Navigating insurance and compliance: a guide for LTL pros

LTL professionals need to be well-versed in the intricacies of contracts and insurance to protect themselves from risk. A recent SMC³ LTL webinar brought in legal experts Rocky Rogers and Fred Marcinak from Moseley Marcinak Law Group to weigh in on the critical role that insurance and contracting play in modern logistics.

Rogers and Marcinak explored in depth some of the various arrangements and considerations LTL professionals should be thinking through to minimize risk and avoid costly litigation. But the main takeaway was the need to carefully vet whether the coverage you think you’re getting is what you’ve actually signed up for. 

Beyond mere compliance

The purpose of insurance coverage isn’t just to meet federal or state regulations — it’s also to protect your business from the financial fallout of accidents, losses, and disputes. Rogers hammered home that one of the most common issues in transportation contracts is inadequate or misunderstood insurance coverage.

“You really need to vet the coverage to ensure that it is there,” Rogers said.

Insurance needs will vary depending on your role in the supply chain. What a motor carrier needs is different from a broker or a shipper. Each party has different risks and responsibilities, and so naturally, the type of insurance required will differ too.

What’s standard among these parties isn’t necessarily what’s needed either. For instance, although federal financial responsibility for motor carriers requires a minimum of $750,000 in commercial auto liability coverage, Rogers noted that most industry contracts call for $1 million — and sometimes additional coverage on top of that.

Discrepancies like these warn against a “checking the box” approach to compliance — doing so courts significant financial risk.

Common insurance pitfalls

Along with opting for bare-minimum coverage, another possible insurance pitfall is the inclusion of requirements in contracts that simply cannot be met. It’s not uncommon for policies to include clauses that mandate a broker or shipper be listed as an additional insured on a workers’ compensation policy — something that simply isn’t possible.

Contractual oversights like these can set the stage for costly breach of contract claims. This, however, can be easily avoided by working with knowledgeable insurance brokers and legal counsel.

Rogers also called attention to an industry-wide overreliance on certificates of insurance (COIs) to secure coverage. Many businesses assume that a COI is solid proof of coverage, but as Rogers explained, these certificates are for informational purposes and do not provide legally binding coverage. As such, businesses need to demand a higher standard of proof of coverage, such as an actual declarations page from the insurer or the right to inspect the full policy.

“A certificate of insurance is not proof of insurance,” Rogers said. “And for the most part, all courts looking at this issue have said the COI essentially is not worth the paper that it is written on.”

Special considerations for cargo insurance

Cargo insurance is another frequent component of transportation contracts — and another area requiring close attention. While the industry standard in cargo coverage is $100,000, this amount may not be enough for high-value loads. In these cases, shippers need to either negotiate higher levels of coverage or buy shipment-specific insurance.

Cargo insurance policies are typically riddled with exclusions. “We describe it routinely as Swiss cheese,” Rogers joked. These exclusions make it crucial to carefully review policy terms to ensure adequate protection.

How to write effective contracts

When drafting contracts with carriers, it’s crucial to be exact when detailing the insurance coverage desired, including any additional endorsements like waiver of subrogation or notice of cancellation clauses.

“You need to be thinking about what endorsements you’re going to demand to be on the policies,” said Rogers.

Relying on generic or vague contracts can create problems down the road, i.e., ambiguity and disputes. Specific language about insurance requirements helps make expectations clear and reduces the risk of non-compliance.

Risk of scheduled-only coverage

Rogers also warned against accepting “scheduled-only” auto liability policies, which limit coverage to vehicles explicitly listed on the policy. This type of coverage poses significant risks for businesses that may unknowingly contract with motor carriers using non-scheduled vehicles, leaving them exposed to uninsured losses.

To mitigate this risk, businesses should require broader coverage, such as “any auto” or “hired and non-owned” auto liability, and confirm that the policy covers all vehicles used in their operations.

Regulatory compliance

Shifting gears, Fred Marcinak delved into regulatory challenges stemming from FMCSA’s overhaul of its safety rating system. The agency assigns safety ratings based on data from roadside inspections and compliance reviews, and a poor safety rating — whether “conditional” or “unsatisfactory” — can have serious financial consequences.

Marcinak recommended shippers take a proactive approach in response to these compliance reviews. If FMCSA proposes to assign a company conditional or unsatisfactory status, shippers can take steps to reduce the fines and address the issues raised, such as submitting corrective action plans, requesting upgrades, petitioning for administrative review, or negotiating with FMCSA for lower fines. Marcinak noted that acting quickly is important, as there is a limited window — often just 60 days — before a bad rating goes public.

Collaboration is key

Ultimately, both Rogers and Marcinak highlighted the importance of collaboration and communication to create tighter contracts and better compliance. The goal is to ensure everyone gets adequate protection

For LTL professionals, long-term success in the industry depends on their understanding of the complex interplay between contracts, insurance, and regulatory compliance. By taking the time to get these elements right on the front end, companies can avoid costly mistakes and bumpy operations.

Interested in joining LTL Hybrid Sessions? Register here: https://smc3.info/LTLedu