Not all Cargo Insurance is Created Equal

From time to time I, Joel Baker truck driver, have been asked by a customer or a broker if my insurance is from xyz insurance company. When I respond and say: “no, why do you ask?” I typically get a reply that goes something like “our company doesn’t, can’t or isn’t able to do business with any trucking company who has their insurance from xyz insurance company.” Usually what they are politely trying to tell me is that the customer or broker has had a previous bad experience with xyz insurance company in the form of a denied claim. Most of the time it’s a denied cargo claim. Sometimes they will also state something along the lines of “xyz insurance company does not provide broad form cargo coverage.”

So what in the heck is “broad form” cargo coverage and why does it matter? The answer is simple but the details can get us lost in the weeds. To try and keep us from getting lost in those weeds I’m going to stick to the basics.

First of all, when anyone brings up “broad form” cargo coverage they are actually borrowing a term that is most commonly used with Homeowner’s Insurance policies. There are actually 3 forms. Those 3 forms are Basic, Broad and Special. The verbiage used within a policy rarely actually uses these terms. Rather the policy will detail coverage for perils (I’ll explain perils in the next paragraph). What the policy states about the perils determines whether the policy provides Basic, Broad or Special form coverage. The use of the terms Basic, Broad and Special forms is most frequently used between insurance companies, underwriters and agents so they can more easily discuss the policy coverages.

OK, what’s a peril? A peril is the cause of the loss. For example, the scenario in my last article, the loss of my cargo (glass panels) was due to my collision with the dock. So in that scenario the peril for the loss of the cargo was collision.

Now lets look at sample lists. *Important – Each insurance company creates it’s own list of what is and is not a covered peril and what perils are exempted from coverage.

Disclaimer: This table of perils is only a sample and for educational purposes only. It does not reflect any insurance company’s list of covered perils or exempted perils. Please contact your insurance agent or insurance company for a list of covered perils and exempted perils within your policy.

Good
Basic Form
Better
Broad Form
Best
*Special Form
Covered PerilsCovered PerilsExempted Perils
Theft
Fire
Collision
All basic form Perils – PLUS:
Falling Objects
Vandalism
Flood
Intentional Acts
Nuclear Hazard
War

*Special Form covers all perils EXCEPT those which are exempted from coverage

Using the table above, it’s very easy to see why a customer or broker may not be able or willing to accept cargo coverage if the policy provided by an insurance company only provides coverage for a very limited number of perils.

Now this is where the weeds get pretty tall, thick and a bit difficult to navigate. Remember that I mentioned that each insurance company creates it’s own list of what is and is not a covered peril. Sometimes two different insurance companies can have the same list but NOT use the same form verbiage. Lets compare 2 lists of perils for two different and fictitious insurance companies:

Disclaimer: These tables of perils is only a sample and for educational purposes only. They do not reflect any insurance company’s list of covered perils or exempted perils. Please contact your insurance agent or insurance company for a list of covered perils and exempted perils within your policy.

XYZ Insurance Company

Good
Basic Form
Better
Broad Form
Best
*Special Form
Covered PerilsCovered PerilsExempted Perils
Theft
Fire
Collision
All basic form Perils – PLUS:
Falling Objects
Vandalism
Flood
Intentional Acts
Nuclear Hazard
War

*Special Form covers all perils EXCEPT those which are exempted from coverage

ABC Insurance Company

Good
Basic Form
Better
Broad Form
Best
*Special Form
Covered PerilsCovered PerilsExempted Perils
Fire
Collision

All basic form Perils- PLUS:
Theft

Flood
Intentional Acts
Nuclear Hazard
War

*Special Form covers all perils EXCEPT those which are exempted from coverage

Notice that even though ABC insurance company has what it calls “broad form” cargo coverage, the coverage is exactly the same covered perils provided by XYZ insurance company’s “basic form” coverage. So the form title used by an insurance company does not necessarily reflect the coverage that we are seeking or coverage we believe we have purchased.

Now it should be very clear that it is crucial for us as truck owners to ask and be aware of which perils are covered are which perils are not covered by the cargo coverage of our insurance policy no matter what the insurance company has titled it (what form name is being used). Because if we don’t, and we have a cargo loss which is not covered by our insurance policy, we can be sued and held liable in court for the loss of cargo. Being held liable in court means most likely being required to compensate the owner of the cargo for the entire value of the loss.

Because insurance policies are contracts, they are written by attorneys and contain legalese that is hard for most of us to read or make sense of. Insurance companies understand this. So to help, some insurance companies provide some type of a policy or product summary/guide/overview or similar type document for their insureds/customers. Requesting a copy of this document can be the easiest way to find out what perils are covered or exempted within your policy. For the companies that don’t provide such a document, it is best to ask your insurance agent for a list of both covered perils and exempted perils.

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BEFORE Signing a Lease Agreement for a Truck – Check the Insurance Requirements Within the Lease Agreement.

There are pros and cons for both purchasing and leasing trucks as I wrote about several years ago in my Buying vs Leasing article. However, for those who wish to utilize the leasing option, there is a commonly used condition within lease agreements that can be a serious obstacle to overcome.

A significant number of my customers intend to lease their first truck as a way to reduce the initial start up costs for their new trucking businesses. Most of them are aware that the lease agreement they will sign has certain detailed terms and conditions which includes insurance requirements. However, few are aware of what the exact insurance requirements are and simply assume it’s just a “typical” commercial auto insurance policy. Often, that is not the case.

