Over the last few months I have been covering some insurance basics. My last two articles covered the basics of Cargo and Liability coverage – this month I will explore Physical Damage, or the third part of what usually is required by you, the owner operator (Cargo, Liability and Physical Damage). At the end of this article, I will also include a brief discussion about another important basic topic – deductibles.
Physical Damage covers your equipment or the equipment of others while in your care, custody or control. But do not confuse Physical Damage with your Property Damage, which is indicated on your truck liability policy (or maybe in your general liability policy if you have this as part of your insurance coverage or package). Property Damage covers only the property of others in the event of an accident, it does not cover your equipment or the equipment of a non-owned trailer or vehicle that you hire or rent. Physical Damage coverage is usually sold in two forms – Stated Value or Actual Cash Value (ACV).
Most of the Physical Damage policies that we write today are written as Stated Value, but even though the policy states that the insurance company will pay a predetermined amount or value for the equipment that insurance is provided for, don’t take it as gospel. Never over-insure your equipment, thinking that in the event of a loss, your insurance company will pay out what the stated value is. The insurance company will only pay what the value of the equipment is at the time of the loss. Since you are insuring to value, it is paramount that you maintain adequate records and receipts that would support the value that you are insuring.
An Actual Cash Value (ACV) Physical Damage insurance policy takes into consideration the depreciated value at the time of loss. The premium is based on the cost of the equipment when it was new, modified by a factor associated with the age of the vehicle or vehicles, at the time the coverage is placed. These factors have been created by the insurance industry.
Many of you that do not own a trailer or trailers are required to provide Physical Damage coverage for non-owned or unidentified trailers by those that you are pulling for. Remember, this coverage is only active while the trailer is attached to the power unit. Physical Damage can be purchased for any trailer that is in your care, custody or control through a Trailer Interchange agreement – this coverage is based on the number of days that you have the equipment of others in your possession. Unidentified Trailer and Non-Owned Trailer Physical Damage only covers the trailers that you do not own. If you want Physical Damage on your own trailers, you will have to schedule them on the policy and pay a premium for it.
Recently, I had a Physical Damage loss claim, for a non-owned trailer, declined by Sutter Insurance Company, even though the owner operator’s insurance agent provided a Certificate of Insurance to the Prime Carrier indicating coverage. Sutter’s coverage was subordinate (read the terms and conditions in the policy) to other coverage provided by the prime carrier’s insurance, so Sutter would not pay the claim. In this case, the owner operator was on the hook for the loss. Since no coverage was provided by the owner operator’s insurance, through the agreement with the prime carrier, the owner operator was liable for the loss – and it takes a lot of loads to make up the value of a $40,000 trailer. This goes to the very point that I always make – discuss your coverage with your insurance agent or broker.
Physical Damage can be purchased with a number of different deductibles, including $500, $1,000, $2,500 or more. The majority of you purchase coverage with a $1,000 deductible. Since the economy has been in the tank, insurance companies are seeing a marked increase in theft claims. Some companies are starting to put larger deductibles on their policies, specific to theft – some are even doubling their deductibles! A few companies are now pushing theft deductibles in the $5,000 to $10,000 range. This would be a significant responsibility to the truck owner in the event of a theft loss. Do not leave your equipment (especially loaded trailers) unattended, or you may be buying the loss.
I recently had an insurance carrier offer my insured a 10% reduction in their renewal rate if he maintained a loss-free year. With the current theft environment, you will see more devices, like this, created by the insurance industry to help mitigate their losses. Some companies will offer a liability deductible, for a reduced premium. Usually the reduced premium is not much and is not worth it (the deductible is used by the insurance carrier as a device to reduce their risk). In the event of a loss where the insured did not feel that they were at fault, this can create a problem because the insurance company has the right to settle the claim, holding you (the insured) hostage to the deductible even though you want to fight the claim. This happens a lot with gravel risks and windshield damage claims.
Sadly, your insurance agent or broker may not always have your best interests in mind. He or she may be more interested in making the sale with the lowest premium instead of selling you the right package to protect you and your equipment. The cheapest premium may get you down the road, but it may put you out of business later on in the event of a claim. Again, spend the time with your agent or broker, and ask questions until you are satisfied that you can live with your decisions and fully understand your policy. If you have any questions or comments, I can be contacted through California Plus Insurance Service in Modesto, CA at 1-800-699-7101.