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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Understanding why some insurance companies will provide a quote while others will not.
Each insurance company has what is known as an Appetite. If we do not fit into that insurance company’s appetite they will not be able to provide us insurance. For example, Progressive is not able to provide insurance to any insured (trucking company) if the insured hauls loads which require placards. Other insurance companies are not able to provide insurance if the insured haul cars. Still other insurance companies can not provide insurance if the insured hauls local loads only and yet others can not provide insurance if the insured is an OTR trucking company. Many insurance companies are not able to provide insurance until the insured has been in business for a minimum number or years. That minimum can range from 1 to 3 years or more.
As an Independent Owner Operator, I have had policies with three different insurance companies. Each of them did exactly what I needed when I needed it. Each of them, when I had each policy, provided me the lowest premium available to me at that time.
As an insurance agent, I have access to 10+ insurance companies. Each of those companies has their own unique appetite and unique premium structure. To make it even more complicated each company’s appetite and premium structure are both constantly changing.
The very best way to know if you are receiving the lowest possible premium is to ask your insurance agent for the quoted premium from ALL the insurance companies from which they received a quote for you from. Then request a list of all the insurance companies they submitted your application to. Then, if you do not see a company on either list, you can contact another agent and request quotes from from the company or companies that your agent was not able to get a quote from. Additionally there are ways to lower your premium which I discussed in my Confronting a cost crisis article. I would recommend reading that article as well and taking advantage of any of those premium reducing options that may be available to you.
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When you file a claim with your insurance company, being patient to receive an expected settlement check can be difficult. Like most who have been in this industry for any length of time, I have had the misfortune of enduring my share of insurance claims. Seldom have I gone through an insurance claim when a settlement was reached and paid as quickly as I had wished for. That slow, agonizing claims process always left me frustrated.
However, since becoming an insurance agent and witnessing claims investigations, I have a new appreciation for that slow pace. Before you completely dismiss me, let me share with you what I have learned. It is quite possible, in fact probable, you will come to the same conclusion I have.
In 2001 I was involved in a terrible accident. A car hit me on the passenger side of my 1994 W900 Kenworth, then spun in front of me and I “T-boned” the car broadside. The car spun again, now facing me on my driver’s side and the car hit my driver’s side fuel tank, launching the car into the medium. It came to rest under a bridge at the I5, California 60 & I10 junction in Los Angeles. One witness stopped and immediately checked on the driver of the other car (thankfully his injuries were very minor), then came to check on me. He remained at the scene and insisted on providing a statement to the investigating police officer. The witness informed the officer that the car literally ran right into the side of my truck as if they hit my truck deliberately.
The damage to my truck was significant, but not to the point that I was unable to repair it myself. I took a week off work and I replaced the bumper and one wheel; repaired both fuel tanks, fenders, etc. and got back to work. The claim seemed to be taking forever, and I wanted to be reimbursed for my loss (repair expenses), especially when the witness indicated that this was a deliberate act by the driver of the car. After several months went by I finally received a notice from my insurance company that the investigation of the claim was complete and that my policy would not pay for any medical or property damage to the other driver or the car he was driving. The adjuster’s investigation discovered several things.
The owner of the car was not the driver.
The car was not insured.
Several payments to the lien holder of the car were passed due.
The adjuster concluded that this was a case of insurance fraud. I did not want a claim on my policy (even for uninsured motorist) so I did not accept a claim settlement check for reimbursement of my repair costs.
Had the insurance company not fully investigated the claim, with or without the eyewitness, and simply settled the claim quickly because that big, bad, ugly truck darn near ran over that poor innocent little car, both I and the insurance company would have been victims of insurance fraud. It could have cost the insurance company an untold amount, up to $1 Million (my policy’s limit of liability) and dramatically increased my premiums for years to come or put me out of business all together. In my case, it would have put me out of business because I was already a high risk Independent Owner-Operator paying near top dollar for my insurance.