My own commercial auto policies (trucking policies) have always included coverage for “scheduled autos” as well as other coverages such as “cargo,” “medical payments,” “physical damage,” etc. which is typical for most all independent owner operators. For a significant number of truck leasing companies these coverages, while necessary, frequently will not meet all the insurance requirements of the lease agreement. Many lease agreements include a requirement to have “any auto” coverage and possibly “hired auto” coverage included on the insurance policy. The majority of insurance companies I am aware of or work with will typically not be able to provide “any auto” coverage for an independent owner operator or even small to mid-size fleets.

Because of what “any auto” coverage is, providing that coverage comes with an enormous risk for the insurance company. “Any auto” coverage means exactly what it says. It’s easiest for me to explain by using an example…

Hypothetically, I, W Joel Baker trucking, has an insurance policy that includes “scheduled auto” coverage. When I applied for my insurance I included on my application that I own 1 truck. That truck is “scheduled” on the policy. I also requested and was provided “any auto” coverage. 6 months later my customer informs me they will need 4 more trucks to support the increase in loads and they would like me to provide those 4 additional trucks. Great, my business is growing! So I get 4 more trucks. Without me notifying the insurance company, those trucks automatically have applicable coverage without any premium increase because of the “any auto” coverage I have on my hypothetical insurance policy. So what would stop me from adding 10, 20, 50 trucks or more without paying a single penny more for my insurance premium? That’s right, absolutely nothing! Hence, that is why it’s very difficult to find an insurance company who is willing to provide “any auto” coverage.

I know what everyone is asking. Why would a leasing company require “any auto” coverage then? I sincerely believe their motivations are mostly well intended. For example, if the truck you have breaks down they can quickly and easily give you a different truck. Sometimes the lease will be for different trucks for different days, weeks, months, etc. depending on truck availability. I have seen other cases where I believe the intent is less than ethical. I have seen those same leasing companies offer their own insurance policy that meets the terms of the lease agreement. Of course those premiums are typically much higher which completely negates any start up cost savings.

The best way to avoid this challenge is to fully read the lease agreement before you sign it. Do not take the sales person’s “word for it.” If you’re still not sure, share the lease agreement with your attorney or your insurance agent. Finally, if the leasing company has trucks available for lease (especially in the box truck industry) there is a strong probability their lease agreement includes “any auto” coverage.

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Avoid Application Errors when Applying for Your USDOT or MC Numbers

All to often application errors lead to extra start up costs, delays and lost income.

Many who contact me through my website LearnToTruck.com or call for an insurance quote have never applied for or had a USDOT (United States Department of Transportation) or MC (Motor Carrier) number before. It is imperative for anyone who wishes to have a USDOT and/or a MC number to be fluent and understand all the different entities and compliance with those entities they will now be required to meet. To help with that, if they have not already hired an “agent” to apply for their USDOT & MC numbers, I always encourage everyone to complete the application themselves. Avoiding fines and penalties from entities such as the FMCSA, IRP, IFTA, UCR, etc. by using the excuse that you didn’t know or the “agent” made a mistake is the same as trying to use the excuse “I didn’t see a speed limit sign” to avoid getting a speeding ticket. Speaking from experience, it’s typically not going to work in your favor. Not to mention the huge amount of money saved by avoiding these “agents.” I have seen these “agents” charge anywhere from $500.00 to $1,500.00 or more in addition to the fees required by each entity just to get started. Then they will point out a supposed need to continue to use their services throughout the year. What they don’t tell you is that it is just as easy for you to complete all the required tasks by giving the exact same information to those entities directly.

Before applying, it’s important to understand that some of the most insignificant or minor errors and/or deceptions can cause some of the longest delays in getting your “Operating Status” to “Authorized for Property” (the most common authorized status for OTR operations). Until your status is updated by the FMCSA you are not compliant and as such can not begin operations. That is to say, you can’t haul loads and generate income. In the Army we had a saying, “fast is slow and slow is fast.” That saying is applicable here as well. When we do things in haste mistakes typically happen. Always review every entry for typos, accuracy and duplications.

Typos – These are most common errors I see. Some are as simple to see and identify, while others are far more difficult to spot.

  1. Misspelling – Auto correct can be our worst enemy. Always verify the spelling of every entry before moving on to the next field.
  2. Punctuation – Whether or not a comma, period, hyphen, etc. is or isn’t present can cause serious headaches.
  3. Spaces – Even a missing or extra space between words or letters can cause some of the biggest headaches to correct. Mainly because they are very difficult to locate.

Accuracy – These are the second most common errors and can be the most time consuming and down right aggravating to correct. They can be an honest mistake or a misunderstanding of what is being asked on the application or they can be deceptions. NEVER be deceptive! It will cause increases in your insurance premium and can potentially be compliance violations. Since accuracy relates to every entry and selection you make, be sure to go slow and double check your work.

