Securing Your Safety Net

Owner-operators walk a fine line in trying to balance insurance coverage and deductibles, hold down costs and keep up with who’s responsible for what.

Sometimes the insurance business just doesn’t seem fair, says John Skimmerhorn of Rockport, Ind., an owner-operator leased to CRST Malone.

“If you pay the type of money we truckers pay for insurance, and you don’t have any claims, that’s like money you’ve thrown into the bank for the insurance companies,” Skimmerhorn says. His auto insurer is sending him a $700 safe-driving rebate, but not his truck insurer. “Even if 10 percent of it could come back, that’d be something.”

On the other hand, Skimmerhorn is glad to have that coverage he doesn’t use. Munching a Subway sandwich one April afternoon, he watched through the window of the Pilot Travel Center in Haubstadt, Ind., as a crowd gathered around an overturned big rig on U.S. 41.

“It just goes to show you,” Skimmerhorn says. “I don’t guess you could get away with not having insurance out here.”

After the truck payment, truck insurance is an owner-operator’s biggest fixed cost, one that must be paid on time whether a truck is running hard or parked. Damage, cargo and liability insurance can be expensive and confusing, but smart owner-operators understand the responsibilities that fall to them or, if leased, to their carriers, and do their best to maintain appropriate types of coverage that fit their operations and budgets.

“It’s a fixed expense, so it shouldn’t be a surprise,” says Cheri Chwastyk, an assistant vice president at Citizens Clair Insurance Group in Norristown, Pa. “Good business people plan insurance expenses a year ahead.”

Leased owner-operators generally carry just as much truck insurance as independents but pay for less of it themselves. CRST Malone, for example, takes care of Skimmerhorn’s cargo insurance, and he’s responsible for the rest.

The leased operator should make sure the lease agreement specifies what he is not responsible for, typically primary liability and cargo, and what he is responsible for, typically physical damage and non-trucking liability, says Mike Bonham, sales director at Marvin Johnson & Associates in Columbus, Ind.

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Some insurance trends in leases are worrisome. For example, some fleets charge the owner-operator for liability and cargo insurance, usually by taking a percentage of all settlements. Others are beginning to require drivers of smaller trucks to handle their own primary liability, especially in courier or delivery applications, notes Richard Gallegos, president of Transport Insurance in Sylvania, Ohio.

Have a trucking insurance professional or an attorney go over the lease agreement with you, Gallegos says. “I’ve seen a lot of negotiations done.”

The leased owner-operator is better off buying physical damage and non-trucking liability coverage on his own, even if his fleet offers it, says Ed Campbell of 1st Guard Insurance in Venice, Fla. It’s just as cheap; better yet, it’s portable, should the driver and fleet part ways.

Some leased owner-operators buy all their insurance independently of the plans offered by their fleets. This often costs more, but its advantages include more control of your coverage, a closer business relationship with your agent and usually a speedier response to a claim, says Brian Hershberger, an account executive at ONB Insurance Group in Evansville, Ind.

Owner-operators shopping for insurance can look to trucking-specific insurance agencies, to organizations such as the Owner-Operator Independent Drivers Association, even to truck dealers.

“Before you buy insurance, you’d better understand it,” says Dale Scheuffner, a vice president at Northland Insurance in St. Paul, Minn. “It’s very complicated, and everyone thinks they’re totally covered until they have a loss.”

Primary liability insurance is required by federal law, so it’s standard in lease agreements. Remember, though, that just because your carrier is insured against damage you cause, the carrier won’t necessarily be on your side in case of an accident. For that reason alone, some leased owner-operators opt to buy liability insurance independently of their carriers.

For many, however, having liability taken care of is one of the biggest advantages to leasing. Owner-operators trying to get their own authority, Campbell says, are often surprised by how costly, complex and time-consuming liability coverage can be.

“It’s sort of a Catch-22 situation,” Campbell says. “The insurer wants proof that you can run your business before it will write you the policy, but until you get the policy you can’t run your business.”

Whereas a damage policy commits the insurer to paying only the current value of the truck, a typical primary liability policy commits the insurer to paying as much as $1 million if something goes wrong. Assuming that risk, Campbell points out, earns the insurer only about $5,000 a year in premiums.

Moreover, the actions of a few owner-operators drive up premiums. Every veteran truck insurance agent knows of owner-operators who parked their trucks and reported them stolen, or “set them on fire because they weren’t making any money,” Bonham says.

“Owner-operators are a higher risk than fleets,” Chwastyk says.

