Truckers and the companies that insure them have grown accustomed to increasingly adverse jury awards stemming from truck-related accidents. They are also well aware of the bulls-eye painted on their backs by the plaintiffs' bar. But even the most jaundiced legal eye couldn't have foreseen the bombshell dropped by a Harris County, Texas jury on May 17.
Jurors hit Werner Enterprises, Inc., a large truckload carrier and logistics provider, with an $89 million judgment for a fatal accident on Dec. 30, 2014, near Odessa, Texas, more than 500 miles from Houston, the core of Harris County. According to court records, a pick-up truck carrying a family and travelling on eastbound Interstate 20 lost control and spun across a grassy median onto the westbound side, where it collided with the oncoming Werner rig. A 7-year-old boy died and his 12-year-old sister suffered catastrophic brain injuries. A third child and the mother—who was not driving—were also hurt. The tractor-trailer driver, who was a student driver at the time, espaced injury. An instructor in the cab and the driver of the pick-up also avoided injuries.
According to Werner, the tractor-trailer had no chance to avoid the pick-up once it careened on to westbound I-20. Its driver was operating below the posted speed limit, did not lose control of the rig, and brought it to a complete stop after impact, Werner said. The driver did not receive a citation, nor did the investigating officers find the driver culpable, werner said.
Attorneys for the family saw it differently. They maintained the driver and instructor knew the weather conditions along that stretch of I-20 were bad and getting worse, and that they should have either slowed the rig to a crawl or pulled off the road. Instead, the driver's speed was clocked at 50.5 mph at the time of impact, well above what it should have been under such adverse conditions.
Werner executives, who were stunned by the verdict and the amount of the judgment, said in a government filing that its maximum out-of-pocket liability would be $10 million if the verdict and award are upheld. Its insurance providers would pick up the balance. The Omaha-based company said it would appeal the verdict, adding an ominous warning that "if an accident like this is the fault of the driver who was hit by the out of control vehicle, think about what that means for every motorist on the roads."
Insurance companies have also been thinking, and several have thought better of staying in a business where "nuclear" verdicts in the many millions of dollars have wreaked havoc with their claims-loss ratios. Insurers, on average, paid $111 in claims during 2017 for each $100 in premiums, an unsustainable loss ratio of 111, according to Fitch Ratings, a ratings agency. "Commercial auto insurance remains a chronic problem for underwriters despite numerous rounds of rate increases and underwriting actions," said James Auden, managing director at Fitch, in a May report. "Loss severity trends, rising litigation costs, shortages of experienced drivers, and continued reserve weakness may limit the potential for underwriting improvement in the near term." Ironically, the report was published the same day as the Werner verdict.
In 2015, Zurich and AIG unit Lexington, both key players in different segments of truck insurance, effectively exited those markets. Last November, Westfield Insurance, another big motor carrier underwriter, departed. Many who remain have changed their underwriting strategies. More insurers are raising their minimum driver insurability ages to 25 in response to the claims, according to Matthew Little, senior vice president at McGriff, Seibels and Williams, an insurance and risk management concern in Atlanta. Owner-operators, especially those new to the industry, are having challenges finding coverages they can afford.
Under federal law, every licensed motor carrier must carry at least $750,000 of coverage. The coverage requirement can be as high as $5 million for vehicles with more than a 10,001-pound gross vehicle weight (the combination of tractor, trailer and cargo) and hauling certain types of commodities. Many large fleets carry so-called excess insurance that can pay off as much as $30 million for an incident. Those coverages are often bought in $5 million increments, or "layers" in industry parlance.
The exit of Zurich, which was strong in the so-called "primary limit" market of the first $5 million of coverage, did not cause a major disruption because other carriers stepped in to write policies, said Todd Reiser, vice president of Lockton Companies Inc., a Kansas City, Mo.-based broker who helps underwrite coverage for large fleets. By contrast, Lexington's departure created a huge void in the excess market because it wrote the bulk of those policies, according to Reiser. Lexington's absence, combined with the excess market's huge exposure to "nuclear verdicts,"has substantially forced up premiums at that end, he said. "That has all calmed down to some degree, but the bad industry experience continues," Reiser said in an e-mail.
In general, coverage today is abundant and available, albeit with higher premiums and deductibles. Truckers try to mitigate the premiums increases by buying "corridor" policies where they absorb a higher deductible in the event of a pay-out.
In addition, underwriters have become savvy at understanding the role information technology plays in improving a carrier's safety and risk profiles, Reiser said. For example, a carrier sits in good stead with an underwriter if it can show that 90 percent of its fleet is equipped with technology that helps reduce accident risk by 78 percent, he said.
Collision-avoidance technology offers the biggest I.T. bang for the buck because it helps reduce the risk of rear-end incidents which compose most of the larger claims, Reiser said. Cameras are a valuable feature, but the cost of equipment, installation, and operation may be off-putting to some fleets, he said.
For fleets, understanding and, if necessary, improving their grades under the federal government's "CSA" carrier-benchmarking program is critical, experts say. Like the CSA process or not—and many fleets do not—underwriters use them as a key criterion to determine if they will offer coverage and on what terms.
Premiums are one of the ingredients baked into freight rates, which given today's sellers' market for freight, has made it easier for fleets to pass on. However, being a cyclical business, trucking demand will at some future point turn down. At that time, said Richard Malchow, an editor for consultancy and media firm J.J. Keller & Associates, Inc., "carriers will very much be affected by the high insurance premiums and deductibles." The leading carriers are reinvesting their increased revenues into their safety programs, which includes training resources, safety evaluations, and technology encompassing in-cab and back-office features to mitigate risk and control current and future insurance expense, Malchow said in an e-mail.
For some insurance companies, what was once a popular and profitable line of business is becoming an unsustainable one. But they can exit the line if they choose. Motor carriers that must have coverage aren't so lucky. For them, the pain of higher premiums and deductibles is a clear and present scenario.