Insurance and your lease
This is the third in a series of exclusive articles describing how owner-operators can spot illegal motor carrier leasing practices

by James J. Whittle, Esq., 
The Cullen Law Firm, PLLC

Many of you have been through it. Your new motor carrier wants you to get certain insurance through its own program. They tell you not to worry though, because they will make it easy by deducting payments directly from your settlements.

A couple of weeks later your settlements start arriving. Looking through them you see charges for insurance not in the lease. It is also more expensive than the insurance you bought in the past.

Unfortunately, insurance is one way some motor carriers get additional revenue at your expense. You must know your rights to protect yourself from insurance scams.

The truth-in-leasing regulations are your map to I-376
The Interstate Commerce Commission created the truth-in-leasing regulations, 49 CFR § 376.12, to protect owner-operators from abusive motor carrier practices. The truth-in-leasing regulations require certain provisions to be in your lease. Nonetheless, the motor carrier has to follow the regulations whether the required provisions are in your lease or not.

Several of these regulations apply to insurance. These can save you money, headaches and downtime if you learn your rights and refuse to haul for carriers who abuse them.

No forced purchases from the carrier
As detailed in the last I-376 article, 49 CFR § 376.12 (i) says:

“The lease shall specify that the lessor is not required to purchase or rent any products, equipment, or services from the authorized carrier as a condition of entering into the lease arrangement.”

This provision does not mean the motor carrier cannot ask you to have bobtail insurance. It does mean the motor carrier cannot make you buy bobtail through its program or from its business partners and associates.

Think twice about a lease or practice that encourages you to buy or rent anything “in-house” or through “recommended” providers. Many motor carriers are trying to make money from you through a healthy mark-up on anything you buy or rent “in-house” or from recommended programs, etc.

This rule against forced purchases was written to give you the freedom to get the best price you can for a product or service, including insurance. It is probably your strongest defense against abuse.

Insurance for operation of the leased equipment 
Though motor carriers cannot require you to purchase insurance from it or its business partners, if you choose to buy insurance through the carrier, several regulations specifically address the purchase of insurance for the operation of the leased equipment.

First, 49 CFR § 376.12(j)(1) says:

“The lease shall clearly specify the legal obligation of the authorized carrier to maintain insurance coverage for the protection of the public pursuant to FMCSA regulations under 49 U.S.C. 13906.”

This is the primary or public liability insurance that owner-operators are accustomed to reading about in leases.

Second, 49 CFR § 376.12(j)(1) also says:

“The lease shall further specify who is responsible for providing any other insurance coverage for the operation of the leased equipment, such as bobtail insurance.”

As the words “such as” suggest, this is not only talking about bobtail, but also non-trucking use, physical damage insurance, etc. This is additional insurance often required in motor carrier leases or by financing companies. If a motor carrier wants you to carry this insurance, the lease must state it.

Third, 49 CFR § 376.12(j)(1) says:

“If the authorized carrier will make a charge back to the lessor for any of this insurance, the lease shall specify the amount which will be charged back to the lessor.”

Of course, if the motor carrier does not make it your responsibility by stating as much in the lease, then it cannot charge it back to you without violating the law. Even if a motor carrier did specify this as your obligation, to legally deduct for it, the motor carrier must state the actual amount to be charged back in a lease or an addendum both parties have signed.

Fourth, you also are entitled to specific insurance documents. 49 CFR § 376.12(j)(2) requires that if you purchase this insurance from or through the carrier, it must provide you a certificate of insurance for each policy whether you ask for it or not. 49 CFR § 376.12(j)(2) says:

“Each certificate of insurance shall include the name of the insurer, the policy number, the effective dates of the policy, the amounts and types of coverage, the cost to the lessor for each type of coverage, and the deductible amount for each type of coverage for which the lessor may be liable.”

Together, these seven items are always different for each insured and, therefore, they shape the overall cost of insurance for each insured.

49 CFR § 376.12(j)(2) also says:

“If the lessor purchases any insurance coverage for the operation of the leased equipment from or through the authorized carrier, the lease shall specify that the authorized carrier will provide the lessor with a copy of each policy upon the request of the lessor.”

Thus, upon request, carriers must give you copies of the insurance policies you purchase from or through them. The policy gives you detailed information related to: (1) exactly what is insured (found in the “insuring agreement” at the beginning of the policy form); (2) “definitions” that apply to the insurance; (3) “exclusions” that limit the insurance; and (4) “conditions” that tell you how you must act in the insurance relationship. The conditions tell you about the notice you must provide when there is a loss, etc.

Insurance policies and detailed certificates of insurance are the most reliable way to confirm what you are actually buying and whether they are charging you fairly. Because they focus on different things, to get the most accurate information on your insurance and its true cost, you need both insurance policies and certificates of insurance. Make sure you get them each time you sign up for insurance through a motor carrier or each time the insurance changes.

