Great West Casualty
Truck Insurance Mart
Alexander Insurance Services
Owner-Operator Independent Drivers Association
One of your trailer wheels breaks loose and caroms into a sport-utility vehicle. Your immediate concern is for the safety of the SUV occupants and getting your rig off the road. Later, it will dawn on you that even though it’s not your trailer, you’re on the hook for all damages.
How can this happen? The carrier that owns the trailer put a “hold-harmless and indemnify” clause in your contract, which makes you responsible for everything – even if the carrier is found at fault in court.
Although you may assume you have enough liability insurance, some modern leases have changed that. While owner-operators have always paid for their primary insurance, whether independently or through a carrier, they are now more likely to be responsible for additional risk as fleets look to reduce their own insurance burdens.
It may seem unfair for a trucking company that owns a trailer to push its responsibility off on a driver, but insurance agents and lawyers say it’s legal and it’s becoming more common. If you aren’t aware of it, you could lose big if you are involved in a wreck.
Most accident liability insurance covers up to $1 million in damages – including property, injury, punitive and other damages. This coverage is usually part of your primary liability coverage, the only type required by law for trucking. Other types of insurance, like non-trucking-use and unladen, may be required by your carrier.
PRIMARY LIABILITY. Every carrier is required to have primary liability insurance on every power unit, owned or leased. If you are operating under a trucking company’s authority, you should be covered under the company’s primary liability when you are doing business for the company. When you are at fault in an accident, the company’s insurance should cover all damages and injuries to others.
You pay for that insurance – often $4,500 to $6,000 a year for a driver with a good driving record – either directly or through settlement deductions. Operators with their own authority buy their own insurance through an agent.
NON-TRUCKING-USE LIABILITY/BOBTAIL. Although bobtail insurance – which covers you when you’re bobtailing and not under dispatch – still exists, many non-trucking-use policies offer the same coverage. Where in the past truckers carried bobtail and non-trucking-use, or unladen liability coverage, agents now tend to write non-trucking-use policies in broader terms that cover non-dispatched trips for personal or business reasons. It’s relatively inexpensive – usually $400 to $500 annually.
Determining when you’re not under dispatch is a big part of understanding liability insurance, says Pete Pomerenke, an agent with Truck Insurance Mart. “A lot of guys say they’re always under dispatch, but I don’t think they are,” he says. “They say it’s splitting hairs or ‘I leave those things up to an attorney.’ But it’s in your best interest to carry your own non-trucking.”
Non-trucking-use liability applies to trips to the truck wash or to Wal-Mart when you’re unloaded or bobtailing and don’t have the permission of your carrier. It also means that if you decide to cut ties with your carrier when you’re out on the road, your trip home will be less risky. As for unladen liability, Pomerenke says, “Most insurance companies don’t even write that kind of policy.”
You should research all aspects of insurance before leasing to any carrier, says Jerry Parker, a senior claims supervisor with Northland Insurance. “Find out exactly what kind of coverage is being provided,” Parker says. “Is it liability or is it full coverage for equipment? What limitations are on the policy? Does it cover me 24-7?”
A typical lease might provide you with primary liability at a good rate – perhaps what the trucking company is paying for insurance – but it could also carry a high deductible, with you liable for any loss. “If you’re assuming a $1,000 deductible, you should be getting a reduction in premium,” Parker says.
“Drivers have a tendency to miss that in their leases,” says Connie Alexander, president of Alexander Insurance Services. “They may throw a $2,500 deductible on primary liability, $2,500 deductible on cargo insurance and $2,500 on their trailer. It could cost you $7,500 in deductibles if you have a big enough accident. And you’ve contractually agreed to it.”
Fleets also now employ “hold-harmless and indemnify” clauses in their contracts on a regular basis. Such clauses shift part or all of the accident liability from the carrier or shipper to the owner-operator. In some states, such clauses aren’t enforceable, but where they are, an owner-operator could be forced to pick up the entire tab for an accident even if his carrier were partly responsible. That can include “anything alleged or actual, including attorneys’ fees, fines, judgments and deductibles,” Alexander says.
“Typically, the owner-operator has to indemnify for any liability the company incurs where the owner-operator is in part negligent,” says Greg Hirtzel, an attorney specializing in trucking for Pennsylvania law firm Post & Schell. “Consider a court case where liability is assessed 50/50 because the company didn’t properly adjust the brakes on its trailer. Driver inattentiveness was also a factor, and the jury splits liability for the $1 million 50 percent each. Each party would be responsible for $500,000 in damages. But because the owner-operator signed the indemnity clause, the owner-operator will face the entire burden.”
