No one would deny that liability insurance for bodily injury and property damage is a necessary part of any trucking business. Controlling the cost of such insurance, however, is a struggle for carriers of every size. The struggle is harder when politicians get involved, as some did this year with the INVEST in America Act, a five-year, $494 billion funding plan to maintain and improve transportation infrastructure put forth by Democrats in the House of Representatives.
Before the act left the House Committee on Transportation and Infrastructure, an amendment proposed by Rep. Jesus G. “Chuy” Garcia (D-IL-4) to increase the minimum financial liability requirement for motor carriers to $2 million was voted into the bill.
The bill, with the liability requirement, was subsequently passed on to the full House, where it was incorporated into the $1.5 trillion Moving America Forward (MAF) Act. That bill was passed by the House on July 1 and sent to the Senate.
Senate Majority Leader Mitch McConnell of Kentucky made it clear that the MAF Act was going nowhere. “It will just join the list of absurd House proposals that were only drawn up to show fealty to the radical left,” he said on the floor of the Senate chamber.
In the meantime, insurance costs for carriers continue their upward trajectory. “Insurance premiums have been rising through the roof,” said Truckload Carriers Association Vice President of Government Affairs David Heller. “Usually, there will be at least a few carriers that see their premiums go down,” he explained. “This year, if you’ve seen a decrease, you’re kind of a unicorn.”
Heller cited an informal poll of TCA membership that asked for the percentage of premium increase they had experienced this year. “That poll shows an average premium increase of 15% this year,” he said. “Of course, it’s been going on like this for years.”
A national research study, released in June, noted that liability insurance premiums had increased 35% to 40% for carriers deemed an “average to marginal” risk.
Despite significant investment in Advanced Driver Assistance Systems (ADAS) collision-mitigation and lane-departure warnings, as well as in-cab video-recording systems, many carriers face the annual dilemma of budgeting for the latest round of liability insurance increases.
This year, while carriers struggle to remain solvent during the economic collapse resulting from COVID-19 pandemic shutdowns, slowdowns, and restrictions, the timing of a demand to further increase insurance costs seems questionable at best.
“It’s not the right time to force this on the industry,” added Heller. “We support minimum liability insurance requirements, but what that number is appears to be open to discussion.”
That’s the other part of the financial responsibility argument. What is the right amount? The Federal Motor Carrier Safety Administration (FMCSA) prompted a discussion on the topic when it published an Advance Notice of Proposed Rulemaking in November 2014. The notice only said that the agency was “considering” an increase in minimum levels of financial responsibility and was seeking comments. In the 90-day comment period, 2,182 comments were submitted.
Most of the responses were from small trucking companies or single truck owner-operators, who were overwhelmingly opposed to any increase. A comment by the Owner-Operator Independent Drivers Association (OOIDA) pointed out that the organization’s Risk Retention Group reported that 98.6% of the carriers insured were already insured at a level of $1 million, rather than the required $750,000 minimum.
The OOIDA submission contained another statistic that was also mentioned in several other comments: Approximately 98% of insurance-related cases settle before trial at the current minimum levels of financial responsibility. In other words, the minimum liability requirements often serve as a cap for litigation settlements, assuring plaintiffs, and their legal representation, a sizeable award without the risk of going to trial.
It’s no wonder that many of the comments submitted in favor of increased minimum liability requirements were from trial attorneys or attorney associations.
Several comments came from insurance brokers or associations, including a letter from the 1,400-member National Association of Mutual Insurance Companies (NAMIC). An increase in the minimum financial liability requirements would put many of their members at risk, the letter explained, because of the potential for increased payouts.
After considering the comments and available data, the FMCSA withdrew its proposal for an increase in June 2017, citing “insufficient data” as the reason. It should be noted, however, that the proposal, published during the Obama administration, was withdrawn during the Trump administration, under a different set of political appointments.
Garcia’s attempt to move the issue through legislation has at least reignited the discussion over liability requirements. That debate, however, must include more than simply raising the amount, according to Heller. “Any discussion on increasing minimum liability requirements should include something on tort reform or addressing the nuclear verdicts the industry is being hit with,” he explained.
The aforementioned recent national study pointed at “nuclear verdicts,” unreasonably large jury awards against carriers, as a reason for a 51.7% annual increase in award amounts between 2006 and 2019, while the annualized inflation rate for the same period was 1.7%.
“Runaway verdicts are increasing in both size and numbers,” said Clay Porter, a partner in the Cincinnati law firm of Porter Rennie Wood and Kendall. “The study documents a frequency in excessive awards that, while not surprising, tells us that the trial system has gotten completely off track.”
As July came to a close, a coalition of more than 60 trucking trade associations, led by OOIDA and including 20 individual state associations, sent a letter to leaders and members of the U.S. Senate Committee on Commerce, Science and Transportation expressing their disapproval of any increase in required minimum financial liability amounts as it considers its own infrastructure legislation.
If any action is taken this year on minimum financial limits, it isn’t likely to be tied to an infrastructure bill. “It won’t get done, due to the ever-increasing struggle to dig out of the virus and economic firestorm,” added Heller.
A continuing resolution to extend the provisions of the current FAST Act is the most likely outcome. “Between MAP-21 and the FAST Act, there were 13 continuing resolutions issued,” he said. “I think that’s what will happen with FAST, and they’ll try to get a deal done when the new Congress comes in.”
Before that happens, carriers will need to brace for another round of liability premium increases.
Cliff Abbott is an experienced commercial vehicle driver and owner-operator who still holds a CDL in his home state of Alabama. In nearly 40 years in trucking, he’s been an instructor and trainer and has managed safety and recruiting operations for several carriers. Having never lost his love of the road, Cliff has written a book and hundreds of songs and has been writing for The Trucker for more than a decade.