Comprehensive Trucking Insurance Glossary

Workers’ Compensation Resources for Employers

Workers’ compensation is a state-regulated insurance system that provides covered employees with income and medical benefits if they are injured on the job or have a work-related injury or illness. Except in cases of gross negligence, workers’ compensation insurance limits an employer’s liability if an employee brings suit against the employer for damages. In Texas private employers can choose whether or not to carry workers’ compensation insurance coverage.

Texas employers who do not carry workers’ compensation insurance coverage are required to report their non-coverage status and work-related injuries and illnesses to the Texas Department of Insurance, Division of Workers’ Compensation (TDI-DWC). Employers are also required to notify their employees if they do not carry workers’ compensation insurance. Employers who do carry workers’ compensation insurance coverage are required to report any work-related injuries and illnesses to their insurance carrier. Employers that fail to meet these requirements commit an administrative violation and may be subject to administrative penalties.

What Does Workers’ Compensation Cover?

Workers’ compensation is a state-regulated insurance program that pays medical bills and replaces some lost wages for employees who are injured at work or who have work-related diseases or illnesses.

Workers’ compensation will pay for the medical treatment of an injury or illness if:

• The injury occurred at work or the disease or illness is job-related; and
• The worker’s employer has workers’ compensation insurance or is certified by the Texas Department of Insurance, Division of Workers’ Compensation to self-insure.

Workers’ compensation will also replace some of the worker’s lost wages if:

• The injury or illness caused the worker to lose some or all income for more than seven days.

Texas employers may choose whether or not to maintain workers’ compensation insurance. Employers who choose to have insurance may:

• Purchase insurance policies from private insurance companies; or
• Self-insure, if they meet the requirements of the Texas Workers’ Compensation Act and are certified by the Texas Department of Insurance, Department of Workers’ Compensation. Self-insured employers have the same rights and responsibilities as employers who buy policies from private insurance companies.

Business And Personal Property Coverage Form – BPPCF

Provisions of a business insurance policy that provide coverage for personal property and buildings. The BPPCF is contained in the simplified commercial lines portfolio (SCLP) policy, and extends coverage in three ways: buildings owned by the business, as well as fixtures, equipment and materials considered permanent; personal property owned by the business; and improvements and personal property of parties other than the insured.

BPPCF typically insures against three forms of peril: basic form (e.g. fire, smoke, vandalism), broad form (falling objects, such as ice and sleet) and special cause of loss form (accidental losses outside of flood, earthquakes, and wear and tear). Businesses can expand the BPPCF coverage to also cover property outside of the building (e.g. trees, fences), information and records, personal effects and off-premise property.

Business Loss of Income Insurance

Most commercial property insurance policies provide coverage for business income loss by adding an endorsement to the insured’s property policy. This endorsement is designed to protect the insured for losses of business income it sustains as a result of direct loss, damage, or destruction to insured property by a covered peril. Although many such clauses are in use today, a typical business income insurance clause reads as follows:

We will pay for the actual loss of business income you sustain due to the necessary suspension of your “operations” during the period of “restoration”. The suspension must be caused by the direct physical loss, damage, or destruction to property. The loss or damage must be caused by or result from a covered cause of loss.

In order to better understand business income insurance let’s explore the three terms highlighted above:

• Actual loss sustained: Business income coverage covers the actual loss sustained by the insured as a result of direct physical loss or damage to the insured’s property by a peril not otherwise excluded from the policy. The insurer is only obligated to pay if the insured actually sustained an interruption of business leading to a business income loss. If the insured does sustain a business income loss, the extent of the insurer’s obligation is limited to the dollar amount of loss actually sustained, but not to exceed the applicable policy limit.
• Business income: Usually, the carrier is liable for the reduction in net income that results from suspension of operations—whether wholly or partially—due to a physical loss at the insured’s premises. This following commonly used definition of business income is intended to clarify what sums can be included when calculating the amount of loss.”Business income includes the net income (net profit or loss before income taxes) that would have been earned or incurred by the insured and the continuing normal operating expenses incurred, including payroll.”
• Period of restoration: Insurers are liable for the loss of business income only during the period of restoration, which is often defined as the length of time required to rebuild, repair, or replace the damaged or destroyed property. The period of restoration begins when the physical loss or damage occurs; it ends when the property should, with reasonable speed, be repaired or replaced.Expiration of the policy does not end the period of restoration. As long as the physical loss occurs during the policy period, the business income coverage will provide coverage for the duration of the period of restoration, even if the policy expires before the period of restoration ends.The business income endorsement published by the Insurance Service Office (ISO)—as well as some insurer forms—includes a 30-day extended period of restoration beyond the standard period of restoration (the period from the time of loss until the time of repair or replacement).However, the insured may require more than this 30-day limit. To address this issue, an insured may elect to increase this limit from 30 days to any multiple of 30 days up to 720 days. This is accomplished by purchasing the extended period of indemnity optional endorsement offered through ISO.