  1. Entity Type – “Motor Carrier of Property (except Household Goods)” is the most common entity type. Occasionally an applicant who is hauling new furniture from a manufacture to a warehouse will incorrectly believe this means they are a “Motor Carrier of Household Goods (Moving Companies)” and select the wrong entity type. Be sure to know which entity type is correct for your operation before beginning the application.
  2. DBA (Doing Business as) – This is the most frequent accuracy error and comes in many forms. The best way to avoid DBA errors is not to use a DBA. That said, here are the 3 most common DBA errors.
    1. The DBA should NEVER be the exactly the same as the company name. If my company was “W. Joel Baker, Inc” I may want to use a DBA of “W. Joel Baker Trucking.” If they are the same name some insurance companies will not even provide a quote.
    2. The DBA should NEVER be a second corporation. If my company was “W. Joel Baker Trucking, Inc” and I add a DBA of “Joel’s Express, Inc” that suggests there could be two separate corporations attempting to use this USDOT and/or MC number.
    3. NEVER enter “same,” “same as company name,” “none,” “N/A,” or any other variation. If you are not using a DBA the field must be left blank. ANY entry you put in the DBA field becomes your “Doing Business as” name.
  3. Company Address – This is the most common form of deception. NEVER use a virtual or alternate address as a company address. This is the legal address for the company where all required company records and FMCSA required verifying documents are to be stored, maintained and ready for inspection by any entity such as USDOT, FMCSA, IRP, IFTA, etc.
  4. Mailing Address – Only use a different mailing address if you utilize a USPS PO Box, local UPS store Box, etc. Otherwise you appear to be hiding something or potentially operating as a chameleon carrier. Especially if you are using an out of state mailing address.
  5. HAZMAT – Most generally, this error usually happens by auto transporters. By both those who only haul cars and by those who haul them occasionally. Autos are a class 9 HAZMAT. Class 9 HAZMAT does not require placards but does require more than the standard minimum $750,000.00 in BIPD auto liability insurance filings for those over 26,001 lbs. Auto transporters, even those who only haul cars 2 or 3 times a year, are required to declare class 9 HAZMAT and have $1,000,000.00 in BIPD auto liability insurance.

Duplications – Address duplications happen multiple times a day. Carefully read the address instructions and verify your entry(s).

Some find it helpful to have a few things written down or in a document on their computer before beginning the application. Such as:

  1. Company name with correct spelling and punctuation
  2. If one is desired, a company DBA
  3. Company address (and mailing address if different)
  4. Commodities (cargo) intended to haul
    1. Identify any possible HAZMAT. Both those that require placards and those that do not (class 9).
    2. Choose more than general freight from the list provided by the FMCSA.
    3. If necessary, using the “other” option, specify any type of unique or special cargo that does not adequately fit into one of the choices provided.
  5. Company address (and mailing address if different)

One way to avoid some of the most-common errors could be to be fall back on tried-and-true filing methods, setting aside the convenience and speed of the agency’s online forms in favor of the printed (or pdf version of the) authority application. Manually filling out the printed form, or the pdf version, means someone at FMCSA itself will be directly involved in entering that information into its system’s central registration system. If they introduce errors, the paper trail back to your original form might even save you money on a name change, for instance, if the error can be proven to be theirs and not your own. (Yes, it’s true that some errors you might have to actually pay to correct.)

Once the FMCSA application is complete, it’s highly advisable to request your new USDOT PIN immediately. With that PIN many of the simple errors such as duplications, typos, address, company name, etc. can all be corrected online quickly and fairly easily.

I have seen just as many application errors by “agents” as by those who complete the application themselves. As I mentioned earlier, I always recommend completing all regulatory and compliance responsibilities as possible. By doing so it significantly reduces operating costs while simultaneously educating the new company owner as to all that is involved to operate and be compliant. That education is vital because of the countless bad actors out there who charge for services under the guise of “compliance.” All to frequently it’s more about how to charge the new company for additional services because the new company is unaware of what is and is not required to be compliant.

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The most under-appreciated insurance coverage in all of trucking

It’s worth its weight in gold!

If we don’t have this coverage, or if we choose to purchase only the minimum of this coverage, we won’t realize the mistake until it’s way too late.

A recent customer claim has solidified my opinion to never overlook or trivialize any of our insurance coverages. My customer was driving their truck and their spouse was a passenger. (Passengers were and are permitted to be in the vehicle.) There was an incident involving another vehicle. That other vehicle is believed to be a personal car. The actions of that other vehicle are believed to have led to the very sad and unnecessary death of the passenger and spouse of my customer.

The other vehicle, the car, fled the scene and the police are searching for this vehicle.

When we complete an insurance application either physically, electronically or over the phone with an agent, eventually we must choose our Uninsured Motorist/Under-Insured Motorist (UM/UIM) coverage amounts. All too often, I have customers tell me one of several things. Typically they sound something like this: “I need to save money so only give me what I need” or “I only want what’s required” or “Just give me the minimum so I can get my business started.” While most of us – and yes, myself included — can well relate to keeping insurance premiums as low as possible, UM/UIM is the one coverage we should never decline or only purchase the minimum available.

UM/UIM is never fully appreciated until it’s needed. Frequently though, because the insured desires to save money, they either request and purchase the minimum amount of coverage or decline the coverage
altogether. Tragically, this money-saving decision can prove to be financially devastating when the worst happens. Most everyone knows and understands what Uninsured Motorist coverage is — it pays our medical expenses, up to the limits of our coverage, when we are in an accident and the other driver is at fault (liable) but has no insurance. However, what’s typically not understood by most insureds is Under-Insured Motorist coverage — this coverage also pays medical expenses, up to the limits of our coverage, when the other party in the crash is liable but doesn’t have enough liability insurance to pay all of our bodily injury expenses for which they are liable.

