Truck Broker Exclusions in Trucking Insurance Policies

Most of you are aware that most any trucking underwriter does not care for related truck brokerage operations in most any form. For most underwriters, it is grounds for declination. If the brokerage operations are a small part of the overall trucking operation, they may quote it but require that the insured seperate and put in a seperate authority the brokerage operation. The purpose is to isolate the trucking risk to just being the trucking risk- and not bear the risk of what the insured does with their brokerage operation. It is important to look at the reason why and the foundation for this underwriting position. The standard operating procedure in truck insurance underwriting is assessing the risk. Normally that is done with an application, equipment list, drivers list including date of hire, mileage reports, financials, and loss description/ loss runs. Coupled with this underwriting is to understand if there is a hired and non-owned exposure that the underwriter would be picking up if they successfully bound the policy. That is easier on small fleet policies in that they are frequently written on a scheduled auto basis- that is, the insurance carrier is only picking up coverage for units that are scheduled and, in their view, not for any vehicle hired and non-owned. For fleet policies, these are normally written on an Any-Auto symbol meaning any unit used on the insured's behalf is covered. So what the insurance underwriter does is he or she gets the total number of units each policy year and divides that into both revenue and mileage to make sure their is consistency and a similar yield per year that matches up. If there are wide variations, it probably means that the insurer is not seeing the entire equipment schedule they are exposed to- and therefore not getting the premium. One more digression before we look at brokerage operations as part of a trucking operation. Every trucker with common, contract, or hazardous material status requires a public liability filing known as an MCS-90 endorsement which proclaims that the insurance company is responsible to the general public for any vehicle, whether scheduled or insured or not, used in the insured's operations. So you can see why the insured is quite zealous to make sure they are insuring, and getting the premium, for any exposure. So what has changed as far as this concept of underwriting? Really nothing. This is the way it has always been. But have insurance companies changed? You bet. Has the trucking industry changed? You bet. Here is what happened: During the last recession, many trucking companies went out of business. To add insult to injury, even with 7.5% unemployment, there is a greater and greater scarcity in drivers. Indeed truck driving is construed to be one of the most dangerous jobs out there and the lack of workers compensation capacity to write coverage confirms how tough the job really is. So with the lower number of drivers and trucking companies, shippers of freight are having a tougher and tougher time finding truckers ready, willing, and able to haul their freight. So even though a trucker can and often does trip lease freight under their authority ( trip leasing defined as a one-off trip where a trucker arranges that another trucker hauls the freight under the originating trucker's bill of lading or authority), more and more truckers are setting up truck brokerage authority to handle loads they neither have the vehicles nor drivers to haul. Why? Well it makes sense frankly. If they have a good shipping customer, they want to tell them, " Hey, we will be your transportation solution. We will preferably haul your loads on our trucks. But if they are all on the road, our brokerage arm will arrange to have your freight hauled. We will service your business to your satisfaction." So how do they set up brokerage authority? In two ways. One they set it up as part of their common and contract authority. That is, it is under the same name as the trucking company. And trucking underwriters do not like that one bit for reasons previously mentioned. After an underwriter has gone to all the trouble of underwriting and pricng a trucking risk, to have the trucker be able to hire any carrier willy-nilly and not have any idea about their experience, type of equipment, quality of the driver,and yes loss experience is a non-starter. The second way a trucker can set up a truck broker is a completely new authority. Interestingly, it can be in the same exact name as the trucking company but it is certainly better for the truck underwriter if the name is completely different- or at least slightly different. So the upshot of all this is that the trucking insurance marketplace very quietly started putting brokerage exclusions on their commercial auto policies. That is to say, they exclude brokerage losses. Really no one has brought up there could be some coverage issues that arise out of this- that can give both heartburn and even worse, an error and omission. You will note that I have never seen a commercial auto policy define trip lease or sub-hauler. That is not to say that someone might be doing same. And on the brokerage exclusions that I have seen, truck broker operations are not defined. So a friend calls me up and tells me that he has had a loss denied due to the fact that it was a brokerage loss and for me to give him my two cents which is what it is worth. But the situation was far worse than I realized and made me think of all the uncovered losses that spell doom for those involved. The loss involved a cargo loss where the insured brokered a load and the claim was denied. In this case, the insured had common, contract, and brokerage authority all under the same name- a bad deal as previously mentioned. The load, while brokered, listed the insured as the carrier on the bill of lading. So even though the insurance carrier felt they were justified excluding the loss, and even though the insured freely admitted the load was brokered, it is clear to me the legal liabily for the loss wrests with the insured. Why? I see two reasons. First there is the DOT regulation that says " The Carrier shall issue the Bill of Lading". The carrier here was the insured even though he brokered the load. Secondly, Carmack, the federal regulation that stipulates how all cargo claims are adjudicated, states clearly that the bill of lading is the legal instrument of carriage, and therefore is the determining document as to who is liable and how they are liable. And that would be the insured. So, according to my pejorative here, the insurance company is on this loss for the insured. They may not like it- but they are on it. What is worse is what would happen if there were a liability loss where again the insured brokered the freight but it is under their bill of lading? Well in my view, the insured's insurance company would be on it again. It is clear to me that the industry has little understanding of what truck brokerage, subhauler, and trip lease exposures are out there and how they are covered or not- and it's more clear that truckers with brokerage operations are not mitigating potential loss by doing such dumb things as having the bill of name in the brokered carrier's name. Do they want their insurance carrier to be paying a loss they are not responsible for? No. But if they put their name on the bill of lading. They are doing just that. Beware of brokerage exclusions on commercial auto policies. Now you know why.

