In June 2010, the Federal Motor Carrier Safety Administration (FMCSA) issued a Final Rule whereby approximately 80,000 motor common carriers will no longer be required to obtain cargo liability insurance. The effective date of the Ruling is March 21, 2011. This means that after March 21, 2011 motor carriers will not have to file any proof of cargo liability insurance with the FMCSA. It also means that something known as the BMC-32 endorsement will become history.

    By way of background, since 1937 motor common carriers, but not contract carriers, have been required by federal law to have at least $5,000 in cargo liability insurance. To ensure that the insurance coverage was not illusory, the policies had to include a provision, known as the BMC-32 endorsement, that was written to ensure that there would indeed be at least $5,000 in coverage regardless of any otherwise applicable exclusion or deductible. 

    In 2005, the FMCSA first announced a proposal to eliminate the insurance requirement and solicited comments from the industry. Thirty-two parties submitted comments. Twenty-two of these commenters opposed the elimination of the requirement. They included such industry groups as the Transportation and Logistics Council (T&LC), the Freight Transportation Consultants Association (FTCA), the Transportation Intermediaries Association (TIA) and The National Industrial Transportation League (NITL). 

    Sixteen of these commenters were especially concerned with the collateral consequence of the end of the BMC-32 endorsement and the requirements for filing proof of cargo liability insurance. As summarized by the FMCSA, these parties noted that “the BMC-32 endorsement is the only protection against deductibles and other exclusions from liability found in cargo liability policies. They noted that in many cases the carriers’ deductibles can be very high and the exclusions may eliminate most sources of loss or damage recovery. They also stated that the BMC-32 endorsement permits the shipper to proceed directly against the insurer, providing relief to shippers in the event the carrier becomes insolvent or bankrupt.”

    Three commenters supported, for various reasons, the proposal to eliminate the requirement for cargo liability insurance ----- the American Trucking Associations (ATA), the Owner-Operator Independent Drivers Association (OOIDA) and the Property Casualty Insurers Association of America. For the reasons stated in its decision, the FMCSA agreed with the views of these three commenters. 

    The full text of the decision makes for very interesting reading. It may be found at http://edocket.access.gpo.gov/2010/2010-14866.htm.   

    Although I agree with the position of those in favor of continuing the current requirements, and although I believe that the FMCSA decision is ill-advised, it doesn’t really matter ----- this truck has left the terminal! The real issue now is what can or should one do after March 21, 2011 with respect to cargo liability insurance?

    The FMSCA believes that “Shippers are like any other party in a transaction where one party will be providing services to another party. If the parties do not communicate the terms and conditions, or read the terms and conditions in their contracts (also known as bills of lading in transportation), the shipper assumes the risk. Shippers should ask carriers for copies of their policies, including all endorsements, exclusions, and declarations, to see whether the shippers’ property or interests will be served by a particular motor carrier.”

    This suggestion, although not at all as easy to do as the FMCSA would imply, only addresses the problem of determining what insurance a carrier has before tendering it a load or before entering into a contract. There is still the problem of how a shipper will be able to know if a carrier’s policy has been cancelled. In the past, one could simply check the FMCSA website. After March 21, 2011, the FMCSA’s website will only show historical coverage as of March 20, 2011.

    To sum up, for someone utilizing even just a few motor carriers, reading all the provisions of all of their insurance policies is a daunting task. And, having read all the policies, one will not be able to easily tell from the FMCSA website whether they are still in effect.

    But all is not lost! 

    In its decision, the FMCSA stated “The Agency recognizes the elimination of the BMC-32 endorsement will make it less convenient for commercial shippers to confirm the existence of cargo insurance. However, FMCSA believes that motor carriers, in order to effectively compete for desirable traffic, will devise alternative means of facilitating shipper verification of their cargo insurance policies.”

    In a future installment of Parcel Counsel we will explore possible options available to shippers to protect themselves just in case the motor carriers don’t.

    All for now!




    Brent Wm. Primus, J.D., is the CEO of Primus Law Office, P.A., the Senior Editor of transportlawtexts, inc. Previous columns, including those of William J. Augello, may be found in the “Content Library” on the Parcel website (www.parcelindustry.com). Your questions are welcome at brent@transportlawtexts.com
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