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Risky Business

Answers to common IC insurance questions

Answers to common IC insurance questions

By Shelly Benisch, TRS, CIC
Posted May 14th 2015 1:19PM

Why is there so much chatter on the EO threads about insurance structures right now?

T Motor Carriers operate under the Traditional structure where they provide the Primary Liability for all their Owner Ops.

T is being undercut by some M/I (Multi/Independent Motor Carriers) where the Owner Op provide their own Primary Liability.

What do you mean by "undercut"?

T insures all of his Owner Operators legally as required by FMCSA.  They pay a lot of money to insure all of their Owner Operators so that claims pay out quickly and correctly.

In too many cases, M/I allows his Owner Operators to carry much cheaper insurance that will not pay a claim quickly and correctly because there's something wrong with the coverage.  This is illegal as required by FMCSA.

With lower overhead, M/I can bid loads lower and lower, reducing rates for everyone.

I heard it doesn't matter what coverage the Owner Op has as long as the Motor Carrier has Hired Auto.

You heard wrong.  There is no "magical" Hired Auto policy that covers any number of Owner Operators for their Liability.  If there were, now everyone would just buy that, wouldn't they?  I've also heard this magical policy referred to as an "umbrella" magic there either.  FMCSA requires any unit hauling freight on behalf of a Motor Carrier, regardless of GVW, to have Primary Liability SOMEWHERE.   Hired Auto is Excess coverage, not Primary.  Umbrella policies go ON TOP of any underlying coverage, they do not trigger without an underlying policy triggering first.

I think my policy would pay primary because it says it's a primary commercial auto policy.

For your Owner Operator liability policy to pay primary while hauling for a Motor Carrier, it must be Primary and Non-Contributory.  The vast majority of insurance companies simply do not offer this coverage at all.  This means when a large liability claim hits the Owner Operator, that insurance company goes directly to the Motor Carrier's insurance policy...not the Owner Ops'.

There...that's when my Motor Carrier's policy would kick in for Hired Auto...

Not necessarily.  That Motor Carrier's insurance company says, "Hey, wait a minute...we didn't know anything about that Owner Operator hauling for you... you misrepresented the risk and we're denying coverage."  Most insurance companies audit Hired Auto policies.  Hired Auto will not pay for hidden units.

But I heard they had to pay because the Motor Carrier has a "91X".

That's true.   The 91X says that the insurance company is making a promise to the public in the form of a surety bond that all units owned or non-owned operated by that Motor Carrier are correctly insured at all times.   Trouble is, the 91X only pays after the parties go to court.

So what's wrong with that?

This is the time frame that the Load Providers, the 3PLs, Brokers and Shippers get drawn into lawsuits stemming from the claim that include due diligence and vicarious liability.   In the end, the 91X will pay the promise to the public for whoever was hurt.   What it will not pay is anything to that Motor Carrier or Owner Operator, 3PL, Broker or Shipper...they're all on their own.   In fact, the insurance company then tries to get their money back by suing the Motor Carrier for insurance fraud for hiding their exposure of the Owner Operator.

OK, but I really think I have $1 Million Primary and Non-Contributory on my policy...

That's great, glad to hear it...but unfortunately for every Owner Operator doing it right, there are scores who buy a Progressive policy with $1 Million, give their Cert to their Motor Carrier, then promptly call Progressive back to drop coverage to lower limits.  If the Motor Carrier isn't "monitoring" the coverage by getting a Dec page each year.  That Dec page could change several times throughout the course of the year.

Yes, but we have to list our Motor Carrier as Additional Insured, so they'd fact they told me they monitor all their Owner Ops coverage...

I don't doubt that many Motor Carriers do what they can in self-monitoring. Problem is, Progressive does not notify the Additional Insured when coverage changes.  This type of notification doesn't come from Progressive at all.  It comes from an Agency who gets overnight reports from Progressive.  That's when the Agency emails Motor Carriers a heads up of what that Owner Op just changed.  Even when an Owner Operator cancels a policy, that Additional Insured Motor Carrier is simply snail mailed from Progressive many days or sometime weeks after the fact.  So that whole time, an Owner Operator could be hauling without any insurance at all, and the Motor Carrier is none the wiser.

...No, I'm sure I saw somewhere that there is a 30 day prior notice required.