Compliance, Safety, and Accountability (CSA) changes- Are you and your clients able to keep up?

CSA continues to confound all stakeholders involved in the supply chain. There appears to be a change a month. The truth is CSA is unfair. While this is a purely conjectural statement, it should be noted that CSA is attempting to raise the bar on truck road safety- and that is a good thing. The challenge is that its strategy to raise the bar is to establish a better measurement system for looking at roadside inspection data and driver experiences. The reason why it is unfair is that so many truckers are "not rated" and so it penalizes those truckers who are rated- who might be actually worse than those that are not rated. Until ALL carriers are rated we will never know. The other challenge is that the only way a carrier can clean up his score is to get a clean inspection- so they have to try and get inspected when nothing is wrong. Does not seem to make sense, does it? And to add insult to injury, they keep changing things. I have to look at that as good since the system needs improvement. What people need to stop doing is saying it is irrelevant and any carrier that is approved to operate by DOT is viewed as safe. I can tell you plaintiff's lawyers, trial courts, and the insurance industry- other ancillary stakeholders in the supply chain do not view it that way at all. An insurance underwriter, rightly or wrongly, has established their own benchmarks that they feel their defense attorneys can successfully defend. So keep your eye on CSA, and look at who is doing what. So what changed this time? Our friends at the Central Analysis Bureau said there were the following changes to CSA this past month. They are: 1)The Cargo-Related BASIC is now aligned with the Hazardous Materials (HM) Compliance BASIC 2)The Vehicle Maintenance BASIC has been strengthened by including cargo and load securement violations that were previously in the Cargo-Related BASIC 3)CSA now counts intermodal equipment violations found during drivers’ pre-trip inspections 4)CSA is now trying to align speeding violations to be consistent with current speedometer regulations that require speedometers to be accurate within 5 mph 5)The Fatigued Driving BASIC is no more. The name has been changed to the Hours-of-Service (HOS) Compliance BASIC to more accurately reflect violations contained within the BASIC 6)CSA is now aligning the severity weight of paper and electronic logbook violations equally on the SMS for consistency purposes. The change applies to the prior 24 months of data used by the SMS and all SMS data moving forward. Keep your eyes open for CSA changes so you can help your clients. We will be looking at for changes as well. Some folks say change is good. Let's hope so.

Fiscal Cliff Averted for Trucking?

Sorry to be out of touch for a while. My friends at CAB got some very interesting information from GE Capital: GE Capital’s sixth market survey of chief financial officers of 500 U.S. middle-market companies reports that 79% of transportation CFOs expect to increase staff in the next 12 months. Trucking CFO's saw the largest increase in credit availability across all industries - a 35 percent increase and up 12 points from the previous survey. Transportation CFO's also indicate that 67% will increase equipment purchases. The greatest business opportunities are expected to focus on increasing average revenue-per-loaded-mile and increasing tonnage volume from existing customers. So that means trucking insurance carriers and their agents should be the beneficiaries. It would also seem to state that whatever driver shortage issues are out there, the CFO's of trucking companies feel they will avert the problem or simply be giving existing drivers better equipment. Sounds all good...

More Brokerage in Trucking

The Central Analysis Bureau obtained a report from Transport Capital Partners that the use of brokers by truckers as a way to solicit freight is on the increase. Approximately 33% of motor carriers used freight brokers in February, up from 11% at the same time last year. What is really interesting is that 34% of large carriers with at least $25 million in annual revenue used brokers compared to 28% of smaller carriers. It used to be construed that truckers who used truck brokers were getting paid less, and more involved in irregular route business- thus creating a worse insurance risk. That now is simply not the case. Truck Brokers are here to stay.....

Truck Fatalities Worse- Expect Higher Loss Costs and Therefore Market Hardening

It's an 18% jump in trucking fatalities in one year. Imagine how that translates to the higher incidence of injury claims.

In a press release issued Friday, the Truck Safety Coalition says truck crash fatalities rose to nearly 4000 in 2010, from 3,380 casualties in 2009. Citing testimony on November 30 from Federal Motor Carrier Safety Administration Administrator, Anne Ferro, before a House Oversight and Government Reform Subcommittee on the pending truck driver hours of service(HOS) reforms, TSC says the new data supports the position of safety groups, families of truck crash victims,and labor. Those groups have been urging the U.S. Department of Transportation and the Obama Administration to issue a safer truck driver HOS rule to reduce driver fatigue. "This newly released data proves that the 'Trucking Industry Emperor' has no clothes. We already knew that there were no facts or evidence whatsoever that linked the current HOS rule and the recent improvements in truck crash and fatality data. Now it's time for the Obama Administration to do the right thing and protect innocent motorists and truck drivers," said Joan Claybook, Chair of Citizens for Reliable and Safe Highways. The TSC has joined with Advocates for Highway and Auto Safety and other safety groups in sending a letter today to the Office of Management and Budget's Office of Information and Regulatory Affairs Administrator, Cass Sunstein, disputing phony claims by the ATA and urging a new, safer HOS rule.