Remember, also, most policies are for annual periods. If you are going to know whether the deductions for insurance continue to be proper, you need to get these documents on the anniversary date to see whether important variables, such as the premium or insuring language have changed. If they have, you might be entitled to money back.

Other insurance
Some motor carriers may claim that if you purchase insurance from or through them that is not for the operation of the leased equipment they have no obligation to provide any information. These carriers are ignoring their obligations under 49 CFR § 376.12(h), which says

“The lease shall clearly specify all items that may be initially paid for by the authorized carrier, but ultimately deducted from the lessor’s compensation at the time of payment or settlement, together with a recitation as to how the amount of each item is to be computed.”

Under § 376.12(h) the lease must state all items that will be deducted from your compensation and how the amounts are calculated. Thus, it would be reasonable to see “health insurance premium” listed in a lease as a deduction to your compensation. That would cover both the item deducted (health insurance) and the method of calculation (the premium). Premiums are what insurers charge. If the motor carrier is not marking up for insurance, then “premium” is what the lease should state and be the amount the carrier deducts.

Importantly, § 376.12(h) also says

“The lessor shall be afforded copies of those documents which are necessary to determine the validity of the charge.”

Here, you should take your lead from the insurers. They provide insurance policies and certificates of insurance, and that is what you must request to validate insurance chargebacks.

A few more potholes to watch for 
Be alert for insurance you have never heard of or that does not make sense under your circumstances. Your instincts are usually right. If, for instance, they offer you workers’ compensation through the carrier when you are self-employed and have no employees, that could be a sign they are gouging you.

Watch out if a motor carrier or its insurance partners refuse or cannot answer your questions about the insurance you purchase or consider purchasing through the carrier. You are entitled to information and should be rightly suspicious if your inquiries are met with hostility or defensiveness.

Also watch out for poor descriptions of how the insurance deduction to your compensation was or will be calculated. “The costs of life insurance” is not clear, and might easily hide other, unapproved deductions to your compensation. Premiums are what insurance companies charge for insurance. If you see something else, it should raise questions.

Remember to check the motor carrier’s calculation of the deduction against the insurance certificate and/or policy. If the motor carrier says it will charge back “premiums,” and is deducting $100 a week (or $5,200 a year), but the certificate says the annual premium is $2,500 (or $48.08 per week), you know something is wrong.

Under the laws of most states it is usually unlawful to add charges on to the price of insurance over and above the premiums. If the carrier is charging more than the premium you should get legal advice as to whether such charges are allowed under state law.

Under the laws of most states only licensed insurance brokers, agents and companies can sell insurance. So, practically speaking, the motor carrier you are doing or about to do business with may be breaking the law if it’s trying to sell you insurance. Dealing only with licensed insurance brokers, agents and companies affords you an additional level of protection because state regulators will have had to approve these sales people. In addition, unlike motor carriers who are in an arm’s length, often adversarial relationship with owner-operators, licensed brokers, agents and insurers likely will owe you duties of good faith and fair dealing when acting on your behalf.

Finally, it is important to understand who manages an insurance claim when one arises. If it is a business partner of the motor carrier, doesn’t it seem possible they may find your insurance responsible for a loss, rather than the motor carrier’s, if a coverage dispute develops? If you buy insurance through the motor carrier or its business partners, rather than buying your own, you may be unwittingly giving the carrier some control over which insurance is responsible for a loss. Is the loss the responsibility of the carrier’s statutory liability insurance or your bobtail or non-trucking liability policy? In the end, if someone wrongly decides it is your insurance, then your experience rating will suffer and your insurance premiums will increase.

Only you control whether you get into a bad insurance relationship with a motor carrier. This phrase might be useful to remember your rights — your lease must state it, your carrier must do it, and you are entitled to information to prove it.

Questions about your lease or your carrier’s practices?

Editor’s Note: If you have any questions about these regulations, about the legality of your lease, or the legality of your motor carrier’s practices, send your questions, a copy of your lease and a copy of any other pertinent documents to: Donna Ryun, OOIDA, PO Box 1000, Grain Valley, MO 64029. E-mail: dryun@ooida.com. All communications will be held in the strictest confidence. The most frequently asked questions will be published (no names mentioned) in future issues of Land Line, along with answers.

Carriers cannot violate the truth-in-leasing regulations with impunity. The leasing regulations specifically forbid a carrier from providing regulated transportation services in equipment covered by a lease that complies with these regulations. Federal courts have the authority to enjoin carrier operations (i.e. stop them cold) until valid leases are executed. OOIDA has obtained one such injunction and is eager to seek injunctions against additional carriers in order to put an end to bad leases.