If you, like me, have been in and around trucking for 40-plus years, no doubt you’ve witnessed firsthand and/or heard about some horrific accidents. Cars and trucks versus other cars and trucks in all kinds of scenarios: truck versus truck head-on at full speed; trucks avoiding other cars, accidents or road hazards; and of course all kinds of single-vehicle accidents. The vast majority of them required some type of emergency services, such as an ambulance ride and a visit to the hospital ER. Way too often those accidents will even require the services of an air ambulance in an effort to save someone’s life. As we are all aware, these accidents frequently lead to surgery (sometimes multiple surgeries), extended stays in the hospital, physical therapy and sometimes even more.

Point being, as I have personally experienced myself, the investigation oftentimes reveals that many of these accidents involving a truck is the fault of another driver in a personal vehicle.

When that other driver is 100% at fault for an accident with us, they are liable for all damages (bodily injury and property) they have caused us. According to the news release dated March 22, 2021 from the Insurance Research Council, one in eight drivers are uninsured. In that same news release, the national average of uninsured motorists in 2019 countrywide was 12.6%. Even worse, the news release points out that 6 states have 20% to 29.4% uninsured motorists among all drivers there, while 26 other states have from 10% to as high as 19.9%. For anyone to assume that they will never have to use UM coverage is both naive and very risky.

Now what if that other driver, who is at fault and liable, does have insurance? In many states minimum coverage for a personal car is $25,000 worth of bodily injury per person. That means the other driver’s
insurance policy will only pay up to $25,000 for each person’s bodily injury he/she is liable for. In addition to the $25,000 per person coverage, personal auto policies typically come with a $50,000 limit of coverage per accident. Most of the personal auto insurance policies I see have these amounts of coverage. If there happened to be three people in an accident all with $20,000 worth in bodily injury expenses that such a driver is liable for, none of those three will have all of their bodily injury expenses paid, because the total of $60,000 worth of expenses exceeds the per-accident limit of coverage.

To bring it full circle, lets first look at just some of the cost ranges associated with bodily injury claims. All but one of these amounts were provided to me by my representative from one of the insurance
companies I write policies for:

  1. Ambulance ride — $400 to $15,000
  2. Air ambulance flight — $28,000 to $97,000 (as reported by NPR on Sep, 26th 2018)
  3. Hospital ER — $3,000 to $20,000 or more
  4. Surgery – varies depending on the procedure, anywhere from $50,000 to $250,000 for the same procedure in some cases
  5. Follow up surgeries — Reasonable to expect the same as the initial surgery
  6. Hospital admission — Once a patient gets admitted the bills can get really expensive, especially if there is time spent in an intensive care unit

It is painfully clear how bodily injury costs could rapidly soar to $250,000-$300,000, or even exceed $500,000 or more almost in an instant. It’s then also easy to understand that not having or only having the minimum of UM/UIM coverage could leave most anyone in an unthinkable financial situation at the absolute worst possible time, not to mention the agony of potentially having to make medical decisions based on the lack of insurance coverage, which could have been completely avoidable.

In Commercial Auto Insurance (trucking insurance) there is frequently (but not always, depending on the insurance company) the opportunity to purchase UM/UIM coverage that costs mere pennies for the
amount of UM/UIM coverage provided. For example, let’s look at a quote I prepared this week, with $100,000 worth of UM/UIM coverage available at a quoted premium of $87 for the entire year.

Sounds great, right? Yet, given the potential cost ranges above, it’s obvious this could leave us hundreds of thousands of dollars short in coverage to pay for all our bodily injury expenses. For that same quote, $1,000,000 of UM/UIM coverage has a quoted premium of $210 for the entire year! That is ten times the coverage for about two and a half times the premium. Why would anyone pass on such a great value and peace of mind!?

For those who operate a small fleet and hire drivers it’s not only a wise decision to maximize your UM/UIM coverage for the above mentioned, but it can be a great business decision, too. The UM/UIM
coverage can help to mitigate claims against your workers’ compensation policy. Considering the significant costs associated with workers’ comp premiums, the more proactive we are to control those costs the better. Utilizing the comparatively speaking premium-friendly UM/UIM coverage to provide appropriate levels of bodily injury coverage in the event of an accident where UM/UIM coverage is utilized could thus be one of the best business and insurance coverage decisions that you make.

Finally, back to my customer. When an accident is determined to be the other driver’s fault/liability and that other driver fled the scene, the insured’s UM coverage pays the insured’s bodily injury claims up to the amount of coverage. My insured’s very tragic and sad incident is a reminder to us all to consider carefully if saving a couple of bucks is really worth it when it comes to insurance.

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Agreements and Contracts

Be on the look out for any requirement to provide Additional Insured and/or a Waiver of Subrogation by any broker or customer.

As Todd Dills and I discussed in his Just say no: One owner-operator’s approach to broker/customer demands to be ‘additional insured’, brokers and customers frequently require to be added to our policy as an additional insured. This is a covert means to gain free insurance from us as well as avoiding financial responsibility when or if they cause us bodily injury or property damage. Personally, as an Independent Owner Operator myself, I choose to never do business with any broker or customer who, as a condition in the agreement or contract, requires to be added to my policy as an additional insured.

