Professional Liability Insurance for Truck Brokers- Why They Need It and Coverage Intentions

Professional Liability is a very interesting insurance product that has recently received much more notice for truck brokers. Which raises the question: why would a truck broker need Professional Liability coverage when it is not offered for truckers? In my view, we will eventually see truckers required to have Professional Liability. But let's not get the trailer in front of the tractor….

First, let's go back to what coverages truck brokers are buying today (in order of popularity):

* a Broker Bond for $75,000.
* Contingent Cargo- most look for coverage that includes excess, difference in conditions and sublimits for Identity Theft and Earned Freight.
* Truck Broker Liability- this provides primary coverage versus contingent auto coverage for best practices brokers. Most brokers need and many shippers require this coverage.
* General Liability- this is for premises and incidental exposures normal to truck broker operations.

So why the sudden need for Professional Liability? Both shippers and truck brokers have figured out that, while there has been a vast improvement over the years, truck broker insurance coverage is still in its early days- meaning that the case precedents against truck brokers have not been completely assessed, examined or assimilated in the marketplace. In reviewing the aforementioned coverages, we will then be able to identify the coverage gaps that Professional Liability can fill. Contingent Cargo covers the property or cargo loss that results from the failure of the trucker’s policy to provide coverage. Truck Broker Liability covers the legal liability of the broker for bodily injury, property damage, and pollution for negligence in the supply chain. General Liability covers the premises and can include miscellaneous operations like sales out of the office.

So here is the gap. Could a truck broker be legally liable for a loss that does not result in bodily injury, property damage, or pollution that is not covered in a TBL or GL policy? Could a truck broker be liable for financial loss that is not the property of others? You bet.

A Professional Liability policy covers errors and omissions that are committed during the course of a truck broker's business day. A truck broker may make mistakes while undertaking their work (overlook a critical piece of information, incorrectly state a fact, etc.) and could be sued by their clients. The fact that a truck broker is in essence a middleman between the shipper and the carrier can create a completely different exposure than for a carrier dealing directly with a shipper. To be more specific, a truck broker needs Professional Liability coverage to cover the following exposures:

* Misdelivery- the truck broker instructed the carrier to deliver the goods to the wrong place.
* Miscommunication- the truck broker told the consignee the load would be delivered on Thursday when he meant Tuesday.
* Regulatory Errors- the truck broker did not know the rules and the load was impounded by a civil authority.
* Discrimination- the truck broker was seen to discriminate against a long standing carrier in favor of another one.
* Negligent Hiring- the truck broker hired an incompetent carrier whose deficiencies resulted in financial loss other than bodily injury, property damage or loss of cargo.
* Negligent Acts

* Negligent Omissions

Although we at GTU are able to sell the only three occurrence forms in the marketplace, most Professional Liability coverage forms are claims-made. Deficient programs only offer coverage on claims-made & reported versus pure claims-made. GTU not only offers claims-made and occurrence coverage, but can also cover punitive damages (where permissible by law), personal injury, disciplinary proceedings, loss of earnings and expense reimbursements.

Aside from normal policy terms and conditions and exclusions, it is important to understand that a Professional Liability policy does not cover:
* The cargo or property lost or damaged in transit (that's what Contingent Cargo policies are for).
* Bodily injury or property damage (that is what the TBL and GL policies are for).

One last fact to know when dealing with a prospective truck broker. The truck broker business is thriving and averaging 15-20% pretax profit. So if you have a broker doing $5 million in revenue, he is making usually $750,000 to $1 million. If they have any retained earnings, their business is worth way, way more than that pretax profit. So when you are discussing something that seems as insignificant as Professional Liability, the question is: if your business is worth as much as the average truck broker, why would you not have Professional Liability coverage that may pick up the coverage gap?

We hope this offers a clear overview of Professional Liability coverage. Don’t have an E&O by failing to sell Truck Broker Professional Liability/E&O coverage.

What Contingent Cargo Insurance Really Means For Truck Brokers Today

We are often asked what Contingent Cargo insurance actually is. As an underwriter of this coverage, I feel you get a better definition by actually looking at the insuring agreement and the property covered by a specific policy.

Contingent Cargo is designed to cover direct physical loss of property in vehicles or damage to property of others for which the insured (truck broker) and their subcontractor (trucker) are legally liable. That is pretty simple. However, it is important to understand the coverage trigger. The coverage trigger is the failure of both the negligent trucker and the negligent trucker's insurance policy to pay a valid and substantiated claim.

The inability to collect from the subcontractor's (trucker's) insurer can be based on 5 reasons:
1) Coverage was non-existent owed to avoidance, termination or expiration.
2) Coverage was invalid.
3) Coverage was insufficient in amount (the need for more limits/excess).
4) Coverage was inapplicable because the carrier's Motor Truck Cargo policy did not cover or excluded the loss (difference in conditions).
5) Coverage is inapplicable due to the insolvency of the insurance company writing the Motor Truck Cargo policy.

