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2/50

TR N

TR N

HE

56 3

M919u

MOTOR

CARRIER FINANCIAL

RESPONSIBILITY

REPORT

Report

of the Secretary of Transportation

to

the United

States

Congress

Pursuant to Section

3

Public Law 96-296

Motor

Carrier

Act of 1980

U S

Department

of Transportation

Washington, D.C.

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3/50

CONTENTS

Legislative

mandate 1

Overview

o the Department s program----------------------

4

Historical

perspective

5

Secretary s Findings 7

Levels

of

financial responsibility

7

Rationale for

selecting final

limits 8

Economic conditions of the commercial motor carrier

industry 9

Impact

of

the

insurance regulations on the

commercial

motor

carrier

industry

12

Impact of the

insurance regulations

on

small

business 15

Impact of

the

insurance regulations on

safety 17

Ability

of

insurance industry

to provide the

required coverage

18

Secretary s

Discussion of

Rulemaking

I s sues

2

Safety

performance

vs. increase

premiums

2

Interstate

Transportation

and

Interstate

Commerce 21

Intercorporate Hauling 25

Increased

levels

of

financial

responsibil i ty for certain

hazardous

materials

27

Aggregation

(layering)

of

required coverage 28

Self-Insurance 3

)


4/50

. 1

Mon1tor1ng

comp

1ance

3

Secretary Recommendation

34

r

Vehicles exempted

by

weight

limitation 34

Foreign

transportation

of hazardous aateriala 35

Private carriage 36

Additional exemption from regulation. 37

Modification

of minimum atatutory levels 39

Summary of Recommendations 40

Appendix A Regulatory Evaluation and Regulatory

Flexibility

Analysis 47


5/50

Introduction

Concern for

public

safety,

protection of the public

from

economic

loss

from

truck collisions,

an alleged

potential for

deterioration

in safety as

a

result of

economic

deregulation

led

to

the

formulation

by Congress

of

Section 30 of

the

Motor

Carrier

Act

of

1980

P.L. 96-296).

The intent

of thesection is to cause

improvement

in

the

operating safety

of high-risk interstate

motor

carriers,

and certain intrastate motor carr iers , through the use of

the insurance

or

surety

bond

instruments.

The law

was enacted July

1

1980, with

the requirements

of

Section 30

to

become effective

on

the

366th

day

following

the

date of

enactment

unless

the

Secretary of

Transportation acted

earl ier .

Legislative mandate

The

inimum Financial

Responsibility

for

Motor

Carriers

requirement

is

mandated by

Section

30

a)

of the

Motor

Carrier

Act

of

1980.

Under

Section

30

a)

1

the

Secretary

must establish

regulations

to require

minimal

levels

of

financial

responsibil i ty

sufficient

to

satisfy

l iabi l i ty

amounts covering public

l iabi l i ty property

damage,

and

environmental restoration.

The

required

minimums

are as

follows:

1.

750

1

000

for the for-hire transportation

of

property

in

interstate

or

foreign

commerce


6/50

2

2. $5,000,000 for the in trastate

or

in terstate

transportation

of:

(a)

Hazardous

substances as defined

by

the

Administrator of the Environmental Protection

Agency, when transported in cargo

tanks,

portable

tanks, or hopper-type_ vehicles with

capacit ies

in

excess of 3,500 water

gallons;

(b) In

bulk

Class A explosives, poison gas, l iquif ied

gas

or

compressed

gas;

and

(c) Large quantities of radioactive materials.

3. $1,000,000

for

any

vehicle

transporting any

material,

oil

substance,

or waste not subject to the

provisions

of

paragraph

(2) above

in

intersta te or intrastate

commerce.

The Secretary m y reduce such amounts (but not to an amount less

than

$500,000

for general

cormnodities

or

1

million

for

hazardous

materials; or

in

the case of

any

material,

oi l substance, or waste

other

than

1n

bulk,

the Secretary may reduce such amounts

to

not less

than $500,000) for

any

class of

vehicles

or

operations

for

up

to

a

2-year

period beginning

on

the effect ive date of the

regulation

i f

such reduction(s) will not

adversely

affect safety

and

will prevent

a

serious

disruption

in transportation services.

The Secretary was

granted

authority under section 30(b)(3)(B)

to

reduce

to any level , for any amount of time, the amounts of f inancial

responsibi l i ty

required

for the intrastate carriage of nonbulk

hazardous materials.

The Secretary exercised the

authority

granted

under section 30(b)(3)(B) so,

that local

operations dealing

with


7/50

only

small quantities of hazardous materials will not be unduly

burdened. The

Secretary

is concerned that many persons who fall

into

this category have never before been subject

to

Federal

regulations

(farmers,

plumbers,

paint

store

dealers,

floris ts , and

the

l ike). The

large

~ j o r i t y of States

prescribe

minimum levels of

financial

responsibili ty for the operation

of motor vehicles. Such

requirements would be

applicable to the

intrastate carriage of

nonbulk

hazardous materials. Consequently, the

Secretary has

decided

to use

the

authority

under

section

30(b)(3)(B) to

effectively exempt

intrastate carriers

of nonbulk hazardous materials from the financial

responsibili ty

requirements

under section 30 of the Act. With

respect to this exemption, the Bureau of Motor Carrier Safety

published

questions in

the Federal Register,

June

11, 1981

(46 R

30975), asking for

public

comment on the

matter.

