'Brutally tough' insurance rates hammering trucking companies

Insurance costs have risen double digits throughout recent years

The trucking industry faces a number of headwinds as it begins a new year – including skyrocketing insurance rates.

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Brian Fielkow, president of multimillion-dollar trucking and logistics company Jetco Delivery, told FOX Business the trucking insurance market is as tight as he has ever seen it, thanks to a number of nuclear verdicts – and scores of other verdicts that don’t make the news.

“The reason for it is the litigation environment,” Fielkow explained. “Insurance companies are just deciding not to [underwrite] trucking companies.”

Nuclear verdicts refer to jury awards where the penalty is in excess of $10 million.

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One of the most notable cases involved comedian Tracy Morgan, who was involved in an accident with a Walmart-operated truck that resulted in the death of another man. The family of the killed man was awarded $10 million – though the case never was brought before a jury. Morgan, who suffered injuries, settled with the company for an undisclosed amount.

In 2013, a law firm announced a $281 million verdict in a wrongful death case against oil patch trucking company Heckmann Water Resources, which resulted in the death of a military veteran.

“If someone dies due to a trucking company’s negligent actions, that company will be held responsible,” Gene S. Hagood, a Houston attorney and one of the three lawyers who represented the plaintiffs, said in a statement at the time.

And penalties have gotten larger. According to law firm Roetzel & Andress, between 2012 and 2015, 12 verdicts resulted in $900 million worth of awards.

Following one accident in 2017, a jury decided that CWRV Transport should be held liable for an accident – even though the driver was a private contractor. The wrongful death award was $26.6 million.

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John Kearney, president and CEO of Advanced Training Systems, told FOX Business the litigation environment has changed because lawyers have begun to go after companies – rather than individual drivers – for their training, retraining or maintenance training policies.

“If you have an accident and the opposing law firm questions where you train, there seems to now be an assumption that if you have an accident you must not have been trained adequately,” Kearney said. “That assumption means you lose a lawsuit.”

According to data from the American Trucking Research Institute, insurance premium costs per mile have increased more than 17 percent since 2013. Between 2017 and 2018 alone, they rose 12 percent. In 2018, they were about $0.8 per mile.

The industry group also noted that increasing litigation contributed to a rise in rates – with truck-involved crashes “generating dramatic increases in both the number of civil litigation case filings as well as increases in jury awards and out-of-court settlements.”

Landstar, during its third-quarter earnings call, noted that insurance and claim costs for the three-month period were $24 million, up due to the “adverse impact of a tragic accident involving Landstar that occurred during the 2019 third quarter and unfavorable development of prior year claims in 2019.”

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Landstar Vice President Joseph Beacom also said rising insurance rates would continue to impact small truck owners moving forward.

USA Truck CEO James Reed called the insurance market “brutally tough” in October, saying the company would experience between $750,000 and $1 million of incremental premiums per quarter beginning in the fourth quarter. He also named insurance costs as a headwind that the company would be “living a pipe dream” not to be thinking about.

Adding to pressure on prices, two of the biggest insurers of for-hire fleets – AIG and Zurich – ceased that aspect of their underwriting businesses in 2016, as reported by The Wall Street Journal. Both companies still cover retailers’ trucks.

While bigger companies can afford the rising cost of coverage – smaller companies can’t. As previously reported by FOX Business, at least 795 trucking companies failed in 2019 – and higher insurance costs were one factor that was credited with weeding out some of the smaller, weaker players.

That trend is likely to continue to financially strain companies over the coming year.

The Federal Motor Carrier Safety Administration-required minimum coverage is $750,000 – but many companies have increased coverage beyond that.

Fielkow noted the higher insurance premiums are ultimately passed through to the consumer because companies can’t absorb those expenses.

“If you have companies who aren’t committed to safety and don’t have safe histories, they’re going to have a very difficult time because this isn’t going to get better any time soon,” Fielkow said.

It’s not just insurance costs that trucking companies are dealing with in 2020. Other headwinds include supply challenges, a weak spot market, difficulty finding qualified drivers, ongoing trade uncertainty and increased costs related to new regulations.

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