FMCSA Considers Minimum Levels of Liability Insurance for Carriers

Monday, Dec 15 2014 Brandon Hicks

Two trucks on an interstateThe Federal Motor Carrier Safety Administration (FMCSA) is asking trucking companies and owner-operators for their input on just how much financial responsibility – or liability insurance – they should be required to carry to cover the costs of truck-involved crashes. Before making any changes, though, the FMCSA is asking for the public’s thoughts on liability insurance for carriers.

In April of this year, the agency issued a report that deemed the current minimum requirement of $750,000 too low and inadequate to cover damages by today’s standards. However, groups like the American Trucking Associations (ATA) and the Owner-Operator Independent Drivers Associations (OOIDA) were quick to oppose this stance, saying that increasing the minimum figure would put an unnecessary burden on motor carriers since just one percent of trucking-related crashes’ costs exceed the $750,000 minimum.

The first directive concerning financial responsibility for the motor carrier industry was the Motor Carrier Act of 1935, which required carriers to furnish a bond or other security to the Interstate Commerce Commission for not less than $5,000.Not until the Motor Carrier Act (MCA) of 1980 were any changes made to that level. That 1980 legislation essentially deregulated the trucking industry, but set minimum levels of financial responsibility for property-carrying motor carriers.

The MCA of 1980 set the minimum level at the current $750,000 for the transportation of property, $5 million for the transportation of certain hazardous materials and $1 million for the transportation of hazardous materials consisting of “any material, oil, substance or waste” that is not subject to the $5 million limit.

The government says their intention of setting minimum levels of financial responsibility is with good reason. They hope increasing liability insurance would help to “protect the ability of the public to recover damages in the event of crashes and, second, to ease concerns that competition in the largely deregulated industry could result in cost-cutting at the expense of the minimum safety standards.”

In the MAP-21 (Moving Ahead for Progress in the 21st Century) Act, which came into effect in July 2012, the Secretary of Transportation was directed to issue a report on the appropriateness of the current minimum level financial responsibility requirements for transporters of personal property along with current bond and insurance requirements for freight forwarders and brokers. Thus, the April 2014 report was issued, which found the minimum levels to be inadequate to cover the costs of some crashes.

Included in the FMCSA report were the results of a study done by the Department of Transportation’s John A. Volpe Transportation Systems Center. Some of its findings were:

  • Catastrophic motor carrier-related crashes are relatively rare. Catastrophic crashes were defined as those resulting in claims for injury, death and/or property damages that exceed the current minimum levels of financial responsibility. That category comprised less than one percent of all commercial motor vehicle crashes (3,300 of 330,000 total crashes per year).
  • Damages and costs for severe and critical injury crashes can easily exceed $1 million.
  • Insurance premiums have declined in real terms since the 1980s. Insurance rates for the same level of coverage and inflation-adjusted premium rates have declined slightly.
  • Current insurance limits do not adequately cover catastrophic crashes, mainly because of increased medical costs.
  • Comprehensive data on premiums that motor carriers would incur to meet higher coverage limits were not readily available. Insurance costs are specific to individual motor carriers, and there are no uniform pricing practices. Also, motor carrier risk managers were reluctant to reveal their insurance costs.

In its report, the FMCSA concluded that if the current minimum level had kept up with inflation, the requirement would be nearly $2 million by today’s numbers. If the rates had kept up with medical costs inflation, the rates would be closer to $4 million.

Before the FMCSA passes any new legislation, they have put forth 26 questions as part of its Advance Notice of Proposed Rule-making, to furnish a basis for any revisions to the insurance requirements and to assess the impacts of such. The FMCSA has listed a variety of questions concerning the new policies that the public can answer. The FMCSA says individual respondents may answer all of the questions or only those that cover issues he or she feels are of interest to him or her or are within an area of his or her expertise.

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