Many agents and some insurance company underwriters will use the Business Auto Policy (BAP) of the Insurance Services Office (ISO) to write loss exposures that the BAP was never meant to insure. Compounding the problem, some underwriters will manuscript endorsements to try to make the BAP fit exposures that it was not designed to insure.
Meanwhile, there are other policies specifically designed to insure those exposures not meant to be insured by the Business Auto Policy. The Motor Carrier coverage form and Truckers coverage form are the other ISO commercial auto forms that are to be used for those exposures that are not properly insured by the BAP.
Filings
Virtually every truck larger than a pickup truck is subject to filing regulations. Historically, any truck that was driven across a state line needed to have an Interstate Commerce Commission (ICC) filing. In other words, before a trucking firm could operate, its insurer would need to make a filing with the ICC stating that the trucker was in compliance with all ICC insurance requirements. If the trucker were hauling in just two states, it also would need to make a filing with each of the states. If a trucker were hauling in 15 states, there would need to be 16 filings made--that is, one filing for each of the 15 states plus the one for the Interstate Commerce Commission.
The Interstate Commerce Commission number for that trucking firm would be shown on the side of the truck. In addition, depending upon which states were involved, the state's number(s) for the firm also would be shown on the side of the truck.
Today, you will occasionally see a truck with the ICC numbers on the semi-tractor. However, you will see many trucks with a Department of Transportation (DOT) number on the side of the semi-tractor but no ICC number. This is because ICC is being phased out and the Department of Transportation is taking over much of its work. The number of trucks showing numbers for various states is decreasing as about 38 states have reciprocity agreements. In other words, a filing with one state can be the same as making a filing in up to 38 states.
Typically, insurance for any trip is the responsibility of the firm under whose authority the load is being moved. The bill of lading(s) for a load will show this originating carrier. Sometimes the colors of the semi-tractor and semi-trailer will not match, indicating that they are owned by different trucking firms. If they do match, they are owned by the same firm.
Here is how a hypothetical claim might be handled when the tractor and semi-trailer are from different trucking firms. Hubie's Tractors, Ltd., operating out of a small town, does not own any semi-trailers. On all of the trips Hubie's Tractors makes, it pulls non-owned semi-trailers. On one such trip, it is a pulling a semi-trailer for Major Trucking, LLC (MT)--a trucker which has the appropriate state and federal insurance filings to cover all of its operations--when the Hubie's driver has an accident.
Hubie's Tractors was at fault in the accident. The cargo was being transported under Major Trucking's bill of authority. Major Trucking's insurance defends and pays for the liability claims against both MT and Hubie's Tractors.
Major Trucking's insurance protects Hubie's Tractors only for liability insurance. Underinsured motorists, uninsured motorists, medical payments or no-fault, collision and other than collision need to be covered by Hubie's Tractors' own insurance. This coverage also will need to include liability coverage for when any of Hubie's Tractors' rigs are running without a trailer. For example, Hubie's Tractors may deliver a Major Trucking semi-trailer to an MT terminal, unhook the semi-trailer and then drive to a restaurant or motel. The name for this exposure and coverage is "bobtail."
The name bobtail originates from some wildcats with short tails that were called bobcats. Literally, bobtail means short tail. When the semi-tractor is running empty, it looks like it has a "short" tail. Per the commercial auto eligibility rules filed by the Insurance Services Office, an insured can use the Business Auto Policy to insure a bobtail exposure.
Typical use of a business auto policy
A drywall contractor uses its truck to haul material to its various construction sites. Sometimes the material will be coming from its own warehouse, and at other times it will pick up drywall at a supplier and take it directly to a construction site. Because this firm is hauling goods only for its own use--not using any of its trucks to haul goods that belong to anyone else--its exposure is properly insured by the Business Auto Policy.
Improper use of a business auto policy
A business we'll call Pete's Trucking, Inc., consists of one dump truck used to haul gravel and sand for various contractors. A driver for Pete's Trucking goes to one of about six open pit gravel mines to pick up the proper material to fill the order he has. As he leaves one of the gravel mines, he gets several pieces of paper known as a bill of lading. On the bill of lading is the name of the gravel pit, the firm that was buying the material, the type of material and how much material is on the truck. When the truck arrives at the delivery point, someone from the firm for whom Pete's Trucking was hauling the load gets one copy of the bill of lading. Pete's Trucking keeps one of the copies of the bill of lading. Everyone involved in the transaction had a copy of the record of the transaction.
Many trucking operations such as Pete's Trucking are insured on a business auto policy. Technically, Pete's Trucking should be insured on a motor carrier policy rather than a business auto policy for two reasons:
1) Physical damage on non-owned trailers can be insured by the motor carrier contract and are not covered under the BAP.
2) The motor carrier contract's definition of who is an insured better suits the exposure of hauling non-owned goods.
Trailer interchange
Trailer interchange is the name for the loss exposure created when an insured hauls a trailer that belongs to a different entity. Only the physical damage exposure caused by a semi-tractor and a semi-trailer belonging to two different entities is addressed by trailer interchange coverage. This coverage is found on both truckers and motor carrier auto forms. No trailer interchange coverage provision is found in the Business Auto Policy.