No

responses

have

been received

to date.

The

Congress

mandated

in section

30

of

the

Act

that

the

final

rule promulgated under the

Act would only apply

to vehicles

with a

gross

vehicle weight rating

of

10,000

pounds

or

more

The Secretary is

required to report to Congress

(the Act

required this report

one

year af ter the date

of

enactment,

the

date

was extended

by

the Congress in

order that the report might

encompass

any

questions arising

during oversight

hearings) the various levels

of

financial responsibili ty promulgated,

the

rationale

for selecting

the

l imits,

an

estimate

of impact

of

the regulations upon safety

of

motor vehicle transportation; the economic condition of the motor

carrier

industry (including, but not

limited to, ~ l l

and minority

motor carr iers and

independent

owner-operators), and the abil i ty

of


8/50

4

the

insurance industry

to provide

the designated

coverage. The

Secretary is required to make recommendations

with respect

to the

need for further legislation related to

levels

of financial

responsibil i ty,

including

to

what

extent,

i f

any,

minimum

statutory

levels should

be

modified.

Overview

of the

Department s

program

The authority

to prescribe

minimum financial responsibi l i ty

levels

for motor carriers was vested in the Secretary of

Transportation by the Motor Carrier Act of 1980. The authority to

carry

out the functions vested in the Secretary under Section 30 of

the Act was

delegated to

the Federal Highway Administrator and

further

redelegated to

the

Director

of the

Bureau

of Motor Carrier

Safety (45

FR

57674).

The

Director issued

an Advanced

Notice

of Proposed

Rulemaking

ANPRM) on August

28,

1980 (45 FR

57676)

sol ici t ing comments and

information regarding

implementation

of Section

-30

of

the Motor

Carrier Act of 1980. The second

stage

of rulemaking,

the Notice of

Proposed

Rulemaking

NPRM), was published in the January

26,

1981,

Federal Register,

46 FR

8186). That document

proposed

levels of

financial

responsibi l i ty based on the type and

size

of the

motor

carriers

of

property 1nvolved

in

in te rs t te

and foreign commerce and

for

motor

carr iers

transporting

hazardous

materials in

intr st te

or

interst te commerce. The NPRM further provided

for

the

implementation

and enforcement of the

proposed

levels .

The

final rule

containing the minimum levels of financial

responsibil i ty

was published in

the

June

11,

1981,

Federal Register,


9/50

(46 FR 30974). The Secretary generally

promulgated

the minimum

pogsible levels of l i b i l i ty coverage. Technical corrections,

typographical

errors and other

clarifying

language,

including the OMB

approval of the Bureau

of

MOtor Carrier

Safety

BMCS) forms were

published

in

the Monday, September 14, 1981, Federal Register, (46

FR

45612). Subsequently,

a

clari f icat ion

of the

technical

corrections were published Monday, September 24, 1981 in the Federal

Register,

(46

FR

47073). These

corrections

were the

inclusion

of the

OMB approval number of

the BMCS

forms, and the printing

of

the forms

in the correct

format

for clarif icat ion

and

to

prevent any chance of

misunderstanding the

language

of the two

forms.

The final rule stipulates that, effective July 1,

1981,

for

the

two-year period

thereafter, for-hire

motor carriers of property

(nonhazardous) in interstate

and foreign commerce must

have financial

responsibili ty coverage of $500,000,

while

intrastate and interstate

carriers of

hazardous

substances and certain hazardous materials

transported in

bulk

are

required to

have

financial

.responsibili ty

coverage of

$1,000,000.

Inters tate

carriers

transporting any

quantity of hazardous substances, materials, or wastes

are

required

to maintain $500,000 financial responsibili ty coverage. Nonbulk

carriers of hazardous materials in intrastate commerce have been

effect ively exempted from the Federal

requirements.

Historical

Perspective

During the

period

from 1975 through

1979,

the total number

of

reportable

accidents

involving interstate

motor

carriers rose

from

24,274

to 35,541; and

the

Federal Highway Administration

lnefined at 49 CFR 394.3

r


10/50


11/50

Secretary'

Findings

The

Secretary

of Transportation,

based

on

the information

made

available

through

the

public

docket,

staff research, and information

available in

the

Department's f i les,

has determined

. that the

optimum

levels

of financial responsibili ty

that

~ e s t serve

the intent

of the

Act

are the

minimum levels

of l i b i l i ty

coverage permitted

under

Section

30.

Levels of Financial

Responsibility

The minimum levels

of

financial responsibili ty for for-hire

motor

carr iers

of property (nonhazardous)

involved

in

inters tate

or

foreign transportation and for motor carriers transporting hazardous

materials, substances or

wastes

in

interstate commerce,

in accord

with the

provisions

of

Section

30, have

been determined by public

rulemaking.

he

required minima

are as

follows:

1. 500,000

for

the

for-hire

transportation of property

(nonhazardous)

in interstate

or

foreign commerce.