A lesser known, but even worse, condition often included in a broker’s or customer’s agreement or contract is something called a waiver of subrogation. Many are completely unaware of the potential adverse consequences of providing a waiver of subrogation to a broker or customer. Subrogation is a legal tool used by an insurance company to recover losses it paid out to an insured (a claim) from a liable third party who is responsible for those losses. I know that is a bit wordy and complicated. So lets first start with the definition of Subrogation.

merriam-webster.com’s definition of Subrogation;the assumption by a third party (such as a second creditor or an insurance company) of another’s legal right to collect a debt or damages.

When discussing insurance, and specifically an insurance policy, a waiver of subrogation is an endorsement. Similar to a COI (certificate of insurance), the insurance carrier will provide a copy of the waiver of subrogation to the broker or customer who has requested and been granted the waiver.

The best way to show the dangers of granting a waiver of subrogation to a customer or broker is by example. So lets use the same example I used in Todd’s Just say no story.

An owner-op checks in at his direct customer’s facility. “They say back into door 37,” Baker said, and “door 37 has an overhang outside of it.” While the owner-op’s backed in, “the overhang collapses and lands on his trailer.”

The customer then claims “hey, we didn’t give you that door,” saying the owner-op misheard 37 instead of 57. “It’s not our fault. You need to contact your insurance company.”

The owner-op submits a physical damage claim to his own insurance, yet manages to provide sufficient proof to the insurance company that the failed dock overhang was in fact the one that the shipper sent him to. The insurance company says, “Hey, ACME Widgets Inc., you’re responsible. Pay up or we’ll sue” for the cost of the loss.

In the case of a broker asking to be added as an additional insured, keep in mind, too, that given possible affiliations that broker has with bigger businesses, you may be giving away more than you think.

For the sake of this article the broker or customer was not added to the policy as an additional insured. However, they did require and were provided a waiver of subrogation. Notice the bold sentences? That is precisely what subrogation is. Now if we give the broker or customer a waiver of subrogation then our insurance company can not force Acme Widgets, Inc. to reimburse them (our insurance company) for the settlement of the claim.

Why does that matter? Because that claim and settlement will now be a permanent black mark on our insurance history by appearing on both our loss runs and CLUE (Comprehensive Loss Underwriting Exchange) reports. Loss runs are a report of claims history on a given policy. A CLUE report is generally a report containing up to seven years of personal-auto and personal-property claims history and up to five-year commercial loss run histories. Insurance companies rely heavily on both of these reports when they determine if they can provide a quote for coverage and if they do provide a quote, what the premium for that quote will be.

The consequence of that black mark will most likely be an increase, which is frequently quite significant, on our future insurance premiums for years to come.

The first thing every truck owner should ask when a broker or customer requires a waiver of subrogation is why? To me the answer is obvious. Either they have a fear that they could be financially responsible for bodily injury or property damage to any truck owner they do business with or they were held financially liable by the means of subrogation and forced to reimburse an insurance company. Both of which are huge, bright red flashing warning lights signaling “ENTER AT YOUR OWN RISK!

So for me, if a customer asks for a waiver of subrogation, my answer is the same as when they ask to be added as Additional Insured. Always, NO!

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Leasing out Equipment?

Call your insurance agent first!

If you have trucks and/or trailers sitting in the parking lot and you’d like them to generate some revenue to help pay the bills by leasing them to a third party company or an independent owner-operator, you’d be wise to contact your insurance agent first. To clarify, I’m not talking here about truck/fleet owners utilizing lease-purchase agreements with drivers in this story, rather lease agreements with independent third-party companies or individuals who assume the responsibility for the safe operation of the equipment.

Take for example one of my customers. They have one truck, and when they started the business, they had one trailer. When that initial trailer suffered a mechanical issue, there was an unexpectedly long period of downtime waiting for necessary repair parts. To minimize the loss of revenue, the customer elected to purchase a second trailer and remove the initial trailer from the policy. Several months later, that trailer had finally received the repair it needed — the owner contacted me and wanted to place the repaired initial trailer back onto the policy.

They informed me they were leasing the trailer to a third party and they wanted the trailer to be insured while in the third party’s possession.

I had the unfortunate obligation to inform them that if they leased out any equipment to a third party, the leased equipment would not be covered while in the “care, custody and control” of that third party. Additionally, all the insurance companies I have access to (10-plus) would not offer the coverage they sought. Insurance that provides coverage for our equipment while it is leased out is hard to come by.

The best guidance I’ve ever received for insurance came from an underwriter. It is especially relevant if we want to insure equipment we lease to a third party. He said: “Usually, you can find insurance for anything if price is not an object. So I am not saying you can’t, just I wouldn’t know where it would be.”

Bottom line, if/when we locate an insurance company who will offer us a quote for equipment we want to lease out, it’s almost a given that the quote will be cost-prohibitive for most truck owners and especially for independent owner-operators or small fleets.

Why? Equipment leased to a third party has a much higher claims rate. Both trucks and trailers that are leased out have an increased potential to be damaged, stolen, abandoned or vandalized when compared to the equipment we operate ourselves or equipment we hire drivers to operate for us.