The insurer is likely to quiz the prospective independent about the type of freight to be hauled, the region or operating radius, his background as a driver and as a business person, and his regular safety and security practices, Campbell says.

Beware of agents who quote prices without learning your situation, Chwastyk says. “There’s a difference in exposure between rural drivers and metro drivers, between dedicated route drivers and folks who drive all over the place.”

Owner-operators can really help themselves by demonstrating that they have a solid business plan for the short and long term, including a daily maintenance schedule and routine safety procedures, Chwastyk says. “That’s 10 percent off your premium right there,” she says. “If you’re handy with an engine, so that you could do repairs by the side of the road at midnight, tell the agent that. You want to show that you have the desire not to make a claim.”

A safe owner-operator with a solid business plan and savings in the bank who has done his homework should be able to answer any question to the insurer’s satisfaction, Campbell says. “It’s tough, but it’s not insurmountable.”

Moreover, the prospect of tripling one’s insurance costs – as recently happened to one of Hershberger’s clients – shouldn’t prevent anyone from going independent, he says. The crucial factor is whether you reliably can line up your own good-paying freight. If you can, then you can afford the insurance.

The most important thing to understand about a damage policy, Hershberger says, is that it will pay no more than the book value of the equipment at the time of the accident. In other words, you won’t get “a new truck” out of a damage claim, even if your present truck is totaled. The insurer’s preference is always to go the cheapest route, which is usually repairing the truck.

At best, you’ll get enough to buy another truck of the same age and same mileage. But since an owner-operator can owe more on a truck than it’s actually worth, thanks to depreciation, the damage settlement may not even be enough to make the rest of the payments on the totaled rig.

If you’re driving a new truck or a truck no more than five or six years old, gap insurance is helpful, Chwastyk says. It covers the difference between the book value of the truck and what you owe on the truck. “As soon as you’ve driven it off the lot, remember, you’ve lost thousands of dollars in value.”

A typical annual damage premium is 3 percent to 5 percent of the truck’s value; for example, $3,000 to $5,000 for a $100,000 truck, Bonham says. A bad driving record, however, can bump the cost to $8,000 a year or more. The truck’s application can also affect its premium, Hershberger says.

The other important factor affecting damage insurance premiums is the deductible – what the policyholder agrees to pay on a claim before the insurance kicks in. Deductibles of $1,000 are typical.

Ask your agent for a range of premium prices at various deductibles, low to high, Hershberger says.

“I wouldn’t go less than a $2,500 deductible,” Bonham says. “Anything less than that, I’m probably not going to file a claim on anyway.” On top-of-the-line rigs, Bonham has seen deductibles as high as $10,000. “But the cost difference between a $5,000 deductible and a $10,000 deductible may be so little that the higher deductible isn’t worth it.”

Chwastyk advises low to moderate deductibles. A high deductible is no bargain if an accident puts you out of business, she says.

Whatever your deductible, make sure you have enough cash on hand to meet it, Chwastyk says.

If the deductible in your fleet policy is too high for comfort, you can even buy insurance that will pay that deductible for you. Such “deductible buy-back” insurance generally is cheap, maybe $120 to $180 a year, Bonham says.

Any truck equipment not covered in a basic damage policy – for example, tarps, binders or chains – can be added by the owner-operator at very little cost, Hershberger says. A basic policy also likely won’t cover the cost of replacing a tank full of diesel that spills in an accident, or any other fluid replacement, he says.

Boilerplate policies typically cover only permanent OEM-installed fixtures, not additions such as Qualcomm, Vorad, satellite radio, televisions and laptops. “Tell us you’ve got it, and pay that little bit extra, and you’re fine,” Bonham says.

Gallegos urges clients to make sure their theft damage policy doesn’t count the cost of towing as part of a damage settlement. If it does, thousands of dollars of any settlement will go not to repairs but to the tow company. You’re better off getting extra coverage for towing.

The federal government requires only $5,000 in cargo coverage, but that’s an unrealistic bare minimum, Gallegos says. Fleets typically buy $100,000 on the owner-operator’s behalf, the amount mandated by many shippers.

Specialty haulers can carry far more. Owner-operator Max Middleswart of Gibbon, Neb., hauls reefer loads of meat to Florida for Rolar Inc., an 11-truck operation owned by his brother, Larry. Max’s truck insurance totals $9,636 a year, which includes $300,000 in cargo coverage – necessary given the rising cost of meat.

