Motor truck cargo (MTC) liability insurance provides legal liability coverage for truckers (common or contract carriers), while they transport property of others (cargo). The applicant may be a trucking company that uses employee drivers or it may be an owner-operator arrangement.

Truckers may also purchase coverage for the property while it is located at scheduled terminals along the way. The insured is the trucker and the covered property is the property of others that is being transported by the insured. The trucker may be held liable for cargo under the terms of a bill of lading (common carrier) or a contract with the shipper (contract carrier).

When evaluating an MTC submission, the underwriter needs a certain minimum amount of information. The AAIS underwriting guide calls for the following information:

1.     What's being shipped?

2.     What are the average and maximum values per shipment?

3.     What are the annual gross receipts of the applicant?

4.     What is his/her radius of operations?

5.     What is the insured's financial condition?

6.     What is his/her past loss experience?

7.     General information on the physical condition and road-worthiness of the applicant's fleet.

8.     General information about the terminals where the insured may be stopping. Such information includes the terminals' location and the general COPE underwriting information for any property risk (construction, occupancy, protection, and exposure).

If the applicant uses owner-operators instead of employees, other things must be considered:

1.     The number of owner-operators.

2.     How are the owner-operators evaluated? MVRs, vehicle inspections, drug tests, etc.

3.     Are there any provisions in the contract between the carrier and the owner-operators that conflict with the MTC policy?

The underwriter needs the above information for applications from both common and contract carriers. The following additional questions should also be asked of a contract carrier:

1.     Who are all the shippers with whom the carrier has a contract?

2.     What are the specific commodities that the carrier hauls for each shipper under contract?

3.     Does the contract impose liability on the carrier above that of negligence?

4.     What are the carrier's gross receipts from each shipper?

5.     How much does the carrier earn each year as a contract carrier? As a common carrier?

When evaluating a carrier's financial condition, a report from the Central Analysis Bureau (CAB) (http://www.cabfinancial.com/) should be obtained. The CAB analyzes a carrier's financial statements and assigns a rating based on their evaluation of the carrier's financial strength.

CAB assigns one of the following five ratings:

1.     Satisfactory.

2.     Fair.

3.     Barely Fair

4.     Unsatisfactory

5.     Dangerous

Underwriters should note that in 1996, CAB gave a “satisfactory” rating to only 16 percent of the carriers evaluated; and a “fair” rating to only another 31 percent. Another report the underwriter needs is one for “overages, shortages, and damages” (OSD). The OSD report will show the amount of outstanding claims against the trucker.

While financial condition of any prospective insured is an important underwriting consideration, state and federal cargo filings make it even more so for an MTC applicant. If a trucker becomes insolvent, the law requires the insurer to respond to any and all unpaid claims that have accumulated against the trucker. AAIS says: “It is not uncommon for a large interstate carrier to have $500,000 to $1,000,000 in unpaid claims when seeking bankruptcy protection.”

In addition to underwriting a trucker's financial condition, other hazards must also be examined. They include: theft, fire, the vehicles, and the drivers.

AAIS classifies the type of cargo being carried based on how hazardous it is and how great a theft target it represents. The ratings go from a low of 1 to a high of 5. An example of a “1″ is paper products; of a “5,” video equipment.

The underwriter should make an effort to secure a detailed description of what is being shipped. Too often, a shipper will list “general commodities.” While this may be acceptable, the underwriter should be careful of some things. If past experience shows that the shipper has suffered theft losses, “target” goods may be involved. Another indication of “target” goods is a high limit of insurance per vehicle. If the insurer is providing terminal coverage, the underwriter should obtain information about the inventory controls in use that govern the movement of cargo into and out of the terminal.

Another indication of a possible theft problem is where the truck is going. High crime urban areas must be underwritten more closely.

If the underwriter is concerned about the theft exposure, he/she may require that anti-theft measures be in place. These include alarms, escorts, and guards.

Fire, on both the truck and at terminals—if the insured purchases terminal coverage—is another hazard that needs careful attention from the underwriter. A terminal should be underwritten just as any other property risk, using the COPE criteria (construction, occupancy, protection, and exposure).