2.

1,000,000 for the

intrastate or interstate

transportation

of:

(a)

Hazardous

substances

when transported in

cargo

tanks,

portable tanks, or hopper-type vehicles

with capacit ies

in excess of 3,500 water gallons;


12/50

8

(b)

ny

quantity of Class A or Class B explosives,

poison

gas

(Poison

A);

or in bulk liquefied gas, l iquefied

compressed gas

or compressed gas;

or

(c) Large

quanti ty

radioactive

materials as defined in

49 CFR 173.389(b).

3. 500,000 for any

vehicle transporting

any

material, oi l

l is ted in 49

CFR

172.101, s u b s ~ a n c e or

waste

not subject to

the provisions of paragraph 2 above

in

in t ras ta te in bulk

only,

or

in ters ta te commerce in any quantity.

4.

Non-bulk

carriage

of

hazardous

materials in

in trastate

commerce

has

been effect ively exempted from Federal

requirements.

These required levels

of

l iabi l i ty coverage became effect ive

July 1, 1981,

for

the two-year

period as

required by law.

On

or

after July

1,

1983, the minimum levels of financial

responsibility

will

increase to

the levels

prescribed in Sect1on

3

unless

further

increased by

the Secretary.

Rationale

for

selecting

f inal l imits

A

serious

dilemma

is created in

attempting

to

maintain or

achieve greater

motor carr ier and

public safety

through use of

insurance

or

surety bond instruments. The potential exists

to

in f l ic t

serious

economic

harm upon

those

motor

carriers

with

outstanding operating safety

records

by adding unanticipated expenses

a t

a time when

thei r

f inancial operations are

marginal.

The

Secretary

is

dedicated to minimize

the

l ikelihood

of

such an

occurrence.

The principles involved in the Secretary's

findings


13/50

9

leading

to

the

promulgation of minimum levels of financial

responsibility are of vital

concern

and

are therefore discussed in

greater

detail in the

following sections.

Economic

conditions of the

commercial

motor carr ier industry

The

motor carrier

industry

is

an enormous

heterogenous

complex

of

companies,

vehicles, and

terminals. ~ ~ e n i n g

on the means used

to

define

a motor

carr ier , the size of the industry ranges

upward

to in

excess of one-half million fleet operations.

Of

this multitude of

trucking operations,

approximately

22,800

commercial

carriers are

authorized

interstate

for-hire carriers of

property

regulated

by

the

Interstate ommerce

Commission 105 600

are private carr iers ,

and

46,600 are exempt commodity

carriers.

The total number

of trucking

companies

for-hire

and private) identified as

operating in

interstate

and

foreign

commerce

that are

subject to

the Federal

Motor

Carrier

Safety Regulations

is

approximately

180,000. t is estimated

that

these trucking

companies

operate

over

2.7

million vehicles

with

gross vehicle weight ratings of 10,000

pounds

orgreater.

The information obtained

during

the ten month period following

the passage of P.L.

96-296

indicates that the

commercial motor

carr ier industry is currently undergoing

a

period of financial

difficul ty

and/or constriction following the economic recession of

1980.

A number

of firms

have

lef t the industry,

merged

with or

have

been assimilated

by

others during

a

post

recession period marked by

only

slight recovery

in

the tons

of

goods available for

hipment

by

interstate motor carriers. This activity has

been

influenced

by low


14/50

10

t raff ic

volumes,

high interest rates , inflat ion, and cash

flow

problems.

The

Interstate

ommerce Commission regulated Class I and Class

motor

carr iers

are required to

provide

extensive

financial

data

to

the

I annually. Utilizing these data, the agency analyzed 1,675

motor carr iers ' operations

to

determine,

on a sample basis, the

economic condition

of

the industry.

The

financial

strength of the 1,675 commercial motor carriers

studied

for

the four year period 1976-79 showed decided weakening

during 1979. These

industry

members recorded only

fractional

increases in total operating

miles,

up from 14.4

bill ion

in 1978 to

14.5

bill ion

in 1979

(0.3

percent higher). However, total tons

carried by

the

companies

declined

sharply from 304.4 million

tons

to

276.8

million down 9.1 percent). Higher tar i f fs and increased

tonnage in 1977 and 1978 helped to increase the operating revenues

generated over the four year period from $17.4

bil l ion

in 1976 to

$27.8

bill ion

in

1979

(up 59.8

percent

overall) .

In the

same

time

period,

operating

expenses climbed

at nearly

the

same rate thereby

leaving l i t t l e

gain ($125.2

million or

14.7 percent

over four years)

in

operating profi t . Between 1978 and 1979, however, operating

expenses rose

at

a

rate exceeding that of

operating revenues and

operating income fe l by $262.0 million in the two

years.

