CMV Law: Financial Responsibility

The regulations require an interstate motor carrier to produce “evidence of financial responsibility” to the FMCSA in order to obtain and maintain a permit to operate. The many variations of this topic and the related subject of insurance coverage for motor carriers and independent owner-operators, are beyond the scope of this blog post. However, familiarity with the regulations and their requirements will provide a good basis for identifying the typical sources of recovery from a motor carrier. It is important to know how a motor carrier may provide its “evidence of financial responsibility,” how much financial responsibility it must demonstrate, and what rules govern the ability to recover.

Applicability of Financial Responsibility Requirements: Overview

The implications that arise when a motor carrier falls under the FMCSRs’ requirements for evidence of financial responsibility can be significant. In questionable cases, it must be determine whether the motor carrier was required to comply. This discussion will focus on motor carriers of property, but note that the regulations also address the financial responsibility obligations of motor carriers of passengers, property brokers, and freight forwarders.

Regulation sets outs the types of hazardous materials that trigger the responsibility of the motor carrier to carry minimum levels of financial responsibility regardless of the GVWR of the vehicle used to transporting them. Specifically, the GVWR exception does not apply to transportation of:

  1.  any quantity of the following divisions of hazardous materials: (“Explosives with a mass explosion hazard”), and 1.2 (“Explosives with a projection hazard”), 1.3 (“Explosives with a predominately fire hazard”);
  2. any quantity of a Division 2.3, Hazard Zone A substance (certain “Poisonous gases” with inhalation toxicity); any quantity of a Division 6.1, Packing Group I, Hazard Zone A substance (certain “Poisonous materials”), or; to a highway route controlled quantity of a Class 7 radioactive material, in interstate or foreign commerce. For additional guidance on the classes and divisions of hazardous materials.
  3. In addition to the GVWR and other exceptions set forth above, the requirements of minimum levels of financial responsibility also do not apply to motor carriers engaged in transportation of non-bulk oil and non-bulk hazardous materials, substances or wastes in intrastate commerce. Note that even intrastate motor carriers engaged in the transportation of highway route controlled quantities of a Class 7 radioactive materials.

Observations

The fact a vehicle is operating without a trailer (“bobtail”) or with an empty trailer (“deadheading”) does not absolve the motor carrier of financial responsibility while in the service of the motor carrier. In addition, for-hire tow trucks with a GVWR of 10,000 pounds or more that perform emergency moves in interstate or foreign commerce are required to maintain a minimum level of financial responsibility in the amount of $750,000.

Pertinent Case Law

In analyzing where the coverage may be found, a motor carrier may use several policies to “aggregate” the required minimum. The fact that a motor carrier is subject to the regulations’ financial responsibility requirements may affect the cancellation of a policy issued to comply with those regulations. For example, the notice period for cancellation may be set by the rules, and pre-empt a state law addressing policy cancellation. There is always the possibility that such coverage remains in effect until properly cancelled, which may never happen. Barbarula v. Canal Ins. Co., presents an insurer’s nightmare scenario on this point. While the convoluted and tortured history of that case does not bear exhaustive detail, the result, at least initially, caused Canal to face exposure beyond limits for failing to cancel a filing it never made on a policy not intended to cover interstate movement of cargo.
The financial responsibility requirements may vary depending upon what the vehicle is being used for at the time of an incident. If it not being used to carry property interstate, the insurer may be able to deny coverage, whereas it would be barred from denial if the regulations did apply to the trip in question. A favorable example is found in Heron v. Transp. Casualty Ins. Co. There, a motor carrier completed a delivery from Florida to Virginia. The day after arriving in Virginia, the vehicle was involved in a serious wreck on the way to load for a delivery to another location in Virginia – an entirely intrastate leg of the overall trip. The insurer for the motor carrier filed a declaratory judgment action, arguing that no coverage existed under the policy and that it was not required to make payment under the financial responsibility rules because the trip was not subject to the requirements of regulation. The trial court agreed and granted the insurer declaratory relief.
However, the Virginia Supreme Court reversed, noting language in the form endorsement typically attached to an insurance policy as part of compliance with the federal financial requirements A favorable example is found in Heron v. Transp. Casualty Ins. Co. There, a motor carrier completed a delivery from Florida to Virginia. The day after arriving in Virginia, the vehicle was involved in a serious wreck on the way to load for a delivery to another location in Virginia – an entirely intrastate leg of the overall trip. The insurer for the motor carrier filed a declaratory judgment action, arguing that no coverage existed under the policy and that it was not required to make payment under the financial responsibility rules because the trip was not subject to the requirements of regulation. The trial court agreed and granted the insurer declaratory relief.
However, the Virginia Supreme Court reversed, noting language in the form endorsement typically attached to an insurance policy as part of compliance with the federal financial requirements and possibly the same outcome would have more logically sprung from an analysis which found the intrastate movement in question was part of the larger interstate operation of a for-hire vehicle. In any event, Heron may serve to expand the scope of the obligation created by regulation upon one providing coverage to a motor carrier.

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