Industry News: Levels of Financial Responsibility for Motor Carriers Could Rise Dramatically
MAP-21, entitled Moving Ahead for Progress in the 21st Century, was signed into law on July 6, 2012, and was full of surprises. Among the items in the omnibus transportation funding bill was Section 32104, which directed the Secretary of Transportation to submit a report to Congress on “the appropriateness of the current minimum financial responsibility requirements for the transportation of passengers and property and mandated that the Secretary issue a report to Congress every 4 years beginning April 4, 2013”. The first report was a year late.
The current minimum financial responsibility levels for motor carriers have been in effect since January 1, 1985, almost 30 years ago. The headwinds that shippers and carriers are facing from increased insurance limits are significant.
Currently, the minimum financial liability limits for carriers that do NOT transport hazardous materials is $750,000. The Secretary’s Report estimates that based on the Core Consumer Price Index (CPI) since 1985, the liability limits should be $1,623,771 and using the Medical CPI would raise the limits to $3,188,250.
Using the same methodology for HazMat would raise the limits from $1 million to $10,825,933 and $21,255,000, respectively. If the cargo was made up of explosives or “High HazMat”, the liability limits would rise from $5 million to $10,825,933 and $21,255,000, respectively.
The estimated liability limits are certain to put a major strain on carriers and shippers, alike. Carriers will struggle to find insurance underwriters to underwrite the policies and shippers will face significantly higher freight rates to pay for the coverage. This is truly a double-edged sword. If new Hours of Service and CSA regulations and driver shortages were not challenging enough for the transportation industry, significantly higher financial responsibility limits will be.
Addressing motor carrier financial responsibility levels for motor carriers is a high priority for the FMCSA and they are working to put together a rulemaking proceeding to determine the proper levels of liability insurance limits for motor carriers. One thing is for sure…the limits will go up and it will drive freight costs UP!
Steve Broussard
steve@broussardlogistics.com