Financial data

show

that

by

the

end of 1979

the

motor

carr iers '

composite operating rat io (operating expenses

divided

by operating

income)

increased

from 95.1

to

96.5. Because

of

the decline

in

profi t , both the before

tax income to revenue and

net

income to

revenue ratios declined,

the

la t ter by nearly one percentage

point .


15/50

b

Likewise,

the composite return

on assets

rat io for the 1,675

commercial

haulers

of

property rose

from

6.8 percent in

1976 to

7.2

percent in

1977

before

dropping to 4.9 percent

by

1979.

Return

on

net

worth

ratios

averaged 14.7

percent

at

the

outset

and peaked

at

16.3

percent

a

year

after

the return on asset high point before

collapsing to

12.0

percent

in

1979.

The following tabulation shows

the

four year

trend in financial i n d i c ~ o r s

compared

to

tons

of

property shipped.

Annual 1980

financial data is not available at

this

time.

Aggregate financial

ratios

for selected

ICC

regulated

motor

carriers

of

property,

1976-79

Year

1976

1977

1978

Return

on:

Revenues

:

3.10

3.16 3.16

Assets

:

6.84

7.15 7.11

1979

2.14

4.93

Net

worth --------------------:14.71

:15.70 :16.33 :12.01

Tons

shipped (millions)*-----------:247.7 :274.6 :304.4 :276.8

* E s t ~ m a t e d

Source:

Derived

from

offlcial s ta t is t ics

of

the lCC

and aggregated

by

s taff .

-

In addition,

the

economy

was

expected

to

improve in 1980 and the

tons of freight

requiring

shipment expected

to

rise. However, the

economy

failed to

improve and

the

American Trucking

Association's

'monthly

tonnage index (measure

of

intercity truck-tonnage

movement)

reflected

the fact, i t declined

from an early 1980

high of

163.5 to a

low of 136.0 in July

1980.

During

the

remaining months of 1980

the

tonnage

index

registered a small

recovery of 16.5

points. However,

the

index

appears

to have

leveled off at approximately

152.5 through

:


16/50

--------

12

July 1981,

nearly

50 index

points below

the March 1979 high of 202.3

Furthermore, the GNP measured in 1972

dol lars ,

declined in the

second

quarter

of 1981 and is

anticipated

to

fal l in the third

quarter also.

Impact o; the insurance

regulations

on the commercial motor carr ier

industry. The

commercial

motor c r r i e ~ industry

is

required, by

the various s ta tes with six

exceptions,2 to

carry l iabi l i ty

insurance in amounts

ranging

from

for

example, 10,000/20,000 for

bodily

injury

coverage

and

5,000

property

damage in

New

Mexico

to

100,000/300,000 bodily injury and 50,000 property damage in

Virginia.

California

requires

twice

this

level of coverage for

petroleum and petroleum

products

carr iers . In addition, the

in ters ta te

commercial

motor

carriers regulated by the

ICC

are

required

to

be insured

to

the 100,000/300,000 level

in

order

to

obtain

or

maintain their operating

cer t if icate.

Section

29

of the

Motor Carrier Act

st ipulates

that effect ive July 1, 1981,

the

ICC

levels

of

insurance

cannot

be less than the amounts set by the

Secretary of

Transportat ion.

The ICC's temporary interim rule stated

that the

agency

would accept the Department of Transportation's Form

MCS-90 provided the primary

policy

was written in the amount

of

500,000; effectively

disallowing

aggregation

of

insurance

to

that

level .

The

to tal

cost of

commercial motor

vehicle

insurance for

the

motor carr ier industry, estimated at

6.2

bil l ion in 1978,

averages

2 Delaware, Massachusetts,

New

Hampshire,

New

Jersey, Vermont and

the Distr ict of Columbia

have

no insurance

requirements

for

commercial motor vehicles.


17/50


18/50

I

II

4

.

selected levels of insurance coverage and their estimated premiums

for interstate motor carrier companies are provided

below.

Selected levels of financial

responsibil i ty

for

motor

carr iers

of property

and

their projected

industry

premium

Levels of

coverage

Single

i ~ j / m u l t i - i n j / p r o p e r t y

dam:

Industry

premium

Millions

100,000/300,000/50,000 :

1 , 2 2 0 ~ 9

500,000/1,000,000/500,000 :

500,000/5,000,000/750,000

:

2,887.3

2,986.8

Incremental

difference

Millions

1,666.4

99.5

Increase

from base

Percent

236.5

244.6

III

750,000/5,000,000/1,000,000

:

3,131.6

144.8

256.5

IV

1,000,000/l,000,000/5,000,000 :

3,347.1

215.5

274.2

The

scenarios indi'cate that

the

overall impact would prove

substantial and,

therefore,

have

the potential

to produce

a

serious

burden on marginal

companies.

Furthermore, i t is believed that,

because the larger and

much

stronger companies might well be capable

of

sustaining

the

higher

cost associated

with

i n ~ r e s e d

financial

responsibili ty,

there

would be a

disproportionate burden levied

on

the small motor carr iers. In this

situation,

the smaller companies

would be trapped

in

a cost/price squeeze

resulting

from the

diff icul ty

of raising rates

in

a marketplace where carr iers with

excess capacity are competing for available freight.

