The Insurance Review - May 2009
UNDERSTANDING LIABILITY
By Roland L. Enz - President, California Plus Insurance
This month, to give you a better understanding of your insurance coverage, let’s delve into the world of truck liability. For the owner operator, there are usually three major components that you insure: 1) truck liability; 2) physical damage; and 3) cargo. In reading your policy, this coverage is indicated as auto liability. The coverage itself provides third party liability, or liability that you have a responsibility to provide, to the other party, in the event of an accident which you are legally liable for.
Liability coverage, also called Tort Liability, is required by law by both the state as well as the federal government if you have a Motor Carrier (MC) authority. Liability limits for a truck, truck/trailer or tractor/trailer with a combined gross vehicle weight in excess of 10,000 lbs. is $750,000. The majority of you are required to carry $1,000,000 – not by any government authority, but by the people that you pull or provide a trucking service for. Higher limits are required if you haul hazardous materials or people. When we talk of filings, either to the state and/or federal government for your authority, that filing is supported by the liability provided by your insurance carrier to those government agencies.
Liability coverage comes in two parts, Bodily Injury and Property Damage, and can be very broad in its interpretation. Bodily Injury includes any injury, physical or not, that the other party sustains. Property Damage includes any damage, physical or not, to the other parties’ property. Property Damage does not cover your property, nor does it cover the trailer, if you are pulling someone else’s trailer. It also does not provide coverage for any cargo that you are hauling.
Liability can be written with limits for each part, such as you might see in your personal auto coverages, or all together. For example, you might see $100,000/300,000 Bodily Injury and $50,000 Property Damage – these are called Split Limits. With truck liability, the limit is usually written as a single dollar amount, such as $750,000 – this is called a Combined Single Limit or CGL. In the example of split limits, the most that the insurance carrier will pay out is $100,000 per person or, in the event of multiple injuries, a total of $300,000 for any bodily injuries. Also in this example, the insurance provider will pay up to $50,000 in property damage. This is all that will be paid out in each category per accident. When liability is written as a single limit, such as you usually see in your truck insurance, both Bodily Injury and Property Damage are lumped into one aggregate amount. That amount is the maximum that the insurance provider will pay out in the event of an accident, no matter how it is divided up.
Some insurance companies offer liability coverage with a deductible. Do not confuse this deductible with the physical damage deductible – it is directly connected to the truck liability. This deductible could be on Bodily Injury or Property Damage or both. If this is offered and if you take the coverage with this deductible, you have to understand that you are at the mercy of the insurance company if and when they adjust any loss. You may disagree with the handling of the claim, but if they settle, you will be required to pay the deductible out of your pocket.
When considering liability that has a deductible, you have to weigh any savings that you will get by having this deductible, on the policy, as to what the policy would cost without the deductible. When purchasing this coverage, the cost is usually less than if you purchased the coverage without the deducible, but that lower cost could come back with a much higher price later. You have to make the call and weigh any savings that you might get. You may not have a choice with some companies. For example, many insurance companies that write dumping risks (coverage for dirt, sand and gravel haulers) require a deductible on the Property Damage side of the policy. This eliminates windshield claims and puts the potential loss on you, the insured. The insurance company will pay the loss, but then go back to you for reimbursement.
The majority of trucking risks consist of a power unit, either a tractor or truck, pulling a trailer or a combination of trailers. When insurance is provided for the truck, it also includes liability for the trailer(s) it pulls. A premium is assigned for each unit. A tractor is incomplete without the semi trailer. If the insured is a truck and it pulls a trailer, liability will be assigned to each unit. You can not purchase truck liability without including the liability for the trailer (or trailers) it pulls, whether owned or non-owned.
The majority of you pull someone else’s trailer, and the liability, that you provide, is provided as a non-owned or unidentified semi or pull trailer. Case law “Travelers vs. Travelers” divided the liability between the power unit and trailer. From this simple case, liability is now shared between the units of ownership, if ownership of the power unit and trailer is divided. If you are pulling someone else’s trailer, they should be requiring you to provide them with indemnification in the form of an “Additional Insured Endorsement.” This provides the owner of the trailer liability coverage.
If you own trailers, it is important that you make the following practice, cast in stone, before any trailer leaves your lot behind someone else’s power unit. If you provide trailers, which are pulled by someone else’s power unit, do not rely on the Certificate of Insurance, provided by the puller, naming you as an additional insured. Make sure that you request and receive the actual Additional Insured Endorsement from the insurance company. If you rely only on the Certificate of Insurance, your liability may not be covered. Insurance agents have a bad habit of providing certificates and naming the certificate holder as an additional insured without actually notifying the insurance company. If the endorsement has not been requested from the insurance company, coverage does not exist.
Protect yourself – always request the endorsement. This can usually be provided through the insurance agent within the same day that the Certificate of Insurance was issued. If you have any questions or comments, I can be contacted through California Plus Insurance Service in Modesto, CA at (800) 699-7101 or online at www.cpinsuranceservice.com.