So if you think the trucking business is going to stay away from further regulation, think again. If you don't think the trucking insurance will be hardening, think twice.

Diminution in Value- The Property versus Cargo Claims Comparative

I saw an interesting article in an FC&S bulletin on a property insurance claims precedent and I could not help but feel there is the need to relate it to cargo insurance-specifically for auto haulers.

Truckers are signing contracts with shippers that expose them and their insurers to claims that are covered and not covered. One of those big issues is "diminution in value". Especially in cases where retail goods or cars are being hauled, any loss where an insurer repairs or replaces the property being claimed, will result in a diminution of value. That means, you can not sell it for what you could have prior to the loss.

Many insured's and their shippers assume property and cargo are furnishing replacement cost insurance. While it could be endorsed by a naive underwriter, it does not happen.

So what is the property legal precedent on diminution of value? Read below:
Diminution in Value Damages Not Covered in Loss Payment Options
The United States District Court handled a dispute between the insured and the insurer over whether the property policy provided coverage for a diminished value claim. This case is Royal Capital Development, LLC v. Maryland Casualty Company, 2010 WL 5105157 (N.D.Ga.).
Maryland Casualty Company issued an insurance policy to Royal Capital that covered the insured's real property. During the policy period, the floor tiles developed cracks (allegedly the result of construction work performed on adjacent property). The insured submitted a claim and the insurer paid for the damages. However, a dispute arose over the amount of the payment.
Royal Capital submitted a claim that included diminution in value. The insurer paid an amount it contended constituted the full amount claimed for the cost of repairing the property, including investigation costs and legal costs incurred to minimize the loss. The insurer said that diminution in value damages are not covered under the payment option selected by the insured and such damages were not supported by factual evidence. The insured said that the building sustained foundational and structural damages and this resulted in a diminution of value to the property that should be covered as direct physical loss to the building.
The U.S. District Court found that the matter boiled down to simple policy interpretation, using the insurer's choice of payment as a guide. The plain language of the policy does not cover diminution of value damages because the insurer selected a loss payment method that provides only for the cost of repairing or replacing the lost or damaged property. The court went on to state that the policy granted the insurer the right to choose one of four separate calculation methods to determine the amount of direct physical loss or damage; these options are distinct and mutually exclusive. Because the insurer elected to pay the insured the cost of repairing or replacing the los or damaged property, the insured cannot now argue that it is also entitled to diminution of value damages in addition to the monies it has already received. The policy's coverage grant is specific.
The court granted the insurer's motion for summary judgment.
FC & S additional sidebar note: Because the insurer had the option as to how to pay for the loss, and because a plain reading of the policy shows that diminution of value damages are not meant to be included in the option selected by the insurer, the insurer was entitled to summary judgment. Moreover, absent policy language that includes economic damages or diminution of value in the scope of direct physical loss or damage, this court (like most courts) did not choose to gratuitously expand the coverage granted under the terms of the policy.

Do you think you can see a comparison with cargo insurance. You bet.

So help your truckers not agree to diminution of value contracturally with any shipper. They won't find coverage for it.

The Motor Carrier Coverage Form Review versus the Trucker Coverage Form- Update

I thought it made sense to revisit the motor carrier form as this should be implemented now in all states- and it is clear that not all folks in the trucking insurance arena understand it. The attached summary pays its respects to my friends at Carolina Casualty who have done a detailed review of the forms.

A little history is in order first. The Insurance Service Office ( ISO) stopped supporting the Truckers Coverage Form ( TCF) in June of 2010 and began supporting only the Motor Carrier Coverage Form (MCCF). So it is fair to say anyone using the TCF is in an antiquated position- and it shows a lack of investment in staying current. There may be a state or two that has not adopted it but I am not aware of any.

Why the change? The MCCF is more consistent with how trucking companies do business. The TCF looked to the trucker's operating authority to determine how coverage responded. Conversely, the MCCF looks to lease agreements and in particular idemnification and hold harmless agreements that are a pervasive part of the supply chain. What is odd about the MCCF is that in its effort to stay " current", it does not recognize that many indemnification agreements between carrier and shipper have been struck down in over 20 states- and that list is growing. So it is a bit antiquated as well.

What are the differences between the TCF and the MCCF- or the business auto coverage form for the matter with respect to definitions, exclusions, and conditions? The answer is unfortunately not much. I will comment on the "big deal" about the forms below.

Eligibility is a word not often used in the insurance business but eligibility is a big deal when comparing the forms. The MCCF identifies a "motor carrier" as a organization providing transportation by auto in the furtherance ( great word) of a commercial enterprise. This is broader that the TCF which identifies a trucker as an organization engaged in the business of transporting property by auto for hire. The types of risk are determined by these definitions of motor carrier versus trucker.

