Target Market Series: Truckers

Online Checklists

The checklists printed in Chapter 12 are available online at www.fcands.com/truckers. The password is exclude. The checklists are designed so that users may complete them online and then print them, or they may print blank copies and enter the information manually. The checklists are copyrighted by The National Underwriter Company as a supplement to The Target Market Series: Truckers. As such permission to download the checklists is granted only to purchasers of this book. Distribution of these copyrighted checklists to those who have not purchased the book is prohibited.

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.— from a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations.

Copyright © 2008 by

THE NATIONAL UNDERWRITER COMPANY

P.O. Box 14367

Cincinnati, Ohio 45250-0367

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the publisher.

Includes copyrighted material of Insurance Services Office, Inc., with its permission.

This product includes information which is proprietary to Insurance Services Office, Inc. ISO does not guarantee the accuracy or timeliness of the ISO information provided. ISO shall not be liable for any loss or damage of any kind and howsoever caused resulting from your use of the ISO information.

International Standard Book Number: 978-1-938130-27-4

Library of Congress Control Number: 2008920023

Printed in the United States of America

Table of Contents

About the Author

Chapter 1: The Trucking Industry

Chapter 2: FMCSA Required Carrier Liability Limits / Insurance Requirements By State

Chapter 3: Directory Of Government Transportation Regulation Offices

Chapter 4: Trucking Associations

Chapter 5: Underwriting Concerns

Chapter 6: Coverage Considerations

Chapter 7: Common Risk Control Recommendations

Chapter 8: Trucking Industry Classifications

Chapter 9: Covered Auto Designation Symbols

Chapter 10: Standard And Manuscript Endorsements

Chapter 11: Glossary Of Terms And Phrases

Chapter 12: Coverage Checklists

About the Author

Kim Smith, CPCU, ARM

AMS Services,

Bothell, WA

Kim Smith began his insurance career in 1976 after graduating Summa Cum Laude from Washington State University. For the next ten years he held positions as a commercial producer, agency marketing manager, and general agency manager. He also completed his Chartered Property and Casualty Underwriter (CPCU) and Associate in Risk Management (ARM) certifications.

In 1986 he left the independent agency system to co-found Professional Software Systems, a software company that created the widely used Professional Survey, Submission and Sales System (PS4).

Mr. Smith has written several articles on insurance topics and has been a frequent guest speaker at many industry events. In addition to authoring the FC& S™ Target Market Series, Mr. Smith continues to direct research and development for the Producer Plus product at AMS Services in Bothell Washington.

Chapter 1: The Trucking Industry

INDUSTRY BACKGROUND

The trucking industry is composed of those companies that engage in the business of transporting finished goods, commodities or raw materials for others. This includes regulated and unregulated fleet carriers, owner-operators, household goods movers, and practically any other type of trucker who engages in the transporting of goods for hire.

Normally, private carriers that exclusively haul their own products would not be considered independent trucking firms, and as such, are not covered in this manual. It should be pointed out, however, that more and more private carriers are applying for common or contract carrier operating authority under what is called the Toto Authority (named after the Interstate Commerce Commission—ICC—decision concerning the Toto Purchasing and Supply Company in 1978). Up until 1982, such authority had not been often used since the ICC had required that a private carrier’s entire parent corporation be subject to the same strict securities regulations as the carrier’s. With deregulation of the industry in 1980, Toto Authority became more realistic and is now much more commonly used. In fact, the Insurance Services Office (ISO) has recognized the expansion of this category of truckers by introducing the motor carrier coverage form. This form rewords the standard truckers policy to more adequately handle the needs of private carriers that also act as common or contract carriers on a part time basis (refer to the vehicle section of coverage considerations for more details). Generally, one will encounter such hauling under one of the following methods:

Compensated Intercompany Hauling – where the private carrier hauls interstate cargo for sister companies as a common or contract carrier,

Trucking Subsidiary – where a trucking subsidiary is formed to haul for both the parent company and outside shippers,

Owner-Operators – where private carriers obtain federal authority, then hire independent truckers to haul for them under their authority.

Trip Leasing – where a private carrier trip leases its trucks and drivers to other federally authorized carriers that need extra capacity for a particular haul.

It is important to note that the ICC was terminated at the end of 1995 by the Interstate Commerce Commission Termination Act of 1995. At that time some ICC functions were transferred to the Federal Highway Administration, Department of Transportation, while other responsibilities were relegated to the Surface Transportation Board. In 1999, the Motor Carrier Safety Improvement Act (P.L. 106-159; CFR 49 include the regulations developed from the law) was adopted. This law established a Federal Motor Carrier Safety Administration (FMCSA), which now regulates much of the trucking industry. The FMCSA operates within the federal Department of Transportation, handling many responsibilities for improving motor carrier safety and regulating much of those operations.

Significance of Private Carriers

The significance of private carriers should not be overlooked when reviewing this industry. Of the million plus over-the-road freight trucks registered in the United States today, only about several hundred thousand of these are operated by for-hire carriers, with the balance being operated privately. As one reads through the following material, keep this in mind, since many of the underwriting and insurance considerations regarding for-hire truckers also apply to many private operations as well.

Agents who write independent, for-hire trucking accounts will find that they include a wide variety of operations. Trucking companies can consist of only one person who owns and operates a single truck or tractor; or they can encompass large national carriers that maintain fleets of hundreds of vehicles and engage in a variety of incidental operations including general warehousing, auto repair, equipment installation or rigging, or other miscellaneous terminal activities. Many trucking companies own 100 percent of their fleets, while others operate by leasing some or all of their trucks and/or drivers from independent owner-operators. The radius that a trucker operates in may be restricted to one state, or it may be international. Intermodal operations (which refers to transporting goods by more than one type of carriage such as by truck, rail, or barge) may also be conducted.

