A TRUCKER IS TO MAKE SURE THEY UPDATE THEIR MCS 150 EVERYTIME THERE IS A CHANGE

One size does not fit all. There is a peer group component to CSA 2010

COMPARISON OF SAFESTAT TO CSA 2010

- Safestat has 4 SEAs (Safety Evaluation Areas) versus 7 BASICs from CSA 2010

- Safestat identifies carriers for compliance review versus CSA 2010 identifies specific safety issues and goes into next steps quickly

- Safestat uses Out of Service (OOS) from roadside inpections and moving violations while CSA 2010 expand this to road safety performance along with roadside inspections

- Safestat has no impact on Safety Rating whereas CSA 2010 uses data to make a safety fitness determination

- Safestat does not use violations weighed on crash risk variable while CSA 2010 weighs those violations based on the relationship of crash risk

- Safestat assess CARRIERS ONLY while CSA 2010 measures CARRIERS AND DRIVERS

there will be a new carrier intervention process not seen before. Root cause analysis will be used to fix problems as to the what, why, and how to fix.

WHAT TRIGGERS CARRIER INTERVENTIONS? 3 THINGS:

1) ONE OR MORE BASICS DEFICIENCIES
2) HIGH CRASH INDICATOR
3) FATALITY OR COMPLAINT

Interventions will be both on site and off site with many more off-site

Interventions will result in corrective actions in 3 ways:
1) Cooperative Safety Plan
2) Notice of Violation or Claim
3) Operations Out of Service Order

THE CSA 2010 SYSTEM WILL REEVALUATE CARRIERS MONTHLY

*** CLEAN INSPECTIONS WILL HELP SCORE

Driver's employment history will be public. Preventable crashes will be rated differently than non-preventable crashes which is not the case

Now that I have killed you with details- what does it all mean?
* Insurance companies and agents and carriers will have a different and better way of evaluating and correcting deficiences
* there will be less substandard risks with bad drivers
* insurance companies will have much better data to evaluate loss costs and actuaries will love it
* Truckers will have no choice but to operate better
* Drivers will have no choice but to operate better
* Plaintiff attorneys will have a field day against truckers and insurance companies that have poor scores


ITS A GAME CHANGER!

Technology Mandated for Problem Truckers

You don't see insurance companies mandating technology that could easily correct trucking problems. The reason for that is that there are too many insurance companies without best practices standards; moreover, they do not provide any financial incentive ( premium savings) for truckers to get technology. It is a bit silly really as the insurance company ends up being a beneficiary as well.

Well the government feels different. See what the FMCSA is mandating below ( from Transport Topics):

The Federal Motor Carrier Safety Administration Friday issued a rule that will require carriers with serious patterns of hours-of-service violations to user electronic on-board recorders in all vehicles.

FMCSA estimated that 5,700 truck and bus companies would be required to use EOBRs after the first year of implementation for the rule, which goes into effect June 1, 2012.

The agency also said it will start the rulemaking process later this year for a rule mandating EOBRs for more carriers.

Under the rule, carriers with 10% or more HOS violations during a compliance review will be required to install and use EOBRs in all of their vehicles for at least two years, FMCSA said in a statement.

Carriers that voluntarily use EOBRs will be exempt from some of FMCSA’s requirements regarding HOS supporting documents.

The rule also outlines technical requirements for EOBRs, which record data about the amount of time a driver operates the vehicle.