Barring last-minute congressional intervention, starting next Monday virtually all of the nation's truckers will no longer be required to carry cargo liability insurance.
A final rule from the U.S. Department of Transportation's Federal Motor Carrier Safety Administration (FMCSA) will make it no longer mandatory for motor carriers to carry even the minimum amount of coverage to insure the cargo they transport. The minimums are set at $5,000 per claim, up to a $10,000 aggregate limit for losses occurring at any one time or place. The rule, published last June, goes into effect March 21. Carriers have been required to carry government-mandated cargo liability coverage since 1935.
The FMCSA language gives the secretary of transportation the option to require that truckers maintain liability insurance, but it doesn't direct the DOT chief to mandate that carriers do so. Raymond A. Selvaggio, a New York-based attorney for the Transportation & Logistics Council Inc., a non-profit group representing shippers, said it is unlikely DOT will force truckers to carry the coverage.
Household goods carriers and freight forwarders will continue to be required to maintain liability coverage, the FMCSA said. All told, about 166,700 for-hire truckers and 1,600 freight forwarders in the United States are registered with FMCSA to provide services that would require liability coverage, the agency said when publishing its final rule last June.
In its 2010 announcement, the FMCSA said truckers typically carry cargo insurance that exceeds the regulatory requirements. In addition, shippers have always been free to purchase cargo insurance from insurance providers, rather than rely on truckers to provide coverage, the agency said.
FMCSA said most carriers will continue to carry cargo insurance because their customers require it. "Commercial shippers should be able to protect their own property loss and damage interests in the marketplace without FMCSA intervention," the agency wrote in its rulemaking.
On March 8, Selvaggio sent letters to members of the Senate Surface Transportation Subcommittee appealing to them to require that truckers carry at least a minimum level of cargo liability coverage. Allowing carriers to terminate all liability insurance will "only serve to weaken the already-fragile system of protection available for transportation service providers and transportation consumers," he wrote.
Selvaggio said on Friday he has yet to hear from any member of Congress on the issue.
In his letters, Selvaggio wrote that the requirement to carry cargo insurance is "one of the few remaining objective checks on the financial stability of new carriers operating in the marketplace." By eliminating the requirement, the FMCSA "would be opening up the marketplace to new entrants that are financially unstable," he wrote.
Selvaggio said the minimum requirements are valuable for shippers because it permits them to pursue a claim through what is known as "direct action" against a carrier's insurance company. This becomes a valuable tool when a carrier files for bankruptcy protection or becomes insolvent because the shipper still retains the right of "direct action" against the insurer, Selvaggio wrote.
A provision requiring carriers to keep mandatory minimum coverage was included in Senate legislation introduced last June to crack down on allegedly fraudulent behavior by truck brokers and other intermediaries. However, the bill went nowhere in the 111th Congress and died when Congress adjourned in December.
Selvaggio said efforts to persuade the FMCSA to change its mind have proved fruitless. The agency, he said, has little interest in administering rules that don't directly affect truck and highway safety.
Based on comments in its June rulemaking, the FMCSA would not take issue with Selvaggio's view. "The Agency should focus its scarce resources on motor carrier highway safety, rather than continuing to mandate a system that regulates loss exposure in connection with shipping commercial property," it wrote.