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By Ralph Gifford, Underwriting Manager and Technical Advisor, Missouri Employers Mutual

Interstate transportation risks present two specific challenges for AASCIF members’ underwriters and auditors due to our mono-line structure. First, we do not have the ability to provide complete Other States insurance coverage as contemplated under item 3C of the Information page. Second, the subjectivity of owner/operators is another major challenge in transportation risks.

Item 3C on the Information page, which relates to Other States Coverage, is shown as “none” or it may have a special endorsement to provide some type limited coverage for temporary and incidental operations in other states. This might determine whether an employee is a statutory employee of our state, he/she may file a claim in the state in which he/she is injured or possibly in which he/she lives.

The NCCI Extra-Territorial Guidelines under the trucking codes 7228, 7229, and the state special code 7219, do state that this is to be used as a guideline for auditors and underwriters in the determination of premium for trucking where no company guidelines have been established for this purpose. Therefore, each company may have their own guidelines and do not necessarily have to follow NCCI.

Many of the AASCIF state funds use the State of Hire as the first determining factor. Underwriters should confirm that the employees are being physically hired in the state. Even though an offer of employment is made over the phone to an applicant who lives in another state, the employee should physically come to the state of hire to sign final paperwork, complete W-2’s, and other necessary items before he/she is actually put to work or allowed to drive for the employer.

The Extra-Territorial guideline for determining state assignment is Location of the Base Terminal. The Base Terminal definition is the location from which the business loads, unloads, stores or transfers freight on a regular basis. Many of the smaller operations do not have this type of terminal, but only have dispatchers and/or possibly maintenance facilities.

The next two guidelines in the NCCI Manual include the majority of driving time in a specific state and, if none of the above applies, the State of Residence is that of the trucker. Some of the trucking companies may have specific routes in specific states, but this is fairly rare, especially with the long-haul trucking risks.  Except for some of the larger states like Texas and the western U.S., most long-haul truckers could pass through several states in one day.  The State of Residence of the trucker could be used, but in this day and age of high-tech communication, a trucking firm could have long-haul trucking employees living in several different states and probably should only be used as a last resort.

A good underwriting and audit resource is the Safety and Fitness Electronic Records (SAFER) System (www.safersys.org). Information available on this site, maintained by the Federal Motor Carrier Safety Administration, is the result of inspections that are performed at the weigh stations located on the sides of major interstate roads. State law enforcement and individuals from the U.S. Department of Transportation perform these duties. Review the data related to “Out-of-Service” reports, which indicate how many times the account’s trucks have been taken off the road. A high score in this area may indicate a risk with potential problems. If trucks have been out of service, for instance, it may indicate problems with safety equipment such as brakes. You may wish to schedule a preliminary inspection.

Premium auditors and underwriters may use the SAFER website to verify the number of trucks the insured has on record in relationship to the number of employee drivers. While the relationship does not have to be one-to-one, if there are considerably more trucks than drivers, the insured may be attempting to call some of the drivers owner/operators to be excluded from coverage in states such as Missouri, where they are exempt.  

The other major challenge in transportation risks is the use of owner/operators. PAAS (Premium Audit Advisory Services) issued Educational Bulletin EB 12-07.13 in December of 2007 regarding the auditing of policyholders who utilize owner/operators for their trucking operations. A good reference in the bulletin is the list of state statutes that specifically address the status of owner/operators.

In Missouri, owner/operators are excluded provided they meet the requirements in the state statute.  But what happens if our insured were to hire an owner/operator with the State of Hire listed as Missouri (and who resides in Illinois) but has an accident in Illinois and files a claim against our insured in Illinois? Should we then defend our insured, pay the claim and charge payroll for the owner/operator? What about owner/operators who may hire an employee to help them and this employee is injured? How do these state statutes address the employee? Case law varies from state to state, but most of the time the employee may recover medical and indemnity payments from the insured trucking firm, even though the owner/operator may not.

The same PAAS Bulletin has a suggested questionnaire for auditors to use to help determine if the trucker is an employee of the company or an owner/operator. As stated above, each state fund has the ability to publish its own underwriting and audit guidelines for trucking risks and determine the applicable state for premium and payroll purposes as well as the owner/operator status. Obtaining a questionnaire from the insured or agency placing the business should clarify the company’s position as well as obligations of the trucking firm. Although it appears challenging, there are many resources to assist us in properly assessing and documenting appropriate coverage for long-haul trucking.