Underwriting and rating—hazards

Insuring agreement

Property coverage

Coverage extensions

Supplemental coverages Perils and exclusions

Loss conditions Valuation and loss payment

Reporting conditions Other conditions

Endorsements and other forms

Underwriting and Rating—General Considerations

Motor truck cargo (MTC) liability insurance provides legal liability coverage for truckers (common or contract carriers), while they transport property of others (cargo). The applicant may be a trucking company that uses employee drivers or it may be an owner-operator arrangement.

Truckers may also purchase coverage for the property while it is located at scheduled terminals along the way. The insured is the trucker and the covered property is the property of others that is being transported by the insured. The trucker may be held liable for cargo under the terms of a bill of lading (common carrier) or a contract with the shipper (contract carrier).

When evaluating an MTC submission, the underwriter needs a certain minimum amount of information. The AAIS underwriting guide calls for the following information:

1. What's being shipped?
2. What are the average and maximum values per shipment?
3. What are the annual gross receipts of the applicant?
4. What is the radius of operations?
5. What is the insured's financial condition?
6. What is the past loss experience?
7. General information on the physical condition and road-worthiness of the applicant's fleet.
8. General information about the terminals where the insured may be stopping. Such information includes the terminals' location and the general COPE underwriting information for any property risk (construction, occupancy, protection, and exposure).

If the applicant uses owner-operators instead of employees, other things must be considered:

1.The number of owner-operators.

2.How are the owner-operators evaluated? MVRs, vehicle inspections, drug tests?

3.Are there any provisions in the contract between the carrier and the owner-operators that conflict with the MTC policy?

The underwriter needs the information for applications from both common and contract carriers. The following additional questions should also be asked of a contract carrier:

1. Who are all the shippers with whom the carrier has a contract?
2. What are the specific commodities that the carrier hauls for each shipper under contract?
3. Does the contract impose liability on the carrier above that of negligence?
4. What are the carrier's gross receipts from each shipper?
5. How much does the carrier earn each year as a contract carrier? As a common carrier?

When evaluating a carrier's financial condition, a report from the Central Analysis Bureau (CAB) should be obtained. The CAB analyzes a carrier's financial statements and assigns a rating based on their evaluation of the carrier's financial strength.

CAB assigns one of the following six ratings:

1. Satisfactory.
2. Fair.
3. Barely Fair
4. Poor.
5. Unsatisfactory
6. Dangerous

While financial condition of any prospective insured is an important underwriting consideration, state and federal cargo filings make it even more so for an MTC applicant. If a trucker becomes insolvent, the law requires the insurer to respond to any and all unpaid claims that have accumulated against the trucker.

Underwriting and Rating—Hazards

In addition to underwriting a trucker's financial condition, other hazards must also be examined. They include theft, fire, the vehicles, and the drivers.

AAIS classifies the type of cargo being carried based on how hazardous it is and how great a theft target it represents. The classifications go from a low of 1 to a high of 5. An example of a "1″ is paper products; of "5," video equipment.

The underwriter should make an effort to secure a detailed description of what is being shipped. Too often, a shipper will list "general commodities." While this may be acceptable, the underwriter should be careful of some things. If past experience shows that the shipper has suffered theft losses, "target" goods may be involved. Another indication of "target" goods is a high limit of insurance per vehicle. If the insurer is providing terminal coverage, the underwriter should obtain information about the inventory controls in use that govern the movement of cargo into and out of the terminal.

Another indication of a possible theft problem is where the truck is going. High crime urban areas must be underwritten more closely.

If the underwriter is concerned about the theft exposure, he may require that anti-theft measures be in place. These include alarms, escorts, and guards.

Fire, on both the truck and at terminals—if the insured purchases terminal coverage—is another hazard that needs careful attention from the underwriter. A terminal should be underwritten just as any other property risk, using the COPE criteria (construction, occupancy, protection, and exposure).

In evaluating the collision and overturn hazard, the underwriter should look at three areas: the distance being traveled and radius of operations, the maintenance program for the trucks, and the selection/training of drivers.

Radius of operations is important because it tells the underwriter the types of weather the truck faces and increases the chance that the truck might encounter poor road conditions. Poor maintenance of things like brakes and tires increases the chance of an accident. A formal maintenance program should be in place. Drivers should be adequately trained in the operation of the specific trucks involved. Also, the company should utilize a formal program where MVR and employment history are checked, as well as a road test of the applicant.

Certain items must also be considered about the cargo and its handling. It must be packed adequately so that it is not damaged in a minor collision. If the cargo is a target item, AAIS recommends that the labeling be "discreet" so that the nature of the cargo is not readily revealed on the label. Finally, if the cargo is hazardous, the shipper must be in compliance with all state and federal laws governing the handling of such cargo.

Insuring Agreement

The AAIS policy promises to provide the described motor truck cargo liability coverage in exchange for payment of the premium. The agreement makes it clear that the promise to pay is subject to the conditions, endorsements, and schedules of the policy.

The policy covers legal liability for damage to property of others that the insured has in its care, custody, and control. The insured's liability may arise out of a bill of lading, a contract, or a shipping receipt. The DOT mandates the carrier's liability.

Property Coverage

The property of others covered by the form includes property in vehicles. Unloading and loading is covered only if the property is loaded or unloaded onto a sidewalk, street, loading dock, or similar area adjacent to a vehicle.

The form covers property of others while in transit or at a terminal location. For transit coverage to apply, the property must be on "any one vehicle." The policy defines "any one vehicle" to include not just one vehicle, trailer, etc., but any combination of these "pulled by one unit."

The insured may also choose to cover the property at terminals along the way. If a premium is shown for this coverage, the policy also applies to property at a described terminal location or within 100 feet of it. The property must be in due course of transit.

As with other property policies, there are several categories of property not covered. The first five are fairly typical of property policies.

1. Art—including paintings and statuary.
2. Contraband.
3. Jewelry, Stones, and Metals—includes precious and semiprecious.
4. Live Animals—however, there is coverage for death caused by a specified peril.
5. Money and Securities.

The second group of five property not covered items is unique to the motor truck cargo policy:

6. Other Carriers—the AAIS policy does not cover property in the custody of any other carrier if the named insured waives subrogation or does anything else to make subrogation rights unenforceable.