Q We are increasingly seeing requests in shipper and broker contracts to name them as an âadditional insuredâ on our liability and cargo policies. What are they trying to accomplish? We have the BMC-91X endorsement, which assures shippers and brokers that we have $1 million in public liability insurance.
AShippers and brokers are tired of being named as defendants in accident suits just because they have deep pockets. Increasingly they seek additional insured status as a means of getting their cost of defense covered by a motor carrierâs insurer, but much more than this is involved. The concept of âadditional insuredâ status is new to transportation, and none of the parties or their insurers are equipped to handle the concept or its ramifications.
âAdditional insured statusâ involves arcane issues of insurance law and policy interpretation. In my book Protecting Motor Carrier Interests in Contracts, I have noted additional insured language as one of the âdirty dozenâ contract provisions carriers should carefully scrutinize. The more I study the issue, the more complex it becomes.
The simplest statement of additional insured provisions is that they are a risk transfer device obviously aimed at procuring insurance protection under someone elseâs policy rather than incurring the losses under oneâs own insurance program. This means that in some sense, the one asking to be named as an âadditional insuredâ seeks to transfer his risk of operation to you.
Such provisions are typical in the construction industry where a subcontractor undertakes to indemnify and hold the prime contractor harmless and its insurance company agrees to extend the coverage to cover job site injury to a worker who otherwise might sue the prime contractor.
The concept of an âadditional insuredâ is unique to a commercial general liability (CGL) policy, and many carriers do not even buy this type of coverage. (As you know, federal regulations require only a truckerâs BI and PD endorsement and limited cargo coverage.) Moreover, for carriers that have a CGL policy, the standard forms provide that additional liability assumed by contract is not covered under the policy unless âinsured contract statusâ is obtained.
As a practical matter, I fear that most carriers sign shipper and broker contracts agreeing to âadditional insuredâ status and either never properly comply with the âinsured contractâ provision of their CGL policy or do not even have a policy that allows this coverage.
Leaving an âadditional insuredâ provision in a shipper or broker contract can be an open switch to disaster when a shipperâs tow motor runs over your driver and then your insurer walks away from providing the shipper a defense. (See âSign at your own risk,â CCJ, August 2001, also available at www. transportationlaw.net under Transportation Articles.)
Likewise, shippers and brokers that have insisted upon âadditional insuredâ language without verifying compliance can be equally frustrated when the carrierâs insurer refuses to indemnify it and then its own liability carrier refuses to provide primary coverage.
In the typical transportation agreement, carriers are transporting freight for customers. They are not building bridges together. Each party can act as an independent contractor, assume the risk for its own negligence and adequately insure for those risks in accordance with the statutory guidelines.
As I have mentioned in other articles, a shipper ultimately needs something other than a certificate of insurance to assure itself that the carrier actually has meaningful cargo insurance. But that and evidence of liability insurance available from the Federal Motor Carrier Safety Administration website should be enough to meet the ordinary needs of your customers.
Trucking is risky enough without assuming and insuring for the undefined risk of your customers.