In addition to the

substantial increase

in

size

of the industry

premium and the industry's financial sensit ivi ty

to redueed

cargo

(tons) available to

the

common

carriers

(due to

the state of the

economy and

shif ts

or innovation

in transport service used in the

market) the abi l i ty to

generate

profi t

was

also considered.

In

this


19/50

5

analysis

based on 1978 and 1979

financial data,

approximately 3,000

companies were

studied.

The analysis showed that

in

1978 over 430

companies had losses in operating income

while by

1979

nearly

730

companies

(an

increase

of

69.8

percent)

fell

to

negative

levels

of

operating

income. Indications from published

quarterly

statements

are that the number of

firms

suffering

operating

losses will remain

high.

Complicating

the

situation,

many _ICC

regulated motor

carriers

wrote

off

the value

of

their

operating

rights in

1980 These

write-offs will

tend

to add

complexity in

determining the

actual

financial state of the industry.

Impact of the

insurance

regulations on amall business.

Three

groups,

owner-operators,

small

businesses, and minority firms, are

categorized under

this heading.

They are

not

necessarily mutually

exclusive. Owner-operators are,

for the

most

part , not

thought

to

be

impacted

by the

regulations

requiring higher

levels

of insurance.

This

is

because

the

bulk

of

these small-businesses are

leased

to

for-hire motor carrier

companies.

Under the leaae arrangement

the

lessor

is protected by

the lessee 's

insurance.

Small and minority motor

carrier businesses

operating vehicles

in

interstate and

foreign

commerce range from Class I I I ICC regulated

motor

carrier_s, and exempt commodity carr iers ,

to

certain farm

operations, companies

conducting

intercorporate hauling, and

intrastate hazardous materials

carr iers .

The

latest count

by the ICC

ahowed that there were 18,688 Class l l carr iers . With respect to

each

of

the remaining three classes of motor carrier operations, no

exact count is available.


20/50

16

Insurance companies report

that

of the small number of

policies

renewed to date, few are experiencing other

than

minor

increases

in

premiums. t

is

not clear,

however,

that

thiR

observation

is based

on an even dis tr ibution of policy

renewals between

companies

of

varying

sizes.

t

is

possible that the early favorable reports

can

be

attr ibuted

to

the Secretary s determination to

p ~ o m u l g t e

regulat ions

requiring

lower levels

of

f inancial responsibili ty

during

the two

year period

July 1, 1981 to July 1, 1983., Coupled

with

these

two

favorable factors is the coincidence

of an equally

favorable

cyclical

phenomenon

in the reinsurance

industry.

That

important

sector

of the insurance industry

is reported

to

have capacity at this

time

suffic ient to minimize pressures

that

could produce

higher

insurance costs.

n the

other

hand, an unfavorable factor is the low cost

assigned r isk premiums available to motor carriers in at

least

f ive

States. Premiums in

these

assigned r isk States

are

competitive with

or

lower

than premiums

charged safe motor carr iers (voluntary

market). Unless these inequities

are corrected

oy State

action,

the

intent

of

the Act

will

be compromised in those States.

Further,

the period

since

the

regulat ions went

into effect

has

been

short.

There has not been suffic ient

time

for market forces to

come to a balance

such

that a meaningful safety assessment

can

be

made

In

addition,

a

true

understanding

of

the

actual reporting

of

accidents

to insurance companies

is not available. This

cr i t ical

factor would affect the

overall

experience

of the

insurance

companies

in today s marketplace.


21/50

7

Impact of

the

insurance

regulations

on aafety.

No

information

system

exists

that reports the number

of

unsafe motor carr ier

companies

forced_to

leave the industry

as

a result of the

higher

levels

of

financial

responsibility.

Because

of

this

and

the

complex

interaction

of

the many variables that influence

the industry,

(e .g . ,

fuel

prices, speed

laws,

the economy

innovation

and change within

the industry, and

the

large mix

of types

and

quality

of motor

.

carriers operating in this country)

the

assessment

task

has proven to

be complicated.

I t is possible that the number of accidents

will

not decline

dramatically as

a result of

the

financial responsibility regulation

becoming

effective

July 1, 1981. This

is because

as companies,

particularly the motor carriers with poor accident records, drop out

of the market many

of

the miles otherwise driven by these

companies/individuals will be absorbed by

other

motor carr iers . The

mileage and the risk

those

now

defunct

businesses once produced

will

be shifted

to

a number of

other

companies with higher or lower

accident

rate

levels. I t is possible the mix

o f ~ t h distribution

may

well result in a canceling effect . Thus while the Department

believes

that the

regulations requiring higher levels of

financial

I

responsibility will work

the

overall effect may well be masked from

view to al l but the ~ s t scrupulous industry watchers.

Part

of the

difficul ty

in

measuring

any change

that

might

occur

in the motor

carr ier

industry

as

a

result

of the newly regulated

levels of financial responsibility is that no system

exists,

except

for

analysis using

the Federal Highway Administration s motor vehicle

accident data f i le for determining whether or

not

a reduction

in


22/50

18

overall

accidents occurs.

