Understanding Your Policy

Throughout the past seventeen years (wow!) that I have been writing this column, it never ceases to amaze me how quickly we start another new year. I hope the New Year will bring you good fortune and health. This month, I am going to start my 2012 year off with a short series about understanding your insurance coverages before having a loss. Sounds simple, but over the years I have found that many owner operators do not understand their insurance policy and coverages.

As I travel throughout the state, every town, large or small, has rows of tractor-trailers, some loaded and some empty, parked in vacant lots, at truck stops and right on the side of the street – sitting unattended and waiting for their next call to duty. The majority of the trucks are owned by independent contractors. These unattended trucks and trailers lead me to wonder if the owners of these vulnerable units fully understand the insurance coverage that they have purchased.

It’s a pretty simple process to call any insurance broker or agent and request a quote. “I need liability, physical damage and cargo coverage, as well as physical damage on a non-owned trailer.” If you are satisfied with the price and terms, you purchase the insurance. With this purchase you assume that, in the event of a loss, your insurance will cover you. You may have coverage, and then again, you may not. Nothing is more frightening than experiencing a loss that is rejected by your insurance company.

Exclusions and conditions exist in all policies. Since cargo coverage is the most misunderstood coverage that you purchase, I’ll start with it. The majority of all cargo coverage that the owner operator purchases follows the tractor. What that means is that if the trailer is detached from the tractor, no coverage exists. On the other hand, many policies exclude any cargo theft loss from an unattended truck. How many of you come home for the weekend and leave your truck parked and unattended? Take the time to thoroughly understand the ramifications of just this one point. Insurance policies can be purchased that will protect you in this type of loss, but ask the questions and get responsive answers from your insurance broker or agent before you suffer a loss that might not be covered. Cargo theft is on the rise so you should take all of the necessary precautions to protect the load that you have been entrusted with.

Generally, if you are a multi-unit risk, cargo coverage can be written on a Bill of Lading form. This form would provide coverage for a loss as long as it is transported on your Bill of Lading, instead of following a specified tractor. In the event of a cargo loss that was the result of an accident, your responsibility is to protect any or all of the load. Since it may take several days for an adjustor to be assigned to a claim, it falls on your shoulders to make the right decisions to protect the value of the load. Salvage and the salvage value may mitigate the loss.

Maintenance of your equipment, especially your reefer unit if you haul refrigerated products, creates a whole separate issue. Coverage called “Reefer Breakdown” can be purchased that will provide you with protection in the untimely event of a malfunction or breakdown of the refrigeration unit. But, keeping proper maintenance of the refrigeration unit (and records of that maintenance) is paramount. Understand that within the policy’s conditions lies very critical wording about the payment of a claim. The insurance company will outline the maintenance procedures and the required maintenance records that you are expected to maintain and provide in the event of a loss. Simply put, if your reefer breaks down but you cannot prove that you properly maintained it, coverage may not exist.

There are two parts for the coverage of non-owned, unidentified trailers – Liability and Non-Owned Physical Damage. For the most part, this insurance coverage is widely misunderstood – this type of coverage only covers those trailers that you do not own. Also, it only covers those trailers that are attached to your tractor. Coverage does not exist if the unit is detached from the tractor. Those trailers that are left detached, parked and unattended have no coverage in the event of a theft or liability claim. In the event of a stolen trailer that is loaded, you may be on the hook for both the trailer and the cargo. Is that a loss you could handle?

Coverage can be purchased that would protect you for any physical damage event, for any trailer that is in your possession, through a device (coverage) called Trailer Interchange. This may not be available from some insurance carriers, and may have to be purchased separately. Many of you that haul containers are required to provide this type of coverage. Trailer Interchange coverage provides physical damage insurance for trailers being pulled under a trailer interchange agreement (which transfers a trailer from one trucker to another in order to complete a shipment). Since these trailers are not owned by the driver, they are not covered by the driver’s insurance. Trailer Interchange provides physical damage insurance for non-owned trailers that get damaged by a covered peril while in the driver’s possession under a written trailer interchange agreement.

I have said this time and time again – ask questions and discuss the details of the policy that you have purchased from your broker or insurance agent. Don’t wait for the claim! Again, I’d like to wish everyone a happy and safe New Year. If you have any questions or comments, I can be contacted through California Plus Insurance Service at (800) 699-7101.