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Owner-operator insurance – Definitions and impact of non-trucking, bobtail and empty liability

As with any business model, motor carriers (MCs) using owner-operators (OOs) enjoy certain benefits while assuming additional risks. One such risk is the potential “uninsured” exposure of the OO while not in a “commercial use” capacity for the motor carrier. MC’s Trucking or Commercial Automobile Liability (AL) policy provides coverage for units owned by motor carriers as well as all leased tractors and trailers during their lease period. Coverage ceases for an owner-operator once he is no longer in “commercial use” capacity for the motor carrier. The problem is that the OO continues to use their vehicle while displaying the MC plate and may not have any other insurance available. Many times the “deep” pocket of the MC is called upon to repair the injured third.

Three products have been developed to fill the coverage gap for the owner-operator.

Liability not related to trucking:

Cost: Low

Protection of motor carriers Automobile liability: low

Market availability: high

Non-trucking liability provides coverage for “personal use” by using a trucking or commercial auto liability policy form and attaching a “business use” exclusion. The difficulty stems from the fact that the definition of “commercial use” is generally not defined in the policy, but stems directly from various decisions of state and federal courts interpreting this term.

Unfortunately, “commercial use” has been interpreted very broadly and extends beyond “shipping”. Here are some typical scenarios that would not be covered by the Non-Trucking policy due to the broad interpretation of the “business use” exclusion:

  • OO drops the charge and goes home to include a grocery trip gap (courts rule OO owes a return trip)
  • OO takes vehicle to garage on weekends for maintenance (courts determine OO maintains unit per MC lease requirements)
  • OO is out of town, between loads. He’s going to the cinema. (courts rule OO is out of town under MC’s direction)

Cover example: OO uses his truck in his spare time to go to the grocery store and hits another vehicle.

Bobtail Liability:

Average cost

Protection of motor carriers Automobile liability: average

Market availability: low

Many in the transportation industry use the same terminology for Bobtail liability and non-trucking liability, when in reality they are very different. Bobtail defines coverage as “whenever the trailer is unattached” whether or not the OO was shipped by the motor carrier.

Cover example:

  • OO drops the load and bobtails to pick up the next load.
  • OO drops the charge late in the day and bobtails the houses.
  • Be aware that the Bobtail policy will not respond every time a trailer is attached, even if it is truly in a personal situation, for example:
  • OO brings home an empty trailer and goes to the store on the weekend.
  • OO uses his tractor to move a mobile home on the weekends.
  • OO helps a friend move by pulling a trailer with household items

Empty liability:

High cost

Protection of motor carriers Motor vehicle liability: high

Availability on the market: very low (per class)

No-Load Liability provides the least ambiguous coverage and broadest level of protection for the MC and OO. This policy provides coverage while bobtailing (no trailer attached) as well as while empty (trailer does not contain or carry cargo – no bill of lading), regardless of the shipment. The difficulty with this line of coverage is low availability (usually not available in a primary settlement deduction program; rather the OO’s need to obtain on a direct basis).

Each of the coverage models has advantages and disadvantages that vary depending on the risk tolerance and activities of the motor carrier and owner-operator. Deciding on the right program can be key to managing your risk. Seek the assistance of a qualified insurance broker to review your current insurance programs and operations and to provide suggestions and options that best meet your needs.

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