Federal rules pertaining to broker surety filings are in flux following congressional action last year that raised the minimum bond from $10,000 to $75,000. Still, basic procedures for filing are expected to remain.
The most high-profile filing incidents involve brokerages in trouble. If a broker is late on payment, odds are you’re not the only party who’s thinking about filing. If the broker closes and the broker’s bond limit doesn’t cover all debts, claims are paid on a “pro rata” basis – a percentage of what each carrier is owed.
“It doesn’t take long to burn up a 10K bond,” noted Overdrive reader Mike Philips on our Facebook page in January.
|Types of bonds
BMC-84: A surety bond commonly issued by an insurance company.
BMC-85: A trust fund agreement issued typically by a financial institution.Both instruments satisfy the federal bonding requirement of brokerages, and providers approach claims payments in similar ways. However, BMC-85 issuers on occasion market themselves to brokers as a better service; the Pacific Financial Association’s website touts its BMC-85 instruments as superior to BMC-84 sureties given the “control that you have as a broker. When a claim is presented against a trust, you are notified immediately. If you can provide a valid reason why the claim should not be paid, it won’t. When bonding companies receive a claim, they will make the decision for you.”
In cases of broker business failure, getting your claim in early may not be particularly helpful. Federal Services Corp., which handles claims against financial institutions authorized as trust providers for brokers by the Federal Motor Carrier Safety Administration, notes it doesn’t file claims on a “first come, first served” basis. Rather, “while this practice may be followed by some of our competitors,” the company says, “it just encourages premature claim filings – sometimes even before loads are delivered!” [Exclamation point theirs.]
FSC notes that in 95 percent of claims it receives, “the broker pays the claimant after being informed a claim has been filed against their trust.” This avoids what it describes as a time-consuming process of mailing out documents for the carrier to complete and return, detailed below.
How to file
Determine when it’s time to file. After a broker has not paid within a reasonable or contracted time, you can file. Contracts often state 30, 60 or 90 days after delivery.
Find the broker’s surety provider.
Contact the surety provider.