This is a very common misconception.  It is the difference between the cancel of a Motor Carrier and an Owner Op.   When a Motor Carrier files for the 91X, FMCSA requires 35 days notice of cancel from the insurance company.  There is no such requirement on an Owner Operator's policy because there is no 91X.  That Owner Op can change or cancel coverage anytime.  There is no way an agent or insurance company knows ahead of time what an Owner Op will do, so there's no way to promise a 35 day PRIOR notice of cancel on an Owner Op.

So how does this Agent Monitoring Service Contract work?

The Motor Carrier agrees to report all units to the Agent within 24 hours of a new lease arrangement.  The Agent agrees to insure that Owner Operator for $1 Million Primary and Non-Contributory Trucking for Hire Liability on an Unlimited radius.  The Agent agrees to notify the Motor Carrier 3 days PRIOR to cancel if the Owner Operator is pending cancel for non-pay.  This is information an Agent has as a representative of the insurance company.  The Agent also agrees that if the Owner Op cancelled or changed his coverage, even if it's the night before with Progressive directly, the Additional Insured Motor Carrier is sent an email "heads up" to pull him off the road until the insurance is corrected.  Without this extra service work by the insurance agency, Owner Ops are hauling loads with no coverage whatsoever in some cases.

Someone said that Owner Operators should sue because they're independent contractors and they can't be forced to buy insurance from whoever their Motor Carrier says.

The Agent Monitoring Service Contract was drafted by Fredric Marcinak and Rob Mosely of Smith, Moore Leatherwood Law firm.  Just as Traditional Motor Carriers legally require their Owner Ops to maintain correct NTL coverage to match up with the primary liability coverage and IC contract, non-traditional Motor Carriers are also under obligation to ensure that the FMCSA promise to the public on the 91X is supported at all times.  Most Agencies also provide more than 1 insurance company as an option for the underlying coverage requirements.   If the Multi/Independent structure grows with good loss ratio, you can expect to see other insurance companies entering the market with a Primary Non-Contributory primary product for Owner Ops.

So it sounds like the Motor Carrier should really be concerned about being sued when there is a Liability claim that doesn't pay.

Exactly.  A claim involving a fatality is horrible enough, but it's compounded when liability insurance does not trigger as promised and lawsuits start to fly.

What are the insurance companies saying?

Here's what they say...the insurance company has filed the FMCSA 91X legal promise to protect the public. They're on that 91X regardless of whether there turns out to be hidden units.  So when they see a community rife with hidden units, they shy away from writing Expediters altogether.  This is why so few will write Expediters right now, and why you see so many getting off current Motor Carriers.  The insurance company underwrites a risk thinking they're on the 91X responsibility for 5 units, and there turns out to be 50+??? What would you do in their position?  Without Agent monitoring, they have no way of underwriting their exposure to the risk...and that's why there's a zero tolerance for hidden units.

How does TEANA VOI come into all this?

It's a Best Practices "Verification of Insurance" Certification for TEANA Motor Carriers.  It consists of a 10 member VOI subcommittee which has successfully vetted Traditionals, Multis and Independents for their Certification. When 3PLs, Brokers and Shippers "Look for the VOI", they understand they are working with a higher caliber Motor Carrier regarding financial responsibility.   They are inclined to separate these Motor Carriers from the rest, providing more freight with the potential for better rates as the market levels off.  Load Providers don't want to be sued, and when they go to their insurance companies and show them the responsible VOI Motor Carriers they're using to haul freight for their customers...they are viewed as a better insurance risk as well.  They are seen by their insurance company as following their due diligence in protecting the public AND the customer.

So I guess what it comes down to is that Traditionals are ticked off that they're paying their premium to correctly protect the public and some Multis and Independents aren't.

Yes...VOI and other positive moves by our industry will hopefully reward any size Motor Carrier and Owner Ops under any structure when they're operating responsibly, legally and ethically.  Nobody likes insurance when they are paying for it, but they love it when it protects them in a claim.

Hope that takes care of some of the questions out there, let me know if you have any others...looking forward to EXPO 2015 July 24th and 25th!



  • - May 14, 2015
    Great explanation. Thank you.
  • teamcaffee - May 17, 2015
    Shelly as always this is very good!

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