So how is this broader? The MCCF can include private carriers ( not for hire)and passenger carriers. If a rancher owns his own truck and takes his cattle to market but returns with goods of others, he should have his insurance coverage written under the MCCF form. So in essence it provides a hybrid form.

One big deal is with respect to who is insured. Under the TCF the owner of a hired or borrowed auto is covered under the TCF. THe MCCF exclude the owner that is hired or borrowed by the named insured. This makes the MCCF appear worse but it actually consolidates coverage to pick up only the coverage for the named insured. It also expands who is insured to include the employee, agent, driver of the owner or anyone else from who you hire or borrow a covered auto. TCF does not embellish this at all.

The next big deal is lessor status. Lessors are an integral part of the supply chain. Under the MCCF, the lessor is an insured under the lessee's policy if the leasing agreement does require the lessor to hold the named insured harmless. So the MCCF reflects the lease obigations of the named insured. The TCF does not spell this out.

The third big deal is lessee status. Like the lessor status above, the lessee status is defined in the MCCF form. If you have a motor carrier who leases vehicles to others, the MCCF form grants the lessee the status of an insured.

The fourth big deal has to do with operating authority. This has to do with a gap respects borrowed trailers not connected to a power unit. Under the TCF, trailers that the insured hires or borrows may be excluded from coverage simply because those trailers may not be subject to an operating authority ( such as certain farm goods which are exempt). This is not material to the MCCF which does not care about operating rights and is covered.

The last big deal is the other insurance provisions. Other insurance provisions delineate who is primary and who is excess. A trucker is insured under the MCCF regardless of whether he leases autos from others or to others. However, if a lease agreement is in place and the contractural wording is clear, another motor carrier may be an insured under your policy- or that motor carrier may treat that trucker as an insured under his policy. If a trucker holds another party harmless, it is understood that his coverage will be primary. If someone else holds the trucker harmless, the insured's MCCF policy will be excess. Because there are usually always contract agreements in trucking and due to the fact that the MCCF can include another party as an insured, there is a need for higher limits in the industry. It is not surprising that more and more shipper are requiring higher limits for this very reason ( and the fact that judgements in excess of $1,000,000 are not rare at all).

So you can see the lease or contract is a big deal when determining coverage in the MCCF. As insurance agents like myself make very poor lawyers, it is important to have counsel involved in the insurance process. What lawyers do very poorly in my opinion is to delineate what is covered and what is not by insurance- so a trucker can make a business decision whether or not the risk of commerce is worth the potential insured or uninsured exposure.

While the MCCF provides an improvement to the TCF, the big differences ( or big deals as presented above) are really poorly described- and for anyone other than an insurance layman completely convuluted.

Ben's take is our industry could do a lot better - and hopefully someday we will. But I would first start with the contractural exposures before crafting a new policy and not just try to deal with the lease but the actual shipping exposures assumed by contract. There is a real need by the risk management community to identify the insurance policies that are primary and non-contributory. The MCCF does not do that. The TCF never did.

Fuel Data- Time for Truckers to get Greener

Truckers and users of diesel, gas and related products are on the wrong end of supply and demand.

I saw from Big Truck TV an an excerpt that caught my eye.

In June 2011, BP released its Statistical Review of World Energy. This report is considered the Holy Grail by many energy investors, since it is one of the most comprehensive energy reports produced. In short, the report said last year the world burned more oil than it pumped out of the ground. Unfortunately this divergence is widening. The world is now consuming 5 million barrels of oil per day more than it produces. Besides speculators this a major contributing factor as to why, despite one of the worst recessions since the 1930's, the price at the pump has remained so high!

The gains the truckers are getting in freight rates are being offset by fuel increases unless they are getting fuel surcharges. Look for that to become the norm.

You would think the industry would want to go green overnight but that is not what we see.

Truckload Driver Turnover Data and Insurance Ramifications

Data from the American Trucking Associations shows the following information relative to driver turnover in the truckload sector:

*75% of drivers left their trucking company of employment for fleets with revenues of $30 million or more ( up from 39% last year)

*50% of drivers left their trucking company of employment for fleets with revenues of less than $30 million ( up from 35% last year)

The driver market is tightening and industry experts feel it will get worse.

Turnover is being triggered by companies removing unwanted drivers and drivers who want to find a new fleet.

Smaller fleets increased their ranks by 15.2% but lost 12.7% of their drivers for a net gain of 2.5%. This is better than large fleets due to shorter lengths of haul.

What is the biggest deal is that 50% of new hires leave their employer within 180 days of hiring so it is the new hires that are assisting the churn.

What does this mean relative to insurance?

1) In the underwriting process, insurance companies look at date of hire and assign debits/ credits and pass/ fail relative to driver turnover.

2) CSA has more drivers being scrutinized by trucking companies, insurance companies, brokers, and shippers. There is a " fix it" mentality that an insurance company wants to see if there are alerts in the 4 BASICs driver scores

3) Look for insurance companies to debit pricing based on poor driver retention. That is higher driver turnover = higher insurance premiums.

