The FMCSA and the Coercion Rule- A Risk Management Nightmare for Logistics Operations

Well, they did it again. Effective January 19th, 2016, the regulators created a new rule that the transportation industry will be reacting to- and scarily enough, there is no current solution. Moreover, the insurance industry which works off of best practices underwriting is in consternation with how to underwrite a new, unforeseen exposure- Coercion

The Department of Transportation (DOT) through their safety agency, The Federal Motor Carrier Safety Administration (FMCSA)  just finished with their final rulemaking on Prohibiting Coercion of Commercial Motor Vehicle Drivers. Just like most regulation, the intentions are noble and good. The idea is to preempt a driver from being threatened to operate in either a dangerous or illegal way that might create crashes that hurt the general public. And like most regulation, the lack of definitive rules relative to what is and what is not coercion must have the plaintiff lawyers chomping at the bit.

So what is the new rule? The regulation now prohibits motor carriers, shippers, receivers and transportation intermediaries from coercing drivers to operate their commercial motor vehicles in certain violations of Federal Motor Carrier Safety Regulations. These violations include:

• driver's hours-of-service limits
• commercial drivers license regulations
• drug and alcohol testing rules
• hazardous materials regulations

As we are focused on the truck brokers and their operational best practices, does this mean that a truck broker needs to ask if the driver has enough hours, when they had their latest drug and alcohol test, or if the haul would cause any violation of their commercial driver's license regulations? Who knows?  God forbid, the truck brokers now have to certify all haz-mat regulations  have been properly vetted. It's even worse. Here is why:

The rule now includes procedures for drivers to report incidents of coercion to the FMCSA, and establishes rules of practice that the FMCSA will follow in response to reports of coercion. It describes penalties that may be imposed on entities such as truck brokers that have been found to have coerced drivers.

Do you think a carrier and its driver might, in an effort to deflect or escape liability and culpability, suggest that the truck broker "coerced" them to operate illegally? Absolutely.

While certainly anyone coercing a driver to do the wrong thing is blameworthy, not coming up with the rules or practices of how to operate- especially for a truck broker operating as a supply chain intermediary- should be construed to be federal regulatory malfeasance.

Coercion complaints must be filed within 90 days of the alleged event. A fine of $16,500 can result but that is the tip of the iceberg. What if the coercion results in a fatality according to the plaintiff's lawyer?

Needless to say the reaction to this will result in the establishment of case law relative to coercion precedents- along with the new need for a new term- Coercion Risk Management Best Practices. I wish everyone good luck and an extra bottle of aspirin or something a tad stronger....

CSA Changes and The Fast Act- What it Means and How to Proceed Going Forward Respects Carrier Risk Management

As you are aware, change is an operational prerequisite of both the insurance sector and the logistics industry. It is what these industries have in common. These changes require both an understanding of that change and what it means to risk management considerations.

The change we are discussing today is the latest Federal Highway bill (FAST Act 2015) and the its ramifications on CSA.

The result of the bill is that the Federal Motor Carrier Safety Administration (FMCSA) has been required to stop sharing CSA scores with the general public.

Our friends and partners at SaferWatch have noted the following:

"CSA Scores - The CSA BASICs system is merely a scoring system based on evaluation of data such as inspection and violation history.  According to the FAST Act, the removal of CSA scores from public view is very likely temporary.  Once the FMCSA meets conditions required by the FAST Act, they may make it publicly available again.

Inspection and Violation History Remains Public - The underlying inspection and violation history that is used in calculating the CSA scores will remain public. This data continues to be disseminated en mass and the FMCSA SMS website message indicates they are working as quickly as possible to restore these public values on the SMS website.  Removal of the CSA scores does not necessarily alleviate the need for you to evaluate the inspection and violation history in your standard for hiring motor carriers.

Hiring Standard Changes - It may be very important to consider inspections and violation history in your carrier hiring standard.  Simply put, how will you defend your carrier selection standard if you hire a carrier that has a public history of poor inspections and serious violations?

SaferWatch provides several solutions to meet the requirements of the wide carrier selection criteria standards of its customers:

·         CSA Equivalent Scores* -  SaferWatch has  developed a CSA Equivalent score so you don’t have to make any changes in your carrier hiring standard.  This CSA Equivalent is similar to the CSA scoring mechanism used to evaluate inspection and violation history.  While there have been issues with the CSA scores, one thing they did provide was a “guiding light” by the FMCSA through the inspection and violation history.  Using a CSA Equivalent may lower your risk exposure compared to developing a standard around the public inspection and violation history
 
·         Inspection and Violation History - SaferWatch will be providing the carrier inspection and violation history to the carrier profiles in the next week.  If you prefer, you can use this data to make carrier hiring decisions rather than using the CSA BASICs scoring system.
 
Are CSA scores still something to be concerned about?

Yes. CSA scores have been used by the legal community as evidence for the plaintiff and the defense in negligent hiring lawsuits and a legal precedence has been set.  With CSA scores temporarily hidden, will the legal community start using the underlying public inspection and violation data that is used to formulate the CSA score?  If a carrier you hired ends up causing a fatality due to bad brakes, and it turns out the carrier had one or more vehicle maintenance violations in the past few months, how will this public information be used against you?

SaferWatch provides you with comprehensive carrier data and advanced tools needed to help you establish your carrier hiring standards.  Our Carrier Risk Management experts are here to help you navigate the many facets of the carrier selection process."

You can certainly see why SaferWatch is a great partner for GTU, our agents, and their insureds.

So what does this all mean from an underwriting and risk management perspective going forward until the government redeploys CSA data to the general public?

Here is the bottom line:

The viability of current CSA data and its accuracy respects predicting claims has been called into question. As the data is now pulled from public view, the current data will have to be discounted in the underwriting process. That is not to say it should be disregarded or overlooked. Unfortunately, the current status of having the data pulled from public view gives CSA naysayers the opportunity to state that the data should not have mattered in the first place- nor should it be used in the future. Remember the CSA data will reappear. It is not going away in perpetuity.

 While the current data is most certainly  not to be viewed as a true measure of accountability, it should be taken into context when looking at other risk characteristics such as DOT Safety Rating, the AM Best rating of the carrier’s insurance, how long the carrier has been in business, etc… So, in the end, CSA data used as part of the overall carrier evaluation is still necessary. For those that still use components of it in the evaluation, they will be judged to have better risk management practices and be a better risk. The SaferWatch solution of using CSA equivalents along with inspection and violation history is clearly the way to go. But it will be a work in progress.

It is also important to look at the data itself- even if it is unavailable today. Carriers with more than 1 Alert comprise less than 4% of all carriers operating in the supply chain. While all carriers do not have CSA scores and as such, those that do are unfairly discriminated against as a result, it does not diffuse the issue that 96% of the carriers do not have this issue.

CSA data being hidden from the general public is not helpful to truck brokers if components of that data are still going to be used in a courtroom to establish broker liability as it relates to negligent hiring, negligent entrustment, and the vicarious liability. Coming up with a Plan B makes good sense.