What's in a Name? What you need to know about Conventional Wisdom, Contingent Auto & Truck Broker Liability policies.

In Romeo & Juliet, the famous quote "What's in a name?" refers to the fact that names are simply conventions that distinguish things or people but do not have any worth or meaning. This has become a frustrating reality for domestic intermediaries like Freight Brokers and Domestic Forwarders trying to decide between Contingent Auto Liability (CAL) and Truck Broker Liability (TBL) coverages. 

Much has been written about comparing traditional CAL and TBL coverages. Recently, much has also been written about the financial threat of "nuclear verdicts" resulting from trucking accidents and the need for the intermediaries hiring truckers to protect themselves with a comprehensive third-party liability insurance program. However, an issue that needs attention is the fact that assumptions are being made about these important insurance policies based solely on the name of the coverage.  

The coverages available to insulate brokers and forwarders from bodily injury and property damage (BIPD) claims (that are often a result of fatal motor carrier accidents) have a variety of names, and the associated policies are often a blend of what was once traditional CAL and TBL. Remember once upon a time when we could count on the fact that bad only meant bad and sick just meant ill? It is a similar predicament with these types of liability coverages. We can no longer assume that the coverage will always be superior because a policy is called Truck Broker Liability. And what was once excluded in a CAL policy form may now be covered. The industry needs to tread lightly with the name-calling.

Before we get into the details, let's take a step back and review the history of these ever-evolving coverages. At one time, Contingent Auto Liability was the only coverage available in the marketplace to protect Freight Brokers from the exposure of hiring Motor Carriers. It was typically a very limited coverage that was "contingent" on the Trucker's Auto Liability policy not responding to third-party claims. Due to an increasingly litigious environment and the changing demands of Shippers on Brokers and Carriers, a few primary programs for Freight Brokers emerged over the years but have since shut down due to unprofitability.  

What the market is left with today is a small handful of programs with various names that provide a variety of hybrid coverages. Coverage names include Contingent Auto Liability, Truck Broker Liability, Third Party Liability, Primary Freight Broker Liability, etc. To understand the coverage you are binding, it is necessary to take the time to go beyond the declaration pages and read what is inside the policy. Jury awards are increasingly extended from the Motor Carrier to the hiring Broker based on theories of vicarious liability or negligent selection. This makes it even more critical for Brokers to select a policy that will defend them against allegations of responsibility. Frankly, it is not responsible or helpful to promote discussions about whether Truck Broker Liability is superior to Contingent Auto because it is no longer that cut and dry.  

Recently, some shippers have started rejecting COIs that reflect CAL and have indicated they will only accept TBL. This new trend of qualifying Brokers solely on the liability coverage's name rather than the quality of the coverage can be short-sighted, and it will limit the available pool of qualified freight brokers. It is possible that a policy that is called Truck Broker Liability or Freight Broker Liability could have various exclusions or warranties that narrow the scope of coverage. It is also possible that a Contingent Auto Liability policy may respond on a primary basis for the Broker and have broader coverage than some TBL forms. When shippers make decisions based on the name, they may unknowingly accept coverage with severe limitations that might not bode well for the Broker or the Shipper in the event of a catastrophic claim. Then there is also the issue that an insurance agent could prepare a COI to indicate TBL when, in fact, the policy is actually called something else.

The problem with relying on conventional wisdom to decide whether to buy CAL or TBL (or another policy that blends the two) is that some coverage narratives are no longer rooted in verifiable evidence. Let's look at some conventional wisdom regarding CAL and TBL that may need some scrutiny:

Only TBL is primary coverage for the Broker 

CAL forms are now available that are written as a primary coverage specifically for Property Brokers. The coverage is only called Contingent Auto Liability because it is contingent on the Broker booking loads with an authorized Motor Carrier, and it is contingent on the Broker confirming that the Motor Carrier has valid Auto Liability insurance (which are requirements of many TBL policies). Coverage is not contingent on the liability of the Trucker, nor does it depend on whether the Trucker's insurance company pays or denies coverage.