Recently, one of my insurance customers was involved in an accident. They were hit from behind by another truck. The company who owned that other truck filed a claim against my customer’s policy. They believed that my customer was at fault. Again, after many months (6 or more I believe it was) the insurance company’s adjuster completed the investigation. The adjuster denied the claim of the owner of the other truck who our customer from behind.
In my customer’s case, had the insurance company paid and settled the claim to the owner of the other truck, the insurance company would have been accepting financial responsibility and paid out thousands of dollars for an accident the customer was not liable (at fault) for.
In both of these very real examples the insurance company is doing exactly what we need them to do. Making 100% certain that they and their insureds (us customers) are not being victimized by someone trying to either defraud the insurance company or having us accept financial liability for an accident we were not at fault for.
What is most surprising to truck owners is a slow claims process for a single vehicle accident. In these instances, we still want the insurance company to fully investigate the claim before settling. Why? For the exact same reasons as the previous 2 examples! If insurance companies don’t investigate each and every claim thoroughly before paying a settlement, could you just imagine how many cases would be fraud!? In turn, that would result in premiums so high that none of us could afford to buy insurance.
I have learned to think of our insurance system as something like our judicial system. It ain’t perfect, but it’s the best there is.
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Know your rights and above all, don’t let any unethical insurance company bully or intimidate you out of what is legally owed to you!
Most of us are aware that if we cancel our insurance policy we receive a refund. That refund in legal terms is known as “Unearned premium.” How much of a refund we receive and how we receive it depends on many factors. Some of those factors are:
Did we pay our premium in full?
Are our monthly premium payments current?
Do we have an MCS-90 endorsement (required for FMCSA filings) on our policy?
Did the insurance carrier file a BMC-91 or BMC-91X with the FMCSA?
Did we complete a request with the FMCSA to “Voluntarily Revoke” our authority?
If we did, what is the effect date of the “Voluntary Revocation?”
With the recent dramatic increase in fuel costs, fewer available loads and declining rates, some truck owners have chosen to either suspend their trucking operations, lease to large carriers or shut down permanently. That has resulted in an increase of FMCSA voluntary revocation applications by truck owners. For that reason I am focusing on factors 3, 4, 5 and 6.
With a long history as an Independent Owner Operator myself, I personally have voluntarily revoked my authority multiple times for military deployments (I’m a retired US Army National Guardsman) and other personal reasons. Each time, the three insurance carriers I had at those times, without any hesitation or delay, canceled my insurance policies and issued my refund with an effective date that matched the effective date of the voluntary revocation of my authority.
In contrast to my very good experience as an independent owner-operator, it has been my recent discovery as an insurance agent that not all insurance companies act ethically, timely or willingly when a truck owner requests to cancel their policy. Due to Department of Insurance licensing regulations, I’m unable to disclose the name of the insurance company that prompted this article. However, before the conclusion of this article, I will disclose the inexcusable bad behavior and the bullying tactics used by the insurance company. I will also provide information and guidance to anyone who believes they may have been inappropriately denied their full unearned premium refund by an insurance company.
Understanding when the MCS-90 endorsement can be removed from a policy and how that impacts BMC-91 or BMC-91X filings is fundamental to understanding when a policy can be canceled.
Disclaimer:I am not an attorney and this is not legal advice. Please consult an attorney to receive legal advice or guidance pertaining to any of the following.
The MCS-90 endorsement form states:
“Cancellation of this endorsement may be effected by the company or the insured by giving (1) thirty-five (35) days notice in writing to the other party (said 35 days notice to commence from the date the notice is mailed, proof of mailing shall be sufficient proof of notice), and (2) if the insured is subject to the FMCSA’s registration requirements under 49 U.S.C. 13901, by providing thirty (30) days notice to the FMCSA (said 30 days notice to commence from the date the notice is received by the FMCSA at its office in Washington, DC).”
