Fleet Contractors
Patricia Smith
Senior Editor
Federal regulations make the leasing motor carrier responsible for the safe operation of leased drivers and equipment. Insurance companies want to see the same risk management programs applied to contractor fleets as are applied to company drivers and trucks. Thus, contracting with smaller fleets isn't a way to duck responsibility for drug testing, equipment safety, driver screening or other compliance issues.
"We approve every truck and every driver our fleet partners put on," says Ron Williams, division vice president, Jones Motor Freight. "They might do the background check, but it has to come through our safety department and meet our insurance standards. Then, from a safety standpoint, they're monitored through corporate office the same as leased owner-operators."
Small fleets running their own authority can expect similar vigilance from intermediaries and carrier brokers. "We're not looking for the carrier that has no violations," says Stonier Transportation's Mike Williams, "but we want a satisfactory safety rating and no blatant problems on (the U.S. Department of Transportation's) Safer System."
Federal regulations also make it clear that — from the standpoint of the general public — liability for accidents lies with the company that holds the operating authority under which a load is being carried. But James Hardman, Little Canada, Minn., an attorney who specializes in trucking issues and the former in-house counsel for Dart Transit, says liability insurance is something that can — and should — be worked out in the lease contract.
"When the fleet contractors are very small and it's hard for them to get affordable liability insurance, carriers may just take care of it as a cost of doing business and use it as a marketing tool to get contractor fleets," he says.
Hardman generally advises against billing owner-operators or contract fleets for all or part of the carrier's liability insurance. "It gets the carrier into a situation where they might be seen as selling insurance," he says. "It raises all kinds of complications."
If a carrier wants its fleet contractors to pick up the tab for liability insurance, it's better that they require the contractors to get coverage of their own, he says. As far as the public is concerned, liability still rests with the carrier, but if the contractor's trucks are involved in an accident, the carrier's insurance company can go back to the contractor's insurance company for reimbursement of claims paid.
Workers' compensation is even trickier. Laws vary from state to state, but most make workers' comp elective for sole proprietors or self-employed persons. (Many carriers, however, do require their owner-operators to carry either workers' comp or accident insurance on themselves.)
Some states make workers' comp optional for the very smallest companies - three employees, or sometimes five. Thus a small fleet owner may be able to have as many as four people on his payroll and still not worry about workers' comp.
But employment laws in many states also make general contractors responsible for workers' comp coverage of any subcontractor's employees. In those situations, the motor carrier that holds the operating authority is usually considered the general contractor, and the owner-operator or fleet contractor is the subcontractor. If one of the fleet contractor's drivers files a workers' comp claim, it could be made against the carrier.
"The carrier is really under an obligation to make sure that the employees of their independent contractors are covered," Hardman advises. Therefore, carriers should make sure fleet contractors can produce a certificate of workers' comp insurance for all of the contractor's employees. "If you have that, you should be protected from that liability, even if certification is cancelled or it wasn't issued correctly," he says.
For added protection, carriers can buy contingent liability insurance. It comes in several forms, but typically the plans will pay to defend against workers' comp claims by owner-operators or their employees and the insurance company will pay the claim if they lose. Proponents say it's a good hedge against the unexpected. Opponents say it's expensive and should never take the place of proof of coverage from contractors.
To help resolve some of the workers' comp issues, Hardman organized a coalition of 11 motor carriers that utilize independent contractors. The group, called Independent Contractor Exemption, recently won a two-year battle in North Carolina to have independent contractors in the motor carrier industry recognized as independents instead of "per se" employees for purposes of workers' comp.
Hardman says the group is now looking at workers' comp issues in Missouri, and is talking about becoming a permanent organization. "It would not replace the American Trucking Assn's, the Truckload Carriers or the state associations," he emphasizes. "It's just that they have their plates full with fuel taxes and other issue, and we feel that a group focused specifically on workers' comp issues might be more successful."
