Bill Proposes Massive Boost in Truck Insurance Minimum

This story appears in the July 29 print edition of Transport Topics.

The minimum injury and property damage insurance level for trucking companies would rise nearly 500% to $4.4 million from the current $750,000 under a measure proposed by a congressman who said the current level is insufficient to protect crash victims.

The insurance minimum has not changed since Congress set it in 1980, and the proposed figure represents the increase in the cost of medical care in 33 years, said Rep. Matt Cartwright (D-Pa.), the bill’s sponsor.

“This legislation is essential to protecting our nation’s highways and ensuring that victims receive the proper amount of compensation for their losses,” Cartwright said in a July 19 statement.

Cartwright, who was a personal injury lawyer before being elected last year, said Congress intended to use the insurance minimum to encourage insurers to inspect trucking companies before underwriting policies, but the $750,000 minimum no longer serves that purpose.

Trucking groups disagreed with Cartwright’s proposal.

“All the data suggests that the current minimums are adequate,” said Prasad Sharma, general counsel at American Trucking Associations.

Sharma said Congress intended to leverage the insurance market to improve trucking safety. Safer companies generally pay lower premiums, while unsafe ones will either pay higher premiums or be denied a policy, he said.

“Even today, if you’re an unsafe carrier, you’re paying more,” he said. “That’s the market working.”

Cartwright’s legislation “transforms the purpose into a requirement to try and compensate accident victims for all their injuries, which is not something that Congress originally contemplated.”

The number of crash settlements and judgments that exceed $750,000 are minimal, Sharma said. ATA research from insurance companies showed that 91.7% of truck crashes cost less than $25,000, and only 0.19% cost more than $1 million.

The Owner-Operator Independent Drivers Association took a similar position.

“The legislation will not make highways safer and is completely unnecessary as roughly fewer than 1% of truck-related accidents settle for more than $750,000,” OOIDA spokeswoman Norita Taylor said. “If enacted, it would have a devastating impact on small-business truckers as their insurance costs would go up exponentially.”

Insurance brokers said the proposal would drastically increase costs for small fleets, while noting that most large fleets already have at least $4.4 million policies.

“For the smaller fleets, it’s going to add a significant cost to their bottom line,” said Chris Patrick, senior vice president of Cottingham & Butler, a Dubuque, Iowa-based brokerage. “My sense is that it would drive some of those guys out of business.”

Almost all fleets carry $1 million in insurance, because shippers’ contracts demand it, Patrick said. But even a $2 million policy would increase a small fleet’s annual premiums of $2,500 to $6,000 per truck by $800 to $1,000.

Patrick also predicted that if carriers have higher insurance limits, the carriers and insurance companies would be quicker to settle claims, since the policies cover them. That would increase premiums.

“It will drive certain people out of the market,” he said.

Ryan Erickson, vice president of Birmingham, Ala.-based McGriff, Seibels & Williams Inc., said small fleets probably cannot purchase such large policies.

“There really isn’t a market for smaller carriers to be able to purchase this insurance for a reasonable cost,” he said.

Underwriters don’t even know how to quote such policies for small fleets, let alone how to keep the policies, Erickson added.

“It’ll be a very challenging environment for a smaller motor carrier to operate,” Erickson said. He estimated that a $4.4 million limit would cost a smaller carrier double what a $1 million policy would cost.

The American Association for Justice, which represents trial lawyers, supports the bill.

“Outdated trucking-insurance limits shift the burden of crash costs to injured motorists, taxpayers, medical insurance carriers and Medicare,” AAJ President Mary Alice McLarty said in a statement.

Cartwright cited a March study by the Trucking Alliance, which found while about 1% of settlements exceeded $750,000, those settlements were 42% higher on average.

The Trucking Alliance, a group of eight companies, agreed that the minimum needs to be increased but did not specifically endorse Cartwright’s proposal.

“These business owners are largely unaware that in the event of a major accident involving a motorist, their uninsured liability could threaten their business and livelihood,” the group said in a statement.

Congress asked the Federal Motor Carrier Safety Administration last year in MAP-21 to study the appropriateness of the current insurance level, a review that agency spokesman Duane DeBruyne said would be complete this year.

When Congress set the $750,000 level in 1980, it gave the Federal Highway Administration authority to increase it if it was deemed necessary. That authority was transferred to FMCSA when it was established in 2000.

Federal officials have never studied the insurance minimum or considered increasing it, DeBruyne said. He declined to comment on Cartwright’s bill.

Cartwright’s bill has seven co-sponsors, all Democrats. It has been referred to the Transportation and Infrastructure Committee.