As a result of this reality, the insurance carriers I represent (accounting for the majority of insurance companies who insure owner operators and small trucking companies in the United States) do not provide any coverage for equipment leased out in this manner. Or, depending on the insurance company, they will only provide limited coverage. Specifically, coverage may be available only when the equipment we lease out is currently not under a lease and is in ourcare, custody and control.”

What it all boils down to is if you don’t have the correct insurance coverage while leasing equipment to a third party and you file a claim for a loss, that claim can be denied. The best way to illustrate this is by using a couple of hypothetical yet realistic scenarios.

Lease agreement for both scenarios: John Doe of John Doe Trucking has signed a lease agreement for a term of 1 year with you for a 2022 dry van trailer. As per the lease agreement, John Doe provides you with a certificate of insurance which provides proof of physical damage coverage up to $50,000 for a “non-owned trailer” which is in his “care, custody and control.”

Scenario One: With three months to go on that one-year term, John Doe, without notifying you and without your knowledge, returns the trailer during non-business hours. When you return to work on the next business day you find the trailer. To your dismay you see the trailer has been topped. That is to say, the top of the trailer hit a bridge and has suffered extensive damage. You contact John Doe and he denies that he returned the trailer damaged. You then contact the insurance company on John Doe’s certificate of insurance and file a claim. The insurance adjuster for John Doe’s insurance policy notifies you that John Doe had removed the non-owned trailer coverage 8 months ago. Because there is no coverage for non-owned trailer, your claim is denied.

Scenario Two: Six months into the lease term, John Doe failed to make his lease payment. You attempt to contact John Doe but his number is not in service, the notices you sent him via registered mail are returned and his emails bounce back to you. You check the FMCSA and discover his company John Doe Trucking is “not authorized.” You then contact your local police department and report the trailer as stolen, and contact the insurance company on John Doe’s certificate of insurance to file a claim. The insurance adjuster for John Doe’s insurance policy notifies you that John Doe’s insurance was canceled two months ago. Since John Doe has no current insurance policy, your claim is denied.

After exhausting your attempts with John Doe’s insurance company to recover your losses in the scenarios above, you then file a claim with your own insurance company. During your insurance company’s adjuster’s information gathering and investigation of the claim, the adjuster discovers that the equipment the claim is for is/was leased to John Doe Trucking and was in that company’s “care, custody and control” at the time of the incident that led to the claim for the loss. Your commercial auto insurance policy (as most all do) excludes coverage for any of your equipment that is leased to a third party. Because the trailer is/was under a lease and in John Doe’s “care, custody and control,” the claim can be denied.

If you are already leasing out equipment and have not disclosed that to your insurance agent, I would encourage you to contact them today.

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When in Crisis Mode

What actions to take to reduce soaring insurance premiums and stay in business.

What do I do now to stay in business?

This is not a topic I enjoy or take any pleasure in writing about. However, by doing so I hope to help any aspiring or new truck owner to avoid making decisions that later result in financial hardship and loosing their business.

Recently I’ve received an increase in calls from truck owners who are struggling to keep their businesses afloat. All blame the increase in their insurance premiums as the cause of their situation. Most believe it’s a result of their greedy xxxxxx insurance carrier who doesn’t care if they go out of business or not. As an Independent Owner Operator myself, these calls have been especially difficult for me. While honesty is always the best policy and it’s the only way I know how to help, it’s not always well received.

All of those who have called and asked me for help share many things in common. Still in their first year of business, they have:

  1. Grown their fleet of trucks and hired drivers (usually includes at least 1 family member).
  2. Failed to vet drivers and only hire drivers with clean or at least good MVR’s.
  3. Not limited their claims by dismissing drivers whose actions resulted in a claim(s).
  4. Waited until there are few options available to be able to remain in business.

Sadly most who find themselves in this circumstance seldom recover and make it to their 2nd or 3rd year in business. All would have benefited had they read From Independent Owner/Operator to Small Carrier and avoided this unfortunate circumstance by implementing the strategy outlined in my article What goes into calculating your trucking insurance premium rate?

Unfortunately none of those I have spoken with are aware that the their business decisions has caused the consequences they find themselves in. Put another way, it’s not the fault of greedy insurance company. Rather, as difficult as it is to hear, it’s self inflicted consequences by the unaware business owner’s decisions.

After I have finished that very difficult part of these conversations, next is the inevitable question from the truck owner “what do I do now to stay in business?” I always tell them the good news is there is a path to stay in business and lower your insurance costs. Few however are receptive to what is necessary to save their businesses and lower their insurance premiums. All to frequently it is because it involves downsizing which most are unwilling to do. Each and every time downsizing is not an option it is always because downsizing means telling a family member they can’t work for them any longer. I’ve had fathers and sons, brothers and brothers-in-law all tell me that downsizing wasn’t an option because of a family member being a driver. This is why few recover and save their businesses. Instead they elect to attempt to continue business as usual to a very unfortunate and completely preventable demise.

Additional changes to your insurance policy that are far less impactful in the amount they reduce your premium can still be effective tools to utilize to save money. These changes include:

  1. Reducing your radius of operation.
  2. Locate and Operate your business outside of regions with high insurance premium rates such as New York City, Los Angeles, Chicago, Miami, etc.
  3. Removing coverages that are not required such as General Liability, Hired Auto, Non-Owned trailer, etc.
  4. Adjusting the commodities you transport in favor of non-hazmat, less-risky, lower cost and nominal risk of theft commodities.
    1. Removing commodities such as:
      1. All hazmat
      2. Electronics
      3. Pharmaceuticals
      4. Shell fish
    2. Replacing with commodities such as:
      1. Canned goods
      2. Paper
      3. Non-alcoholic beverages
      4. Agriculture products such as grain & feed
  5. Increase your deductibles to the maximum amount offered by the insurance company.

