Form MCS-90 – Financial Responsibility for Motor Carriers

Download: Form MCS-90 – Financial Responsibility for Motor Carriers

Financial responsibility means having insurance policies or surety bonds sufficient to satisfy the minimum public liability requirement. Public liability means liability for bodily injury, property damage and environmental restoration.  Environmental restoration means restitution for the loss, damage or destruction of natural resources arising out of an accidental discharge of toxic or other environmentally harmful materials of liquids.

The MCS-90 Endorsement;

Background:

The MCS-90 is a result of the Motor Carrier Act of 1980, carrier deregulation was a part of a sweeping deduction in price controls, entry controls and collective price setting in  US transportation that started in the 1970’s and ended when President Carter signed it into law on 7/1/1980.

It was envisioned to be a sweeping de-regulation of the trucking, railroad and airline industries to remove 45 years of excessive & inflationary Government restrictions and red tape and to have an anti-inflationary effect to reduce consumer costs and to conserve hundreds of millions of gallons of fuel.

Congress meantime became concerned with increased truck traffic & non-conformance with trucking regulations and began a debate (of course) to address these concerns.  At the same time,  the DOT conducted a random roadside inspection of commercial vehicles traveling on I-80 in Pennsylvania and the results were pretty staggering.  More the HALF of the commercial vehicles were placed out of service due to safety violations.

As a result of the debate and the informal study, Congress passed the MCA of 1980 (the Act) which by 1990 resulted  in the number of licensed carriers exceeded 40,000 – more then double the number in 1980.

The MCS-90 Endorsement: No Coverage? No Problem!

In order to get the trucking & insurance industries compliant with the Act’s mandated levels of financial responsibility, Congress created the MCS-90 endorsement.  It is essentially an endorsement that makes the insurer a surety to the public.

The Act requires the MCS-90 endorsement to be attached to ANY liability policy issued to motor carriers operating commercial vehicles that are transporting property in interstate or foreign commerce. (49 C.F.R. 387.3, 387.7)

The form is attached to a truckers coverage form, commercial auto form or business auto policy, depending on the form used by the insurer.  Usually, when a loss occurs, the motor carrier’s vehicle is listed in the declarations or is otherwise covered by the policy and the insurance contract itself provides the necessary coverage to protect the public.  Occasionally, as a result of underwriting errors, policy terms, insolvency or illegal trucking operations, a vehicle will have no coverage and the MCS-90 endorsement is triggered.

Policy Issues:

The purpose of the endorsement is to ensure adequate levels of insurance in the event of an accident involving a member of the public on the environment.  The MCS-90 creates a surety-ship by the insurer to protect the public when the insurance policy to which the MCS-90 is attached otherwise provides no coverage to the insured. (Canal Ins Co v Distribution Servs., Inc. 5th Cir. 2001)

In effect, the endorsement shifts the risk of loss for accidents occurring in the course of interstate commerce away from the public by guaranteeing that an injured party will be compensated even if the insurance carrier has a valid defense based on a condition in the policy. So Coverage Defenses DO NOT APPLY – the insurer is ultimately on the hook for any final judgment.

The MCS-90 does not however create any obligation on the part of the insurer to defend it’s insured for claims not covered by the policy, however a failure to defend may result in a default judgment and then the MCS-90 endorsement creates absolute liability on the part of the insurer to satisfy the judgment up to the policy limits listed on the endorsement.

Subrogation is Allowed:

If the insurer ultimately pays on a judgment where no coverage exists, there is a clause in the endorsement that “the insured agrees to reimburse the company for any payment made on account of any accident, claim or suit involving a breach of the terms of said policy, and for any payment that the company would not have been obligated to make under the provisions of the policy except for the agreement contained in the endorsement” (49 C.F.R. 387.15)

In theory the insurer can recover from the insured but they cannot commence recovery efforts until after they make payment, which is often years after the loss and the insured can file bankruptcy or transfer it’s assets to avoid paying any judgment the insurer receives.

Some MCS-90 Interpretations:

The MCS-90 creates a duty to indemnify an insured for non-covered autos operated under the motor carrier’s authority  (John Deere Ins. Co v Nueva, 95h Cir 2000)

Without a lease between an owner/lessor and motor carrier/lessee, an insurer will not be required to indemnify the motor carrier for any judgment against the owner/lessor  (Jackson v O’Shields, 5th Circ 1996)

The obligations of an insurer to indemnify it’s insured also extend to any liability deductibles or self-insured retentions the insured may carry.