Cost of Large Truck Accidents

One of our companies sent a provocative link that should help agents explain the economic of loss ( or the lack thereof). What is very interesting is the following:

* over 500,000 truck accidents occur every year
* 75% of these accidents are due to the driver of the passenger vehicle
* 80,000 accidents a year are due to the driver's fault
* 5,000 people are killed in these accidents that involve large commercial vehicles and 98% of the time the driver of the other vehicle perishes.

So what does it all mean? The answer is TIME and MONEY

To take a masters of business administration approach, you need to look at the Direct costs versus Indirect ( Hidden Costs):

Direct Costs: Cargo Damage, Vehicle Damage, Injury and Medical Cost, Lost Revenue, Adminitractive Costs, Police Report, Towing and Storage Costs- and yes higher insurance costs ( both from a property/casualty perspective)

Indirect Costs: Irritated or lost customers, lost sales, meetings missed, salaries paid to supervisors and employees, lost productive time doing work, loss of personal property, downtime and replacement vehcile rental, accident reportin, medical costs, poor PR and publicity, government agency costs, increased PR costs, cost to hire and train employees

So how does this pencil out? Let's say the direct and indirect costs for an accident are $25,000. If the insured is a closely held operation and just trying to eek out a profit of say 2%, the motor carrier will have to generate $1,250,000 of additional revenue! That's a whole lot of miles for a trucker.

Then there is the time fooling with it. After reading this a trucker has every incentive to incentivize his drivers by compensating them for loss free mileage. It is surprising that all truck operations do not do this.

How Big Is The Trucking Insurance Pie?

How many Trucking Accounts are there in the US to be Insured?

Well the information is not exactly completely up to date but as of midyear 2010 we know the following:

There were:

Common Carriers- Over 76,000
Contract Carriers- Over 70,000
Common Carriers with Contract Authority- Over 16,500
Exempt Carriers- Over 84,000
Household Goods Movers- Over 3,400
Freight Forwarders- Over 1,600

That is over 250,000 accounts!!!

Can you imagine the amount of truck liability, physical damage, motor truck cargo, general liability, property, non-trucking, contingent, workers compensation, and umbrella premium being paid?

Food for thought....

Cargo Filings- The End is Near

A good deal of you are probably aware that cargo filings will no longer required soon- but many parties involved with trucking insurance are not. The D-Day is on March 21st, 2011.

There has been very poor or no communication from the insurance companies on what the procedure is, how it will be communicated, and what it all means. I thought I might take a minute and tell you what it means:

The history is pretty interesting with respect to cargo filings. US Code 49 USC13906 required that motor carriers of cargo operating within federal jurisdiction must show evidence of cargo liability insurance with minimum limits of a whopping $5,000 for loss or damage to the contents of any one vehicle and $10,000 for aggregate losses or damage at any one time or place,

With that came the famous or infamous Form BMC32. What did that do? It required insurers to endorse motor truck liability policies with the BMC32- which actually is a certificate of insurance. The endorsement is entitled "Endorsement for Motor Carrier Polcies of Insurance For Cargo Liability" -pretty darn official.

So what effect does or did the BMC32 have? It required the insurer to pay the shipper or consignee for all loss or damage for which the motor carrier is legally liable. It is important to know that the insurer's responsibility was not limited to the terms, conditions, or exclusions of the motor truck cargo policy. Moreover, a deductible on the policy made no difference. If the insured was legally liable for a $100 loss, if the insured did not reimburse for the loss, the insurer would have to- which is one of the reasons that most carriers financially underwrote every potential cargo insured- and smartly looked at their O S & D reports. With the BMC32, the insurance company is required to investigate every claim to determine the motor carrier's liability- a big deal.

So what is happening again? Common, contract carriers along with freight forwarders will no longer have to have cargo filings ( the exception is household goods carriers will still have to make a filing). Also note that the filings will all merely expire on March 21st, 2011 so that there is not the need to cancel them or have them removed by endorsement. The FMCSA will keep for 2 more years (due to the statute of limitations on filing a cargo claim) until March 18,2013.

So what are some of the ramifications of all this:

* more and more shippers will require being named as a loss payee ( and even an additional insured(which is a whole other subject) under the cargo policy in an effort to be provided notice of cancellation
* more E & S companies will get into underwriting MTC as no longer will a filing be required ( which had to be done by an admitted company in most cases with the exception having been Lloyds)
*there will be less financial underwriting of MTC
*it will be harder to understand who the MTC carrier was due to the lack of information available from the FMCSA .
* Canal estimates this affects approximately $93,800 insureds!

Expect there to be more ramifications....

Congestion- Good for Trucking Insurance Companies?

I hope everybody is doing well. While CSA continues to be the pervasive topic along what to do with it, I was struck by an article in TT Express below:

"The cost of U.S. traffic congestion has jumped to $115 billion in 2009 from $24 billion in 1982, and trucks are shouldering a disproportionate share of the cost, according to a report released this week.

Congestion in the nation’s largest urban areas cost the trucking industry $33 billion in delay time and wasted fuel last year, said the annual Urban Mobility Report by the Texas Transportation Institute of Texas A&M University, released Thursday.

