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.

WHAT IS STATED AMOUNT PHYSICAL DAMAGE?

Unlike private passenger type vehicles commercial trucking physical damage is often insured on a “stated amount” basis.

Physical damage premiums for private passenger type vehicles are ordinarily determined based on the original cost of the vehicle and its age.  This is practical largely because these vehicles depreciate in an easily predicted fashion.  Heavy commercial vehicles, however, are designed to outlast their engines.  Truck tractors, often traveling well in excess of 100,000 miles per year are designed to have their engines replaced regularly.  The value of the vehicle therefore is heavily dependent upon how recently the engine has been replaced.  A four year old tractor, for example, with a new engine, is worth considerably more than a similar four year old tractor with similar mileage and with its original engine.

Since it is more difficult to determine the worth of heavy commercial vehicles based on original cost and age, truck insurers have developed an alternative method, “Stated Amount” for providing physical damage coverage and determining premium.  The insured “states” the maximum vale of the vehicle and the premium is determined as a percentage of that value.  That percentage decreases as the deductible increases. 

In general lower valued vehicles pay a higher premium percentage than more valuable vehicles because damage that would be a partial loss on a high valued vehicle could be a total loss on an older, lower valued vehicle.

The insured does not automatically receive the stated amount in the event of a loss.  The amount paid is always the least of three possible values:

  • The actual cash value of the vehicle at the time of the loss
  • The cost of repairing or replacing the vehicle with one of like kind and quality
  • The stated amount of insurance for the vehicle

Therefore the most that the insured could collect in the event of a total loss would be the stated amount. 

On a stated amount basis truckers must value their vehicles in advance.  At each renewal the values must be reevaluated.  Automatic coverage is made more complex because of the need for timely vehicle valuations.  Professional underwriters will require insureds to justify in advance valuations that differ significantly from average expectations.  A little time spent resolving these issues when the vehicle is initially insured can avoid serious claims settlement problems following losses.

Truck insureds and truck claims adjusters, however, both favor the stated amount approach.  They like the idea of having an automatic cap on the value of the vehicle.  It makes claims settlement negotiations less contentious.  It is also easier and more accurate to compare competitive quotes on a percentage of value basis.

WHAT IS PHYSICAL DAMAGE INSURANCE?

Operators of commercial vehicles, such as truckers, need a number of insurance products.

Automobile Physical Damage insurance covers the damage to, disappearance, or destruction of actual automobiles and/or their equipment, such as tractors, trailers or semitrailers, trucks, or private passenger types of vehicles.  Equipment does not include personal effects (clothes, eyeglasses, etc.)

Covered autos are determined by designation symbols that must be tailored to whether the automobile that is to be insured is owned, rented, leased, hired, or borrowed and the type of vehicle.  Premiums usually depend upon the type and age of the vehicle, coverages chosen, garaging location, driver information, deductibles chosen, and loss experience

Such coverage is divided into two major components “collision” and “all perils other than collision.”   Collision covers striking another object (including other vehicles) and overturn of the vehicle.

“All perils other than collision” include loss by fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, mischief, vandalism, falling objects, or the sinking, burning, collision or derailment of any conveyance transporting the auto.  These coverages can be purchased on an all inclusive or comprehensive basis, or a basis where each peril is specifically described (called named peril or limited specified causes of loss.)  In both cases there are some perils which are excluded from coverage.

Excluded perils for which no physical damage insurance coverage is ordinarily provided include nuclear hazards, war or military actions, organized racing or demolition contests, wear and tear, road damage to tires, and damage to most electronic equipment not required for the operation of the vehicle.

Although not mandated by law, like automobile liability insurance, physical damage is ordinarily required by financial institutions that loan money to purchase automobiles.  Since the automobile is used as collateral for the loan, the lender needs to make sure that the collateral remains unimpaired.  The insured’s own equity in his or her vehicle is also protected.

There are ordinarily separate deductibles for the “collision” and “other than collision” coverages.  Deductibles are the portion the insured must pay in the event of a loss.

The amount of coverage is ordinarily limited to the cost of repairing or replacing the damaged or stolen property or its value less depreciation.  If an insurer pays a physical damage claim that is the fault of someone else then the insurance company upon paying the physical damage claim assumes the right to recover the cost from whoever caused the claim.

Truck Accident Claims Reporting and Handling

It seems that one of the more consistent areas of needed improvement for truckers, whether large fleet, small fleet or owner operators, is in the approach to claims reporting. This writer, who actively receives claims, has seen the gambit in claims reporting from well documented detail to virtually no information provided at all.

So what’s the big deal?  Why collect any information at all, especially if there will be a police report available anyway? The answer to these questions is not always obvious to the truck driver who is feeling threatened by the consequences, regardless of whether the accident was the driver’s fault.

Approximately 30% of truck accidents are never reported by truck drivers. Most of those “non-reports” are not-at-fault accidents and the drivers just “presume” the other party will take care of their own damages. Many, however, are the result of a driver either embarrassed about the incident or hopeful it will just disappear. Finally, quite a number of these non reported accidents are the result of the driver just not knowing what to do.

