Truck brokers – or as USDOT calls them, Property Brokers – have it easy compared to their trucking cousins when it comes to mandated insurance requirements. While brokers need only have a $75,000 bond (which might cost a few thousand dollars annually), a trucker needs $750,000 or more in liability coverage that will cost several thousand dollars per truck.
Brokers like this scenario…lower operating costs mean more profits. Sadly, that extra profit is exposed to a number of hazards that are simply not protected by a bond or General Liability insurance policy.
Truck brokers are faced with several exposures specific to their operations of brokering a load of cargo on behalf of a shipper to 3rd party transportation companies:
1) Professional Liability
2) Contingent Cargo Liability
3) Contingent Auto Liability
Let’s take them one at a time.
Professional Liability – Example Claim
Your shipper has specific safety requirements (CSA scores, crash history) for any motor carrier used to transport their cargo. In a rush to broker a load you, or your employees, fail to be diligent in evaluating the quality of the motor carrier. The motor carrier has a loss – an accident that either injures a 3rd party, damages public property or destroys the shipper’s cargo. If damages are pursued against the shipper, they will turn and point their finger at you for failing to fulfill the obligation under your contract.
Another example of professional liability could be the loss of cargo due to delivery to wrong address.
Profession Liability insurance, commonly known as errors & omissions (E&O) is a form of liability insurance that helps protect professional service-providing companies from bearing the full cost of defending against a negligence claim made by a client, and damages awarded in such a civil lawsuit. The coverage focuses on alleged failure to perform on the part of, financial loss caused by, and error or omission in the service or product sold by the policyholder. These are potential causes for legal action that would not be covered by a more general liability insurance policy which addresses more direct forms of harm.
Contingent Cargo Liability – Example Claim
You’ve brokered a load of batteries to a motor carrier that provided a Certificate of Insurance showing they have a Motor Truck Cargo policy with $100,000 limits. What you didn’t know was that the motor carrier’s cargo policy has exclusion for hauling batteries. You would not know this by review of the Certificate. The motor carrier has a loss on the load, and the insurance company denies the cargo claim. Now your shipper is faced with buying the damaged goods out of pocket. How will you make your shipper whole – how will you protect your relationship with your client?
Contingent Cargo Liability Insurance is a policy that your brokerage purchases and uses in the event that the motor carrier’s cargo policy fails to respond to a cargo claim. However, not all contingent cargo policies are the same – some are “follow form”, which means they will respond in the same way your motor carrier’s primary cargo does, with the same exclusions. Other policies may have a broader coverage form. You will want a policy that responds quickly to a claim to make your customer satisfied.
Contingent Auto Liability – Example Claim
A trucking company you broker to have provided a certificate of insurance evidencing auto liability coverage for the company. During the carriage of a load you brokered, the trucking company rear-ended a private passenger vehicle, resulting in a claim. Unfortunately, and to your surprise, the trucking company’s auto liability policy was cancelled mid-term due to a late payment on their policy. The insurance company denies the claim.
Contingent Auto Liability Insurance is a policy that protects a truck broker in the event that one of the brokers contracted motor carriers has a coverage issue. This policy will typically investigation, indemnity and defense for a covered claim.
To sum up, there are many real risks present in the business of truck brokering that can create a serious financial burden on a truck broker if a claim should occur. Have this discussion with your insurance agent and verify that your brokerage operation is properly insured.
Posted on Mon, August 3, 2015
by Raxa Design