While trucks account for just 7% of the total vehicle miles traveled, the $33 billion represents 29% of the total congestion costs, the report said.

Unlike the cost of congestion for cars, the cost of truck congestion “was passed on to consumers in the form of higher prices” and the fallout from the congestion extends “far beyond the region where the congestion occurs,” the report said.

Because trucks carry goods to suppliers, markets, and manufacturers, delays in arrival can cause whole production lines to close down, it said.

“The report confirms that congestion has a significant impact on the cost of moving freight, which is ultimately borne by Americans in the form of higher shelf prices, lower incomes and lost jobs,” said Darrin Roth, director of highway operations for American Trucking Associations..."

Well, is that bad for trucking insurance companies? My answer would be no. Congestion works out to less miles traveled by each truck ( if the trucker is complying with hours of service and CSA is seeing to that). Less miles = less exposure. Less exposure= less losses.

That has certainly borne out in the lower frequency and severity statistics that have occurred year-after-year. So in spite of medical inflation that is out-of-control, look for better claims results.

That does not mean better loss ratios though as premiums continue to be in a free-fall. If the insurance companies can hold their pricing ( which they show no discipline for doing ever), then congestion would translate to better results.

Trucking's misery ( congestion) creates some unlikely beneficiaries ( trucking insurance companies). Food for thought....

Changes in Hours of Service For Truck Drivers/ CSA 2010 ramifications

The FMCSA has been busy this month. The new proposed hours of service rules have now been released. There is not much that was changed. While the hours have been reduced to 13 hours, a driver can now take a one hour rest and then continue to complete 14 hours of service. The 34 hour restart rule also applies, provided that there are 2 rest periods – from midnight to 6 a.m. A restart will only be allowed once in a seven day period. The proposed regulations will not be open for public comment curiously.

It will be interesting to see how CSA 2010 grades hours of service non-compliance and what insurance carriers do about it.

It is early days with CSA where in the first days the system had 22,000(!) hits in one hour. Nobody knows what percentage of truckers are getting alerts for failing BASIC scores.

Happy New Year to all!

What Shippers and Brokers Need to Know to Manage Their Liability Exposure and The Effects of CSA 2010

I watched a fantastic webinar put on by American Shipper in November that pointed to ( although they did not specifically mention) two presently underinsured or uninsured exposures- broker liability and contingent auto liability and why coverage is needed today. ( As in right now!)

Both coverages are not understood and frankly not part of the mainstream trucking insurance marketplace. With the current economy, many truck sales professionals are setting up brokerage authority or expanding brokerage sales-as trucking capacity is still tight in many areas. Even today's truckers, who are at an all-time high with respect to operating efficiencies, have found they do not either have the equipment or drivers to keep up with their shippers' needs or demands- and that is poor business. So they are setting up and expanding their brokerage operations both within and autonomous to their existing operating authority.

CSA 2010 will make capacity even tighter as crappy trucking operations and crappy drivers will not have long to fix it. And that spells bad news to the brokerage community- who even with best practices will find their operations exposed.

Some information I learned from the webinar corroborates the need for coverage. The Transportation Intermediaries Association understands that brokers need and will be required to have broker liability ( primary coverage) or contingent auto coverage ( secondary coverage). Why?

Truckers who continue to hire or retain unfit drivers will face litigation for negligent hiring and retention. Note a now famous court decision against the nation's largest brokerage operation C. H. Robinson further necessitates the need for coverage ( the Schramm decision).

Attorney Clay Porter, a true pro in the truck broker/ insurance arena has described the truck liability "vortex" well where there is a constant duty to supervise and retain records amongst other things from a best practices context.

Broker/ Shipper Liability can today be summarized by 6 exposures

* Respondeat Superior- the employer ( the truck broker) is responsible for the employee( the carrier). Even though the broker in all cases acts as an independent contractor, the courts are becoming sensitive to this bringing vicarious liability whereby one party is responsible for the actions of others
* Negligent Entrustment- causing injury due to instrumentality( a poor driver operating a extra heavy tractor)
* Claims under the Motor Carrier Act
* Claims that a Broker acted as a Motor Carrier
* Aiding and Abetting
* Negligent Hiring

While I want to emphasize I am no lawyer, it is pretty clear to me the biggest exposure to a broker is negligent hiring- and that a best practices approach needs to be delivered to the truck brokerage community- along with appropriate insurance ( yes we provide same so this may seem a tad self-serving which is not my intention).

Federal laws also necessitate coverage. Which ones?

+49 USC 14704- Rights and Remedies of Persons injured by carriers or brokers- Both the carrier or broker is liable for damages sustained by a person as an act or omission of that carrier or broker in violation of this part


+49 CFR 387.307- Broker surety bond or trust fund- the broker is liable to payments to shippers or motor carriers if the broker fails to carry out its contracts or agreements for supplying of transportation by authorized motor carriers.

Shippers are going to make their brokers have insurance. Attorney Porter says that the indemnity agreements that brokers and truckers are being forced to sign do not hold up in 23 states, meaning shippers will require insurance, waivers of subrogation, and additional insured requirements across the board.

