By
Freight 360
As freight brokers, understanding and verifying a motor carrier’s insurance is not just a best practice—it’s a necessity. This becomes especially critical when considering the Auto Liability section of a certificate of insurance, or COI for short. In this article, we’ll dive into the significance of verifying a motor carrier’s COI, the risks of not doing so, and the particular challenges associated with certain types of coverage.
When you’re verifying a motor carrier’s insurance, you’ll often see a copy of their ACORD 25 form. An ACORD 25 form is a standard document used in the insurance industry, particularly in the United States. It’s known as the “Certificate of Liability Insurance” form. This form provides proof of insurance coverage and summarizes the key aspects and conditions of a policy. Today, we’re looking specifically at the auto liability section. The Auto Liability section outlines the coverage related to vehicles used in the course of a business’s operations. It will list the total combined coverage for each accident as well as limits for bodily injury per person and per accident as well as property damage per accident. This section is particularly relevant in industries like trucking and freight brokerage, where the use of vehicles is integral to business activities. Let’s start by breaking down the different types of auto liability coverage:
This coverage is the broadest as it includes any vehicle used for the business, regardless of ownership. It covers vehicles owned, leased, hired, borrowed, or used by the business.
Example: A trucking company owns several trucks, leases a few more, and occasionally rents additional trucks during peak periods. ‘Any Auto’ coverage would ensure that all these vehicles are covered under the policy.
This coverage is limited to vehicles that are owned by the business. It does not extend to leased, hired, or borrowed vehicles.
Example: A freight company owns a fleet of 10 trucks. Owned Autos Only coverage would insure only these 10 trucks and no other vehicles, even if the company temporarily uses rented trucks.
This covers vehicles that the company hires, rents, or borrows, but does not own. This is essential for companies that do not own their vehicles but instead lease or rent them.
Example: A trucking company does not own any vehicles but frequently rents or leases trucks for freight transportation. Hired Autos Only coverage would insure these rented or leased trucks.
This coverage is for specific vehicles listed or ‘scheduled’ on the policy. Each vehicle is individually described, and coverage is restricted to those specifically listed autos.
Example: A trucking company has a specific list of trucks, each with its details like make, model, and VIN, listed on their insurance policy. Scheduled Autos coverage would apply only to these listed trucks.
This covers vehicles that are not owned, leased, or hired by the business but are used in connection with the business. This typically includes employees’ personal vehicles used for business purposes.
Example: An employee of a company uses their personal car to visit clients or perform business tasks. Non-Owned Autos coverage would insure this personal vehicle when used for business-related activities.
Ensuring that a carrier has adequate and appropriate insurance coverage helps in complying with industry regulations and mitigating potential liabilities.
Verifying a COI helps in understanding the extent of coverage and any potential gaps, protecting your shipper’s interests.
Demonstrating due diligence in verifying COIs builds trust with your customer, showcasing a commitment to safety and reliability as a freight broker.
Failing to verify a motor carrier’s COI can lead to significant risks:
If an incident occurs and the carrier’s insurance does not cover that specific scenario or vehicle, the claim will likely be denied, and the financial burden could fall on you as the broker.
Brokers could face legal challenges if they knowingly use carriers with inadequate or inappropriate insurance coverage.
Working with improperly insured carriers can damage a broker’s reputation, affecting future business opportunities with shippers.
The ‘Scheduled Autos’ box on the ACORD 25 form warrants special attention. This coverage only applies to vehicles specifically listed by VIN on the policy. If a broker contracts a carrier that only has ‘Scheduled Autos’ coverage, but the vehicle used is not listed, that vehicle is not covered. Using websites like Highway and other carrier vetting tools can alert you if a carrier had a vehicle inspected that wasn’t listed on the Scheduled Autos policy. This situation presents a significant risk.
In the event of an accident, if the vehicle is not covered, the financial and legal burden could inadvertently fall on the shipper or even the broker.
Failure to ensure proper coverage can lead to dissatisfied customers, especially if their cargo is involved in an incident with an uninsured vehicle.
Dealing with incidents involving uninsured vehicles can cause operational delays and additional costs to your business.
To sum up, as a freight broker, it’s your responsibility to thoroughly understand and verify the insurance coverage of the motor carriers you work with. Paying close attention to the type of auto liability coverage, especially the ‘Scheduled Autos’ section, is crucial. This due diligence not only protects your business but also upholds the safety and reliability standards of the industry. Remember, an informed and proactive freight broker is a smart freight broker, and that’s one way to set yourself apart from your competition.
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