Owner-Operator Insurance: Definitions and Impact of Non-Truck, Bobtail, and No-Cargo Liability
As with any business model, Motor Carriers (MC) using Owner Operators (OO) enjoy certain benefits while assuming additional risks. One such risk is the potential “uninsured” exposure of the OO while it is not in a “business use” capacity for the Motor Carrier. MC’s commercial auto or truck liability (AL) insurance policy provides coverage for motor carrier-owned units, as well as any tractors and trailers rented during your rental time. Coverage ceases for an Owner-Operator once it is no longer in a “business use” capacity for the Motor Carrier. The concern is that the OO continues to use his vehicle while displaying the MC placard and may not have other insurance available. Many times, the “deep” pocket of the MC is called upon for the injured third party to recover.
Three products have been developed to address the coverage gap for the Owner Operator.
Protection for Motor Carriers Civil Liability: Low
Market availability: High
Non-trucking liability provides protection for “personal use” by using a commercial auto or truck liability policy form and attaching a “commercial use” exclusion. The difficulty arises because the definition of “commercial use” is typically not defined in policy, but rather follows directly from various state and federal court decisions interpreting this phrase.
Unfortunately, “commercial use” has been interpreted too broadly and extends beyond “dispatch.” Here are some typical scenarios that would not be covered by the no-truck policy due to the broad interpretation of the “commercial use” exclusion:
- OO drops the load and heads home to include a trip diversion to the grocery store (courts find OO is owed a ride home)
- OO brings vehicle into garage for weekend maintenance (courts find OO is maintaining unit in accordance with MC lease requirements)
- OO is out of town, between charges. He goes to the cinema. (courts find OO to be out of town at MC’s direction)
Coverage Example: OO uses his truck in his spare time to run to the grocery store and crashes into another vehicle.
Motor Carrier Protection Auto Responsibility: Medium
Market availability: low
Many in the trucking industry use the same terminology for Bobtail liability and non-truck liability, when in reality they are quite different. Bobtail defines coverage as “any time the trailer is loose” whether or not the motor carrier has dispatched the OO.
- OO drops the load and moves to pick up the next load.
- OO drops the load at the end of the day and takes it home.
- Please note that the Bobtail policy will not respond every time a trailer is attached, even if it really is a personal situation, for example:
- OO brings home an empty trailer and runs to the store for the weekend.
- OO uses his tractor to move a mobile home for the weekend.
- OO helps a friend move by pulling a trailer with household items
No Charge Liability:
Motor Carrier Protection Auto Responsibility: High
Market availability: very low (by class)
Unladen Liability provides the least ambiguity in coverage and the broadest level of protection for the MC and OO. This policy provides coverage during transportation (no trailer attached), as well as during transportation without cargo (trailer does not contain or carry any cargo, without bill of lading), regardless of shipment. The difficulty with this line of coverage is low availability (generally not available on a master payoff deduction schedule, rather the need for the OO to obtain it directly).
There are advantages and disadvantages to each of the coverage models that vary based on risk tolerance and the operations of the Motor Carrier and Owner Operator. Deciding on the right program can be critical to managing your risk. Enlist the help of a qualified insurance broker to review your current insurance programs and operations and to provide suggestions and options that best fit your needs.