In

addition, this approach takes

considerable

time because nearly

one

year

elapses

in

aggregating al l

of the l as t full

year s accident reports and

editing, correcting,

and

compiling

the data. In al l

pract ical i ty,

such a study should

cover

a

span

of at least three years in order to ascertain the causal

relationship

and

significance of

any trend that develops. Further,

the correlation

of accident

his tories ~ specific carriers will only

be possible with

those

companies that are registered in the

FHWA s

MCS-50-T accident

f i le

and

that

have reported

their

accidents in

accordance with Part 394 of the Federal Motor

Carrier Safety

Regulations.

Ability

of the insurance industry to

provide the

required

coverage. The

~ n s u r n c e

industry will be able

to

insure the

in ters ta te and certain in t ras ta te motor

carr iers ,

to the levels

required, under

the

financial

responsibility

regulat ion. The

insurance

industry

is

uncertain

how many

companies

will

be

required

to increase their insurance. I t is certain, however,

that

many

of

the

larger,

e .g .

Class I and

Class

I I motor carriers

are

currently

insured to levels

equal

to or in

excess of the

minimal levels

required by

the regulation.

The insurance industry will be able to meet their commitment in

part ,

because the

Secretary

has set l imits below the

levels

cited in

the

Act

as well

as

allowing the

aggregation of insurance.

Setting

lower l imits permits the small insurance companies

to stay

in the

market

to underwrite

primary

insurance

for

many of the

small

motor

carr iers .


23/50

9

The

abil i ty

to aggregate

insurance

will

heighten competition

among

insurers

tending

to

keep

rates

lower

while at

the same time

spreading r isk among the underwriters. Motor carriers

excluded

from

the voluntary insurance market due to insufficient funds to pay the

premiums, or

simply

sophisticated companies

optimizing

their insurance

dollars will

be

able

to

purchase

basic

l i b i l i ty

protection

thereafter buying umbrella coverage at m ~ ~ lower

rates .

The sum

of

the basic and umbrella insurance coverages will

bring the

company s

total insurance package up to

or

above the required

levels.

Establishing

lower

limits

for the

two-year period

will

prove

helpful to

the

insurance industry. The industry has indicated that two

years

should

provide the underwriters sufficient

time

to

acclimate

to

the

new

l imits

e.g.

establish

new

reinsurance

treaties

at the higher

levels train their staff and

field

agents and update policy and

procedures.

This

interim preparation will

also

provide for an easier

transit ion to the higher levels that will go into effect July 1 1983


24/50

20

Secretary's

Discussion of Rulemaking Issues

Safety

performance vs. i n ~ r e s e d premiums

The legislat ive history of Section 30

indicates

a congressional

bel ief

that increased financial

responsibility

will

lead

to improved

safety

performance

as unsafe carriers will incur higher premiums than

safe carr iers or

will

be unable

to obtain

coverage. Numerous

commenters took exception

to the

congressional

bel ief

stated

above.

The

American

Insurance

Association

AlA) whose

membership,

i t

claims,

writes

41

percent

of

al l motor

carr ier

coverage,

made

the

following

statements

which

generally

su

up

the position on th is

issue taken

by

the

other respondents

to the Department's

rulemaking

action.

The congressional bel ief

LS

not substantiated

by the facts .

Individual

insurers

can refuse

to voluntarily

provide

coverage based on

objectively poor accident

history, financial ins tabi l i ty

or

failure

to

meet prescribed safety standards. However, al l motor carriers have

access to

insurance.

Every

jur isdict ion

provides for the

assignment of

risks through a residual

market

mechanism commonly

referred

to

as

assigned r isk plans).

I t

must be emphasized that anyone, regardless of

accident history

or financial

stabi l i ty must be

provided

insurance

protection for the l imits and coverages

required

by law. There are

only two conditions that would

preclude coverage through

a residual

market

plan:

-Failure to maintain a valid operator 's permit; and

-Failure

to pay premium.

Based

on

this factual

observation,

the congressional

belief that

motor carr iers will be unable

to obtain

coverage

is

incorrect.


25/50

21

The second

premise

of congessional

intent was that 'unsafe

carriers

will

incur higher premiums.'

This

belief, likewise, is not

factual in a11 instances. All rate

levers

upou which premiums

are

based in

the

residual

market are subject to the

prior approval

of the

individual State

insurance

regulators.

In

several States the residual market rate

levels

are

competitive

.

with or

lower

than the voluntary market

~ t e

levels. (For

example,

in

New Jersey the residual market

rate

level is 20.4 percent

below;

in

Wisconsin 17.2 percent

below

[the voluntary

market].)

Whether

poli t ical ly

or

socially

motivated, the

residual

market

rate

level

is

ar t i f ic ia l ly

depressed,

result ing

in

a

real

world

situation that is not

attune with the congressional belief .

No

comments were

received to contradict the statement made by the

AlA.

t should

be

noted,

however,

that the

majority

of

the

State

residual

market

rate levels

are

higher than those of the voluntary

market. t is believed that there is some incentive,

though

perhaps to

a lesser degree than

originally contemplated

by

the Congress, that

will

lead

to

improved

safety performance.

