Insurance Coverage for Trucks

Truck Accident InsuranceMinimum Requirements for Coverage

Due to the size, weight and physical characteristics of most trucks, any truck accident is likely to result in severe injuries to those involved, not to mention significant property damage. Therefore, the minimum requirements for truck insurance are much higher than those for smaller vehicles and non-commercial drivers.

Federal law requires that interstate trucks carry minimum insurance coverage. State laws also mandate that trucks carry insurance. These requirements protect the victims of truck accidents from truckers and trucking companies that cannot afford to pay compensation to truck accident victims. Here are the minimum levels of financial responsibility for trucks:

Schedule of Limits – Public Liability

A. Type of carriage:
For-hire (In interstate or foreign commerce, with a gross vehicle weight rating of 10,001 or more pounds)
Commodity being transported: Property (nonhazardous)
Liability limits: $750,000

B. Type of carriage:
For-hire and Private (In interstate, foreign, or intrastate commerce, with a gross vehicle weight rating of 10,001 or more pounds)

Commodity being transported:
Hazardous substances, as defined in 49 CFR 171.8, transported in cargo tanks, portable tanks, or hopper-type vehicles with capacities in excess of 3,500 water gallons; or in bulk Division 1.1, 1.2 and 1.3 materials. Division 2.3, Hazard Zone A, or Division 6.1, Packing Group I, Hazard Zone A material; in bulk Division 2.1 or 2.2; or highway route controlled quantities of a Class 7 material, as defined in 49 CFR 173.403
Liability limits: $5,000,000

C. Type of carriage:
For-hire and Private (In interstate or foreign commerce, in any quantity; or in intrastate commerce, in bulk only; with a gross vehicle weight rating of 10,001 or more pounds)
Commodity being transported:
Oil listed in 49 CFR 172.101; hazardous waste, hazardous materials, and hazardous substances defined in 49 CFR 171.8 and listed in 49 CFR 172.101, but not mentioned in (2) above or (4) below
Liability limits: $1,000,000

D. Type of carriage:
For-hire and Private (In interstate or foreign commerce, with a gross vehicle weight rating of less than 10,001 pounds)
Commodity being transported:
Any quantity of Division 1.1, 1.2, or 1.3 material; any quantity of a Division 2.3, Hazard Zone A, or Division 6.1, Packing Group I, Hazard Zone A material; or highway route controlled quantities of a Class 7 material as defined in 49 CFR 173.403
Liability limits: $5,000,000

Current insurance limits do not adequately cover catastrophic crashes, mainly because of increased medical costs. The decreasing real value of the current minimum levels of financial responsibility is effectively removing the function of insurance in covering catastrophic crashes.

From 1985 to 2013, the medical consumer price index (CPI) increased at a significantly higher rate than the core consumer price index (4.9 percent annually for medical care, compared to 2.8 percent for core). In fact, the medical consumer price index has outpaced overall inflation in all but one of those 29 years.

Endorsements

The prime manner in which truckers meet financial responsibility requirements is through the purchase of insurance and by filing proof of insurance with applicable government agencies.

Whenever insurance is used in trucking operations to meet financial responsibility laws, the policies must be endorsed. These mandatory endorsements are certifications by the motor carrier’s insurer that the policies meet requirements imposed by federal law.

For intrastate carriers and some private truckers not subject to federal regulation, equivalent state laws require insurance filings be made with a state authority such as the DOT.

One endorsement, a MCS-90 endorsement, is required to be part of any insurance policy issued to a motor carrier in order to comply with federal minimum insurance requirements. Promulgated by the Federal Motor Carrier Act of 1980, this act states that each motor carrier participating in interstate, for hire commerce, is required to show proof they have financial responsibility equal to or greater than minimums set by each state.

This endorsement requires the insurer to act as a surety for any injury to the public caused by the carrier during interstate transport and to be responsible for a judgment against the carrier.

Truck vs. Trailer Policies

The owner of a trailer may have a policy of liability insurance providing coverage to a driver as a permissive user. The permissive user should be listed on the insurance policy even if there are separate limits of coverage.

When the owner of a trailer is different than the tractor owner, a MCS-90 (see previous section) endorsement on the trailer’s liability policy may be used to create an additional recovery up to the federal statutory minimum and expand the definition of a permissive user to include both the driver and the owner of the tractor.

Lessor’s Coverage

The lessor (a person or company that leases property) of a tractor-trailer may purchase liability insurance to cover its vehicles even though the vehicles are leased to and operated by another company. The policy issued to the lessor may provide coverage to a permissive driver as an additional insured under the policy even though the lessor has no role in the transportation process and is not vicariously liable for the driver’s conduct.