Noticed the underlined section, because that phrase is relevant to the voluntary revocation.49 U.S.C 13901states:
(a) .—A person may provide transportation as a motor carrier subject to jurisdiction under subchapter I of chapter 135 or service as a freight forwarder subject to jurisdiction under subchapter III of such chapter, or service as a broker for transportation subject to jurisdiction under subchapter I of such chapter only if the person is registered under this chapter to provide such transportation or service.
Notice the last phrase, underlined above: Once an authority is voluntarily revoked it is no longer registered to provide transportation or service.
What does all this regulatory legalese/double-speak mean? Simple. A revoked authority is NOT registered to provide or conduct transportation (trucking operations). As such the revoked authority is also NOT subject to 49 U.S.C. 13901. If NOT subject to 49 U.S.C. 13901 there is NOT a requirement for the MCS-90 endorsement. No requirement for an MCS-90 endorsement means it can be removed at the insured’s (that is, the customer’s, that is, your) request without any delay. Removing the MCS-90 immediately and legally removes the BMC-91 or BMC-91X filing.
When the BMC-91 or BMC-91X filing is removed the policy can be canceled upon the insured’s request on the date the insured requests (as long as the requested date of cancelation is on or after the date the BMC-91 or BMC-91X filing was removed). Once a lawful policy cancelation request is submitted to the insurance company, the insurance company by each state’s Department of Insurance regulation is required to return (refund) ALL “Unearned” premium.
The short version – Once our authority is revoked by the FMCSA, we can request to cancel our policy with an effective cancelation date to match the date of the revocation. That request includes canceling the MCS-90 endorsement and the BMC-91 or BMC-91X filing. Our refund of unearned premium is then calculated from that date of cancelation.
What prompted me to write this article is the very disgraceful, unethical attempt by one insurance company to bully and intimidate one of my and its own, customers. First, the insurance company denied the customer the right to cancel the policy with the effective date to match the date of the customer’s voluntary revocation. I sternly objected, citing my own past voluntary revocation and unearned premium refunds (including twice by this same office from which I had previously purchased multiple insurance polices!) and the above short version of the FMCSA and DOI regulations. The underwriter said they would discuss it again with the insurance company and get back with me.
When the underwriter contacted me the second time, they made the claim that the unnamed insurance company was following guidance from the FMCSA. I immediately informed them of my and the customer’s objections. They again said they would discuss it with the insurance company.
The underwriter contacted me a third time two days later. They requested 3 things. A copy of the truck owner’s “lease agreement,” a copy of the endorsement adding the truck as an owner operator to the insurance policy of the trucking company the customer is now leased to, and a copy of the new “Non Trucking Liability” (bobtail) policy. They said if those could be provided the insurance company “may further consider.” I received and provided the underwriter with a copy of the lease agreement and a Certificate of Insurance (COI) listing all coverages (commercial general liability, auto liability, workers compensation and cargo) of the trucking company the customer is now leased to. The COI included listing the customer by name and the truck by the description and VIN.
The underwriter contacted me a fourth time another two days later. They stated that the COI showing coverage was not acceptable by the insurance company. They reiterated that the insurance company required a copy of the “endorsement” adding the insured (customer) to the trucking company’s insurance policy and a copy of the customer’s Non Trucking Liability policy declaration page.
In all the regulations I have read, Once an authority is revoked, there is no regulatory requirement for an insured (customer) to provide any of the above mentioned documents or any document to an insurance company before being allowed to cancel a policy or removing the MCS-90 and BMC-91 or BMC-91X filing.
In my opinion, this was and is an ongoing obvious attempt by the insurance company to avoid refunding the full amount of the unearned premium owed to the customer. This is absolutely shameful, unethical and completely unacceptable behavior that no insurance company should be allowed to engage in.
All insurance companies have legal counsel either on staff or retained outside the company with the services of a law firm. I am a simple-minded truck driver. Even I know and understand when a policy can legally be canceled and a refund issued. It is absolutely inconceivable that an insurance company who’s sole business is to provide insurance to trucking companies does not. I informed the underwriter that I will never again accept a quote from this insurance company to offer to my customers. Even if the quoted premium is less, I would never recommend this insurance company to anyone.