From an insurance standpoint, trucking accounts are usually classified (among other items) by the distance in which they haul. ISO classifies local haulers as those accounts that regularly operate within a radius of up to 50 miles. Intermediate haulers are defined as operating between 50 and 200 miles, and long haul trucking as any company operating over a 200 mile radius. Individual insurance companies may, however, deviate from these radius categories. For example, many insurance companies will allow local hauling up to 200 miles. Intermediate hauls are frequently rated as up to 500 miles while long hauling is often considered as anything over 500 miles or interstate. Other classifications used are weight, size, and business use of the vehicles.

History of Regulation

The trucking industry was first consolidated under the Motor Carrier Act of 1935, which enacted various safety regulations for interstate carriers under the exclusive authority of the Interstate Commerce Commission. During the initial implementation of these federal regulations, the ICC granted operating authority to more than 20,000 interstate motor carriers. As both highways and vehicles improved, small one person operations merged into large fleet companies in a trend that has evolved into today’s modern trucking industry.

As with railroads, the commission first began classifying trucking companies by their annual gross revenue. Class I carriers were considered firms that take in more than $1 million per year; Class II as grossing between $300,000 and $1 million; and Class III as having annual revenues of less than $300,000. A large percentage of all regulated truck lines on the road today are rated as Class III operations.

As noted previously, the ICC was terminated in 1995. Currently, much of the regulatory activities formerly handled by the ICC is handled by the FMCSA (Federal Motor Carrier Safety Administration).

The FMCSA, and formerly the ICC, grants operating authority that specifies the territory and type of route over which a regulated trucker can conduct business. Certificates or permits issued to truck lines designate several types of route authorities including: (1) regular-route, scheduled service; (2) regular-route, non-scheduled services; (3) irregular-route, radial service; (4) irregular, non-radial service; or (5) local cartage. In addition to these basic operating authorities, trucking companies are also restricted as to the type of commodities that they may carry. The FMCSA specifies these restrictions by setting forth a listing of commodity groups for which a carrier can haul (see chart on this listing for details.)

In the first days of federal regulation, the ICC granted operating licenses to only those trucking firms that could prove a need. Licenses often included the requirement to also serve unprofitable markets within the licensed region. In addition, the types of freight that could be hauled by any one truck were often limited. Some commodities, such as food, could only be hauled under severe restrictions. In 1980, the congress dramatically changed this restrictive environment by passing an amended Motor Carrier Act designed to promote increased competition by deregulating the industry. Since this deregulation, the FMCSA has either expanded existing licenses, or granted new licenses to about 35,000 new carriers; bringing the current total of trucking companies that operate under federal jurisdiction to over 50,000. Additionally, with the passing of the North American Free Trade Agreement (NAFTA), many experts believe that increased competition could come from the many trucking firms in Canada and Mexico. In the past, these drivers could not haul in the United States because of trade restrictions, but with the lifting of such barriers, an increasing number of foreign trucking firms are expected to enter the U.S. trucking market (This of course presumes constant legal, environmental and political challenges to NAFTA will eventually be overcome or settled.)

Types of Motor Truck Operating Authority

The following chart illustrates the contractual, route, and commodity rights that can be granted to interstate motor carriers. Note that some larger carriers will hold rights to operate both as a common carrier and a contract carrier. This is known as dual operation. More common are common or contract carriers obtaining multiple route authorities and/or commodity hauling rights in those territories in which they operate.

Besides being regulated by the federal Department of Transportation — which regulates truck size and weight, minimum liability insurance requirements, container requirements, and drivers’ hours of operations, trucking firms can fall under the jurisdiction of other federal agencies including the Nuclear Regulatory Commission (NRC) — which has authority to regulate the transportation of radioactive materials, the Environmental Protection Agency (EPA) — which regulates hazardous waste and materials transportation, and even the Department of Homeland Security due to possible terrorism threats. Note that the DOT took over enforcement duties for several types of regulated carriers from the ICC after the 1980 Motor Carriers Act was enacted.

In addition to federal regulations, trucking companies must also comply with individual state licensing requirements. Most states have hundreds and even thousands of trucking companies that operate entirely on an intrastate basis without having to report to the FMCSA (although many intrastate haulers may still be subject to the requirements of other federal agencies). State requirements can include higher or lower limits of financial responsibility than those mandated by FMCSA regulations. States can also have different environmental regulations than those of the Federal government; for example, some states limit the time that trucks are allowed to idle in any one-hour period.

State agencies that are responsible for transportation regulation are generally called Public Service Commissions, Public Utility Commissions, or in the case of Texas, the Railroad Commission. States can use the same federal forms requirements or require their own filings of certificates and endorsements. Generally, Forms used by the various states for filings are the ones prescribed by the National Association of Regulatory Utility Commissions (NARUC). Keep in mind that state agencies are responsible for intrastate transportation requirements, whereas the FMCSA maintains interstate authority. Trucking companies that haul between states are required to comply with both federal and state regulations.

By statute, the FMCSA classifies for-hire carriers into one of the following four categories:

1. Common Carriers

These truckers serve the general public for any and all commodities, except for a few exceptions. Legally, they cannot refuse service to anyone except for good cause and must charge rates that are reasonable and fair to all. They may, however, specialize in a certain type of shipment, such as refrigerated goods or bulk cargo.

Probably the most often used common carriers are those with irregular route, radial service, or regular route, scheduled service authority. An irregular route carrier provides hauling services on an on call basis, usually from a central office or terminal. From here, shipments