Opinion: Liability Coverage: Bobtail Policies

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Gregory Feary, Managing Partner, Scopelitis, Garvin, Light, Hanson & Feary PC

This Opinion piece appears in the Sept. 2 print edition of Transport Topics. Click here to subscribe today.

When a motor carrier uses the services of an independent contractor, the latter generally is covered by the motor carrier’s liability policy when a claim occurs while operating for business.

The motor carrier policy responds so often on independent contractor, or IC, claims that many in the industry believe there is no need for the IC to buy a separate liability policy, often referred to as a “bobtail” policy, to cover the IC when operating the power unit for personal use. However, this “Opinion” column will explain why it is absolutely necessary for the IC to buy a liability policy — and why “bobtail” is usually a misnomer.

First, let’s tackle the terminology: The word “bobtail” is widely used to identify several very different types of liability insurance intended to cover the liability of an independent contractor. To understand the issues surrounding “bobtail” insurance, it’s important to start with the term’s use as a generic name. Then we’ll look at the three main forms of independent contractor liability coverage and what makes them different.

While bobtail is incorrectly used as a generic term describing all forms of IC liability coverage, there is, in fact, a coverage form called “bobtail.” True bobtail coverage is intended to cover an IC whenever he is operating without a trailer attached, regardless of the nature of the operation.

Another IC liability coverage form is “unladen” liability. A true unladen policy form covers liability from incidents that occur whenever the independent contractor is operating the power unit without cargo; either without a trailer attached or with an empty trailer attached, regardless of the nature of the operation.

The third and most common form of IC liability coverage is nontrucking use (NTU) liability, which differs from true bobtail and unladen forms in three major ways:

• NTU policies are intended to provide coverage only when the IC is not operating for business use.

• Each NTU policy defines “business use” with specific wording that can differ significantly from policy to policy. Consequently, there is no “standard” coverage wording for NTU liability.

• Coverage under tan NTU policy may depend on how the policy wording relates to the terms of the IC operating agreement with the motor carrier.

Now, let’s examine the prevalent opinion that IC liability policies never cover a loss. True bobtail and unladen policies are straightforward and typically will cover losses whenever no trailer or cargo are being transported. These policy forms are rare, and the vast majority of the IC liability policies in force are on an NTU form. So, this no-coverage notion is based almost exclusively on experience with the NTU form of coverage.

Do nontrucking use policies cover losses? The two best answers are “sometimes” and “it depends.”

Why does it seem that the motor carrier’s policy nearly always applies? There are two main reasons: An IC is operating for business purposes far more often than not, and because this typically is the criterion used to decide coverage, the motor carrier’s liability policy naturally will apply most often.

In many cases, the policy language defining when an IC is operating for business purposes is extremely broad. Most of the ways in which an IC operates will fall within this broad definition and, therefore, coverage will be excluded from the nontrucking policy.

The independent contractor operating agreement sometimes can further broaden the business-use definition and cause the loss to be included under the motor carrier’s liability. The best example of this is a situation where an off-duty independent contractor has an accident on the way to get the truck washed. If the IC operating agreement requires that the truck be maintained in satisfactory condition, this trip could — and often has — come under the business-use definition in the nontrucking policy.

Conversely, there are incidents like this where coverage has come from the NTU policy when the “satisfactory condition” wording is absent.

Finally, let’s consider how to reduce the possibility of a coverage conflict.

Coverage disagreements are rare when the independent contractor has true bobtail or unladen coverage. Unfortunately, these coverage forms are not nearly as widely available as NTU policies — and they are significantly more expensive. However, if they are available, these forms should be considered, even at the higher cost.

Because most conflicts occur between a motor carrier’s liability insurer and nontrucking liability insurer, it can be helpful to have both policies placed with the same insurance company. While this is not always possible, it should be explored.

Last of all, it is important to understand nontrucking liability coverage and when it will, and will not, apply. Using advice and assistance from insurance professionals and attorneys who specialize in the trucking industry will allow both the IC and the motor carrier to make sure the operating agreement and the type of coverage chosen will work together to minimize the chance of a conflict.

The Cline Wood Agency, Leawood, Kan., is a nationwide provider of insurance and risk management products and services for the transportation industry.

Scopelitis, Garvin, Light, Hanson & Feary PC is a legal firm specializing in transportation matters. Author Gregory Feary is with the firm’s Indianapolis office.