The Bill of Lading Issue in Truck Brokerage Liability and Contingent Auto Liability Policies

It is widely known that the bill of lading (BOL) is the legal instrument of carriage from both a property and casualty insurance perspective.  The BOL, in essence, determines the legal liability.

One of the challenges for a truck broker, and their casualty insurer, in avoiding that legal liability, is for the broker to NOT have their name on the bill of lading as the “carrier”.

Having the bill of lading in the broker's name negates any presupposition( as far as defense counsel is concerned) that the insured is an independent contractor in the due course of transit. The Federal Department of Transportation rule decrees that the carrier’s name ( and that does not mean the broker)  Shall Be  on the bill of lading in the space "Carrier". Therefore, it is actually illicit to have the broker’s name in the carrier space. Also, insurance companies view it as very difficult to succeed in defending a claim against an effective claims counsel and jury.

We are aware that there is a transition in the marketplace away from the bill of lading. Many of our broker insureds recognize that it's-a-work-in-progress away from shippers putting the BOL in their own name- but they have not dismissed the issue and simply operate in a that-is-the-way-it-is mentality. The Transportation Intermediaries Association and other organizations also concur with the insurance company’s stance that the BOL is the primary instrument determining legal liability- and therefore do not sanction truck brokers allowing the practice of having their name in the carrier space.

The solution is to require the shipper to utilize the carrier name in all cases. While that may not be able to be done by an insured in one day, it doesn’t mean that a truck broker should continue to allow the practice in perpetuity.

Truck Broker Exclusions in Commercial Auto Policies

Most of you are aware that most any trucking underwriter does not care for related truck brokerage operations in most any form. For most underwriters, it is grounds for declination. If the brokerage operations are a small part of the overall trucking operation, they may quote it but require that the insured separate and put in a separate authority the brokerage operation. The purpose is to isolate the trucking risk to just being the trucking risk- and not bear the risk of what the insured does with their brokerage operation.

It is important to look at the reason why and the foundation for this underwriting position.

The standard operating procedure in truck insurance underwriting is assessing the risk. Normally that is done with an application, equipment list, and drivers list including date of hire, mileage reports, financials, and loss description / loss runs. The goal of this underwriting procedure is to understand if there is a hired and non-owned exposure that the underwriter would be picking up if they successfully bound the policy. That is easier on small fleet policies in that they are frequently written on a scheduled auto basis- that is, the insurance carrier is only picking up coverage for units that are scheduled and, in their view, not for any vehicle hired and non-owned. For fleet policies, these are normally written on an Any-Auto symbol meaning any unit used on the insured's behalf is covered. The insurance underwriter gets the total number of units each policy year and divides that into both revenue and mileage to make sure there is consistency and a similar yield per year that matches up. If there are wide variations, it probably means that the insurer is not seeing the entire equipment schedule they are exposed to- and therefore not getting the premium.

One more digression before we look at brokerage operations as part of a trucking operation. Every trucker with common, contract, or hazardous material status requires a public liability filing known as an MCS-90 endorsement which proclaims that the insurance company is responsible to the general public for any vehicle, whether scheduled or insured or not, used in the insured's operations. So you can see why the insurance company is quite zealous to make sure they are insuring, and getting the premium, for any exposure.

So what has changed as far as this concept of underwriting? Really, not too much. This is the way it has always been. But have insurance companies changed? You bet. Has the trucking industry changed? You bet. Here is what happened:

During the last recession, many trucking companies went out of business. To add insult to injury, even with 7.5% unemployment, there is a greater and greater scarcity in drivers. Indeed truck driving is construed to be one of the most dangerous jobs out there and the lack of workers compensation capacity to write coverage confirms how tough the job really is. So with the lower number of drivers and trucking companies, shippers of freight are having a tougher and tougher time finding truckers ready, willing, and able to haul their freight.

So even though a trucker can and often does trip lease freight under their authority ( trip leasing defined as a one-off trip where a trucker arranges that another trucker hauls the freight under the originating trucker's bill of lading or authority), more and more truckers are setting up truck brokerage authority to handle loads they neither have the vehicles nor drivers to haul.

Why? If they have a good shipping customer, they want to tell them, “Hey, we will be your transportation solution. We will preferably haul your loads on our trucks. But if they are all on the road, our brokerage arm will arrange to have your freight hauled. We will service your business to your satisfaction."

So how do they set up brokerage authority? In two ways. Firstly, they can set it up as part of their common and contract authority, under the same name as the trucking company. The trucking underwriters do not like that one bit for reasons previously mentioned. After an underwriter has gone to all the trouble of underwriting and pricing a trucking risk, to have the trucker be able to hire any carrier willy-nilly is alarming.

The second way a trucker can set up a truck broker is a completely new authority. Interestingly, it can be in the same exact name as the trucking company but it is certainly better for the truck underwriter if the name is completely different- or at least slightly different.

