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Who the heck insures what? Insurance under owner operator leases

With qualified drivers getting tougher to find, more and more carriers are turning to independent contractors to haul their loads.  Contractors, using their own equipment, “lease on” to the carrier and run under its authority.

While this arrangement is common practice, it is chock full of risks if done improperly.  Among other things, Federal Motor Carrier Safety Administration (FMCSA) regulations contain a laundry list of terms that must be included in a written lease agreement, including the carrier having “exclusive possession, control, and use of the equipment for the duration of the lease” and assuming “complete responsibility for the operation of the equipment for the duration of the lease.”  The rest is a story for another day, or skip ahead to the last chapter at 49 CFR § 376.12.  

But what about insurance?  Shouldn’t the “owner” of the equipment, or the contractor/lessor, insure for all risks associated with use of his or her equipment by the carrier?  Sure, the owner operator should protect their investment with physical damage coverage, but FMCSA requires the carrier to maintain insurance “for the protection of the public,” or public liability insurance, coverage of $750,000, but most shippers/brokers require $1,000,000.

While FMCSA does not require cargo insurance, shippers will require it in an amount of at least $100,000.  Whether the owner operator or carrier is responsible for this will be controlled by their agreement, with the contractor usually providing this coverage.  The same goes for bobtail insurance.      

Now, everyone’s favorite: Injured drivers and workers’ compensation claims.  Workers’ comp is a state regulated program and is required of employers with a certain number of employees by most states.  Many owner operators don’t meet the minimum threshold and legally forego it.  

So what happens when a contractor gets hurt hauling a load under the carrier’s authority; can they turn around and successfully file a workers’ comp claim under the carrier’s policy?  Courts like to broadly define “employee” to give legal protection and coverage to those who might need it, and lawyers are constantly attacking the independent contractor owner operator arrangement to find coverage.  

The Owner Operator Agreement, however, can require the contractor procure workers’ comp coverage or occupational accident insurance.  In any event, the carrier should consider contingent liability coverage in addition to its own workers’ comp coverage as a layer of protection to workers’ comp claims from contractors.  Caution:  a carrier cannot require their owner-operators to buy coverage from them and if the carrier adds an administrative or other fee onto the price of the premium, the contractor must be told.    

So, while  state laws and federal regulations may require either the owner operator or carrier to obtain insurance for certain risks, the contract between them can fill in the gaps and control who bears what coverage burden. 

If you have any questions about this article, or other insurance issues, contact Pete Schurig at pschurig@setlifflaw.com (804-377-1276) or Steve Setliff at ssetliff@setlifflaw.com (804-377-1261).             

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