Accident reporting is simple. Just about every insurance company and/or agent provides an accident report form directly to the motor carrier or driver. That form is the basis for collecting information about the accident and all drivers should carry that form in their truck. It is the responsibility of fleet safety personnel to make sure the form is in all trucks and that drivers are continuously trained on how to complete it.

At the time of any collision, fire, theft, or other loss, the driver should take a deep breath and go into, what I call, “the data collection mode”. This should be a non-emotional, fact gathering, state of mind. There should be no admitting or blaming for wrong doing with other parties. The driver should immediately grab the accident report form and begin asking questions and documenting information.

The first, and most obvious, is to assess whether anyone is hurt including the other driver and anyone else involved. Assuming the other driver has not been hurt and can actively participate in obtaining details, he/she should get themselves, all other parties, and the vehicles out of harm’s way if at all possible.

Once safely out of danger, the driver should note the date, time, and specific location of the occurrence on the report form. Also write down the description of the other vehicles involved, license plate numbers, and note how many people were in other vehicles.  Again, document this information on the report form. Before the police arrive, the driver should courteously approach the other parties and invite them to assist by exchanging contact information including name, address, phone numbers, email addresses, and insurance information.   No discussion of who was at fault should occur as that only leads to everyone becoming defensive and uncooperative. If the driver has a camera, or phone equipped with one, it is advisable to take pictures of everything.

After exchanging information, the driver should clearly write out an honest description of what occurred along with a graphic diagram of the incident. Doing so will help everyone visually understand the nature of the verbal and written details. Once this has been completed, the fleet safety manager (if applicable), a representative from the insurance company, and/or the insurance agent should be contacted.

Generally, the biggest stumbling block we run into is with the driver not moving quickly to obtain the above information, and then when police arrive and separate the parties, it’s too late for the driver to obtain the much needed information.

Claims that are reported immediately and with complete information are almost always settled at a lower cost than those that are not reported quickly and with detail. All drivers should make sure they carry the claim report form in their vehicles at all times.    

Truck Insurance – Cost and Quality

You may not believe how many truck operations purchase their truck insurance coverage on the basis of lowest price. This practice, however, is not just the company’s fault, but also the fault of many truck insurance agents who supply coverage on the basis of lowest price. It is not only unbelievable, but also a dangerous approach to keeping you, your business and your family safe, both physically and financially. Apply the same rules to buying truck insurance as you would to buying any other product or service. When buying truck insurance, consider the following: 

  • Combined Deductibles
  • Emergency Expenses
  • Rental Reimbursement
  • Increased Towing Coverage Limit
  • Personal Effects Coverage
  • Quick and Accurate FMCSA and State Filings
  • Quick and Accurate Certificate of Insurance Issuance
  • No Taxes; No Fees
  • Accurate and Detailed Insurance Accounting Information
  • And the list continues

Keep in mind that not all insurance policies are the same, and neither are insurance brokers. 

Ask your truck insurance agent questions and get complete and understandable answers, and you will quickly learn that, not only can you save money on truck insurance, but you can get more coverage for the money you spend.

How to Get the Best Deal on Your Truck Insurance

Knowing what’s happening in the industry helps Western Truck Insurance Services remain a reliable resource to both clients and prospects. As a result, we are always eager to learn how things are going and what you think about DOT enforcement activities, fuel prices, and the effects of laws, rules, and regulations on your business.

As the market is constantly changing, Western Truck Insurance wants to make sure you get the best deal on truck insurance at your next renewal. Here is a step-by-step approach how we plan to help you.

  • 60 days prior to your renewal date, call us to request an assessment of your situation and risk exposure. Be prepared to allow us to obtain your loss history and IFTA mileage reports. We will need to know the particulars about your business and how much you are paying for your truck insurance.
  • Call your existing agent to inform them that you will be shopping your insurance this year and that you want to be straight forward about it. You want to make sure that you are getting the best price on your renewal quote. Also, let them know that you expect the renewal quote to be available for review at least one month before the renewal date. For emphasis, let them know that you have Western Truck Insurance also working on your behalf.
  • The timing of when you receive your renewal quote speaks volumes about the agent and insurance company. If they are really working for you, they will get your renewal quote to you early enough for proper consideration. “Early enough” is 3 to 4 weeks before your renewal date. Once you receive your renewal quote, call us with the quote amount so that we have complete information to negotiate with. Insurance companies will compete for your business if they know what they are up against.
  • When you get our quote amount, compare the two quotes noting all the differences. We will help you understand the various aspects to the quote. If our number is lower, take it to your existing agent and ask him to beat it. If our coverage levels are better, ask to match them.
  • After you have given your existing agent a second chance, share this new number with us so we can go back to our underwriters and attempt to negotiate a better deal for you.
  • Once you receive our number a second time, you will be ready to make an informed decision. Both brokers involved have been treated fairly and have had two chances to give you their best quote. A fair amount of conversation, analysis, and negotiation will have taken place between you and us and your existing agent by this point.

