Summary: Under the current regulations of the Department of Transportation (DOT), bonds (or some other proof of financial responsibility) are required from the following persons and business organizations connected with interstate transportation of persons and property:

1. Brokers of interstate shipments, guaranteeing faithful performance of contracts.

2. Motor carriers, as a substitute for cargo liability or automobile bodily injury liability and property damage liability insurance, or for permission to be a self-insurer.

3. Other shippers, guaranteeing payment for loss of cargo, similar to the requirement for motor carriers.

Topics covered:

Brokers

Bond required

Motor carriers and other shippers

Brokers

The United States Code defines a transportation broker as “a person, other than a motor carrier or an employee or agent of a motor carrier, that as a principal or agent sells, offers for sale, negotiates for, or holds itself out by solicitation, advertisement, or otherwise as selling, providing, or arranging for, transportation by motor carrier for compensation.”

A large volume of long-haul truck business is handled by brokers. In general, there are two types. The first, common in the East, is purely a broker, soliciting freight and routing it over truck lines. More prevalent in the Middle West is the operator of a terminal or warehouse who secures loads, especially return loads, on a commission basis for truckmen who patronize his terminal. These firms are brokers from the viewpoint of the DOT and are required to be bonded.

Some carloading companies operate through brokers, but others directly solicit or arrange for truck shipments. Those which do so are also subject to the bonding requirements of the DOT.

Since these requirements apply to brokers of passenger transportation as well as freight, agencies which sell interstate bus tickets are also required to furnish bond, provided they are independent agencies and not operated in connection with a licensed bus line.

Bond Required

Under present regulations brokers are allowed to operate only upon furnishing bond or personal security in the amount of $10,000, under a prescribed form, guaranteeing financial responsibility and ability to perform their contracts.

This bond is a financial guaranty and consequently, surety companies are careful in their underwriting. Usually, detailed information regarding the financial condition, methods, and reputation of the broker is required. Collateral security may sometimes be required.

The Transportation Department reserves the right to approve the surety companies providing such bonds. See Federal Insurance Requirements For Property Motor Carriers. The surety company must be on the approved list of the United States Treasury Department.

Motor Carriers and Other Shippers

DOT regulations require all licensed carriers to have “primary security coverage,” written on specified forms. Primary security coverage is defined in the Code of Federal Regulations as “public liability coverage provided by the insurance or surety company responsible for the first dollar of coverage.” These bonds guarantee that the carrier will pay all judgments rendered against it for injury to persons or damage to property of others, or for loss or damage to cargoes, as the case may be, up to the designated limits.

The minimum limits on the bond or insurance policy vary according to a number of factors, as outlined in the Code. For vehicles under 10,000 pounds GVWR (designated as “small freight vehicles”), the minimum required is $300,000.

For large freight vehicles, the limit is dependent upon the type of cargo to be carried. If carrying what the act defines as “nonhazardous” property, the required limit is $750,000. Shippers of “hazardous” material must have a limit of $5 million. If oil, hazardous waste, or hazardous materials which are not defined elsewhere in the act, are being carried, the carrier needs a limit of $1 million. The final category of property includes explosives, poison gas, and radioactive materials. The required limit for this category is $5 million.

Two classes of passenger carriers are described; those with a seating capacity of fifteen or less and those that seat more than fifteen people. For the first category; the required minimum limit is $1.5 million; for the second, $5 million.

The Department of Transportation in Washington no longer furnishes copies of these bonds. They may be obtained from the home offices of most surety companies.