In my January 2012 article, I started a mini series of articles focused around the basics of understanding your policy before having a loss. Back in that January article I discussed Cargo coverage, which I believe to be the most important and most misunderstood of the basic insurance coverage that you, as an owner operator, purchase. If you did not have the opportunity to read it, you might want to back-track and find a copy to read for your information and knowledge. This month, as the series continues, I want to talk about Liability coverage.
Your insurance policy is a contract between you and the insurance company that you are paying your insurance premium to. Liability, or third-party liability, protects you from the potential financial loss in the event that your truck is involved in an accident that you are found to be at fault. It indemnifies you in the event of a third-party claim. With a liability loss, the insurance company provides you with a legal defense, as well as providing the financial payment, if you are liable, up to the limits of the policy. There are two major parts to this coverage – Bodily Injury and Property Damage.
Bodily Injury covers any loss to life or injury. Injury does not have to be a physical loss – it can also be in the form of a non-physical loss (I once had a client sued for loss of physical affection from the spouse of a person that was involved in an accident with one of my insured’s). Property Damage covers the property of others – not your own. Your property is covered by a separate policy. We will tackle that part of your package in the next article. Property Damage, like Bodily Injury, does not necessarily confine itself to physical loss, but it can also include the loss of use. Let’s assume that you wipe out a bridge and that bridge provides the only access to a business. The owner of that business has suffered a loss to his property from your actions – not a physical loss but a monetary loss – and could file a claim against you. In this case, your Liability coverage would protect you.
Liability can be written in two formats – Split Limits or Combined Single Limit. Today, with the demand for higher limits from both the State of California and the Federal Motor Carrier Safety Administration (FMCSA), the trucking industry has gotten away from Split Limits, but your personal auto insurance is probably still written with them. As an example, your auto coverage may have $50,000/$100,000 Bodily Injury and $50,000 Property Damage. In this example, the most that the insurance company will pay out per person, per Bodily Injury Loss, is $50,000, and up to $100,000 per accident (involving more than one injured party). The Property Damage that will be paid is limited to $50,000.
Nowadays, the majority of your truck’s Liability coverage is written as a Combined Single Limit. The minimum California limit, for vehicles in excess of 10,000 pounds, is $750,000. The majority of you probably have a $1,000,000 limit – which usually is a requirement of the broker, shipper or prime carrier. With a Combined Single Limit, payment of a loss can be divided up in any way, up to the limit, provided by the insurance policy. If one person is involved, with no property damage, they can conceivably collect up to the limits of the policy. Higher limits are often (usually) required for the transportation of hazardous commodities and people.
Liability coverage is limited to the equipment that is identified in the policy or identified through the policy with its various symbols. At this time, I am only considering those of you that have your own authority and provide an insurance filing to the DMV or the FMCSA, which supports your operating authority.
Many of you only have a power unit. The power unit (tractor) is incomplete without a trailer. If you own a trailer or trailers, make sure that you have them specified on the policy. For those of you that only have power units, you must cover the Liability on the trailer (or trailers) that you pull as a non-owned or unidentified trailer. This only covers the liability of those trailers that you do not own. Do not think that unidentified trailer coverage will cover your owned trailer. It does not. If your equipment is identified on your policy, coverage exists whether attached or detached from the tractor.
If you have coverage for a non-owned or unidentified trailer, coverage, for the trailer, does not exist if it is detached from the tractor (I covered this extensively in my last article). You should be very concerned about any non-owned or unidentified trailer that you disconnect from your power unit because coverage will not be extended to the trailer in the event of a loss. Coverage called “trailer interchange” can be purchased through some companies which will provide coverage for any trailer in your care or custody. The premiums for this type of coverage are based on the total number of days that the equipment is in your possession.
For the most part, Liability policies do not have deductibles. Some insurance companies will offer, or in some cases only provide, policies with deductibles. Usually, this is used to reduce the premium. Bodily Injury and Property Damage may have a specified deductible for each part of the loss or it may have one deductible to cover both. Be aware – your insurance company has control of the disposition of the loss and you might not feel that the claim has been settled in your best interest.
Understanding the basics of your policy is imperative – before you suffer a loss. Once you have an accident or some other loss, it will be too late to correct any mistakes or misunderstandings, so go over your policy with your agent now. If you have any comments or questions, I can be reached through California Plus Insurance Service at 1-800-699-7101.