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The Quest
January 2011 - Issue 70
              
Inside this issue:
        
ISF enforcement:
Where we are now

Disaster in Japan; Avalon assists in aid, BCP reminder

CBP updates: Bond insufficiency, new address for mailing checks

FMCSA elimination of Cargo Insurance, BMC-32 takes effect March 21
 
CSA motor carrier
ratings now in force

 
New ACORD form changes how logistics providers
verify insurance

Revised Incoterm rules
take effect

UAE joins ATA
Carnet system

Claims corner:
Worldwide Coverage

 

           

                    

              
FMCSA elimination of Cargo Insurance and BMC-32 to take effect today, March 21
  
As originally announced in our August 2010 Quest, the Federal Motor Carrier Safety Administration (FMCSA) has issued a final rule that eliminates the requirement for most for-hire carriers and freight forwarders to maintain Cargo Insurance in prescribed minimum amounts and file evidence of this insurance with FMCSA.

With the elimination of this requirement, effective today, March 21, the BMC-32 Cargo Liability endorsement will disappear for most motor carriers. The BMC-32 will be necessary only for freight forwarders and motor carriers involved in the movement of household goods. The Transportation Intermediaries Association (TIA) and the Transportation & Logistics Council oppose this action.

What is the Cargo Insurance Requirement/BMC-32?
The BMC-32 provided proof of a motor carrier’s Cargo Insurance policy and was originally required by the Interstate Commerce Commission after many trucking companies experienced financial problems. The BMC-32 is an endorsement to a Cargo Liability policy that guaranteed a minimum level of coverage for loss or damage in transit at $5,000 per shipment.

Why is this important?
Claims submitted under the BMC-32 endorsement were not subject to deductibles or exclusions and were paid by the insurance company even if the carrier declared bankruptcy. This prompted many insurers to financially underwrite their clients based on this financial obligation. Now, because the FMCSA is no longer requiring Cargo Insurance coverage for motor carriers, insurers may choose to no longer financially underwrite these entities as part of the application process.

In the final rule, the FMCSA stated that elimination of the BMC-32 endorsement would make it “less convenient to confirm the existence of cargo insurance.” Logistics providers know that verifying insurance is an important part of the carrier qualification process. With the implementation of this new rule, however, logistics providers must find a new method for verification, such as obtaining certificates of insurance from the carrier. If the logistics provider obtains certificates of insurance from the carrier, they must remember to verify coverage limits and effective dates. This process has become more cumbersome, however, with the issuance of the new ACORD insurance form, as a certificate holder may not be informed if a policy has been terminated prior to its expiration date.

With the elimination of the Cargo Insurance requirement, it’s more important than ever for transportation brokers to investigate a carrier’s safety record, claims history and insurance status. If a claim occurs, shippers or injured third parties could allege that the broker engaged in negligent selection. Unlike other types of insurance, cargo policies are unique and include exclusions that vary from insurer to insurer. If a carrier declares bankruptcy or if their limits are insufficient or if coverage is excluded, the logistics provider could be held liable.

What can a logistics provider do?
The TIA and the Transportation & Logistics Council are urging logistics providers to contact Congress and consider sending a "Save the BMC-32 Cargo Liability Insurance Requirements" letter to members of the Transportation and Infrastructure Committee. A sample letter is also provided here.

How can logistics providers protect themselves?
Several types of liability insurance policies are available to protect logistics providers when they are held liable for claims arising from cargo loss, damage and third-party liability.

  • Contingent Cargo Insurance provides coverage when the motor carrier’s insurance does not pay a claim and the motor carrier is unable to pay. Coverage is typically triggered only in situations where the motor carrier is negligent.

  • Errors & Omissions Insurance protects the transportation broker if an error or oversight in the course of business causes a customer to suffer a financial loss. A transportation broker should ideally obtain a combined policy form with Errors & Omissions Insurance and non-following form Contingent Cargo coverage. A combined form is not the same as purchasing separate policies. Separate policies can create both gaps as well as overlaps in coverage.

  • Contingent Automobile Liability Insurance is also available to protect transportation brokers when they are held liable for death, bodily injury or third party property damage claims as a result of the motor carrier’s negligence.

Avalon Risk Management specializes in understanding the complexity of liability issues facing transportation providers. We’ve designed our Combined Transit Liability (CTL) program to provide a comprehensive protection for logistics providers. Avalon’s CTL policy is the only program of its kind endorsed by the TIA.


    
For more information, please contact your local Avalon office or or Andriana Davis at (847) 700-8087 or at adavis@avalonrisk.com. A list of our offices may be found at www.avalonrisk.com.
             
       

Avalon Risk Management
150 Northwest Point Boulevard | 4th Floor | Elk Grove Village, IL 60007
Phone: (847) 700-8100 | Fax: (847) 700-8116

www.avalonrisk.com

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