If this unnamed insurance company goes this far out of their way to bully and intimidate their customers in an attempt to avoid refunding all legally owed unearned premiums, I can only imagine how ugly they would be when a customer needed them the most… when the customer has experienced an unfortunate loss and filed a claim!
If you have been denied the right to cancel your policy with a requested effective date matching the date of voluntary revocation of your authority, and have not received your full unearned premium refund, there is a way to combat it. Contact your State’s Department of Insurance and file a complaint. Filing a complaint will enable the State DOI to begin an investigation. To properly complete their investigation the DOI may contact you for additional information. Once the DOI’s investigation is complete you can expect to be provided with the results of the findings and what to do or to anticipate next.
UPDATE:
26 days later
40 plus emails exchanged
Over 8 documents provided to the unnamed insurance company (important to note here that the insurance company was NEVER provided all the documents they had requested)
One, (understandably and rightly so) very upset customer who threatened to file a complaint with the state DOI
One stubborn insurance agent who would not allow the customer to be intimidated or bullied by the insurance company.
Success! The unnamed insurance company realized they would not be able to keep something that did not belong to them. The customer’s money (unearned premium)! Because of the relentless pressure applied by the insurance agent (me), the insurance company ISSUED A FULL REFUND of the unearned premium made effective the day after the request to cancel the insurance policy by the customer and the revocation of the customer’s authority by the FMCSA.
While this was a very painful experience for the customer and myself, it resulted in the customer being refunded what was legally owed to him. This is an excellent example of how not to be intimidated or bullied by an insurance company. It equally demonstrates the immeasurable value of having a moral, ethical and hard working insurance agent fighting for what is right.
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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 our “care, 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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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:
Grown their fleet of trucks and hired drivers (usually includes at least 1 family member).
Failed to vet drivers and only hire drivers with clean or at least good MVR’s.
Not limited their claims by dismissing drivers whose actions resulted in a claim(s).
Waited until there are few options available to be able to remain in business.
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:
Reducing your radius of operation.
Locate and Operate your business outside of regions with high insurance premium rates such as New York City, Los Angeles, Chicago, Miami, etc.
Removing coverages that are not required such as General Liability, Hired Auto, Non-Owned trailer, etc.
Adjusting the commodities you transport in favor of non-hazmat, less-risky, lower cost and nominal risk of theft commodities.
Removing commodities such as:
All hazmat
Electronics
Pharmaceuticals
Shell fish
Replacing with commodities such as:
Canned goods
Paper
Non-alcoholic beverages
Agriculture products such as grain & feed
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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COI’s provide a gateway to identity theft and scams for would-be thieves.
Way too often I get calls from someone claiming to be a broker who wants to receive a certificate of insurance for one of my customers so they can dispatch them on a load. I politely inform the broker, “COIs can only be requested by the insured.”
Then: I contact the customer to inform them of the broker attempting to get a COI. Frequently, that’s when I learn that the supposed dispatch didn’t and wasn’t about to happen at all — it was either an attempt at identity mining or a scam.
Many of us look at our COI and think, “there’s nothing here to steal my identity.” That is most certainly not the case. Would-be identity thieves use multiple sources to mine or gain as much information on us as possible before executing the theft. Our COIs contain our addresses, company names, insurance policy numbers, vehicle identification numbers, our insurance carrier, our insurance agency information and more.
Insurance fraudsters and insurance stalkers can also use COIs to determine if it’s worth their time to attempt an insurance claim or lawsuit against us. We all know what an insurance fraudster is. But I call attorneys who target trucking companies insurance stalkers. Both like to use COIs to identify who they can collect the largest sum of money from with an insurance claim or lawsuit. Insurance stalkers can use COIs when a potential client approaches them with a request to represent them for a claim or lawsuit involving a truck or trucking company.