One of the failures of the industry is that there is a fine line between liability exposure either on a primary or contingent basis versus a professional liability exposure ( yes we insure that too). Clearly its early days from a professional liability perspective and few shippers are requiring same of their brokers and virtually none of their truckers. You will see those products as well.


While I have not commented much about CSA 2010, suffice it to say that these factors in a large loss or claim will have impact on the broker that hired them:

^Unsafe Driving
^Fatigued Driving
^Poor Driver Fitness
^Drug and Alcohol Use
^Poor Vehicle Maintenance
^Cargo Securement
^Higher than Average Crash Indicator

These are primarilly no brainers for a plaintiff's attorney to go to war against a trucker or broker but the crash indicator of a trucker is not something available to the broker or general public as I understand it at this stage in time.

You can bet the truck insurance agents will be hit with insurance requests, waiver of subrogation requests, hold harmless contracts, and additional insured requests. And today, no one knows what to do with the exposure when there is more than one broker involved in the transaction.

Keep in touch on this and Happy Holidays.

Ben

Latest Trends in Trucking Loss Control Recommendations

The one consistency in trucking insurance is that change is an integral part of the game. If you cannot change or do not want to change, you will find that the status quo is the same as a trucker putting on the brakes. You have to be moving - and stay current to what is going on in the industry. Otherwise you become irrelevant and most importantly fail to add the value that differentiates you from the masses.

I thought it made sense to address very briefly what we are seeing from insurance companies writing trucking insurance from a loss control perspective. Here is what we see:

• Acknowledgement by trucking management that CSA 2010 has been reviewed and understood
• Within CSA 2010, insurance companies want to make sure CSA 2010 has been presented to drivers and that everyone understands the implications of a drivers safety record within the driver safety measurement system
• No texting policy and the acknowledgement that it is a disqualifying expense. They will want to see this put in the drivers manual
• Defensive driver training and programs must be implemented

While there are other trends in loss control, these are what we see in most loss control reports.

If you are not familiar with what these issues are about, it makes sense to get familiar with them.

A Trucker's Need for Best Practices- Quickly

While everyone is trying to get their arms around the ramifications of CSA 2010, new information is out that points to the need for truckers to fix themselves, rather than be made to do it.

New information compiled from industry giant Lexis says that half( yes that is 50%) of driver qualification files are incomplete- or wrong. Since most insurance carriers, truckers, and truck brokers are worried about vicarious liability that goes with such terms as negligent hiring and negligent entrustment, truckers would do well to invest and fix it now. Insurance agents should work with their insurance carriers to make a trucker look better- now. Without it, the potential for liability is unfortunately at an all time high.

Here is the article in the Journal of Commerce and the Transportation Intermediaries Association.

"The LexisNexis Commercial Driver Safety Report 2010 has revealed that up to 50 percent of commercial driver qualification files, required by the U.S. Department of Transportation (DOT) are incomplete or inaccurate. The report showed numerous instances of incomplete or inaccurate information being used by organizations to screen and qualify drivers, highlighting significant and troubling gaps in compliance and safety programs. Another troubling finding is that commercial drivers are increasingly testing positive for use of PCP, Marijuana, amphetamines and opiates since 2008.

The LexisNexis Commercial Driver Safety Report 2010 is designed to help commercial transportation fleet owners and managers address initiatives, such as the Federal Motor Carrier Safety Administration’s (FMCSA) Comprehensive Safety Analysis 2010 (CSA 2010), by highlighting the areas where existing driver safety and screening programs may be inadequate. The study also found that:

• In files that are compromised by missing documentation, driver licenses are missing 85 percent of the time.

• While use of most illegal substances appears to be on the rise, positive tests for cocaine use decreased 41 percent since 2008.

• Close to 50 percent of the driver motor vehicle reports analyzed by LexisNexis include an adverse motor vehicle history, such as a driving violation or suspended license. "

CSA 2010 - Work In Progress

There are a few things about CSA 2010 that you already know about and other things you may not know. When dealing with your insureds or insurance companies, it might help to be able to discuss the following:

1) What you should already know

On August 16, 2010, the FMCSA updated the Data Preview website to allow carriers to view an assessment of where they stand in each BASIC category based on roadside and investigative findings. The seven BASICS are:
-Unsafe Driving
-Fatigued Driving (hours of service)
-Driver Fitness
-Controlled Substances/Alcohol
-Vehicle Maintenance
-Cargo-Related
-Crash Indicator.

SafeStat’s Safety Evaluation Areas (SEAs) will be replaced
by the BASICS in December, 2010. This early assessment indicator will allow motor carriers an opportunity to understand and address their safety concerns right away.

What you probably do not know:

● Carriers will not inherit the past violations of a newly hired driver.
● All crashes and inspections that occur to a commercial driver while under the authority of a carrier will remain part of that carrier’s Safety Management Data for two years, even if the carrier terminates the driver.
● Tickets or warnings received by commercial drivers while operating their personal vehicles do not count in the Safety Measurement System.
● Carriers and commercial drivers do not need to register for the CSA 2010, nor is there a training requirement.

However, it is in their best interest to be aware of this program and its implications.

