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.
Monday, December 5, 2011
Thursday, July 28, 2011
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.
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.
Friday, July 8, 2011
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.
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.
Thursday, July 7, 2011
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.
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.
Monday, June 27, 2011
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.
*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.
Tuesday, April 26, 2011
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.
* 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.
Tuesday, March 8, 2011
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....
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....
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