Risky Business

Why Cargo Vans and Sprinters carry $1 Million Liability

Here's an Addendum to the current EO Thread "Insurance Coverage and the 'Multi' Carrier Model" or "Why DO Cargo Vans and Sprinters need $1 Million in Liability?"  Arguments are certainly made that since FMCSA only requires $300,000 Liability for under 10K GVW units hauling across state lines, why carry more?

Short answer:

Because when a Motor Carrier's Certificate of Liability lists $1 Million Primary Commercial Auto Liability, that $1 Million coverage needs to be in place SOMEWHERE for all units hauling on behalf of that Motor Carrier. 

Why? 

Because that's the promise that the Motor Carrier has made in writing, per contract, to the Broker or Shipper.

Long answer:

"But when a Motor Carrier has a 91X/MCS90, that makes their insurance company pay the million dollars no matter what...right???"

No.

District Court S.D. Texas v Williams Logging set a precedent that under 10K GVW units which were NOT listed on a Motor Carrier's policy were exempt from the 91X/MCS-90 promise to the public under the statutory exception for minimum weight.

What that means is that there should be no assumption that the Motor Carrier's insurance company is obligated to respond to a claim on a Cargo Van or Sprinter that is not listed on the Motor Carrier's policy.

The 91X is the filing that the insurance company makes to FMCSA for proof of financial responsibility.

The MCS-90 is the Surety Bond endorsement of that financial responsibility which is added to an insurance policy for commercial motor vehicles. So to be clear it is not in itself "insurance" at all and does not respond like insurance...the MCS-90 is a Bond.  

FMCSA says that this Bond applies to "a commercial motor vehicle that weighs over 10K pounds, transports at least 8 people for compensation or 15 people without compensation, or transports hazardous materials."

This Bond requirement specifically excludes vehicles with a gross weight rating of less than 10K pounds from the liability insurance requirements under the MCS90 UNLESS it is used to transport hazardous material.

(There is currently only one case on record that applies the MCS-90 to a vehicle under 10K pounds because that unit was hauling hazmat, usurping the statutory exception for minimum weight.)

What makes $1 Million so special?

Because that $1 Million limit is the Expedited Freight industry's standard that most Brokers and Shippers require per contract for the Motor Carrier to GET the load in the first place.  It's also industry standard for many high end legal claims that are frequently resolved at $1 Million.  That insurance amount is what the Motor Carrier is promising Brokers and Shippers with that Certificate of Liability. 

What should happen in an Expedited Freight Auto Liability claim:

If you're an Independent Contractor leased on to one Motor Carrier where they provide your Primary Commercial Auto Liability then you're good to go...they've got your back.

If you're an Independent Contractor providing your own insurance in the amount of $1 Million Primary Non-Contributory Commercial Auto Liability listing the Motor Carrier as Additional Insured...you're also good to go.  (Assuming Expediting Trucking for Hire policy and correct Radius of operations.)

What is your obligation as an I.C.?

"Multi" Independent Contractors hauling for more than one Motor Carrier, whether leased on or in a brokered load arrangement are part of that contract the Motor Carrier has made with the Shipper or Broker promising $1 Million Liability.  He's promising on his Cert that the guy hauling for him, YOU, has that coverage in place SOMEWHERE.

So when a claim occurs, it's reasonable for the Broker or Shipper to expect that coverage is in place for all units represented based on that Certificate of Liability promising $1 Million.  The Broker or Shipper certainly can not be expected to delve into each Motor Carrier's insurance policy to see if everyone has $1 Million Primary Liability in place for all units, they rely on the Certificate of Liability.

Historically speaking...

When the Multi model first proliferated after 2008 just about everyone in the Expediting Community was compliant with $1 Million Primary Non-Contributory Expedited Trucking for Hire Liability SOMEWHERE, so claims were paid quickly and without particular note.  A claim for an Independent Contractor would be submitted and pay out as designed up to $1 Million as needed, and there was no particular concern because Brokers and Shippers were not affected given the swift claims resolution.

Then some Motor Carriers started allowing their Independent Contractors to carry lower limits, often without benefit of Additional Insured endorsements.  Others looked the other way when Independent Contractors supplied proof of insurance in the form of clearly personal auto policies or other misrepresented exposure.

One Example:  Independent Contractor carries $300,000 Liability but Cert for Motor Carrier states $1 Million...lawsuit of $1 Million for fatality.  Who pays that $700,000? 

Not the insurance company for the Motor Carrier under the 91X/MCS90.  The Independent Contractor's policy caps at $300,000. 

The Motor Carrier, Independent Contractor, Broker and Shipper are all brought into legal proceedings and this is where lawsuits start to fly.  Who was negligent?  Who should have known coverage was not in place as promised?  Who is vicariously liable? Who pays the defense costs?

Motor Carriers, Brokers and Shippers

It's ultimately the Motor Carrier's responsibility to see that all units have the coverage promised to Brokers and Shippers SOMEWHERE.  Again, it's reasonable for the Broker or Shipper to TRUST that the Certificate of Liability provided to them is accurate. 

When correct insurance coverage is NOT in place, the 91X/MCS-90 does NOT obligate the insurance carrier to provide any DEFENSE.

...And Broker/Shipper...you're on your own...no defense and no coverage so caveat emptor.

Hired Auto?

This is coverage that a Motor Carrier purchases that is designed for short term hired autos as in rental cars and is not designed as "gap coverage" for underinsured Independent Contractors hauling under contract or on a brokered load.  ...Look for another blog on the lack of defense dollars here as well...

Bottom line:

If a Motor Carrier's Certificate of Insurance promises $1 Million Primary Commercial Auto Liability for Brokers and Shippers, there needs to be coverage at that limit for all units operating on behalf of that Motor Carrier SOMEWHERE for Best Practices claims experience for EVERYONE in the chain of freight.

Arguments are  made by Independent Contractors "I just can't afford the $1 Million in coverage" or "I don't have anything to lose anyway, let them sue me".

Truly that is a choice all small business owners need to make for themselves as to how they choose to operate.

But in turn, please try to understand that a Motor Carrier, Broker or Shipper operating with the same insurance costs believe they DO have something to lose and so choose to work with Independent Contractors who understand their exposure to serious uncovered claims. 

With the number of uninsured units operating under the Multi model, why WOULDN'T companies providing loads rein in their exposure to just Traditional structures where there is no risk vs Multis where there COULD be risk?  It is the Multi's obligation to reassure Brokers and Shippers that they understand and respect the concerns of load providers, because when that reassurance is not received future loads simply disappear.

Look, these are challenging times for Expediters, to be sure.   It's frustrating when some Brokers look the other way in driving down your rates when they knowingly use underinsured units.  But I also know that for every rogue Broker there are also Brokers who understand that in the long run relationships are currently being solidified between responsible Motor Carriers, Independent Contractors, Brokers and Shippers. 

This issue is not going away, and I invite everyone in our community to join together as professionals to make the Drivers of Expedited Freight the ELITE Trucking for Hire niche in both reputation and pricing we all remember.

Shelly Benisch, TRS, CIC

[email protected]