07/08/05
FMCSA Proposes to Eliminate Mandatory Minimum Cargo Insurance Requirement for Motor Carriers and Freight Forwarders!
The Federal Motor Carrier Safety Administration ("FMCSA") has proposed to eliminate the mandatory minimum cargo insurance requirement for carriers, commonly known as BMC-32 coverage.
On May 19, 2005 the FMCSA published a Notice of Proposed Rulemaking ("NPRM") regarding the long overdue "Unified Registration System" for motor carriers that was mandated in the 1995 Interstate Commerce Commission Termination Act ("ICCTA").
Buried in the 72 page document is the proposal that motor carriers and freight forwarders (except for household goods carriers and forwarders) would no longer be required to obtain and maintain any minimum cargo insurance.
This mandatory minimum cargo insurance, called BMC-32 coverage, presently provides shippers with protection for loss and damage claims from dollar one, with no deductibles. While the limits are low, $5,000 per shipment and $10,000 per incident, the BMC-32 provides a minimum that shippers know they can rely on.
The FMCSA justification for elimination of the BMC-32 states: "these carriers typically have cargo insurance well above FMCSA limits because their shipper clients generally require it as a condition of doing business." The FMCSA asserts that there would be a cumulative cost saving to all carriers of $3.6 million over 10 years.
While larger, responsible common carriers often have cargo insurance above the BMC-32 limits, it is NOT a valid basis to eliminate the coverage.
Shippers typically rely on BMC-32 coverage when a motor carrier's insurance cargo policy has a large deductible or when the policy excludes a particular loss, such as theft from an unattended vehicle or reefer breakdown. Since the BMC-32 provides a direct action against the insurer, it is invaluable when a carrier is having financial problems and no longer is paying loss and damage claims, or has even gone bankrupt. With the frequent bankruptcies during the last few years, the BMC-32 has often been the only way for shippers to recover unpaid loss and damage claims.
The BMC-32 coverage is mandatory, and is reported to the FMCSA. All for-hire motor carriers and freight forwarders must carry the BMC-32 and a carrier can have its operating authority revoked if it fails to maintain the coverage. It remains in effect until the insurer files a notice of cancellation with the FMCSA. Information on whether a carrier has cargo insurance in effect is available to the public on the FMCSA website, www.fmcsa.dot.gov. in the "Operating Authority (Licensing and Insurance)" section. To eliminate the BMC-32 requirement would remove these important protections to the shipping public.
The Transportation Consumer Protection Council is vigorously opposing the elimination of the minimum cargo insurance requirement for motor carriers and freight forwarders, and is organizing a coalition of shipper and carrier organizations. Shippers are urged to submit comments to the FMCSA urging retention of this important protection (see instructions below).
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INSTRUCTIONS FOR FILING COMMENTS
Comments must be submitted on or before August 17, 2005. and details are available
Any comments must be identified by DOT DMS Docket Number FMCSA-97-2349, and can be submitted by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Agency Web Site: http://dms.dot.gov. Follow the instructions for submitting comments on the DOT electronic docket site.
Fax: 1-202-493-2251.
Mail: Docket Management Facility; U.S. Department of Transportation, 400 Seventh Street, SW., Nassif Building, Room PL-401, Washington, DC 20590-0001.
Hand Delivery: Room PL-401 on the plaza level of the Nassif Building, 400 Seventh Street, SW., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays.
Instructions: All submissions received must include the agency name and docket number or Regulatory Identification Number (RIN) for this rule. All comments received will be posted without change to http://dms.dot.gov including any personal information provided ·
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EXCERPTS FROM THE NPRM
The NPRM is available online at http://www.regulations.gov/ and searching by agency (FMCSA). Relevant provisions from the NPRM are reproduced below:
Page 28997
VI. H.
2. Cargo Insurance Requirement
Title 49 U.S.C. 13906(a)(3) authorizes the Secretary to require motor carriers to file evidence of cargo insurance to cover loss or damage to property transported by them. Under current 49 CFR 387.303(c), non-exempt for-hire common carriers of property and freight forwarders are required to maintain cargo insurance of $5,000 per vehicle, and $10,000 per occurrence, and file evidence of this insurance with FMCSA. Under the proposed revised § 387.303(c), FMCSA would require only motor carriers and freight forwarders engaged in transportation of household goods to maintain and file [Page 28998] evidence of cargo insurance with the agency. Penalties for failure to comply would remain the same.
There does not appear to be a need to require non-exempt for-hire motor carriers of property to maintain cargo insurance since these carriers typically have cargo insurance well above FMCSA limits because their shipper clients generally require it as a condition of doing business. Where motor carriers of property and freight forwarders deal directly with individual members of the public, such as in the transportation of household goods, the agency believes it is in the public interest to continue to require cargo insurance. FMCSA has found that shippers of household goods tend to be less knowledgeable about the regulations than most shippers of other types of property, and therefore need the protection afforded by the current regulatory scheme. Therefore, FMCSA proposes to retain the requirement that household goods carriers and freight forwarders of household goods obtain and file minimum levels of cargo insurance, as provided by part 387.
FMCSA requests comments about its proposal to eliminate the cargo insurance requirement for non-exempt for-hire carriers of property and freight forwarders.
Page 29010
3. Cost Savings From Eliminating Cargo Insurance Filing Requirement
All non-exempt for-hire common carriers and freight forwarders are currently required to hold cargo insurance up to a limit of $5,000 per vehicle and $10,000 per occurrence. Under this proposed rule, these groups, excluding those associated with household goods transportation, would not be required to hold or file proof of cargo insurance with FMCSA through their insurance representatives. Practically speaking though, all these carriers would continue to hold cargo insurance since virtually all of their clients require such insurance as a prerequisite for doing business with a carrier.
In 2005, this provision affects approximately 9,600 new entrant nonexempt for-hire common carriers and freight forwarders, and 20,000 such existing entities, since the agency would expect that they would direct their insurance representative to re-file their cargo insurance with FMCSA in 2005. In future years, it would affect 9,600 new entrants, and 20 percent of existing carriers (or 21,700 in CY2006 assuming an average annual growth rate of seven percent), for whom FMCSA anticipates the new insurance representative would otherwise have to re-file their cargo insurance in each of the future years of this analysis. Cost savings would include: (1) Elimination of the $10 filing fee paid by the insurance representative for these new entrant carriers when filing proof of cargo insurance with FMCSA, (2) elimination of the filing time (10 minutes per form) that would otherwise have been required of these carriers insurance representatives (at an average hourly wage rate of $19.32), and (3) elimination of re-filings made by insurance representatives of existing for hire common carriers which change insurance companies in a given year.
Multiplying the above three cost elements by the number of carriers affected and summing the result yields a total first-year cost savings of $0.4 million. Total discounted costs over the entire 10-year analysis period would be $3.6 million.
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