Logistics & the Law 2011: Unintended consequences
July 01, 2011
In force today, gone tomorrow?
Let us now suppose that a shipper has been able to determine that a motor carrier’s cargo liability policy will provide a certain amount of coverage in the event of a loss; e.g., $100,000 with a $10,000 deductible amount. While it may be that a smaller trucker would have trouble paying the $10,000 amount of the deductible, hopefully the shipper would get at least a $90,000 recovery in the event of a loss.
However, the next unintended consequence of the FMCSA’s decision is that because motor carriers will no longer be required to file evidence of insurance with the FMCSA, a shipper or broker will no longer be able to determine if a policy is still in effect months or years after its initial inquiries by simply going to the FMCSA website.
Whether intended or unintended by the FMCSA, this result was not unanticipated. In its decision, the FMCSA stated, “The Agency recognized that elimination of the BMC-32 endorsement will make it less convenient for commercial shippers to confirm the existence of cargo insurance.”
According to Yunker, “It is now not only less convenient, but it eliminates any ability for one on their own to independently verify coverage being in place except for actually picking up the telephone and calling an agent to verify that the policy is still in force. It used to be one click, now it’s going to be a game of telephone tag.”
It must be kept in mind that while there have been various private companies who have provided this information as part of the services offered to their customers, it’s the author’s understanding that for most—if not all—of these providers the source of their information was the FMCSA website. Thus, this resource is gone as well.
Another potential source of confusion is that the FMCSA has advised in its decision that it “will not remove the names of insurance companies and the appropriate policy numbers from FMCSA web sites and any other FMCSA distribution methods until March 18, 2013, the second anniversary of the effective date of this final rule, to facilitate identification of insurance coverage for claims arising from transportation occurring while the policies were in effect.”
In other words, the information on the FMCSA website will be historical and cannot and must not be relied upon to show the existence of coverage or the insurer, if any, from March 2011 forward.
And, by the way, the long-standing practice of being a “certificate holder” so you receive notice by the insurance company of a cancellation of a policy is no longer an available option. This is because that at the same time that the FMCSA was in the process of eliminating the cargo liability insurance requirement, another separate and unrelated process was taking place in the insurance industry that led to a change in the prescribed form for an insurance certificate in the fall of 2010.
In the past one could rely, at least to a certain extent, on a Certificate of Insurance to verify that a carrier had some form of cargo liability coverage in place as of a given date. The most common form of certificate is the “ACORD” form from the global, nonprofit insurance trade association of the same name. Prior to October 1, 2009, the ACORD Certificate contained this language: “Cancellation: Should any of the above described policies be cancelled before the expiration date thereof, the issuing company will endeavor to mail __ days written notice to the below named certificate holder, but failure to mail such notice shall impose no obligation or liability of any kind upon the company.”
However, as of October 1, 2010, (after a one-year interim period), this language no longer appears on the ACORD form. It now reads as follows:
“Should any of the above described policies be cancelled before the expiration date thereof, notice will be delivered in accordance with the policy provisions.”
The catch is that if you read the policy provisions they will not provide for giving notice to a certificate holder.
While this article may admittedly be a bit “alarmist” in tone, this was in part to get your attention. For shippers, all is not lost.
At least to date there has been no indication of an en masse cancellation of cargo liability insurance by the trucking industry. If for no other reason, this is because it is economically reasonable and prudent to have at least some form of cargo liability insurance in place, just as it is for any other business to have liability insurance in place to protect its economic interests.
Nevertheless, as time goes on, there will be carriers who will be limiting the extent of their coverage or raising the amount of the deductible to save premium dollars.
Further, while it may be that a trucker with just a few vehicles will stop carrying cargo liability insurance in order to “save money” in the short run, there will also be larger carriers who will conclude that in the long run it would be cheaper to pay losses out of revenues rather than pay the cost of purchasing insurance.
As noted by the FMCSA in its decision, shippers who entered into contracts with their carriers in the past have required certain types of coverage and the level of coverage. To the extent that cargo liability insurance has not been the focus of these requirements, it should be in the future.
To sum up, here’s what shippers need to know:
• the requirement for cargo liability insurance is gone;
• the BMC-32 endorsement is gone;
• certificates of insurance will not provide for notice of cancellation; and
• the FMCSA website cannot be relied upon with respect to a motor carrier’s cargo liability insurance.
Accordingly, in the absence of these protections, a shipper must independently verify the existence of its carriers’ cargo liability insurance policies and the terms and conditions of their coverage. And, as always, the best way for a shipper to protect its economic interests is to negotiate and have in place a contract with its carriers—including a provision requiring a cargo liability insurance policy and that specifies the required coverage.
1 Rob Norton, “Unintended Consequences.” The Concise Encyclopedia of Economics. 2008. Library of Economics and Liberty. 9 June 2011.www.econlib.org/library/Enc/UnintendedConsequences.html.
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