Interstate

transportation and interstate commerce

The

u.s. Postal Service

(USPS)

raised the

question

of

jurisdiction

in

their

comments

to ~ h e

Advance Notice

of Proposed

Rulemaking

ANPRM)

published in the Federal

Register

August 28, 1980 (45

FR 57676).

The

USPS

stated:

The aforesaid notice uses such terms as

' in terstate or

foreign

commerce' and ' in ters ta te or foreign transportation. ' Motor

carr iers who transport

mail under contract

with the U.S. Postal

Service,

do not transport hazardous

materials

as

defined in


26/50


27/50

23

through movements are movements

in

interstate

commerce.

The

DOT does not believe

that Congress

intended to exclude

such

interstate commerce movements from jurisdieiton merely because

the

word commerce was

not

used

in the

jurisdictional

statement.

In

support

of this we

rely

on

the

fact

that even though the words

interstate commerce

were

dropped from

the jurisdictional

statement

in

the Interstate ommerce

Act

when i t was re7odified,

no

substantive

change

was

intended. Public Law 95-473, Section

3a,

92 Stat.

1466.

The 1978 revision

of

the

Interstate ommerce

Act

speaks

only of

transportation by motor

vehicles,

i t does not use the term

interstate commerce. e see that the word

transportation

as used

in the revised

and

recodified Interstate

ommerce

Act

refers

to

that

transportation

which is subject to I jurisdiction

i .e .

interstate

and

foreign

commerce). The

use of the

term transportation in

l ieu of

the terms interstate

or foreign commerce indicates a

congressional

belief

that

these terms

are

to be used synonymously, unless otherwise

noted.

A

similar congressional

'belief is evident in the Motor Carrier Act

of

1980. Throughout

the

Act, the

tenn

transportation

is

used

over

100 times, frequently in phrases which

strongly reflect the

general

congressional intent

of

interstate

or

foreign commerce. For example,

in Section 30

of

the Act,

Congress

restricts

the

DOT's authority

to

require

minimal

levels

of

financial

responsibili ty

to ,

the

transportation

of

property (nonhazardous)

for

hire by motor

vehicle

in

the

United States

from a

place

in one State

to

a place

in

another

State,

from a place

in

a State to

another place in

such State through

a place outside of such

State, or

between a place in a State and a


28/50

24

place outside the United

States.

I t should

be

noted that

this

description

of the

DOT's authority

to

regulate minimum levels

of

financial responsibi l i ty for for-hire transportation of

nonhazardous

property

is

nearly

identical

to

the

definitions

of

interstate

and

foreign

commerce found in the Motor Carrier Act of 1935, and

the

statement of

ICC jur isdict ion

found in the 1978 revision and

recodification

of

the Interstate Commerce Act.

Other

examples

of

strong congressional intent regarding the meaning of the term

transportation are contained in the Motor Carrier Act

of

1980, not

the least

of

which is the

phrase transportation

subject to the

jur isdici ton

of the Commission ( i .e . in terstate and

foreign

commerce)

(emphasis

added)

which is

used

13 times throughout the Act.

On

the

other

hand,

the

term

commerce

is used

less than 10

times in

the Motor

Carrier Act of 1980.

I t 1 s our bel ief

that

the terms interstate and foreign cormnerce

and in terstate and foreign transportation are meant to be used

interchangeably.

Under the DOT's defini t ion of the jurisdictional

statement,

al l

contract mail

carriage within a single State would be subject

to

the

insurance

requirement

because of the presumption

that

al l sacks

of

mail

contain at least

one

le t te r

going

to

or coming from a

location

outside

the State. This conforms to the

DOT's previous

interpretat ion

concerning

jur isdict ion

over

contract

mail

haulers

under

the

safety

provisions of

the

Interstate Commerce

Act (37

FR 11781).

On

December 23, 1981 the USPS was advised of the DOT's posi t ion.

The

USPS

has

indicated

that the DOT's posit ion is

acceptable.


29/50

5

Intercorporate Hauling

The subject

of

whether intercorporate-hauling should

be considered

private or

for-hire

carriage was

thoroughly

discussed and settled

in

the NPRM published

in

the

Federal Register,

Monday, January 26,

1981.

The NPR proposed to subject intercorporate hauling

of

property


or

foreign commerce to the financial

responsibil i ty requirements applicable

to

for:hire carriage, regardless

of whether such intercorporate hauling would be regulated by the ICC.

