At least once each quarter I speak with a client who says they received a proposal from another agent and that the premium is just too good to be true! In many cases, this leads the client to have concerns whether their coverages are adequate and I am asked to review the proposal to see what kind of coverage they’ve been quoted. What I often find are large coverage gaps that the client didn’t realize existed.
This month I’d like to reveal some of the common coverage weakness that I come across and what impact these missing coverages might have in the event of a claim:
Lower Auto Liability Limits: While it is true that $750,000 is the limit you are required to carry by the FMCSA, most contracts and shippers will require a certificate of insurance showing a $1,000,000 limit. In many cases a $750,000 limit is not going to reduce your premium significantly, but could cost you business, time and additional money later when you need to amend coverages midterm.
Coordination of Benefits: Some agents will ask you about your health insurance, workers compensation and occupational accident policies when quoting your liability insurance. One reason is that they may be coordinating your benefits. That means that in the event that you are injured in an accident, your health insurance, workers’ compensation or occupational accident policies will respond first. While it may be preferable for your workers’ compensation or occupational accident policies to pay for your injuries, it is normally advisable not to coordinate your health insurance with your auto insurance. The primary reason for this is that health insurance policies often have lifetime limits. So, in the event that your health insurance’s lifetime benefit limit is $750,000 and you are badly injured in an accident, incurring $650,000 in medical bills, this leaves only $100,000 left on your health insurance policy. What would happen if three months after you have recuperated from your accident you learn that you have been diagnosed with cancer? You will likely wish you had all $750,000 available to you, rather than just the remaining $100,000.
No Hired and Non-Owned Auto Liability: Some agents will leave this coverage off in order to reduce premium. However, not having Non-Owned Auto Liability can be dangerous, as it leaves you open to law suits in the event that an individual in their own car is involved in an accident while working for you (i.e. performing a company errand.) It may be argued that because the driver would not have been on the road had they not been completing the errand, it is your responsibility to pay for the auto liability they caused. Non-owned Auto Liability coverage is a very low cost option to insure yourself against such unforeseeable events. Hired Auto Liability, on the other hand, will provide you with Auto Liability for tractors that you have borrowed or short term rented. The cost for this coverage is significantly less than if you purchase it from the truck rental company and including on the policy from the beginning means you won’t be running around at the last moment trying to secure coverage.
Swapping Comprehensive Physical Damage for Specified Perils: Check to make certain that your Physical Damage policy includes Comprehensive coverage, as opposed to Specified Perils. Comprehensive will cover you for any sort of Physical Damage claim (other than collision), while Specified Perils will only cover you for those that are named in the policy. There can be a number of unforeseeable losses, such as vandalism, that you may wish to be insured for. Specified Perils may be less premium than Comprehensive, but the coverage is also significantly reduced.
No Broad Form Collision: In the State of Michigan we are subject to no fault laws. The downside to this law is that if another person is at fault in a collision, you do not have the right to pursue damages by taking that person to court. Instead, your physical damage policy is used to repair your vehicle. Broad Form Collision seeks to limit the amount you have to pay in the event that you are not at fault for a collision, as your deductible for repair will be waived. If you have a physical damage policy with Standard Collision, you have to pay your deductible regardless of who was at fault.
No Hired Physical Damage Coverage: Hired Physical Damage is a nice feature to have on a policy, as it will make certain you have coverage up to a specified amount for any tractors or trailers that you have rented for a short period of time (usually 31 days or less). Again, in most cases, the cost for this coverage is significantly less than what you would pay if you bought it through the equipment rental company.
Co-Insurance Clauses: While co-insurance might not make your premium less, it is often the byproduct of a discounted policy premium. Be careful to investigate any hidden clauses on the Cargo or Physical Damage policies. Ask your agent specifically whether or not co-insurance applies, or if there are higher deductibles for losses caused by theft or refrigeration breakdown.
No or Limited Towing Coverage: The cost to tow a tractor and/or trailer from the scene of an accident can easily exceed $10,000. While most policies will include some sort of towing coverage, it is not always clear how much. When reviewing a proposal ask about towing limits. Many policies cap payments on towing at $3,000 to $5,000. And remember, there is no towing coverage if you do not purchase Physical Damage.
Few or No Physical Damage Enhancements: These are the optional coverages that we often find clients want or expect in their policies, but do not realize must be listed on the policy. Under this heading falls coverages for things such as rental reimbursement and downtime coverage, tarps/chains/binders, personal effects, diminishing deductibles and emergency family travel. In many cases the cost for such enhancements is minimal.
No General Liability: General Liability is an optional coverage that indemnifies you in the event that your company is liable for bodily injury or property damage to a third party. This is for occurrences away from the tractor. One feature of having a General Liability policy is that it automatically includes legal representation in the event that someone brings a suit against you (the premium is significantly less than it would cost to hire and retain an attorney.) Also, General Liability coverage is frequently required in contracts or by shippers before the trucking company is allowed on the shipper’s premises.
Misidentifying Radius of Operations: Unfortunately from time to time we do see radius of operations misrepresented on a proposal. An example of this is when an insurance company restricts the number of times per year you can exceed a predefined radius (normally 300 or 500 miles.) If you routinely travel outside of the radius you have been rated for it is considered falsification of information on the applications and is grounds for midterm rate increases, cancellation of policy or even rejection of claims.
All of us at the Navigator Truck Insurance Agency work hard at being accessible, helpful and result oriented. Need help understanding your “great deal”? Give us a call at (800) 596-TRUCK (8782). We’d be happy to help you out any way we can.
Until next month,
Jeffery A. Moss, ARM