A client asks: “What is the difference between a common and contract carrier insurance-wise, specifically: (1) Is the process different in dealing with the cargo insurer for a common carrier as compared to a contract carrier? and (2) Is the dollar amount the cargo insurer is liable to pay differ for a common carrier as compared to a contract carrier?”
The quick answers to these questions are (1) the process for dealing with a cargo insurer is the same regardless whether the carrier is contract or common and (2) the scope and extent of liability of a cargo insurer depends on the terms of the insurance policy. These questions also prompt the following comments:
- Although the ICCTA eliminated the distinction between common and contract carriers, the FMCSA nevertheless continues to issue common carrier certificates and contract carrier permits. However, the statute itself now defines a contract carrier as one that provides service under an agreement entered into under 49 USC 14101(b).
- The ICCTA does not require either a common or contract carrier of property (excluding HHG and passenger carriers) to maintain cargo insurance. 49 USC 13906 gives the FMCSA the authority to set what types and amounts of insurance a motor carrier must maintain. However, on March 21, 2011, the FMCSA eliminated the cargo insurance requirements for all motor carriers (except for HHG and passengers). Cargo insurance requirements are now a subject of negotiation between the parties.
- The claim filing procedures and process set out at 49 CFR Part 370 apply to carriers and claimants and not to insurance companies.
- As indicated, 49 USC 14101(b) authorizes carriers to operate as a contract carrier by entering into a contract pursuant to that section. That contract must set out the carrier’s insurance obligation, if any. Although the carrier may continue to be liable under the Carmack Amendment, 49 USC 14706, that statute does not require insurance to be maintained. The contract needs to spell out the carrier’s cargo insurance requirements,but the only way to confirm that the carrier maintains the correct coverage is to obtain and read a copy of the policy itself.
- Common carriers can, and most do, limit their liability by maintaining liability limitations in their rules tariffs or pricing guides (or whatever the carrier decides to call it), but generally do not specify the type and amount of insurance the carrier will maintain. This is not a problem if the carrier is well-established and has substantial assets; however, it is a problem if the financial wherewithal of the carrier is unknown. In that circumstance, a shipper, broker or other user of a carrier’s services would be wise to enter into a contract or have a pricing agreement that spells out the cargo insurance requirement.