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As in any business model, Motor Carriers (MC) utilizing Owner Operators (OO) enjoy certain benefits while also assuming additional risks. One such risk is the potential “uninsured” exposure of the OO while not in a “business use” capacity for the Motor Carrier. The MC’s Trucking or Commercial Auto Liability (AL) insurance policy provides coverage for the motor carriers’ owned units as well as any hired tractors and trailer during their time of hire. Coverage ceases for an Owner Operator once they are no longer in a “business use” capacity for the Motor Carrier. The concern is the OO continues to utilize their vehicle while displaying the MC placard and may not have other insurance available. Many times, the “deep” pocket of the MC is called upon to make the injured 3rd party whole.
Three products have been developed to address the coverage gap for the Owner Operator.
Non-trucking Liability:
Cost: Low
Protection to Motor Carriers Auto Liability: Low
Market Availability: High
Non-Trucking Liability provides protection for “personal use” by utilizing a Trucking or Commercial Auto Liability policy form and attaching a “business use” exclusion. The difficulty arises in that the definition of “business use” is not typically defined in the policy rather it is derived directly from various state and federal court decisions interpreting this phrase.
Unfortunately, “business use” has been interpreted very broadly and extends beyond “dispatch”. Following are some typical scenarios that would not be covered by the Non-trucking policy due to the broad interpretation of the “business use” exclusion:
- OO drops load and his heading home to include a trip deviation to the grocery store (courts determine OO is owed a trip home)
- OO takes vehicle to garage on weekend for maintenance (courts determine OO is maintaining unit in accordance with MC lease requirements)
- OO is out of town, between loads. He goes to movie theatre. (courts determine OO is out of town at direction of MC)
Example of Coverage: OO utilizes their truck on personal time to run to grocery store and hits another vehicle.
Bobtail Liability:
Cost: Medium
Protection to Motor Carriers Auto Liability: Medium
Market Availability: Low
Many in the transportation industry use the same terminology for Bobtail Liability and Non Trucking Liability, when actually they are quite different. Bobtail defines coverage as “any time the trailer is unattached” whether or not the OO has been dispatched by the motor carrier.
Example of Coverage:
- OO drops load and bobtails to pick up next load.
- OO drops load at end of day and bobtails homes.
- Be aware the Bobtail Policy will not respond anytime a trailer is attached, even if truly in a personal situation, e.g.:
- OO brings homes an empty trailer and runs to the store on the weekend.
- OO uses his tractor to a move a mobile home on weekend.
- OO assists a friend in moving by pulling trailer with household goods
Unladen Liability:
Cost: High
Protection to Motor Carriers Auto Liability: High
Market Availability: Very Low (Per Class Basis)
Unladen Liability provides the least ambiguity in coverage and the broadest level of protection for the MC and OO. This policy provides coverage while bobtailing (no trailer attached) as well as while deadheading (trailer does not contain or carry any cargo – no bill of lading), regardless of dispatch. The difficulty with this coverage line is the low availability (typically not available in a master settlement deduct program; rather the OO’s need to obtain on a direct basis).
There are pros and cons to each of the coverage models which vary depending on the risk tolerance and the operations of the Motor Carrier and Owner Operator. Deciding on the right program can be critical to managing your risk. Enlist the help of a qualified insurance broker to review your current insurance programs and operations and to provide suggestions and options that best fit your needs.
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