By Jason Odgers, Senior Vice President, World Insurance
Any entity that arranges for freight transportation via truck maintains acute exposure to third party bodily injury and property damage (BIPD) claims. Transportation intermediaries are often named in claims when the underlying carrier is involved in an accident resulting in death, injury or property damage. When unsuccessfully defended, intermediaries can be held liable for judgments ranging into the millions of dollars. “Nuclear” verdicts are more commonplace, with jury awards going as high as $23M. Regardless of the verdict, defense costs are in the tens of thousands of dollars.
Between 2010 and 2018, the average size of BIPD judgments rose from $2.3 million to $22.3 million, according to the American Transportation Research Institute.
Because BIPD events are often catastrophic, involving death or severe injury, plaintiff’s attorneys typically name all parties involved in the transaction as co-defendants to maximize an award, and the intermediaries who facilitated the transaction are common targets.
How is it possible an intermediary can be held liable?
There are two common theories of liability often pursued against transportation intermediaries:
1. Alleged Negligence in Hiring a Trucker
The first is negligent selection of a carrier or negligent hire. The plaintiff attorney attempts to demonstrate that the transportation intermediary engaged a trucking company they knew, or should have known, was unqualified to perform the service. Attorneys commonly point to a lack of vetting procedures, the carrier’s FMCSA safety rating, or even an individual driver’s DMV record to prove the intermediary was responsible for placing a bad actor in a position to cause the accident that injured their client.
2. Vicarious Liability: Intermediary Meets the Same Standard as Trucker
The second teory of liability is commonly referred to as “Vicarious Liability.” The plaintiff argues the intermediary should be held to the same liability standards as the asset-based carrier because of specific actions taken when arranging the transportation. Allegations often include misrepresenting themselves as a carrier to the general public, requiring drivers to utilize specific routes, requiring drivers to provide regular status updates, or enforcing aggressive delivery schedules. In these situations, the intermediary is forced to “step into the shoes” of the asset-based carrier and respond as if they were physically performing the transportation.
Doesn’t My Insurance Cover That?
For many years, transportation intermediaries have relied on (primary) business auto liability insurance to address this exposure under an extension of coverage called “Hired and Non-owned Auto.” With industry growth and a significant increase in claims, insurers are refusing to write the coverage or are modifying their policies to exclude trucking-related risks.
Which Insurance Do I Need?
The appropriate type of insurance to address this exposure is commonly referred to as “Contingent Business Auto Liability” (CBAL) insurance. This insurance is specifically designed to answer claims against transportation intermediaries who have arranged over-the-road transportation of freight via commercial truck as part of their core business operation. Since the exposure is indirect or contingent, the primary goal of this insurance is to aggressively defend the intermediary against claims, and it will pay those sums (per policy limits/terms) for which the intermediary is held liable.
Unfortunately, due to rising adverse claims experience, high defense costs, and poor industry practices, this insurance is becoming more challenging to secure. Many underwriters have exited the market, and those who remain employ much stricter underwriting practices and assign significantly higher premiums, especially for those risks they believe to be sub-standard.
For more information on best practices to protect your company from contingent auto liability claims or next steps to secure a quote, please contact World Insurance, the WCA’s exclusive insurance and risk management partner, at info@worldinsuranceagency.com.