Truckers are going to be asking you if the insurance company can help with compliance. We will see what insurance companies can or cannot help in the process

Good Numbers- Truck Related Fatalities & Transportation Activity

In the face of higher average medical costs per claim is the fact that fatalities are now at a record low. What would be interesting and I do not have is to see the actual truck related deaths per mile ( interesting may be the wrong word). My hunch is that not only are fatalities lower but the overall fatalities per mile are down.
It will be interesting to see how truck insurers look at this as you would hear out of every one of them that severity is up. See the attached article below ( courtesy of Transport Topics)

The number of people killed in large-truck crashes dropped 20% in 2009 to the lowest level on record, the National Highway Traffic Safety Administration said Thursday.

Total fatalities fell to 3,380, from 4,245 in 2008, NHTSA said. The total includes truck occupants, occupants of other vehicles and people who were not in vehicles, such as pedestrians.

The figure is the lowest since records began in 1975. Large truck occupants saw the largest decrease in fatalities among all groups tracked by NHTSA, falling 26%.

Fatalities have declined by 2,000 since the Federal Motor Carrier Safety Administration was created in 1999.

They have dropped by 1,855 since 2004, when the current hours-of-service regulations were put into effect by FMCSA.

Both NHTSA and FMCSA are agencies of the U.S. Department of Transportation.

The numbers reported Thursday do not take into account total mileage among trucks, a figure DOT has not yet announced for 2009.

Other good news came from the Federal Reserve. ( Again courtesy of Transport Topics)

The number of people killed in large-truck crashes dropped 20% in 2009 to the lowest level on record, the National Highway Traffic Safety Administration said Thursday.

Total fatalities fell to 3,380, from 4,245 in 2008, NHTSA said. The total includes truck occupants, occupants of other vehicles and people who were not in vehicles, such as pedestrians.

The figure is the lowest since records began in 1975. Large truck occupants saw the largest decrease in fatalities among all groups tracked by NHTSA, falling 26%.

Fatalities have declined by 2,000 since the Federal Motor Carrier Safety Administration was created in 1999.

They have dropped by 1,855 since 2004, when the current hours-of-service regulations were put into effect by FMCSA.

Both NHTSA and FMCSA are agencies of the U.S. Department of Transportation.

The numbers reported Thursday do not take into account total mileage among trucks, a figure DOT has not yet announced for 2009.

Why Commercial ( and Personal) Auto Insurance Is Priced the Way It Is

Do you ever feel funny about how high the premiums are for commercial auto insurance? I would tell you to stop feeling that way based on the article I found in the Insurance Journal. What is interesting to me is that most underwriters are not aware of the medical costs associated with crashes- and obviously that is a factor in both claims and premiums. Certainly the general public is not aware of this and they should be. See the article below.

Motor Vehicle Crash Injuries Costing $99 Billion a Year, or $500 per Driver
August 27, 2010


In a one-year period, the cost of medical care and productivity losses associated with injuries from motor vehicle crashes exceeded $99 billion – with the cost of direct medical care accounting for $17 billion.

A new study by the Centers for Disease Control and Prevention says the total annual cost amounts to nearly $500 for each licensed driver in the U.S.

The study in the journal Traffic Injury Prevention found that the one-year costs of fatal and non-fatal crash-related injuries totaled $70 billion (71 percent of total costs) for people riding in motor vehicles, such as cars and light trucks, $12 billion for motorcyclists, $10 billion for pedestrians, and $5 billion for bicyclists.

CDC researchers said they used 2005 data because, at the study time, it provided the most current source of national fatal and non-fatal injury and cost data from multiple sources.

The data is for injuries only and does not include costs of vehicle or property damage.

"Every 10 seconds, someone in the United States is treated in an emergency department for crash-related injuries, and nearly 40,000 people die from these injuries each year. This study highlights the magnitude of the problem of crash-related injuries from a cost perspective, and the numbers are staggering," said Dr. Grant Baldwin, director of CDC's Division of Unintentional Injury Prevention, National Center for Injury Prevention and Control.

The study also found:

Costs related to fatal motor vehicle-related injuries totaled $58 billion. The cost of non-fatal injuries resulting in hospitalization amounted to $28 billion, and the cost of injuries to people treated in emergency departments and released was $14 billion.
More men were killed (70 percent) and injured (52 percent) in motor vehicle crashes than women. Injuries and deaths among men represented 74 percent ($74 billion) of all costs.
Teens and young adults made up 28 percent of all fatal and nonfatal motor vehicle injuries and 31 percent of the costs ($31 billion). These young people represented only 14 percent of the U.S. population.
Motorcyclists made up 6 percent of all fatalities and injuries but 12 percent of the costs, likely due to the severity of their injuries. Pedestrians, who have no protection when they are hit by vehicles and are also often severely injured, made up 5 percent of all injuries but 10 percent of total costs.
CDC's Injury Center supports strategies for prevention such as graduated driver licenses, child safety seats, primary seat belt laws, enhanced seat belt enforcement, motorcycle and bicycle helmet laws and sobriety checkpoints.

Pretty interesting is it not?