Is your transportation provider really protecting you?

By:  Rosie U. Evans

Risk Manager

Ugalde Trucking Co., Inc.

There is a new breed of “truck broker” in town.  These self-appointed “brokers” work out of a briefcase and don’t own any trucks or trailers, nor do they have direct access to any.  Their business is to simply bid work and then hire owner-operators or other brokers to perform the work.  They may refer to themselves as dirt salesman, brokers, earth transporters or trucking companies, but their business is the same.  They offer transportation services to contractors for the import or export of construction materials. 

The problem with these “brokers” is that they do not carry any insurance.  If they do have a policy, it is to meet contract requirements only and may include coverage for a few “scheduled autos”.  This coverage is exactly as stated; the only liability protection is for the vehicles included on the policy.  These “brokers” are relying on the insurance of the owner-operators they contract with which usually have a $750,000 limit if these brokers even require it.  Representing themselves as trucking companies, they are simply dispatch services, providing trucks at the contractor’s risk.  They make no guarantees that the trucks being provided have insurance, licenses, or that they are even authorized to work in the United States. 

In today’s marketplace, where contractors are placing more stringent requirements on their subs as the liability gets transferred down the line, this is an extremely important issue.  "Contractors are already bombarded with issues, just trying to run their projects," says Greg Dineen, industry transportation consultant. "The burden of additional liability in the transportation arena isn't something that anyone wants or should have to deal with. This approach of using only firms with full coverage will take that burden off the table."

 Most contractors have blanket insurance requirements for all subcontractors regardless of their trade.  These contractors would assume that if a trucking company has an auto policy and names them as additional insured they are covered.  Being unfamiliar with transportation insurance, many contractors continue to overlook key coverage criteria. 

Beware of briefcase brokers who may quote you a lower price because of the money they are saving on insurance.  There are many steps a contractor can take to attempt to protect themselves from unnecessary legal expense. 

When hiring new subcontractors, contractors are at the mercy of the certificate of insurance, an outline of coverage provided by a licensed agent.  When accepting this document, the contractor has no true knowledge if the insurance carrier is aware of their insured’s actual operations. 

Contractors should inspect the certificate for hired auto and non-owned auto.  If the certificate only offers coverage for scheduled autos, where is the schedule?  Are these the same autos being used on your jobsite?  Are these autos owned by the trucking company providing the service?

Contractors must also require an additional insured endorsement from the carrier.   A typical auto additional insured endorsement states that “…insurance provided by this endorsement will be primary for any power unit specifically described within the policy.”  If your endorsement only covers items described in the policy, you should require a copy of the policy.    

Another important factor is ensuring that the insurance is actually relative to the services being provided.  Anyone can buy an auto policy with hired and non-owned auto coverage for their 1985 Toyota Sedan.  The certificate will look exactly the same as a commercial certificate, permitting misrepresentation of coverage.  Contractors could require that a description of operations be listed on the certificate to make sure the carrier is aware of the business functions.  Taking it one step further, send a copy of the certificate provided to you by the agent to the carrier (listed in the top right corner.) Add a quick note about the services being provided and that you are expecting an additional insured endorsement shortly. 

This proves that you notified the insurance carrier personally about the scope of work so there are no coverage questions later on. 

A perfect example of the importance of proper auto coverage is a case that occurred right here in our backyard.  In 2001 a trucking company was involved in a fatal accident in Lake Forest.  During California’s “rolling blackouts”, an owner-operator contracted by the company was on his way to the job early in the morning.  He collided with a drunk driver whose passengers suffered serious injury and death.  A lawsuit ensued naming everyone from the electric company and the city to the street light manufacturer.  Because the trucking company carried hired auto coverage, the only parties who paid for the claim were the owner-operator and the trucking company.  The contractor on the project with much deeper pockets was released of all liability due to the fact that coverage was in place for all hired autos.  This case is now used as a benchmark for hired auto cases in California. 

No guarantees can be made about insurance coverage; however, taking precautions and making sure to contract with only reputable transportation companies could prevent a major lawsuit.  Saving a few dollars on transportation costs is not going to help your bottom line when you pay out millions on behalf of an uninsured truck broker.