While driving on any expressway on almost any day, you will see tractor-trailer units that are not owned by one firm. You might see a Northern Express semi-tractor pulling an Eastern U.S. Ltd. semi-trailer. The tractor and the trailer are insured by different insurers. In the absence of a trailer interchange agreement, this is what might happen in the event of a loss. The semi-tractor causes the loss and its physical damage is covered by Northern Express's insurer. Likewise, Eastern U.S. Ltd.'s insurer would pay for the damage to the semi-trailer. Then Eastern U.S. Ltd.'s insurer would subrogate against Northern Express. However, Northern Express does not have any insurance for this subrogation claim! There is a care, custody and control exclusion on Northern Express's insurance contract. Hence, Northern Express has no coverage for the damage done to Eastern U.S. Ltd.'s semi-trailer.
Trailer interchange is the coverage that Northern Express could have purchased to cover the exposure of damaging a non-owned trailer. This coverage can be for collision, specified perils or other than collision. If this coverage had been used, at the time Eastern U.S. Ltd. turned its trailer over to Northern Express, someone from each firm would have jointly completed a trailer interchange agreement. This form would have noted any damage that had already been done to the trailer. The form would be completed a second time with the return of the trailer to Eastern U.S. Ltd.
By completing this form, Northern Express would not be charged with any damage that had been done to the trailer prior to its being turned over to Northern Express, Inc. Should Northern Express have done any damage to the trailer, trailer interchange coverage on Northern Express's insurance contract would have responded.
Let's look at a hypothetical loss involving a father and two sons from central North Dakota, each owning a semi-tractor and semi-trailer. Among the three of them, they have a flatbed, a grain hauler and a cattle hauler. Each son and the father has his own insurance, so three different insurers cover the three units. As there is a good working relationship among the three of them, any one of them might operate another's unit. The tractors and semi-trailers are also interchanged on a regular basis.
A son uses one of the units to haul a load of grain to Minneapolis, Minnesota. Since he is hauling his own grain, he qualifies as either a private or exempt carrier. This means that he does not need to have a filing made with the DOT, North Dakota Department of Transportation, or the Minnesota Department of Transportation. Usually he "deadheads" back. Deadhead is a trucking expression for the situation in which a trucker runs the entire distance back to the starting point without hauling anything. It is expensive to deadhead, so most truckers will try to find some load to haul on the return trip.
On this trip, the son finds an item that he can haul on the return trip. The item is loaded directly onto the truck by the processor for whom the son hauled the item. Just after crossing the state line into North Dakota, the son has an accident which injures a person and the cargo. No cargo coverage applies to the item being hauled because the son's policy has not been set up to cover goods belonging to others. The son owns the tractor but not the trailer, which is owned by the father. Because no trailer interchange coverage has been activated, the son has no coverage for the subrogation claim made by the father's insurer.
Because the son had crossed a state line hauling someone else's goods, he is now subject to Department of Transportation (DOT) regulations. North Dakota's Department of Transportation also becomes involved. As a precaution regarding the accident, a local volunteer fire department responded to the accident scene. Firefighters are trained to determine what kind of item(s) are involved in a fire because some items can be explosive, others poisonous, and so forth. Hence, one of their first actions at the scene was to determine what could be burning or about to burn. A common industrial materials hazardous substance warning was on the object being hauled. There were no regulations regarding the limits the son, as an exempt carrier, needed. But because the son had become a hazardous material hauler due to his current cargo, the son now needs $5million limits. In addition to the higher limits, he also needs to have coverage for pollution cleanup/damage.
There is no coverage for the pollution situation, and the son's $300,000 limits looked very small compared to the required $5 million limit.
Know your client
Insurance had been provided to the father and two sons to cover the exposures they had described to their agent. Information from the three of them indicated that they hauled only goods that they owned such as grain, cattle or supplies to construct buildings on their farms. None of them told the agent that he might occasionally haul goods that belonged to someone else.
My recommendation is that you always ask the truck owner what cargo might be hauled on a return trip. Deadheading is expensive, and most firms will bring a return load on their way home. Coverage for the situation of returning with goods belonging to others can be insured, if the agent knows about the exposure.
The need for the right insurer
Sometimes the insurance company is not well suited for a trucker's exposures. Let's say Local Insurance Companies (LIC) writes truck insurance and one of its clients is Local Trucking (LT). While Local Trucking (LT) is hauling for itself and acting as a contract hauler, LIC is able to properly handle LT's insurance. Gradually LT starts to expand. Without LIC's knowing about it, LT travels into the neighboring state of Michigan. The first time this occurs, there is no Department of Transportation inspection where they entered the state. On the second trip into Michigan, the Department of Transportation inspection station was open; and as part of the inspection process, the DOT checked to determine if Local Trucking was filed with the Michigan Department of Transportation. Upon learning that Local Trucking did not have a filing in Michigan, DOT told LT to park its rig until the proper filings had been made.
A call to Local Insurance Company revealed that LIC was not filed to write insurance in Michigan and, therefore, they could not make the necessary filing for Local Trucking.
The lesson is that truck insurance should be written only with insurers who know the intricacies of making filings and can service the client's needs. If the insurer can't help you, my recommendation is to use a managing general agent that specializes in truck insurance.
Summary
* Use the proper policy for the type of exposure an account has.
* Trailer interchange covers the physical damage exposure of hauling a non-owned trailer.
* Liability insurance for a non-owned tractor can be provided by the insurance for the trucking firm for whom the load is being hauled.
* Changing the kinds of items being hauled can seriously impact the trucker's insurance needs. *
©COPYRIGHT: The Rough Notes Magazine, 1999