If you’re truly in crisis mode, the first step to reducing your insurance cost is to identified and take advantage of all/any of these 5 listed options. Then, concurrently, downsize your operation to one truck, one trailer and yourself as the driver if you’re not already there. This will provide you the best possible opportunity to save your business.

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From Independent Owner/Operator to Small Carrier

Properly plan and prepare BEFORE buying equipment, hiring drivers or growing your company.

Once I overcame my setbacks and began enjoying success as an Independent Owner/Operator, I was convinced I was ready to be a successful small carrier with a fleet of 5, 10 or more trucks. I did not remain on that path for long. I quickly discovered that the nominal ROI (return on investment) compared to the added stress and headaches of having that small fleet simply wasn’t something I was going to be financially able or willing to continue. I’ll share the conclusion of my experience shortly. Before that, let’s look at some of the challenges we face when growing from and Independent Owner/Operator to a small carrier and/or fleet.

The 3 most common methods of growing our trucking businesses is by purchasing trucks and hiring drivers, leasing trucks to our authority that are either owned by the driver or by a fleet owner and lastly by purchasing trucks and selling them to an entrepreneur using a method known as lease purchase agreements. For the purposes of this article we will focus on those who purchase trucks and hire drivers.

When planning to grow our company, the impact to our commercial auto insurance (trucking insurance) is the easiest to prepare for. There are some fundamentals that make it fairly simple to estimate the increase in our insurance premiums when we are considering to add a truck, trailer and driver to our policy. All things being even (same truck type, year and value, same trailer type, year and value and same or similar driver age and MVR) our insurance will be double when we increase from a one truck operation to a two truck operation. The biggest variant to that way of estimating our premium increase is always the driver. As drivers, our MVR’s are seldom similar for a variety of reasons. More often than not, company drivers looking for a new job tend to have more infractions on their MVR then us owner operators will typically have. Generally speaking, us owner operators make a conscience effort to be more diligent to protect our MVR for obvious reasons. If we do not it will negatively impact our insurance premium costs as well as risking our business itself. I always advise my insurance customers to use an MVR service to check any driver they may be considering to hire prior to purchasing the equipment. That will help avoid the potential hazard of making the biggest mistake of all – hiring a driver that isn’t acceptable to the insurance company or a hiring driver who causes our insurance to increase to an un-affordable annual premium.

Hiring and retaining drivers is the most challenging concern with growing a company. The first mistake I made was believing the drivers I hired, some of whom were friends I had known for years, were going to stick around for a long time to come. I was seriously mistaken. Driver turn over is financially devastating for multiple reasons.

The immediate dilemma when we lose a driver is the truck is not generating any revenue to pay for its fixed costs such as loan payments, insurance premiums and registration. The longer the truck sits idle the more desperate we become to hire a new driver. Frequently that results in us hiring the first available driver our insurance carrier is willing to allow us to add to our policy. More often than not this new driver will have a less than stellar MVR and will result in an increase to our insurance premium. As an example, recently one of my insurance customers added a driver that had several infractions on their MVR. Adding that driver increased their policy premium from approximately $13,000.00 a year to about $28,000.00 a year!

Keep in mind we are discussing truck owners who purchase trucks and hire drivers – The next challenge we face with our drivers is proper classification. If we get it wrong we have a serious risk of running afoul with compliance. I’m not referring to compliance with the FMCSA, IFTA, UCR, IRP, etc. Rather I’m referring to agencies that few of us would ever want to cross sabers with.… the IRS and each state’s Departments of Labor. Being out of compliance with either or both of these can, and has many times over, lead to some of the most devastating consequences I have ever seen a truck owner experience. Unfortunately many truck owners have been incorrectly lead to believe that they can classify drivers as “Independent Contractors” and issue them an IRS form 1099 instead of the correct IRS form W-2. Both the IRS and all the states I am aware of state’s Departments of Labor have very clear and defined conditions in which an individual can be classified as an independent contractor. There is no gray area. A driver we hire to drive trucks we own or lease is an employee and not an independent contractor. As such when we hire drivers we are required to have both Workers Compensation and Unemployment insurance as well as collect the social security from the driver’s wages and pay the matching amount as required by the IRS. As a general rule of thumb if we hire a driver for a salary of $1,500.00 a week, as employers, it will cost us an estimated additional $1,500.00 a week for Workers Compensation insurance, Unemployment insurance, matching social security and any additional benefits such as medical benefits or a 401K. These additional costs brings our total cost of hiring a single driver to an estimated $3,000.00 a week.

For me, to grow my trucking business, I elected to buy and sell trucks using the lease purchase method. It was a disaster. The drivers who signed the lease purchase agreements discovered that it was a lot harder being an owner operator than it was being a company driver. They all elected to return to being a company driver. That resulted in my having trucks I was paying for that were not generating any revenue to be able to pay for them. So I considered hiring employee drivers. I crunched the numbers and considered the risk. It was painfully obvious to me that I would be better off accepting my losses and returning to being an Independent Owner Operator. I sold the extra trucks and trailers and returned to a one truck operation with myself as the only driver I had to worry about. It was the best personal, business and financial decision I ever made owning trucks.