In addition to coverage for business income, the business income endorsement of the property policy can provide other coverages, know as “additional coverages.” An example of an “additional coverage” is extra expense, which is detailed below.

Extra expense is defined as the necessary expense incurred by the insured during the period of restoration that it would not have been subjected to if there had been no physical loss to real or personal property caused by a covered peril.

Note that when a business income loss occurs, the insured is obligated to take reasonable steps to try to avert or minimize such loss: Any expenses incurred to reduce the loss are covered as part of the business income loss. The insurer will typically limit such expenses to the point that such expenses reduce the business income claim. In other words, the insurer will not pay any part of the expense that is more than the claim itself.

For example, the insurer will reimburse the insured $100 to reduce the claim by $200; but the insurer will not reimburse the insured $100 if the claim is only reduced by $50. Any additional expenses above this that are incurred to continue the business may be recoverable under an extra expense provision in the insurance policy.

Additionally, the business income endorsement section of property policies can include “extensions of coverage,” wherein the insured’s policy will insure against business income losses resulting from a variety of causes, including the following (Note a sublimit typically applies for these optional, additional coverages.):

• Service interruption provides coverage for an insured for direct physical loss, damage, or destruction to electrical, steam, gas, water, sewer, telephone, or any other utility or service including transmission lines and related plants, substations, and equipment of suppliers of such services.The owners, managers, or operators of such utilities or services cannot be a named insured under the policy. The loss, damage, or destruction at the location of the utility or service must be the result of a peril(s) similar to the peril(s) covered under the insured’s policy. Note that the policy may impose some limitations, such as:
  1. Limitations regarding distances (such as where the actual loss occurs to the utility’s property in relation to the insured’s premises where the business income loss occurs).
  2. Exclusion for certain perils such as earthquake.
  3. Exclusions for overhead transmission and distribution lines.
• Contingent business interruption (CBI) coverage is designed to cover an insured’s business income loss resulting from loss, damage, or destruction of property owned by others, including: direct “suppliers” of goods or services to the insured and/or direct “receivers” of goods or services manufactured or provided by the insured. The property damage to these suppliers or receivers must be of a type that would be covered by the insured’s policy had the damage happened to the insured’s property.As noted, CBI coverage provides coverage for the “direct” relationship between the insured’s “suppliers” or “receivers” of its goods or services. This can create a gap in coverage for insureds involved in multi-tiered supply chains.For example, consider that a supplier or customer of one of the insured’s direct suppliers experiences a loss resulting in an interruption to its operations, which in turn causes a disruption to the insured’s direct supplier/customer. Ultimately, this also causes a business income loss to the insured. Its policy will likely exclude coverage for this business income loss as the insured’s direct supplier did not experience direct physical damage/loss.This coverage is typically added to a property policy by endorsement if requested by the insured. Commonly, the suppliers of the direct supplier—known as the “indirect” suppliers or “receivers”—must be identified.
• Leader property is an endorsement that provides coverage to the insured for direct physical loss, damage, or destruction of the type insured by the insured’s property policy to property not owned or operated by the insured, located within the stated distance to insured’s property or business, and which attracts business to the insured. Examples would include a nearby amusement park, casino, mall, or destination retail store.
• Interruption by civil or military authority coverage is provided to the insured for the actual loss sustained by the insured during the length of time when access to such described premises is specifically prohibited by order of civil authority as a direct result of damage as insured against in the insured’s policy, to covered property on the described premises or property adjacent to the premises described in the insured’s policy.The coverage time period most commonly stated in this endorsement is either 14 or 30 consecutive days. The carrier may also impose a waiting period that must be reached in order for coverage to attach: Common waiting periods are 24 hours, 48 hours, or 72 hours.

As illustrated by the various coverage options discussed, there are many considerations that businesses must weigh when purchasing business interruption coverage. In fact, the above are basic coverages; additional coverage options exist and can be customized based on an individual company’s needs.

