As with any business model, Motor Carriers (MC) using Owner Operators (OO) enjoy certain benefits while also taking on additional risks. One such risk is the potential “uninsured” exposure of the OO while not in a “business” capacity for the Motor Carrier. The MC’s Trucking or Commercial Auto Liability (AL) insurance policy provides coverage for the units owned by the motor carriers, as well as all rented tractors and trailers during their rental period. Coverage ceases for an owner-operator once they are no longer in a “business use” capacity for the motor carrier. The concern is that the OO will continue to use their vehicle while displaying the MC placard and may not have any other insurance available. Often the MC’s “deep” pocket is called upon to heal the injured third party.
Three products have been developed to address the Owner Operator coverage gap.
Non-Transport Liability:
Cost: low
Protection for motor carriers Car liability: low
Market availability: High
Non-cargo liability provides protection for “personal use” by using a trucking or commercial vehicle liability policy form and adding a “business use” exclusion. The difficulty arises because the definition of “business use” is not typically defined in the policy, but is derived directly from various state and federal court rulings that interpret this phrase.
Unfortunately, “business use” is interpreted very broadly and goes beyond “sending”. The following are some typical scenarios that are not covered by the non-freight transportation policy due to the broad interpretation of the “business use” exclusion:
- OO drops load and heads home with a diversion route to the grocery store (courts rule OO owes a trip home)
- OO takes the vehicle to the garage for service on weekends (courts rule that OO maintains the unit in accordance with MC lease requirements)
- OO is out of town, in between loads. He goes to the cinema. (courts rule OO is out of town on MC’s direction)
Coverage example: OO uses their truck in personal time to run to the grocery store and hits another vehicle.
Bobtail Liability:
Cost: average
Protection for motor carriers Motor liability: average
Market availability: low
Many in the transportation industry use the same terminology for Bobtail liability and Non-Truck liability, when in fact they are very different. Bobtail defines coverage as “any time the trailer is unattached,” regardless of whether the OO was sent by the motorcycle hauler.
Coverage example:
- OO drops cargo and bobtails to pick up the next cargo.
- OO drops the load at the end of the day and makes short work of houses.
- Please note that the Bobtail policy does not respond when a trailer is hitched, even in a personal situation, for example:
- OO brings home an empty trailer and drives to the store on weekends.
- OO uses his tractor to move a mobile home on weekends.
- OO helps a friend move house by pulling a trailer full of household goods
Unencumbered Liability:
Cost: high
Protection for motor carriers Motor liability: high
Market Availability: Very Low (Base by Class)
Unencumbered liability provides the least ambiguity in coverage and the broadest level of protection for the MC and OO. This policy provides coverage while bobtailing (no trailer attached) and while deadheading (the trailer does not contain or carry any cargo – no bill of lading), regardless of shipment. The difficulty with this line of coverage is its low availability (usually not available in a main deduction program; rather the OO’s need to obtain on a direct basis).
There are advantages and disadvantages to each of the coverage models that vary depending on the risk tolerance and activities of the Motor Carrier and Owner Operator. Choosing the right program can be critical to managing your risks. Enlist the help of a qualified insurance broker to review your current insurance programs and operations and provide suggestions and options that best fit your needs.
Owner Operator Insurance – Non-Truck, Bobtail
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