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Don’t be lured into dishonesty to reduce your insurance premiums

The consequences of dishonesty when it comes to the information provided for an insurance policy can be devastating.

Recently a gentleman from Indiana contacted me. He said he was starting his own trucking company and would like a quote for insurance. He said he had prior experience owning a trucking company and was looking to re-enter the industry. We discussed trucking in general and it was apparent that he had significant prior experience in trucking. We even exchanged a few truck driver stories and our individual experiences of the negative impact on trucking the ever growing FMCSA regulations are having on the industry. All in all a very good conversation between two old school truck owners.

We began and completed his application together. He provided his driver’s, truck’s and trailer’s information along with his specific operation details. It was looking very promising. I was optimistic for him and believed he would receive quotes that would be on the lower end of premium rates.

I submitted his application to several insurance companies as I typically do, to see which insurance carrier would provide him the lowest premium for the amount of coverage he was seeking. To my surprise ALL insurance carriers “declined” (a polite word for refused) to offer an insurance quote. I reviewed all the information…. No drivers had any tickets or violations, there was only one insurance claim from the gentleman’s past (not uncommon for most of us) and the trucks and trailers were all newer. I wanted to learn more and see if there was something I did incorrectly that caused all the insurance companies to decline to quote this gentleman. I contacted one of the insurance carriers I had submitted his application to. They informed me that his previous FMCSA operating authority had been revoked by the FMCSA because his insurance had been canceled by the insurance company.

That’s when I learned, as Paul Harvey used to say “the rest of the story.” Everything the gentleman told me about his trucking past was true. But it was what he didn’t tell me that caused all the insurance carriers to decline to quote.

I called him and asked if this was a mistake or if he knew his previous FMCSA operating authority had been revoked because his insurance had been canceled. That’s when he disclosed why he was re-entering the trucking industry with a new FMCSA authority. Remember the one insurance claim? That claim was for an accident that one of is trucks was at fault for and both THE TRUCK AND DRIVER WERE NOT LISTED ON THE POLICY. The gentleman only listed one of his many trucks on his commercial auto policy and purchased a personal auto policy for his additional trucks to save money. As a result he was not able to purchase any insurance to get his previous FMCSA operating authority reinstated. He believed he could simply start a new company and be able to continue his trucking business. That is not the case. Even worse, he will most likely never be able to own a trucking company again.

If you are ever tempted or if anyone (a business partner, friend or even an insurance agent) suggests for you to mislead your insurance company, don’t do it! Some of the most common deceptions (lies) I have encountered are:

  1. Not including all vehicles owned or operated on the policy (this includes trucks and trailers)
  2. Not including all drivers on the policy
  3. Utilizing someone else’s address as a garaging address
  4. Utilizing a P.O. Box address as the physical location of the business

While these deceptions can reduce your premium they are also valid reasons an insurance company can cancel your insurance policy. Once that happens it follows you like a bad smell after hitting a skunk. No matter how hard you try you just can’t get rid of it and nobody wants to park next to you in the truck stop. Similarly, that’s how insurance companies deal with dishonest truck owners.

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Trucking – Never Been Better!

2007 Peterbilt & Reefer Trailer

There has never been a better time to own a truck and operate your own authority! Most truck owners would strongly disagree with me. Most all of my detractors would cite the high cost of fuel, the ever increasing maintenance costs and most of all the ELD mandate.

Lets start with the biggest obstacle to profitability. The ELD mandate. To be clear, I do NOT support the ELD mandate. However, if you are using an ELD there are a few nominal positives that have came with the FMCSA forced ELD mandate. Since the April 1st date of full enforcement the truck availability has dramatically decreased creating a vacuum of trucks and an increased volume in available freight. This has led to 2 very positive circumstances for truck owners. Rates are significantly increasing and load availability is excellent. So higher margins per mile and less down time between loads.

If high fuel costs are cutting into your profits then I strongly recommend you read my posts “How Does IFTA Work,” “Fuel Surcharge” and “Carrier Rate Agreement or Carrier Contract.” You should never loose profits due to the fluctuation of fuel prices. Likewise and equally important, neither should your customers. If you demonstrate fairness to your customers in your “Carrier Rate Agreement” and utilize a “Fuel Surcharge,” you will earn their respect and enjoy a long term business relationship together.

There is no doubt maintenance costs are on the rise for everyone. You can and should use all available resources to minimize your maintenance costs. Such as installing a quality “Oil By-Pass Filter” on your truck, locate “Junk Yard Truck Parts” and utilize “After Market Truck Parts.” All 3 of these will decrease your maintenance costs and down time while simultaneously increasing your profitability.

Without any doubt at all, the best way to fully maximize the current opportunities in the trucking industry is to own a 1990’s model year truck or older. In doing so your operating costs will be less (lower or no truck payment, lower insurance rates and no DPF or DEF down time / repairs / costs) and you will not be hamstrung with the ELD mandate. You will enjoy operating a higher quality of service and reliability for your customers and they will appreciate you for it. Anyone with a 1990’s or older model year truck will always be more profitable than a model year truck requiring an ELD.