Consider all you have learned. How do feel about the advice you have received? When fully considering price, coverage levels, quality rating of the insurance companies, and your comfort level with the agents involved… which is the best deal?

  • Make your decision and inform each party.

If you follow this approach, you will get the best deal around. Try it and see for yourself!

Truck Insurance Agent/Broker Selection Criteria

It has been determined that one of the most difficult things a buyer of truck insurance goes through is how to qualify the insurance broker.   All brokers are not alike and, especially with commercial truck insurance,  the differences can be staggering. 

So what’s a buyer to do ??

It has come to our attention that a recent independent study was done to address this issue.   In that study many areas are covered that deal with learning how to obtain the perfect coverage and pointing out some of the problems with insurance coverage in general but the best takeaway from it certainly is the detailed list of capabilities that a qualified commercial truck insurance broker should be able to do.

This listing solves the problem and all you need to do is inquire from the broker who you may already be using, or plan to use,  if they 1) understand the capabilties you are asking and 2) do actually perform those items.

Check out this link to see the preview of the full study and request it for free.  There is no charge for this vital information which will make your job in qualifying an insurance agent or broker much easier.  Goto:   http://truckinsure.com/slideshow2.html

LA /Long Beach Harbor Clean Truck Program

Developments on the LA/Long Beach Harbor Clean Truck Program

Since 2008, the Port of Los Angeles Clean Truck Program has had the goal to make the surrounding area eco-friendly. Additional updates have been made throughout the years, and if you are wondering where the project stands now, here are the basics you need to know.

Timeline of the Project

The Clean Truck Program is actually one component of a much larger plan referred to as the Clean Air Action Plan. This plan was developed in 2006, and authorities in both Los Angeles and Long Beach came together to attempt to reduce the number of carbon emissions in the atmosphere. Aggressive milestones were put into place to make the trucks that come into the Long Beach Port more energy efficient.

In 2008, the port banned all trucks that were using engines  made in 1989 or older. In 2010, additional measures were taken to prevent truck engines made between 1989 and 1994 from entering the port. Another provision was added to limit truck engines produced between 1994 and 2003 that did not receive eco-friendly retrofits. Finally, in 2012, trucks could only enter the port if they met all specifications stated in the 2007 Federal Clean Truck Emissions Standards. The goal of these measures is to get companies to invest in more recently made vehicles that produce far fewer emissions than trucks in the past.

Concession Program

A big part of this plan was the development of the concession program. This program creates a relationship between the port and the licensed motor carriers. This program allows the owners of the vehicle to obtain funding and grants to phase out old, inefficient trucks. Since its implementation, the program has helped over 900 licensed motor carriers get new vehicles.

Success of the Program

Many people who heard about this program years ago may be wondering how successful it has been. In the first year alone, the program reduced emissions at the port by nearly 70 percent. By 2012, that number rose to 80 percent. As a result, the program has been extremely successful in achieving its goals, and many companies have moved over to using cleaner vehicles. This is advantageous for both the companies and the people in the community who live in the vicinity of the port.

While more work is required, the Port of Los Angeles Clean Truck Program is an excellent start. With the great success it has seen, hopefully more programs can be implemented in the future to make Los Angeles and Long Beach greener cities.

Beyond Truck Insurance – Great Benefits that Matter Most.

Most Important Benefits to Get With Truck Insurance

Truckers need to insure their vehicles, and for most, they simply look for the most cost-effective policy at the most reasonable price. It is vital to get good coverage, but as you are speaking with various truck insurance brokers, there are other qualities to look out for. There are numerous benefits to be gained, but you need to seek them out.

Assistance with Resolving Inaccuracies

A big component of the cost of someone’s insurance policy are prior claims and driver motor vehicle reports.  Therefore, a trucking company that has had some accidents in the past will have to pay more for the same policy as a company with a clean history. However, various government agencies make clerical errors all the time, and it is entirely possible a company that has never had a problem will have a mark on its record. When searching for a new insurance provider, it is helpful to try to find an agent who will lend a helping hand in these instances. An insurance agent will most likely have greater success convincing an outside agency to change an error.

Availability to Talk

You will find yourself in situations where you need to talk to your insurance agent and the last thing you want is to deal with someone who is hard to get a hold of. As you are reviewing different policies, pay attention to how easy it is to get in touch with someone. You may contact an agency and get put on hold for a while only to be told the agent is currently out of the office. You want an agent and agency who makes an effort to always be accessible and a live body answering the phone.

Willingness to Give Options

An insurance agent should be there to give you exactly what you need and ask for. An agent will most likely inform you of different services you could potentially benefit from, but ultimately, it comes down to what you and your company need. Always look through a proposal  yourself before making a purchase. An honest, upfront agent will tell you everything and not leave out any important details. That kind of transparency  should be a priority for you  in selecting  an agent.

Buying insurance means you are entering into a partnership, and you want to make this union as viable as possible for years to come. Pay attention to what you are truly receiving  to get the most out of it.