auto liability insurance

While insurance may not be the most exciting aspect of managing your business, it’s a critical one. When it comes to third-party auto liability insurance, though it may not be required, there are undoubtedly significant risks associated with operating without it.

How does that affect you in a third-party broker situation? It’s not uncommon for freight brokers and their shipper clients to be named in litigation if the motor carrier you hired is involved in an accident that results in death or injury and a lawsuit is filed. With over 4,000 motor carrier accidents per year involving a fatality and 120,000 annually involving an injury of some kind, the risk of your hired motor carrier experiencing a claim at some point is just too great.

High risk of your hired motor carrier experiencing a claim

fatal accidents per year

accidents with injuries per year

Liability insurance is complicated, and third-party liability is even more so. This article will break down third-party auto liability insurance and its importance to your bottom line.

What is third-party auto liability insurance?

There are many names for third-party auto liability insurance. You may see it referred to as Third-Party Legal Liability, Contingent Auto Liability, or Freight Broker Auto Liability Coverage. These policies all indicate the coverage provided in defense of a freight broker when named a defendant in a lawsuit due to bodily injury or fatality claims by a motor carrier.

Freight Broker third-party auto liability insurance policies have a maximum (aggregate) amount they will pay annually. However, the most comprehensive policies cover the total policy limit per occurrence. While no one expects multiple events in a year, that is why they are called accidents. This could potentially be a significant policy distinction. A freight broker auto policy with an aggregate limit could be exhausted after just one claim. In contrast, an occurrence limit provides coverage for every claim that arises during the policy term.

The purpose of the coverage is to pay for the legal costs and provide skilled, experienced attorneys to defend your business in any state against charges involving third-party motor carrier accidents resulting in injury or death, plus respond to any agreed settlement sums or judgments levied, up to your policy limits.

Why do freight brokers need third-party auto liability insurance?

You may question why freight brokers need auto liability insurance when the motor carrier has coverage of their own. The coverage procured by the motor carrier company covers any lawsuit or judgment they may incur. However, 90% plus of all motor carriers only have policy limits of $1,000,000. When you consider the average judgment when there is a fatality of 2.6 million, there is not enough coverage to protect the financial interest of the motor carrier, the freight broker, and the shipper involved in the shipment.

Why freight brokers need auto liability insurance when the motor carrier has coverage of their own

90% plus of all motor carriers only have policy limits of $1,000,000.

The average judgment when there is a fatality of 2.6 million.

Because there is little risk to the plaintiff to name the freight broker in a lawsuit, they often do. Doing so has become a trend as more and more brokers and shippers are being named in cases along with the motor carrier. With many freight brokers operating in what may be considered gray areas outside of freight broker authority, the instances of being drawn into costly litigation are becoming more numerous and proper coverage more critical.

Why do freight brokers need third-party auto liability insurance?

With no tort reform laws and, as a result, no cap to judgment amounts, freight brokers face potentially burdensome legal expenses and the potential for massive judgments. Having the right amount of coverage is more critical than ever. Generally speaking, $1 million per occurrence is a good starting coverage amount. However, it is your business at risk. Therefore, higher limits should be considered. The higher a freight broker’s auto liability coverage limits, the more they are attractive to shippers who can benefit directly from the freight broker auto liability limits.

For larger operations or those desiring additional coverage, excess liability coverage is available. This coverage provides additional liability insurance. Some helpful guidelines for coverage choices are:

  • $5,000,000 liability coverage for greater than $5 M in revenue
  • $10,000,000-$20,000,000 liability coverage for greater than $20 M in revenue
  • $20,000,000-$50,000,000 liability coverage for greater than $50 M in revenue

Excess Liability Coverage for Larger Corporations Guidelines

  • $5,000,000 liability coverage for greater than $5 M in revenue
  • $10,000,000-$20,000,000 liability coverage for greater than $20 M in revenue
  • $20,000,000-$50,000,000 liability coverage for greater than $50 M in revenue

Choosing an auto liability insurance provider with experience in the industry is as vital as the amount of coverage. When an accident occurs, the goal is to avoid a lawsuit or have the best defense in the event of one.

The right team on your side can make all the difference to your case and, in some instances, the future of your business. More and more freight brokers are going out of business each year because of litigation resulting in burdensome legal expenses and judgments they can’t afford. The right coverage with an experienced team can free you to operate without fear of an accident destroying the future of your business.

How does third-party auto liability insurance help freight brokers win clients?

Third-party auto liability insurance provides you peace of mind and provides comfort for your shippers. Not only do many shippers feel more confident in doing business with freight brokers who carry higher auto liability policy limits, but often larger shippers require it because they are also being drawn into the litigation.

By understanding the potential risks and protecting against them, freight brokers can differentiate themselves from other brokers. Providing this critical auto liability insurance directly to their shippers under additional insured status will have the defense costs covered by the freight broker’s own auto liability coverage. This is a major value for a shipper who moves freight through brokers who invested in this coverage. Unprotected or inadequately covered claims result in a cost beyond dollars and cents. They can affect reputations and distract from the job at hand — running your business. For shippers who don’t understand the risks, brokers can lead by educating them and setting themselves apart as experts in the field. The freight broker’s marketing team should be educated on this issue to incorporate this into their messaging to clients.

What to look for in third-party auto liability insurance providers

Protecting your business is about more than satisfying shippers and avoiding huge judgments, though those are certainly important. It’s about securing the future of the business you have worked hard to build.

When it comes to your third-party auto liability insurance provider, you can find coverage that will meet a shipper’s requirements and check a box, or you can trust a team that is there for you to not only assist when a claim occurs but also provide risk management through:

Industry Monitoring

Contract Review

Model Agreement Development

Risk Management Best Practices Consultation

Having your policy customized by an organization that understands the freight broker business is imperative. Many insurance agencies may specialize in transporting clients but don’t have expertise in freight brokers and their unique needs. LOGISTIQ Insurance Solutions works with a network of retail agents to expand their knowledge of the freight broker class and jointly support their insureds with this education.

LOGISTIQ Insurance Solutions prides itself on 45 years of experience in the industry. Our teams, processes, and insurance products are specifically designed to protect our freight broker clients both before and after a claim occurs. Connect with an agent online or call now for more information on how we can protect the future of your freight broker business.

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