Insurance and Bonds

MOTOR CARRIERS: The DOT has not changed its rules and still issues both common and contract carrier authority. Evidence of liability coverage (Form BMC-91X) and cargo insurance (Form BMC-34) must be filed for common carriers and only evidence of liability (Form BMC-91X) must be for contract carriers. By statute there now is only one type of motor carrier who either can provide services pursuant to its own rules and rates or who can contract with its customers in a written agreement. (49 U.S.C. §13102).

In this firm's opinion, a new applicant need not pay for both a common and contract carrier application to get complete operating authority. It is recommended that new applicants file for "common" carrier authority and file evidence of both liability and cargo insurance to obtain the broadest operating freedom.

LIABILITY: Depending on the commodity an applicant intends to haul, there are 3 authority commodity descriptions which corresponds to 3 different insurance requirements.

(1) $750,000 in coverage for non-hazardous commodities;
(2) $1,000,000 is required for hazardous materials defined at 49 C.F.R. 171.8; and
(3) $5,000,000 is required for hazardous materials as defined in 49 C.F.R. §173.403

Unless they intend to transport hazardous materials requiring $5 million in coverage, most carriers file for the authority which requires $1 million in coverage. The grant which corresponds to $750,000 can limit a carrier's ability to haul certain household items which, while possibly hazardous, do not require placarding.

Remember, a carrier can be sued for far more than then minimum limits of liability it is required to have. Many carriers purchase umbrella coverage as high as $5 million to $10 million per occurrence.

CARGO: Under the Carmack Amendment (49 U.S.C. §14706), a motor carrier is liable for the destination market value of goods lost or stolen. The federal cargo insurance filing is minimal providing for only $5,000 per loss in coverage (Form BMC-34). This amount is wholly inadequate to protect shippers and is often within the limits of the carrier's policy deduction. Cargo insurers typically make no charge for filing this form.

85% of the shipments which move in interstate commerce are valued at $5 per pound or less. This equates to $200,000 to $250,000 per truckload, which seems to be the amount of coverage that most carriers seek. Read more information on cargo claims.

To avoid cargo coverage surprises, there are 3 caveats: (1) avoid high value shipments which exceeds your cargo insurance limits; (2) perfect valid release rates which limits your liability to the extent of your coverage; and (3) watch out for policy exclusions which can leave you without coverage. (Typically policy exclusions include employee theft, moisture damage, reefer damage, upset without rollover, and coinsurance provisions.)

PROPERTY BROKERS: Property brokers are required to file a surety bond (Form BMC-84) or a bank trust agreement (Form BMC-85) in the amount of $10,000. The firm can provide the names of insurance companies and bank trustors who will provide this service. The purpose of the bond or trust agreement is to ensure that there is a minimum of $10,000 available for distribution to shippers or carriers in the event of broker malfeasance. While the broker regulations require that brokers segregate freight charges from their other business endeavors and that they assume the shipper's obligation to pay the carrier upon receipt of funds, frequently these rules are not followed. When misfeasance or malfeasance occurs, carriers and brokers have recourse to the exhaustible bond. Contact us if you have any questions concerning bond claims. Remember that any delay in filing a claim can cause you to lose any chance of recovery.

FREIGHT FORWARDERS: A freight forwarder is in the unique position of acting like a carrier vis-à-vis its shipper and, like a shipper vis-à-vis the carriers it retains. See John Husk's article herein for a discussion of the statutory definition. (Adobe Acrobat Reader download available below.)

Although freight forwarding was deregulated during the mid-'80s, by subsequent statute stet regulation of freight forwarders has returned. A freight forwarder's license is required, and there are requirements for filing evidence of agents, liability and cargo insurance similar to the requirements for carriers above discussed.