Only TBL can waive subrogation rights

Almost all CAL forms in the marketplace will provide a Waiver of Subrogation to the shipper. Some may do it on a blanket basis, and others may require an endorsement on a case-by-case basis.

CAL will not defend the Broker if there is other valid and collectible insurance

CAL forms available in the marketplace will defend the Broker and respond as excess even if there is other valid and collectible insurance (including coverage available to the Broker under the Carrier's Auto Liability coverage). Some policies might not respond at all if the Broker is provided coverage/defense under the Carrier's Auto policy. So, paying attention to the "Other Insurance" clauses in the policies you review is important.

Punitive and Exemplary Damages are only covered under a TBL policy

Loss of Market, Loss of Profit, and Punitive & Exemplary Damages are excluded from many Contingent Auto & Truck Broker Liability forms. In fact, in quite a few states, Punitive and Exemplary damages cannot even be insured, and, in many states, the law is unclear about permissibility.

Only TBL provides Defense costs outside the policy limits

There are in fact, CAL forms that provide defense costs outside the policy limit. In contrast, there are Freight Broker Liability policies that only provide defense costs within the policy limit. Because of the increasing nuclear verdicts, this can be a vital coverage point when comparing policy forms and premiums. Be sure to review the Defense, Settlement, and Supplementary Payment clauses of any policy you are considering.  

COI /Verbal Checklist is a Condition of Coverage on CAL; otherwise, coverage is void

The underwriting process of almost all CAL and TBL policies includes reviewing a Broker's Carrier Vetting Process, which should include securing a Certificate of Insurance (COI) from the Motor Carrier to verify insurance coverages. This requirement may often be met by using a certificate-monitoring service. Pay close attention to policies that require not only that the Carrier maintain Auto Liability insurance but also that all vehicles/equipment are insured under the Carrier's Auto Liability policy. This can be an unexpected burden to verify whether a Carrier has a Scheduled-Vehicle (vs. Any Auto) policy. It can also be an unexpected burden for a Broker when a claim is denied because the actual vehicle used by the Motor Carrier to pick up the load was not specifically scheduled on their Auto Liability policy.

CAL requires Broker Carrier Agreement be in place; otherwise, coverage is void

While this should be part of every Broker's vetting process, this is not a requirement of all CAL policies. In fact, some Freight Broker Liability policies will void coverage if a BCA is not executed prior to shipment. This could be an issue with LTL freight, where BCA agreements may not always be in place.

Losses on Double-Brokered Loads are excluded on the CAL

Most third-party liability policies require that the Broker verify that the Carrier they hire has valid Auto Liability coverage. If the load is illegally brokered to another Carrier who causes an accident, many CAL and TBL policies would still have a duty to defend the Broker since the requirement to verify coverage of the Carrier “hired” was satisfied. Coverage could be negated if Dishonest Acts of the Carrier hired (which would include illegally double-brokering a load) is specifically excluded on a CAL or TBL form. Be sure to read the fine print in the policy exclusions.

CAL has an annual aggregate, which is the most they will pay during a policy period

Even without an aggregate limit, insurance companies may cancel coverage if they pay more than one policy limit claim. Many CAL policies have multiple options for higher occurrence and/or aggregate limits. It is important to know the limits that your shippers contractually require so that you secure a policy that can meet your needs.

So, "What's in a Name" with third-party liability BIPD coverages, you ask? As it turns out, Juliet was on to something. If Juliet had decided to pursue a career as an insurance broker instead of focusing on teenage drama, I imagine she would have said, "That which we call a rose, by any other name, COULD smell as sweet, but you sure better read the full policy to find out!". Varied risk appetites, manuscript policy forms, and market volatility in the CAL and TBL space are all reasons that prudent procurers of insurance should challenge conventional wisdom and do their research. Liability coverages that exist in the marketplace for Freight Brokers might (or might not) be rosy, but the sniff test needs to go well beyond the title on the policy's declaration page.