It’s not uncommon for businesses to see year-over-year rate increases even when they hire safe drivers and have a clean loss record. But, the truth is that claims history is just one piece of the puzzle., The overall cost associated with vehicle collisions has climbed significantly in recent years. In fact, the average verdict size for a lawsuit above $1 million involving a truck crash has increased nearly 1,000% from 2010 to 2018, rising from $2.3 million to $22.3 million.
These “nuclear” verdicts first began in 1994 when a jury awarded a $2.7 million verdict in punitive charges for selling scalding coffee. While the amount was reduced after appeal, the large verdict captured America’s attention and became the standard. For trucking, that standard came in 2011, when a $40 million verdict was awarded to victims of a crash where a truck driver ran a stop sign and struck a passenger vehicle, killing two passengers and severely injuring another. Nuclear verdicts are now defined as jury awards that surpass $10 million.
In lawsuits that went in favor of the plaintiffs, hours-of-service violations, lack of clean driving history and fatigue were commonly cited factors.
According to the American Transport Research Institute (ATRI) insurance rates have increased at similar rates as litigation awards. Over the last 2 to 5 years, commercial truck insurance premiums have increased annually between 35 percent and 40 percent for low- to average-risk carriers according to the expert surveys. Small carriers and owner operators are paying out-of-pocket considerably more on a per-unit basis than larger fleets.
The trucking industry sees these awards as unfairly punitive, biased against transportation companies and brought about by aggressive attorneys. It points to high-profile accidents that have resulted in massive verdicts against trucking companies, even when passenger cars are clearly at fault for the accident.
“In most states there’s a disconnect between your level of negligence and your level of liability,” said Dan Murray, of ATRI. “There are states where you can be identified as 10% or 15% negligent and still be vulnerable for 100% of the financial liabilities.”
The insurance and trucking industries are lobbying federal and state lawmakers for lower caps on settlements and more restrictions on where, when and how often plaintiffs’ attorneys are permitted to file lawsuits.
They appear to be gaining headway in several states including Texas and Iowa, where bills aimed at limiting a company’s liability or verdict sizes are working their way through state legislatures.
And while expensive litigation, jaw-dropping verdicts and settlements are driving up the prices for of all kinds of insurance, for small and medium-size trucking companies the price hikes on liability insurance are becoming unaffordable. The price hikes also usually come with an increase in the deductible trucking companies have to pay.
Umbrella or excess liability markets passed on even larger increases — over 75% — causing most trucking companies to purchase less insurance, Dancer says.
According to Murray, the smaller operators think, “If the deductibles are too high, or the insurance premium gets too high I will scale back the amount of coverage I have.”
Federal law requires trucks to carry $750,000 in liability coverage which is not nearly enough to cover the cost of the average liability lawsuit.
But the push for higher minimum coverage could drive smaller operators out of business.
There are proposals on the table that would pretty much increase the minimum required right now by a factor of five. And that would be the death knell for many small business truckers. But a decision to forgo more coverage is also a gamble, putting a company’s survival on the line.
Said Combined Transport’s Card: “We’re struggling to get excess insurance. Getting $5 million or $10 million of insurance has been so expensive that we can’t even afford to buy the extra insurance that we’d like to have.”
That’s the insurance coverage that would protect Card’s company in the event of a severe accident. Without it? “It would be catastrophic for our company. We’d lose. And all of our employees would lose their jobs,” he said.
While it can feel like the factors influencing the cost of coverage are out of a business’s control, there are things policyholders can do to secure better rates.
You can protect your business by reducing its vehicle exposure risk and losses. To rein in the risk of nuclear verdicts, consider taking the following four steps:
- Train, recruit, and retain qualified drivers.
- Bolster vehicle maintenance. How often are your vehicles inspected? Do drivers know how to perform their own regular inspections?
- Mitigate driver distractions. Texting, talking on the phone, even changing the music or using a navigation system can take driver attention away from road. How are you educating your drivers about the dangers of distracted driving?
- Take advantage of the expanding availability of telematics programs
Additionally, businesses should seek the help of a qualified insurance broker with a deep understanding of their operations and effective risk management strategies. Click here to contact us.