( David N Nissenberg, The Law of Commercial Trucking: Damages to Persons and Property 3rd Ed 2003)

Protecting Your Business is Serious Business

Work Related Accidents Impact…

  • You and your net worth
  • Your time and focus
  • The company you have built and its Stakeholders
  • Employees and their families
  • Lease Operators and their families

Risk Management is Mission Critical

  • What happens if an employee sustains a work-related injury or worse?
  • What happens if a lease operator sustains a work related injury or worse?
  • How is your exposure as a business owner different in each scenario?

Lease Operator

The Exposure…
The reality of occupational accident exposure is that if Lease Operators do not have coverage, then a serious injury will result in a claim made to the Motor Carrier’s workers compensation policy. Successful or not, you can count on the claim being made.

The Facts…
Occupational accidents and injuries can have devastating effects on an organization without proper protection.  If there’s enough money involved, personal injury lawyers will challenge the financial responsibility of all involved parties.  The related legal defense costs alone can severely impact operating profits and even drive many businesses into bankruptcy.  The coverage to reduce the exposure is both prudent and affordable.

What are the options?

Option #1:
Leave everyone exposed to a “parade of horribles.”

Option #2:
Agree that your lease operators are statutory employees and enroll them in your workers comp plan. This is the most expensive solution and may cause you to absorb the full onslaught of accompanying payroll taxes (perhaps even retroactively).

Option #3:
A Group Occupational Accident Plan for your lease operators allows you to pass through the related costs to them at a group rate, protecting them with 24/7, 48-state coverage, including survivor benefits, and defends your independent contractor agreement with them. Moreover, if you lose in a challenge by a court of law or workers comp review board, the Occupational Accident policy for the injured lease operator can be designed to convert to a ‘full blown’ workers comp policy and eliminate your company’s related contingent exposure.

Key GAIC Advantages for Lease Operators

  • Coverage limit issues, i.e., Plan A, B, C, or D;
  • Commencement Period
  1. GAIC gives 90 days to report a claim, treatment can begin when necessary
  2. Competing policies say treatment must begin in 90 days
  • Sub-limits: e.g., most competitors have $ 1,000 max limits for chiropractic care, ambulance or air flight, physical therapy, & other rehab treatment GAIC does not impose the sub-limit Accidents must be reported within 90 days, benefits can begin immediately upon reporting or at any time thereafter, and are not subject to a 90 day commencement period…and Accident benefits include dental where most competitors do not
  • When a $ 2mm CSL per occurrence aggregate for any one accident is selected, $ 1mm is set aside specifically for medical expenses, & $ 1mm for death, disability, & rehabilitation.
  • GAIC assigns a Nurse Care Manager to help insured deal w/ Psycho-Social issues
  • Temporary and Long-Term Disability Income benefit is based on Schedule C income and retro to day 1 (most competitors impose a 7 day grace period) and applies to the definition of “Under the course of doing business,” which includes maintenance, cleaning, & other misc activities…so coverage is not limited to just driving and loading/unloading
  • The $ 1mm maximum accident medical benefit is annual, not a lifetime one
  • Death benefits apply if death occurs within 2 years (instead of just 52 weeks) from the accident

Important Coverage Points for Fleets

  • Major point:  to keep personal injury attorneys away and adverse decisions from workers comp review boards, fleets need to offer the most broad occupational accident coverage available
  • GAIC does not impose Aggregate Limits on the Group Policy as do competitors…if a fleet has 100 drivers, each with $ 2mm Aggregate Limit, then GAIC’s exposure is $200mm.  A competitor will attempt to sell the same deal but put a $ 5mm or $ 10mm aggregate “stop loss” limit in
  • Average length of disability with GAIC is 29 days, which is 9 to 14 days shorter than before the Nurse Care Manager benefit was introduced.
  • Any expense not covered is a potential black hole liability
  • GAIC’s policy limits are generally higher than competitors
  1. Accidental death benefit pays $ 50K more ($ 300K vs $ 250K), i.e., the $ 2000/month survivor benefit pays for 125 months instead of just 100 months
  2. Accidental Dismemberment pays $50K more ($ 300K vs $ 250K)
  3. Paralysis benefit pays $50K more ($ 300K vs $ 250K)
  • Contingent Liability Feature available to the Motor Carrier as part of the Occupational Accident plan…it defends the lease agreement if a lease operator accident claimant attempts to claim employee status & collect workers comp benefits…and it defends the company in a Court of Law or in a Workers Compensation Review Board…if you lose, the contingent liability feature will pay up to statutory limits of a Workers Comp Policy

Need more information or help? Western Truck Insurance can answer all of your risk questions and help protect you and your business.