Drivers often quickly agree to such terms because they want business. “If you have a national retailer who wants to use your services, and you stand to earn $100,000 with your trucks, you’re going to sign the contract,” Hirtzel says. “You’ll rely on your own expertise to shift the priority of liability away for the company.”
Have any lease reviewed before you sign it. Your lawyer can explain any pitfalls, and your insurance agent can recommend additional coverage.
Another common gap in coverage deals with trailer damage. Many leases shift the responsibility for trailers to the owner-operator. You may have comprehensive equipment insurance that covers your tractor, but it should also cover any trailer you use if your lease or contract makes you responsible for it.
“I had a trucker call me the other day about $6,000 in damage to a trailer,” Alexander says. “He didn’t even know he was responsible for their trailer.” The damages came out of the trucker’s settlement.
Depending on your fleet’s coverage, it may make more sense to purchase your own primary liability and provide your fleet with proof of insurance. One reason is that you know exactly what it covers and who to contact for filing a claim or other assistance. Secondly, if an accident does occur, your interests will not suffer due to your fleet’s primary concern with moving freight and protecting itself, Alexander says.
Buying insurance through some fleets may be beneficial if they can pass savings on to you and provide good service. But the cost difference between the owner-operator buying the insurance and the fleet buying it has largely evaporated in the current economic climate, Alexander says.
Another benefit with getting your own coverage is that you control the terms and can set the deductibles. You may still have to sign a lease with a “hold-harmless” clause, but you can review that with your insurance agent and make sure you have adequate coverage.
If you do buy insurance through your carrier, learn what company is backing up the policy. Great West Casualty says you should check that company’s rating with A.M. Best, an organization that rates the financial stability of insurers.
The key to liability insurance is making sure you know what’s covered and what your risks are in any circumstance. That means understanding your lease and insurance policies, and consulting regularly with an agent. In the event of an accident, it may mean the difference between owing nothing and owing everything.
IS YOUR TRUCK FULLY COVERED?
Used truck prices have rebounded in the last year primarily due to the low-emissions engines required in new trucks. Owner-operators and many fleets don’t want to experiment with the new technology, so many buyers purchased used trucks with pre-Oct. 1 technology. Increased demand for late-model, low-mileage trucks sent prices higher. Before you buy a used truck, make sure your insurance will cover your full investment.
Insurance agent Connie Alexander says a client recently wanted to buy a used 2001 model that had only 80,000 miles on it. The dealer, which got it from a repossession, was asking $80,000.
“He wanted to know where he stood on his insurance,” she says. “I asked him what the truck is worth. He said if it was a regular 2001 and had 300,000 miles, it would probably be worth $60,000 to $65,000.”
In this case, that’s what an insurer is more likely to pay in the event of a catastrophic accident, Alexander says. That would be true even if the accident happened before the truck logged 300,000 miles. The insurer would probably pay a little more if the mileage was still low, but it would be unlikely to make up the difference between the book value on a typical higher-mileage unit and a higher purchase price.
“We don’t pay on what you owe,” Alexander says. “If you’re upside down, pray nothing happens.”
ASK YOUR FLEET
WHAT KIND OF COVERAGE IS PROVIDED? “You should know if the lease covers just primary liability or if it covers bobtail and equipment as well,” says Northland’s Jerry Parker.
WHAT LIMITATIONS ARE ON THE POLICY? Make sure you’re aware of any clauses that might void your coverage, such as the termination of your lease.
IS THERE ANYTIME I’M NOT COVERED? If you’re not covered when not under dispatch, you’ll need non-trucking-use insurance to cover any gaps, agents say.
WHO IS THE INSURANCE COMPANY? “You may not directly be paying that company, but you are through your trucking company,” Parker says. “Is it an agency you trust or you’ve heard of?”
HOW DO I FILE A CLAIM? See if there appears to be a straightforward procedure for filing a claim or getting information from the agency. Make sure you can reach an agent any time, especially while you’re on the road.
AM I RESPONSIBLE FOR CERTAIN DEDUCTIBLES? Find out any deductibles you must bear and whether you get a discount for carrying them. If not, it may be cheaper to find your own insurance.
IS THERE A “HOLD-HARMLESS AND INDEMNIFY” CLAUSE? If possible, get it removed. At the very least, understand what you’ll have to cover if you’re at fault.