“I hauled one load of 45,000 pounds of filet mignon and top sirloin, and I’m pretty sure we had that $300,000 used up,” says Middleswart, who carries a $5,000 deductible.

Overdrive research shows that 5 percent of owner-operators had to use their cargo insurance in the past three years. The average claim was only $2,936, yet 25 percent of those with a claim said the expense caused financial hardship.

Many owner-operators know they have cargo insurance but don’t know even the basic details of their coverage, according to the 2005 Overdrive Owner-Operator Behavior Report. A third don’t know their deductible; half don’t know their coverage limit – the dollar amount at which the insurance stops paying. And 42 percent don’t know whether their cargo insurance covers an unattended trailer.

“Owner-operators should know the parameters of their cargo insurance, even if provided by carriers, since owner-operators may be liable in some instances,” says analyst Chris Brady, who compiles the Overdrive research. The fine print in some lease agreements, for example, charges the owner-operator for any cargo losses if he’s at fault in an accident, cargo insurance or no cargo insurance, Hershberger says.

Some cargoes, too, have a much higher value than an owner-operator’s cargo insurance can cover. Yet 39 percent of owner-operators don’t know who’s liable for the difference if that load of Rembrandts burns up. This “could result in financial disaster for owner-operators,” Brady says. Only 40 percent of owner-operators have enough in reserve to pay for emergency losses that their insurance won’t pay, according to Overdrive research.

Liability and damage policies tend to be the same across the insurance industry, but cargo policies differ company to company, Gallegos says. Many cargo policies are quite restrictive, covering the cargo only for a fixed amount of time, for example, or only while someone is physically present with the load.

Cargo insurance does not cover contractor or employee theft, an important point for a small fleet owner, Gallegos says.

Non-trucking-use liability insurance, which covers you when you’re not under dispatch, is a more precise term for what used to be called “bobtail insurance,” Hershberger says. An owner-operator running to Texas to pick up a load, for example, is considered under dispatch for insurance purposes.

Non-trucking-use liability covers only personal use of the vehicle, not picking up extra money on runs between dispatch jobs – or, as Gallegos puts it, “hauling Aunt Sally’s trash for a fee.”

What “under dispatch” means, exactly, tends to be determined in courtrooms. “You may be running bobtail in a physical sense, but not in a legal sense,” Hershberger says.

Courts have held that even a bobtail trip home can be considered under dispatch since the route is determined by where the fleet sent the driver most recently. “Insurers take the position that the fleet owes the driver a trip home, though not if the trip home goes through Disney World,” Hershberger says.

Sometimes the fleet’s insurance company refuses to pay a claim, arguing that the owner-operator was not under dispatch at the time, and the owner-operator’s insurance company likewise refuses to pay, saying he was, too, under dispatch. “Guess who gets caught in the middle? The owner-operator,” Gallegos says.

With all your coverage, whether paid for by you or your carrier, read your policies. Make sure you know the answers to any questions before an emergency, and review your policies regularly to control costs.

“Insurance is a necessary cost of doing business,” Bonham says. “We’re talking your equipment and your livelihood.”

An owner-operator with a new truck, a safe driving record and his own authority is likely to pay a lot for insurance. Ed Campbell, president of 1st Guard Insurance in Venice, Fla., offers these annual estimates:

$5,000 primary liability
$2,400 physical damage
$1,000 cargo
$450 non-trucking-use liability
$8,850 TOTAL

Insurance experts recommend these practices to put the brakes on premium increases:

DRIVE CAREFULLY. “Protect your motor vehicle report like it’s gold, because it is,” says Mike Bonham of Marvin Johnson & Associates. A speeding ticket in a Blazer or a smashup on a Harley will increase a truck-insurance premium and dissuade some insurers from doing business with you. Even minor offenses stay on your record for years; major offenses will stay as long as you live.

TAKE A BITE OUT OF CRIME. “Just be aware, and use common sense,” says Ed Campbell of 1st Guard Insurance. Be especially cautious when hauling a cargo that attracts criminals, such as cigarettes, cell phones or designer clothes. Park only in lighted, secured areas, and don’t leave a truck or trailer unattended over a holiday weekend.

KEEP VALUES CURRENT. Talk to your insurance agent every year to adjust your coverage according to the changing value of your equipment, Campbell says. Usually this means depreciation, but value can tick upward, too, thanks to an engine upgrade or even equipment shortages across the industry.