The FMCSA only requires the minimum bodily injury property damage (BIPD) coverage to be listed on our publicly available MCS-90 endorsement. However, that amount may be and frequently is less that what our actual policy BIPD coverage is for. These days, most trucking companies have at least $1 million in BIPD coverage. That is why insurance stalkers like to have a COI, because it shows that full amount of BIPD coverage on the policy. Insurance stalkers use that information to adjust the amount of the claim and/or lawsuit to an amount closer to the total BIPD coverage of the policy.
Insurance fraudsters, meantime, can use COIs to identify which trucks they wish to target in a planned “accident” — aka insurance fraud.
Broker and carrier impersonation are forms of scams previously reported on here in Overdrive. I can think of several ways to use a COI to accomplish many identity-theft crimes and scams. Because I do not want to not give a would-be scam artist or an aspiring identity thief a new idea, I’ll limit my list to the most obvious and simple ways our COIs can be used against us.
After acquiring your COI…
The identify thief learns your preferred lanes of travel from the load boards, contacts you and says he has a great load, already has your COI and only needs a current W9 to dispatch you on the load. When the would be identify thief receives your W9 they now have the most important piece of information to steal you or your company’s identity.
The would-be thief learns your preferred lanes of travel from the load boards, contacts a broker on a load, posing as you, accepts the load and receives an advance — a scam that’s grown more common in recent years and is often referred as the fuel-advance scam. Fundamentally, though, it’s about identity theft, and you may be held liable for the advance and required to refund the broker for their loss in the worst cases.
The would-be thief uses the learned information for a loan in your name and uses the VIN number on the COI for collateral, securing the loan in your name. When the loan goes unpaid, your truck may be at risk of repossession by the lender.
These are but a few scenarios. I’m certain that enterprising scam artists and identity thieves have more ways to use information on the COI against us than I can think of. The good news is there are steps you can take to protect yourself.
Verify with your insurance agent they will not give out any COI for your policy unless the request comes directly from you.
Remove all “additional insureds” from you policy. Along with other risks of having additional insureds, such insureds can potentially request COIs be given to third parties without your knowledge.
Lock all your credit reports to prevent creditors from receiving a credit report for a would-be identity thief posing as you.
The last may well be the most important among these – and you can do that via the links below to credit-freeze services of the major credit-reporting services:
Taking that final step may seem drastic but it won’t cost you in hard cash and it’s something I have done myself. It will however create more work for you when applying for credit of any kind. You’ll have to unlock your credit temporarily to allow for a legitimate lender or other entity to access the report, before locking access again. But in today’s world, with identity theft running rampant, that little bit of headache could be well worth the effort.
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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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In 1999 I decided to apply for my own authority. But before doing so I wanted to make sure I had all my ducks in a row. I began to prepare. Secured the money for the down payment on a truck and trailer, saved enough operating capital for a minimum of 30 days, established a customer base, and developed a financial back-up plan if things went south on me. With all those items in place I was confident I had planned well and was prepared to get my own authority. I promptly did so.
It wasn’t until I became an insurance agent that I discovered my plans should have started years earlier. Simply put, I did not do any of the preparation I should have done to lower my initial insurance premium. The first year I was in business my annual premium cost me as much as the price I paid for my truck! So just what was it that caused my insurance premium to be so outrageous that first year I was in business?
Insurance companies rate us by several factors. Some of those factors most of us are aware of and include things such as our age, details on our MVR (Motor Vehicle Record), years of driving experience (with a CDL) and years in business. Yet there’s a lot more to it than that, too. There are more factors many of us, including me when I first began, aren’t aware of. Those are factors like our credit reports, business address, severity of the items on the MVR, prior insurance claims (including those in personal vehicles). In recent years, too, our CSA BASIC scores, and many more factors besides.