That's pretty simple too.

It is typically a condition of coverage that the insured must obtain evidence of Motor Truck Cargo Legal Liability insurance (MTC) AND that those MTC limits are equal to or greater than the subcontractor's legal liability.

A flaw in Motor Truck Cargo coverage is that many policies have commodity exclusions or terms and conditions that invite agent error and omissions (ex: unattended vehicle warranty). Most insurance policies do not cover 3) and 4) above. These are known as “following form” policies and we are surprised that they are allowed to be sold. Fortunately, we offer preferred Contingent Cargo products that do not have these limitations (if the insured is willing to be a "best practices" operation).

To be deemed “best practices”, we start with a review of a potential insured’s broker carrier contract/agreement to make sure that it requires the following:

* adequate insurance limits for the load

* clearly defined coverage terms
* indemnification to the insured

Note recent marketplace trends have afforded Contingent Cargo coverage for items that are not covered by the trucker's Motor Truck Cargo policy in the first place. These coverages include:

a) Identity Theft
b) Carrier Acts of Dishonesty
c) Earned Freight of the Broker
d) Errors and Omissions resulting in loss of cargo (misdelivery).

The shipping world is trying to push more liability (beyond Carmack liability) onto the backs of the truck broker. While Contingent Cargo can cover difference-in-conditions, excess, identity theft, and dishonest acts, we now have the ability to write primary cargo coverage where some carriers are requiring same.

We hope this offers a matter-of-fact way of looking at this important coverage. If you have any questions or concerns, please feel free to comment below.

Update 2017- The Differences Between Truck Broker Liability and Contingent Auto Liability

We are asked nearly every day to describe the differences between Truck Broker Liability coverage (TBL) and Contingent Auto Liability coverage (CAL). To understand the differences, it is important to look at the history of coverage for truck brokers.

History of Coverage

Heretofore, there was only Contingent Auto Liability with one exception, the AIG program of Primary Truck Broker Liability (TBL) - an unprofitable program that has now shut down. That program evolved out of the need to insure truck brokers on a primary basis- as many producing agents in the insurance marketplace felt the conventional CAL programs did not offer comprehensive coverage. The problem with the AIG program was that it was only designed for the largest truck brokers and the minimum premium was too expensive for the average sized truck broker to consider. Also, many shippers required additional insureds and waivers of subrogation, along with primary and non-contributory wording, which AIG was not willing to offer.

That changed with the Markel TBL program designed for all truck brokers. Now there is a Beazley program that offers TBL as well. These are the only two mainstream TBL programs in the marketplace. TBL coverage is more important today as shipper's demands on both truckers and truck brokers have changed. Shippers have gotten much more educated relative to coverages and they want a truck broker to have several things:

• to have primary coverage
• to add the shipper as an additional insured
• to defend and indemnify the insured (and the shipper if named as an additional insured) irrespective if the trucker's coverage defended/indemnified or not
• to waive subrogation

Discussion

Are CAL programs as worthless as the marketplace thinks they are? Absolutely not.

Is CAL coverage as good as TBL coverage? Absolutely not.

Let's look at some of the differences:

• CAL - Covers damages resulting from auto liability that may arise on a contingent basis. That is, it will cover the broker if the carrier’s primary auto liability coverage fails to cover a claim.
• TBL - Covers bodily injury or property damage resulting from the ownership maintenance and use of a carrier's auto arising out of and emanating from the insured’s operations as a transportation broker.

Note the TBL does not mention being contingent and is therefore primary coverage (a very big deal). The coverage form is a hybrid policy (GL & Auto) covering a truck broker’s liability arising out of an auto claim on behalf of a trucker to whom the insured brokers. The TBL's wording comes straight out of an ISO commercial auto policy.

The major differences are the specific conditions that could negate coverage for an insured under the CAL policy that are not present in the TBL policy:

• Defense/Duty to Defend- Both programs have a duty to defend, but the CAL will not defend if there is other valid insurance. So a truck broker could be sued and not defended if the trucker’s coverage is providing defense. A big deal.
• Punitive and Exemplary Damages- Excluded under the CAL and not under the TBL (some smaller accounts are endorsed to have an exclusion for same).
• Annual Aggregate- CAL has an annual aggregate (which is the most the insurer will pay during a policy period). The TBL is like an auto policy and has no annual aggregate (some smaller accounts are endorsed to add aggregate limits).

Agent’s Duty

We are all in the business of trying to sell the best coverage to protect the insured. In the past, when there was only CAL, there was no other choice in coverage. It now makes sense to offer TBL coverage if a prospective insured meets risk acceptability and best practices standards. Note as more and more shippers become aware that this coverage is now available, TBL coverage will help truck brokers meet risk acceptability standards with new shippers.

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.