So the upshot of all this is that the trucking insurance marketplace very quietly started putting brokerage exclusions on their commercial auto policies. That is to say, they exclude brokerage losses. Really no one has brought up there could be some coverage issues that arise out of this- that can give both heartburn and even worse, an error and omission.

You will note that I have never seen a commercial auto policy define trip lease or sub-hauler. That is not to say that someone might be doing same. And on the brokerage exclusions that I have seen, truck broker operations are not defined.

So a friend calls me up and tells me that he has had a loss denied due to the fact that it was a brokerage loss and for me to give him my two cents which is what it is worth. But the situation was far worse than I realized and made me think of all the uncovered losses that spell doom for those involved.

The loss involved a cargo loss where the insured brokered a load and the claim was denied. In this case, the insured had common, contract, and brokerage authority all under the same name- a bad deal as previously mentioned. The load, while brokered, listed the insured as the carrier on the bill of lading. So even though the insurance carrier felt they were justified excluding the loss, and even though the insured freely admitted the load was brokered, it is clear to me the legal liability for the loss rests with the insured.

Why? I see two reasons. First there is the DOT regulation that says "The Carrier shall issue the Bill of Lading". The carrier here was the insured even though he brokered the load. Secondly, Carmack, the federal regulation that stipulates how all cargo claims are adjudicated, states clearly that the bill of lading is the legal instrument of carriage, and therefore is the determining document as to who is liable and how they are liable. And that would be the insured.

So, according to my pejorative here, the insurance company is on this loss for the insured. They may not like it- but they are on it. What is worse is what would happen if there were a liability loss where again the insured brokered the freight but it is under their bill of lading? Well in my view, the insured's insurance company would be on it again.

It is clear to me that the industry has little understanding of what truck brokerage, subhauler, and trip lease exposures are out there and how they are covered or not - and it's clearer that truckers with brokerage operations are not mitigating potential loss by having the bill of name in the brokered carrier's name. Do they want their insurance carrier to be paying a loss they are not responsible for? No. But if they put their name on the bill of lading, they are doing just that.

Beware of brokerage exclusions on commercial auto policies. Now you know why.

Current Truck Broker Liability Coverage Comparison versus New York Marine Contingent Auto CTLP

We are asked to compare coverages from time-to-time and I offer the normal disclaimer that any review is subjective and,as such, is subject to the actual terms and conditions of the actual policy in place. One of our agent's asked us to compare the TBL product to Avalon's program with New York Marine so I thought I would add this to the blog to help our agents/ their insureds understand it better . This should help irrespective if the other contingent auto carrier is New York Marine or someone else- as the coverage issues are relative to all carriers. And, more importantly, it makes sense to look at the coverage intentions of each carrier and understand their strengths and weaknesses as it related to the following coverage interpretation:


I will tell you that the folks I know at Avalon are highly professional, and they have done a nice job creating a product called the Combined Transit Liability Program ( CTLP). They also include in one package other coverages and there are several bells and whistles in fringe coverages that are not available elsewhere- but I do not find them material. They also offer extremely cheap pricing so they are viewed with some interest by the marketplace. But the buck stops there in my view.

While I certainly view the following interpretation as self-serving, I can tell you that the normal truck broker liability (TBL)  product is far superior in offering coverages for truck brokers versus New York Marine's CTLP. Here is why:

• CTLP has policy aggregate of $1,000,000 . Most shippers are looking for auto coverage that has no aggregate. TBL usually has no aggregate in the current policy- A huge deficiency especially for truck brokers who have a larger sales volume.
• CTLP policy form is contingent coverage. TBL is primary coverage. Does an insured want to see if another policy pays before the coverage responds in the current policy? The answer is of course not.
• CTLP policy form is geared toward customs brokers. The TBL policy is specific to truck brokers. Not a big deal but there seems to be jargon and ambiguity that is not geared to truck brokers.
• The CTLP policy excludes punitive damages. There have been punitive damages claims against truck brokers. The TBL usually does not exclude punitive damages presently. Obviously a big problem in the CTLP form...
• Defense-I cannot tell whether defense costs are in the limits or excluded altogether based on the declarations pages and the coverage form . It does look like defense is optional. TBL is not optional in the current policy form.
• CTLP will write specified contractual which is better than TBL. We are working on it. That being said, they exclude claims arising out of any agreement to indemnify which is the basis of most contracts so I feel this is a moot issue.
• Pollution is excluded in the CTLP form; it cab ve  picked up subject to the terms by the TBL in the current policy.
• CTLP has a 6 month claims timeline for turning in a claim under the CTLP form/ TBL does not have that provision
• Policy form of CTLP excludes certain commodities- a big deal is the broker would have to pay attention not to broker certain commodities. TBL has no such exclusion.
• CTLP policy has a deductible. The current TBL is no deductible. As mentioned the CTLP pricing is better than the TBL pricing, however, that is about it (except for contractual if they really provide the same).

In my view the CTLP does not provide coverage that the insured needs, nor does it satisfy the many broker-shipper contracts require. That being said, they sell a good bit of this coverage and I look forward to competing against it.