Each insurance company chooses to use or not use some of these items. I’ve listed the factors that are commonly used across the majority of the insurance industry. Some of them provide insurance companies with information that can impact how we are rated with another factor or even factors. For instance, if our place of business has an address in Oklahoma the insurance company expects our driver’s license to be in Oklahoma as well. So if for example we have a California driver’s license that causes an unexpected mismatch. That unexpected mismatch will almost always cause a significant insurance premium increase. Additionally, if we declare to the insurance company on our application that we are going to operate within a 500-mile radius of our Oklahoma place of business yet we have a California driver’s license, that causes yet another unexpected mismatch.
Insurance companies don’t like the uncertainty in those mismatches. Additionally, insurance companies know that it’s highly unlikely that a business owner lives in California and works in Oklahoma but never goes home to California with the truck. The best practice is to live in and have your driver’s license in the same state that your business is located in.
Our MVR has some of the most significant impacts on our insurance premiums, both positive and negative. As a general rule insurance companies will pull a five-year MVR report and a CLUE (Comprehensive Loss Underwriting Exchange) for complete history of insurance claims for all drivers listed on an application.
In my case, I was initially what us old-timers referred to as an “outlaw.” The impact of being an outlaw was all over the pages of my MVR. I had several speeding tickets, a previous 90-day CDL suspension in one state and a prior suspended license. Additionally, my CLUE report had a not-at-fault accident listed that was settled out of court by the insurance company for a very large sum of money.
If we have a history of insurance claims in either commercial or personal vehicles, it will be immediately evident, with adverse and severe implications for our commercial auto insurance (trucking insurance) premium. When it comes to commercial auto insurance, both liability and physical damage insurance claims are viewed through two lenses. First, all paid claims are considered an accident, even if there was no police report.
To repeat: If you have a paid claim in your history, many insurance companies consider it an accident. Second is the amount paid to settle the claim. The higher the amount paid, the higher risk we are considered to be by insurance companies.
Many of those factors are what led to my top-dollar insurance premium. In 1999, my first insurance premium was approximately $25K annually. That is a breath-taking $42K in today’s dollars! The silver lining for anyone who finds themselves in a similar situation is that you can change your driving habits and wait to get your authority until the violations drop off of the five-year history on your MVR. That is what I should have done, and would have done had I known. As you can see, my high insurance premium in 1999 was virtually all self-inflicted.
For those of you who, like me back at that time, find yourself already struggling with a high insurance premium, here’s what I did: I changed my driving habits, worked as hard as I ever have in my life, and was able to succeed at reducing my insurance premium over time.
My premium last year was a very affordable $8K with all the same coverages With the current high demand for trucking services and excellent rates, you are in a much better situation than I was in to be able to achieve this, I believe. It can be done.
If you are contemplating applying for your own authority one day or want to keep yourself in the best possible position should you ever decide to take that route, here are the best things you can do to help get the lowest possible insurance premium. They are prioritized beginning with the most important:
For the previous 5 years:
Have a 100% (or as close as possible) clean MVR
No distracted driving, failure to yield/stop, speeding over 25 mph, or at-fault rear-end accidents
No auto insurance liability or physical damage claims (this includes while as an employee driver for a carrier)
Have your license in the same state you reside in
Have your CDL for at least 1 year (preferably up to 5 years)
Establish your business in the same state you reside in
Have a good credit score
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Trailer Interchange vs Non-Owned Trailer. The basic differences between the 2 coverages.
With the combination of the on going trailer shortage and the appeal of less start up costs many of us are turning to power only operations. While this can be a very successful business plan there are some serious considerations when it comes to insuring the variety of trailers we pull as a power only operation. If we get it wrong neither us nor our customers who own the trailers will be happy. In fact it can financially cripple us and potentially put us out of business.
This is the most important take away from my article. Every insurance company has differing policy and claim rules when it comes to trailer interchange and non-owned trailer coverages. Likewise every customer or truck broker has differing insurance requirements to do business with them. It is imperative you consult with your insurance agent and disclose to your agent the exact nature of your business agreement with ALL your customers and truck brokers who you do power only for. Only then can your agent assist you in securing the correct trailer coverage to meet your insurance needs.