In evaluating the collision and overturn hazard, the underwriter should look at three areas: the distance being traveled and radius of operations; the maintenance program for the trucks; and the selection/training of drivers.

Radius of operations is important, because it tells the underwriter the types of weather the truck faces and increases the chance that the truck might encounter poor road conditions. Poor maintenance of things like brakes and tires increases the chance of an accident. A formal maintenance program should be in place. Drivers should be adequately trained in the operation of the specific trucks involved. Also, the company should utilize a formal program where MVR and employment history are checked, as well as a road test of the applicant.

Certain items must also be considered about the cargo and its handling. It must be packed adequately so that it is not damaged in a minor collision. If the cargo is a target item, AAIS recommends that the labeling be “discreet” so that the nature of the cargo is not readily revealed on the label. Finally, if the cargo is hazardous, the shipper must be in compliance with all state and federal laws governing the handling of such cargo.

The AAIS policy promises to provide the described motor truck cargo liability coverage in exchange for payment of the premium. The agreement makes it clear that the promise to pay is subject to the conditions, endorsements, and schedules of the policy.

The policy covers the insured's legal liability for damage to property of others that he/she has in his/her care, custody, and control. The insured's liability may arise out of a bill of lading, a contract, or a shipping receipt. It should be noted, also, that the DOT mandates the carrier's liability.

The form covers property of others while in transit or at a terminal location. For transit coverage to apply, the property must be on “any one vehicle.” The policy defines “any one vehicle” to include not just one vehicle, trailer, etc., but any combination of these “pulled by one unit.”

The insured may also choose to cover the property at terminals along the way. If a premium is shown for this coverage, the policy also applies to property at a described terminal location or within 100 feet of it.

As with other property policies, there are several categories of “property not covered.” The first five are fairly typical of property policies.

1.     Art—including paintings and statuary.

2.     Contraband.

3.     Jewelry, Stones, and Metals—includes precious and semiprecious.

4.     Live Animals—however, there is coverage for death caused by a “specified peril.”

5.     Money and Securities.

The second group of five “property not covered” items, is unique to the motor truck cargo policy:

6.     Other Carriers—the AAIS policy does not cover property in the custody of “another carrier” if the named insured waives subrogation or does anything else to make his/her subrogation rights “unenforceable.”

7.     Property Not Under a Bill of Lading—if the insured cannot produce a bill of lading or a shipping receipt, there is no coverage.

8.     Property On Vehicles—there is no coverage for property in or on “any one vehicle” once that vehicle has been parked at the same location for more than 72 hours.

9.     Storage—the policy does not cover property in storage, unless the bill of lading, shipping receipt, or contract of carriage specifies storage.

10.     Vehicles—there is no coverage for the vehicles themselves, including any “tarpaulins.”

The AAIS MTC policy provides the following additional coverages:

1.     Debris Removal—25 percent of the applicable amount of insurance is available for removal of debris of covered property. This amount is included in the limit of liability. If the total of direct damage and debris removal expense exceeds the limit of liability, an additional $5,000 is available for debris removal.

2.     Freight Charges—if the property being transported is damaged, the trucker may not be able to collect his/her freight charges from the shipper. If the insured does not specify an amount for freight charges, the policy provides up to $2,500.

3.     Newly Acquired Terminals—if the insured already has terminal coverage, the AAIS policy covers the insured's liability—for up to sixty days—for property at newly acquired terminals. If an amount is not indicated for this coverage, the policy pays up to $50,000.

4.     Pollutant Clean-Up and Removal—an annual aggregate amount of $10,000.

The AAIS motor truck cargo policy is written on an open perils basis, subject to certain exclusions.

The following exclusions apply:

1.     Civil Authority
2.     Nuclear.
3.     War.
4.     Contamination and Deterioration.
5.     Criminal, Fraudulent, or Dishonest Acts—the AAIS policy does not cover damage from such acts, when done by: the named insured; others with an interest in the property; others entrusted with the property; or the named insured's partners, officers, etc. The exclusion also applies to the employees of any of those previously listed.
6.     Loss of Use.
7.     Pollutants.
8.     Changes in or extremes of temperature and humidity.
9.     Voluntary Parting—the policy does not cover loss if another person tricks the insured into giving up the property.

