The Supreme Court ruled that FMCSA lacks the discretion to prevent cross-border operations of Mexican trucks and that nothing in the nation's environmental laws requires FMCSA to conduct an environmental impact study.

The issue is important to insurance companies due to ongoing concerns over the safety of Mexican trucks.

David Snyder, vice president and assistant general counsel with the Washington-based American Insurance Association, said he is not surprised by the Supreme Court's decision in the case of Department of Transportation v. Public Citizen. The important thing, Mr. Snyder said, is to assure that underwriters will have all the information they need to provide insurance and that safety efforts are maintained at a very high level.

Dave Golden, director of commercial lines for the Des Plaines, Ill.-based Property Casualty Insurers Association of America, added that PCI's concerns always revolved around safety.

The FMCSA, he said, has created rules and an infrastructure designed to assure that Mexican trucks are held to the same level of safety as American trucks. Now, Mr. Golden said, it is up to FMCSA to police the system.

The issue centers on a long-standing moratorium that prevented Mexican trucks from operating in the United States. After the North American Free Trade Agreement (NAFTA) took effect on Jan. 1, 1994, the government of Mexico challenged the moratorium under NAFTA's dispute resolution process.

In February of 2001, an international arbitration panel determined that the “blanket refusal” of the United States to approve motor carrier applications from Mexico violated NAFTA.

President Bush then said he would lift the moratorium after FMCSA promulgated safety regulations for Mexican trucks and established a safety inspection regime. FMCSA issued the regulations and President Bush ended the moratorium in November of 2002.

However, the Washington-based public interest group, Public Citizen, filed a lawsuit challenging the lifting of the moratorium, charging that under the nation's environment laws, FMCSA was first required to conduct an environmental impact study of emissions from Mexican trucks that will be entering the United States.

The Ninth Circuit Court of Appeals agreed and called for a full environmental impact study before ending the moratorium.

But a unanimous Supreme Court ruled that FMCSA does not have the authority to countermand the President's order lifting the moratorium, nor does it have authority to categorically exclude Mexican trucks from operating in the United States.

For the insurance industry, the next issue is reopening NAFTA to allow mutual recognition of policies, Mr. Snyder said. Currently, Mr. Snyder noted, insurance policies written in the United States are not recognized in Mexico and insurance policies written in Mexico are not recognized in the United States.

“It is ironic that NAFTA allows an 80,000 pound truck loaded with hazardous chemicals to cross the border, but not a two ounce insurance policy,” he said.

Mr. Golden said the current system is burdensome in that it requires multiple insurance policies. If a U.S. insurer, he said, wants to cover a U.S. truck in Mexico, it must have a fronting or similar type of arrangement with a Mexican insurance company.

It is important, Mr. Golden said, to simplify the process so that more insurance companies will be able to participate in this market if they so choose.

Reproduced from National Underwriter Edition, June 11, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.