DON’T OVER-INSURE. Being over-insured often means duplicate coverage somewhere, for example a private policy that overlaps a fleet policy, says Cheri Chwastyk of Citizens Clair Insurance Group. But some owner-operators just buy too much coverage. She’s seen drivers running back roads within a 100-mile radius of the yard who nevertheless carry $3 million in liability insurance, three times what they need.

STAY PUT. “if you drive for three different companies in a year, you’re going to have a higher premium,” says Dale Scheuffner of Northland Insurance. “The more you change routes and equipment, the more you’re at risk of an accident.”

WATCH THOSE LUMPERS. Don’t leave your cargo and your trailer to the mercy of lumpers and dock workers you don’t know. Keep an eye on what’s going on, to make sure nothing’s damaged.

KNOW YOUR CARGO. Read the bills of lading. Ask your dispatcher or freight broker exactly what you’re hauling and for whom, in case the value exceeds your coverage.

Also make note of any cargo damaged before pickup and make the shipper or fleet sign off on it, so you aren’t blamed later.

KEEP UP YOUR PAYMENTS. If you let your insurance lapse, you’ll pay the penalty for years to come in higher premiums, even if you can find an insurer to cover you.

REPORT ACCIDENTS IMMEDIATELY. Tell your insurance company within the hour, if possible. Days after the fact, all the unhappy insurer has to go on is the police report, and the victims have had plenty of time “to call lawyers who advertise on television,” Bonham says.

John Skimmerhorn, a three-year owner-operator, was required to get insurance through ONB Insurance Group by the company that financed his new all-aluminum Manac trailer. Skimmerhorn worked with ONB’s Brian Hershberger. “I was just a little green about the industry at the time, and Brian has been real helpful.”

An agent who knows your business plan can help assure you’re always covered and always can make your premiums, says Cheri Chwastyk of Citizens Clair Insurance Group. “The longer owner-operators stay with one insurance company and don’t bounce around, the better,” she says.

“Find someone who really knows about truck insurance,” says Mike Bonham of Marvin Johnson & Associates. “Your regular guy who insures your house and car is a great guy, but cars and trucks are worlds apart in insurance.”

Too many leased owner-operators don’t even know which company is insuring them, says Ed Campbell of 1st Guard Insurance. Get the company’s name and check it out for free at the A.M. Best website,, which ranks each insurer according to its financial viability.

Sticking with A-rated insurers is the best policy because they offer better coverage and faster turnarounds on claims, Chwastyk says.

The chief question to ask of an insurer, Bonham says, is: “How quickly can they get me back on the road?” Other questions include: Does the policy cover a truck rental while my rig is in the shop? Does it reimburse me for downtime? How quickly can I reach the agent in case of emergency? This isn’t just a convenience for the policyholder, Bonham notes; the good insurer wants to be notified as quickly as possible in case of an accident.

Make sure your insurer has a 24-hour claims hotline number, and make sure you can reach your own personal agent quickly as well, Chwastyk says.

Don’t call your agent only in an emergency, though. Even drivers with 2 million safe miles need to check in with their insurance agents regularly, Chwastyk says. Let your agent know when anything changes: new equipment, new routes, new driving partner. Call whenever you’re considering hauling something other than your normal cargo because you might need to modify your coverage.

Leased owner-operators should know the specifics about the insurance coverage provided by their fleets. Reading the policy is crucial, but here are some specific questions to ask:

  • What exactly is covered? What is not covered?
  • How much will this insurance cost me? Will the premiums be taken out of my settlements, and if so, at what rate?
  • What deductibles am I responsible for, and how are those deductibles to be paid?
  • How do I file a claim? How do I reach an insurance agent 24-7?
  • Under what circumstances is the coverage terminated?
  • What’s the insurance company, where is it located, and what’s its industry rating?
  • Is there a “hold-harmless and indemnify” clause? If I’m at fault, how does that affect coverage?

After your questions are answered, you should check with your insurance agent to see if you need additional insurance.

A.M. Best
(908) 439-2200

Citizens Clair
Insurance Group
(800) 220-3008

Good’s Insurance Agency
(800) 699-7120

1st Guard
(800) 995-4827

H.K. Smith & Associates
(877) 833-2050

Insurance Network
(800) 636-6070

Lincoln General Insurance
(800) 876-3350

Marvin Johnson & Assoc.
(800) 457-5255

Northland Insurance
(800) 237-9334

ONB Insurance Group
(800) 423-5229

Roemer Insurance
(888) 931-1934

Sentry Insurance
(800) 610-4888

Transport Insurance Agency
(888) 935-4842