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Freight Broker Insurance 101: What Motor Carriers Need to Know to Protect Their Freight Brokerage

posted by TrueNorth Companies on Monday, April 17, 2023

Freight Broker Insurance 101: What Motor Carriers Need to Know to Protect Their Freight Brokerage

Growing motor carriers are increasingly looking to freight brokerage to retain customer revenue while maintaining the ability to move loads they’re unable to move with their own units. Our Freight Broker Series will cover insurance and risk management strategies for those new to freight brokerages and current brokers looking to scale.

While a motor carrier may have their insurance and risk management strategy outlined, there are some key differences to consider with freight brokerages. Without a proper insurance foundation, a freight broker can be left open to risk in the case of an accident and/or litigation.

There are two main types of freight broker insurance:

1. Contingent Auto Liability, or CAL. Protects a freight broker when a situation resulting in damage caused by the underlying motor carrier occurs and the motor carrier’s primary auto liability fails to respond.
2. Primary Truck Broker Liability, or PTBL. Covers bodily injury or property damage resulting from the ownership, maintenance and use of a motor carrier’s vehicle arising out of the insureds operations as a transportation broker.

So, which is better?

Both coverages generally have a duty to provide defense. However, as the name suggests, CAL’s coverage has contingencies, dependent on the response of the motor carrier’s insurer. Generally, those contingencies stem from either the motor carrier or their insurer failing to compensate the broker.

Where CAL falls short

The motor carrier’s auto liability insurer is not obligated to provide a defense for the broker. This means CAL could fail to protect brokers if a broker is named in a suit and the motor carrier’s auto liability has responded to the event and is providing a defense for the motor carrier.

Punitive and exemplary damage awards are excluded under CAL. And CAL products generally have an annual aggregate or limit. 

PTBL: Coverage without contingencies

PTBL is not contingent upon the response of the underlying auto liability held by the motor carrier. From a customer-facing perspective, PTBL is a vastly superior product. When a broker’s customer is an additional insured on the PTBL policy, they have an immediate direct defense that responds to a suit in which the customer may be named regardless of the coverage response of the motor carrier’s auto liability.

Punitive and exemplary damage awards are not excluded under PTBL and like a primary auto liability policy, it generally is written with no annual limit.

Since PTBL coverage is more protective, it does come with some additional considerations and eligibility criteria. PTBL premiums are typically 15 – 25% higher than a CAL product. To be eligible for a PTBL product, normally a broker must demonstrate and utilize “best practices” in several risk factors present in freight brokerage operations.
 

Key Takeaways

1. From a customer facing perspective, PTBL is a vastly superior product. When a broker’s customer is an additional insured on the PTBL policy, they are provided an immediate direct defense that responds to a suit in which the customer may be named regardless of the coverage response of the motor carrier’s auto liability.
2. As the landscape of litigation continues look at brokers and make allegations of vicarious liability and/or negligent hiring or perceived insufficient limits by the motor carrier’s auto liability, it is important that a broker proactively protect themselves and their customers to the best of their ability through risk transfer strategies such as PTBL coverage and training practices to help protect their company.
    

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