However, the lease agreement may limit the amount of coverage provided to the driver so it is important for the driver to ask to see what insurance coverage he has under the lease if there is physical or cargo damage during the trip.

Traditional Coverage vs. Captive Coverage and Self-Insured’s

Traditional

Traditional insurance is bought from an insurance company at competitive market rates. Some companies insure motor carriers, trucks and drivers through independent agents, others have sales staff.

Some specialize in specific niches such as large fleets, temperature-controlled equipment or owner-operators. Some cover only large operations, others handle thousands of small customers.

Self-Insured

Federal and state regulations require insurance coverage. A trucker must carry insurance to pay for any damage caused to another’s property or medical care given to a person whose injury the driver caused.

Captive Explained

A “captive” is a special type of insurance company set up by a parent company, trade association or group of companies to insure the risks of its owner or owners and better manage its costs. Captives are essentially a form of self-insurance where the insurer is wholly owned by the insured and does not have to seek insurance in the commercial market.

Ohio businesses were not allowed to form captive insurance companies in the state until 2014. The “captive” is subject to state regulatory requirements and may be a major multinational corporation or a small nonprofit organization.

An Ohio captive may insure commercial multiple peril, ocean and inland marine, medical malpractice, workers compensation, commercial auto liability, and commercial auto physical damage and fidelity.

Self-Insured Retentions

Many liability insurance policies incorporate a provision under which the insured retains a portion of the risk. Common forms of significant risk retentions are large and matching deductibles and self-insured retentions (SIRs). These terms are often used interchangeably, but while they share similarities, there are key differences.

A deductible is defined as the portion of the loss to be borne by the insured before the insurer becomes liable for payment. As a general rule, under a primary deductible policy, the insurer must defend a claim from “dollar one.” A deductible is an amount that an insurer subtracts from a policy amount, reducing the amount of insurance.

An SIR differs in that it is an amount an insured retains and covers before insurance coverage begins to apply. It is the amount not covered by an insurance company and that usually must be paid before the insurer will pay benefits. The insured must satisfy its SIR before the insurer is obligated to respond to the loss because SIRs come directly from the insured not the insurance company. Often the insured control how claims are handled.

Coverage Limits

In Ohio, a pure captive—that is any insurer that insures only the risks of its parent or affiliated companies of its parent—is required to possess and maintain a minimum of $250,000 in unimpaired capital and surplus.

Protected cell captives, captive insurance companies formed and licensed according to the Ohio Revised Code that insure or reinsure risks of separate participants, must possess and maintain a minimum of $500,000.

The participants in a protected cell captive have separate contracts that place each participant’s liabilities into a protected cell.

Additional Insurance Coverage

Excess and Umbrella Policies

If a settlement in a claim is more than the policy limit, anything above that policy limit must be paid out of pocket by the trucking company if an excess or umbrella policy is not in force.

Excess liability coverage provides coverage above the limits of the underlying policy but offers no broader policy than that provided by the underlying document. Umbrella policies provide additional coverage sometimes not available in the underlying coverage. An umbrella policy is usually the more expensive of the two.

Excess liability coverage can actually be more restrictive than the underlying policy. When additional coverage is provided by the umbrella policy, it is usually subject to the insured assuming a deductible or a self-insured retention (SIR).

The limits provided in Excess and Umbrella policies can range from $1,000,000 to $5,000,000 and higher. The limits are dependent on the current value of protected assets and future-acquired assets.

Reinsurance Policies

Reinsurance is insurance purchased by an insurance company (the “ceding company”) from one or more other insurance companies (the “reinsurer”) directly or through a broker as a means of risk management. The ceding company and the reinsurer enter into a “reinsurance agreement” which details the conditions upon which the reinsurer pays a share of the claims incurred by the ceding company.

Passing off risk in this manner allows the ceding company to hedge against undesired exposure to loss and frees up capital to use in writing new insurance contracts.

A healthy reinsurance marketplace helps ensure insurance companies can remain financially viable, particularly after a major disaster such as a hurricane, because risks and costs are spread. Multiple insurance companies share risk by spreading risk.

With reinsurance the premium paid by the insured is typically shared by all the insurance companies so that an individual insurance company can take on clients who would be too great of a burden for a single insurance company to handle alone.

With all the possible layers of protection to make injury victims whole after a loss, it is important to do a completely thorough investigation of available coverage. You must know where to look and what to ask for to get the recovery you deserve.

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