Warehouse Legal Liability Insurance

The insurance coverages carried by a warehouse operator is one of the most commonly misunderstood elements of the relationship between the warehouse operator and the customer.

In addition to the normal business liability insurance coverages that most companies carry (e.g., commercial general liability (CGL), workers compensation, and motor vehicle), reputable warehouse operators also carry warehouse legal liability coverage. Warehouse legal liability coverage is a unique type of liability insurance policy that responds when a warehouse operator’s failure to exercise reasonable care in the handling and storage of a customer’s goods results in loss of, or damage to, those goods.

Warehouse legal liability insurance is third-party coverage. That means that if the warehouse operator is negligent in the care of the customer’s goods, the insurance carrier directly pays the customer for the loss incurred. For that reason, a customer cannot be, and does not want to be, named as an additional insured under the warehouse operator’s warehouse legal liability policy.

As a warehouse operator’s warehouse legal liability policy only pays a customer if the warehouse operator has been negligent in caring for a customer’s goods, the customer is still responsible for insuring its goods against other types of losses (e.g., fire, windstorm, etc.).

It is also important to note that virtually every warehouse legal liability policy excludes liability for loss or damage in instances where the warehouse operator has agreed to take on a higher degree of responsibility for the customer’s goods beyond what is legally required (i.e., “reasonable care”). This exclusion is necessary because warehouse legal liability policies are underwritten by insurance carriers on the basis of insuring the risks associated with the warehouse operator’s negligence. If a warehouse operator has agreed to assume greater liability for a customer’s goods, then the risks are obviously much more extensive than what the insurance carrier took into account when setting its premium.

In the event of significant loss or damage to the customer’s goods attributable to the warehouse operator’s failure to take reasonable care of the customer’s goods, both the warehouse operator and the customer depend on the warehouse operator’s warehouse legal liability policy to respond to the claim. As such, if a warehousing services agreement contains any provision that requires the warehouse operator to assume liability for a customer’s goods beyond the standard of “reasonable care”, then such a provision may void the warehouse operator’s warehouse legal liability coverage thereby putting both parties in an unfavorable position.

Waiver of Subrogation

An agreement between two parties in which one party agrees to waive subrogation rights against another in the event of a loss. The intent of the waiver is to prevent one party’s insurer from pursuing subrogation against the other party. Generally, insurance policies do not bar coverage if an insured waives subrogation against a third party before a loss. However, coverage is excluded from many policies if subrogation is waived after a loss because to do so would violate the principle of indemnity.

Subrogation: refers to the process an insurance company uses to seek reimbursement from the responsible party for a claim it has already paid.

Subrogation matters to you if:

• You have a covered loss, and
• You submit a claim to your insurance company, but
• Another party is actually responsible for all or part of the damages (i.e. you have a car accident and the other driver caused the accident, or if damage to your home was caused by a faulty appliance)

In this case, your insurance company may pay your claim, and then seek reimbursement from the other party. This would depend on the circumstances surrounding the loss, the laws in your state, and your policy provisions.

If your company decides to pursue subrogation, the company will work to recover the damages from the responsible party. Damages may involve costs paid by you and the insurance company. Costs paid by you usually means your deductible, but could include amounts over your policy limits not paid by your insurance company. This would depend on the laws in your state and the specific circumstances surrounding the loss.

The subrogation process may also be used if you are at fault for damages. In this case, the other party and/or their insurance company would make a claim against you, usually directly to your insurance company. Your company will review the facts of investigation to determine if you are liable for the damages. Your company may make payment to the other company if you have coverage and it is determined that you would be legally responsible for all or part of the damages. Keep in mind that often times liability is not clear cut. In some cases, both parties may be partially responsible. Dependent on the laws in your state, both parties may share responsibility for payment of damages. For example, one party may be 40% responsible, and the other party may be 60% responsible. This could mean that both companies make subrogation claims against each other, and each company pays their respective portion of the other party’s claim.

In all cases, your participation and cooperation with us in the investigation phase of the claim process is important. Your assistance can help to establish important facts, and preserve evidence, and may help to accelerate the recovery process.

Disclaimer

These definitions are for your personal knowledge only These are only some of the coverage insurance companies provide. Some of these coverages are NOT included in your trucker’s policy. Coverage varies depending on the insurance company. We strongly recommend you reading your policy to know your coverages and let Deerfield Advisors know if there is any other coverage protection you may need.