It’s important that we understand the differences between trailer interchange and non-owned trailer coverages. Trailer interchange coverage was created and offered to truck owners as a method to insure trailers that were owned by a single company/customer that the truck owner hauled loads for. Non-owned trailer coverage was created and offered to truck owners as a method to insure a specific trailer class or type and for pulling those trailers for multiple and different trailer owners. Those 2 basic differences are the starting point for understanding which coverage is the best choice for our power only operation or in some cases the necessity of having both coverages. Deductibles do apply for both of these coverages.
Trailer Interchange
To purchase or add trailer interchange coverage most insurance companies require that they be provided a copy of the trailer interchange agreement between us the truck owners and our customer or truck broker. Additionally insurance companies will require us to disclose the type or types of trailers we will be pulling such as vans, reefers and flat beds. Very important note – each insurance company is different as to when they receive the trailer interchange agreement. Some are before they allow you to purchase the coverage while others are if/when you file a claim. Some insurance companies require both. If you are not able to produce a valid trailer interchange agreement coverage (a claim) can be denied!
Non-owned Trailer
Adding or purchasing non-owned trailer coverage is a much easier process. However it too has very specific details we need to address. Every insurance company is different when it comes to non-owned trailer coverage. Just like trailer interchange insurance companies will require us to disclose the type or types of trailers we will be pulling such as vans, reefers and flat beds. Some insurance companies will exclude certain types of specialty trailers like carnival rides, industrial mobile generators, extendable trailers for over length loads, etc. All insurance companies will require us to disclose the maximum value of the non-owned trailers we pull. That amount is the limit of coverage.
Scenario 1: If we purchase non-owned trailer coverage for van trailers only with a value of $40,000.00, that amount is the limit of our coverage for a van trailer we pull. If we happen to pull a reefer trailer and have a claim the claim can be denied because it’s a reefer trailer and not a van trailer.
Scenario 2: If we purchase non-owned trailer coverage for vans, reefers and flat beds with a value of $40,000.00, that amount is the limit of our coverage for any of those types of trailers. If we happen to pull a reefer trailer and have a claim for $90,000.00 the claim will be paid up to the limit of the policy of $40,000.00. We are then liable for the unpaid amount of the claim of $50,000.00.
Deductibles do apply in both scenarios.
In some cases it may be necessary for us to have both trailer interchange and non-owned trailer coverage. This usually happens when when we pull trailers for multiple customers and one of our customers requires trailer interchange coverage for the trailers they own while the other customer we have will only accept non-owned trailer coverage. Without going to deep in the weeds it mostly has to do with who owns the trailer. When a broker gives us a power only load they most frequently only ask for non-owned trailer coverage because most brokers don’t own the trailers we pull for them. However when a direct customer who owns the trailers gives us a power only load they will sometimes require trailer interchange expecting us to pull their trailers on a regular if not dedicated basis.
Insuring a trailer using either trailer interchange or non-owned trailer coverage is traditionally a higher premium than insuring a trailer we own. When assessing a power only opportunity with a customer or truck broker it is best to request a quote from your insurance agent so you can properly estimate your profitability. If that is not an option I recommend estimating high. If your van trailer with a value of $30,000.00 has physical damage coverage (comp. & collision) that costs you $1,500.00 in premiums a year then expect your trailer interchange or non-owned trailer coverage to cost an additional $2,500.00 to $3,000.00 in premiums. Then if your quote comes in lower to add trailer interchange or non-owned trailer coverage it’s a pleasant surprise that means better profits for you.
This is a very telling statement from an insurance underwriter I work closely with: “Honestly, I do not write “Trailer Interchange” often as it cost the same as Non Owned Trailer with PhysDam and requires way less paperwork for everyone.”
Because of the intricacies between the 2 coverages and differences between insurance companies I can’t emphasis this enough. It is imperative you consult with your insurance agent and disclose to your agent the exact nature of your business agreement with ALL your customers and truck brokers who you do power only for. Only then can your agent assist you in securing the correct trailer coverage to meet your insurance needs.
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