The following things must be done by the insured in the event of a loss:

1.     Notice—a prompt notice of loss is required.

2.     Protect property from further loss.

3.     Proof of loss—must be submitted within sixty days after the insurer makes the request.

4.     Examination under oath.

5.     Records—the insured must produce his/her records as often as the insurer requests.

6.     Damaged property—the insured must make the damaged property available to the insurer, if the property is still in the insured's care.

7.     Volunteer payments—the insured must not make these or offer any rewards.

8.     Abandonment.

9.     Cooperation.

There are two methods for valuing the lost or damaged property. If the insured has an invoice, the value of the covered property will be based on that invoice. Without an invoice, the value is based on the actual cash value of the property at the time of loss. This second amount is limited to the amount shown in any bills of lading or shipping receipts.

The amount payable is, of course, subject to the amount of the deductible and an insurable interest requirement. The final payment is the lesser of:

a.     the amount determined under Valuation;

b.     the cost to repair, replace, or rebuild the property with material      of like kind and quality to the extent practicable; or

c.     the “limit” that applies to “any one vehicle” or terminal location.

The payment is also subject to the catastrophe limit indicated on the declarations page. This amount applies as a maximum regardless of the number of vehicles or terminal locations involved.

If the loss occurs within 100 feet of a terminal—and the insured has purchased terminal locations coverage—then only the terminal locations amount is payable.

In the event of coverage under more than one portion of the policy, the payment is limited to the amount of actual loss sustained. If other insurance is available, the AAIS policy pro-rates with similar policies, but is excess of any others.

Within 30 days after the proof of loss is submitted (or a judgment reached), the loss will be paid. The insurer has the following four loss payment options:

a.     the value of the loss;

b.     the cost of repairing or replacing the loss;

c.     rebuild, repair, or replace with property of like kind and      quality.

d.     take all or any part of the damaged property at the agreed value.

If the insurer chooses the third option, it must notify the insured of that decision within 30 days.

The following policy conditions apply:

1.     Appraisal.

2.     Conformity with statute.

3.     Estates.

4.     Misrepresentation, concealment, or fraud—these items void the policy, if they happen before or after a loss.

5.     Policy period.

6.     Recoveries—if either party recovers property, it must notify the other and any recovery expenses are reimbursed first. If the paid loss was limited due to a deductible or other policy provision, the recovery is pro-rated between insurer and insured.

7.     Restoration of limits—paid losses do not reduce the limit of liability.

8.     Subrogation.

9.     Suit against the insurer.

10.     Territorial limits—U.S., its territories and possessions, Canada, and Puerto Rico.

11.     Insured's reimbursement to the insurer—if the insurer has made a filing for the insured with any government agency, and a payment must be made because of that filing, the insured must reimburse the insurer.

The following endorsements to the AAIS MTC policy are available:

1.     Refrigeration breakdown—if the insured's refrigeration/heating equipment breaks down, this endorsement covers damage to the property being transported. Covered damage includes “decay, fungus, mildew, mold, or rot.” The endorsement does not apply if the insured does not maintain adequate fuel levels for the refrigeration/heating equipment. This endorsement is subject to an additional condition: the insured must have the refrigeration/heating equipment serviced once a month. It is also subject to a limit for any one conveyance and a catastrophe limit.

2.     Loading and unloading endorsement—with this endorsement, the insured receives coverage for damage to the property while loading or unloading it.

3.     Reporting conditions endorsement—the insured may choose to have the premium calculated by basing it on monthly reports of values at risk.

4.     Terminal locations endorsement—this endorsement must be added if the insured wishes coverage for the property at terminal locations.

Two other coverage forms are available:

1.     Schedule vehicle form—this form covers the property only on specified vehicles. No terminal locations coverage is available.

2.     Named perils coverage (instead of open perils).