Section 9 of the Motor Carrier Act of 1980 exempts from

ICC

economic

regulation

compensated

intercorporate

hauling

by one member

of

a

corporate

family for

another

member

of that family

when each member is

100 percent owned by

the parent, provided (1) the

parent corporation

notif ies the

ICC

of i ts

intent

to provide such transportation, (2) a

notice to that effect is

published in

the

Federal

Register, and (3) a

copy of such notice

is

carried in the cab of all vehicles conducting

such

transportation.

t is the position of the Department that the

legislative history

of Section 9 makes clear that compensated intercorporate hauling should

be

treated

as

private

carriage

and be exempted from the ICC s economic

regulation i f

certain

conditions

are met. Section 9 does

not

address

the DOT s

safety

r e g u l a t i o ~ s

Section

9 does not

state that

compensatea intercorporate hauling is private carriage,

simply

that

such carriage is

not

subject

to

ICC economic regulation.

t is believed

that Section

30(a)(l) was intended to apply

equally

to for-hire

and intercorporate

hauling si tuat ions.

Clearly the scope

of

Section 30 is beyond that which is regulated by the ICC. Section 9

of

the

Motor

Carrier Act specifically

provides

that the ICC

retain

jurisdict ion with respect

to

insurance

over

ICC

regulated

carr iers;


30/50

6

however, the

I is

precluded from requiring

levels

of financial

responsibi l i ty

which

are less

than

those

established

by the Secretary

of Transportation pursuant

to

the

provisions of Section

30.

Section

3

is

a

safety

related

rule

and

should

be

broadly

interpreted.

I t

is

clear tha t

Section

3

was

written to prevent a deterioration in safety

of operat ions.

Private carriage

is

that carriage performed by a nontransportation

service enti ty . In the case

of

private carriage,

l iabi l i ty

which

may

attach to the ent i ty

as a

resul t

of a

commercial

motor vehicle

accident

could

be

sat isf ied

from

the

nontransportation assets

of

the

ent i ty.

In

the instance of intercorporate

hauling,

the ent i ty may have divided

i t se l f into separate

corporate

ent i t ies . Regardless of the

other

beneficial reasons for adopting

such

a structure, one resul t , in some

instances,

could be to shield

the

parent and other subsidiaries from

l i ab i l i ty

for the claims against the transportation enti ty . In this

regard,

intercorporate hauling

is

more l ike

for-hire

carriage

than

private carriage.

For

th is

reason, the Department s

position

is

that

there is a

stronger

policy argument in the area of-public l iabi l i ty

insurance

for

maintaining that

intercorporate

hauling should be treated

as for-hire carriage

rather than

private

carriage.

The Department notes that as a safety matter

i t

irrelevant

whether

a

commercial vehicle

owned and operated by a for-hire

carr ier an intercorporate hauler, or a private carrier . (See

discussion of private

carriage

below, page 36.) Given

the

information

available through the rulemaking

process

to

the

Department, i t makes

more sense to t reat intercorporate haulers as for-hire carriers rather

than

private carr iers .


31/50

7

Should Congress

adopt

the Department's recommendation

to include

privete

carriage of property

(non

hazardous) under Section 30 of the

Motor

Carrier

Act of

1980 (see

page

40,

Recommendation

1),

auch

action

would

assure

the public

is

protected

fully

for

l iabi l i ty

claims

against

al l motor carriers subject to

the

Act without exemption.

Increased Levels

of Financial Responsibility for Certain

Hazardoua

Materiala

In the

preamble

of

the

final rule the Department noted that,

because of the limited time

available

and the aubstantial amount

of

time needed to review the hundreds of hazardous materials l is ted in 49

CFR 172.101, those materials not specifically named in Category

2

of

the Schedule of Limits will

be

subject to

the

lower

limits

until

specific commodity determinations can be made. The Department

solicited information for the identification of those hazardous

materials which, because of their risk or hazard, should

be

required

to

carry different limits of l iabi l i ty coverage.

Comments and

petitions

for

rulemaking

have

been

received

in

response

to

this

solicitation.

t

is apparent, baaed

on the comments

received

and

stat is t ics available to the Department,

that

certain

materials presently

requiring

the lower

l imits of

l iabi l i ty should

indeed be required

to

maintain

the

higher limits. n example,

noted

by

one c9mmenter

the in

bulk

transportation of gasoline,

which

because

of

the

inherent

danger should

an

accident

occur coupled with

the

high

exposure of these vehicles,

is

potentially more

dangerous than

some

substances

l isted

in

Category

2 and

requiring higher l imits .

t

is the

Department's intention

to

address

this matter when action has

been

taken

on the pending peti t ions .


32/50

28

Aggregation

(Layering) of required

coverage

The

public was

asked,

in

the Department's ANPRM, i f motor carr iers

should

be allowed

to aggregate

coverage

up to the required levels by

using

more

than

one insurance company. Section 30 of the Motor Carrier

Act provides no specif ic guidance on this procedural question.

Seventy-nine

percent of

the respondents

commenting on

aggregation

said

insureds

should

be

allowed

to

aggregate coverage

by

using

more

than

one insurance company. The

respondents

argued that

allowing

aggregation of

coverage

is

necessary to

preserve

the

voluntary

insurance market and

allow

trucking companies to obtain coverage

th is market.

In preparing

the

NPRM,

Section 387.7(d)(3), the

Bureau

of

Motor

Carrier Safety (BMCS) stated that proof of financial responsibility

shall consist

of a

standard endorsement,

form MCS-90, signed by the

insurer

and insured. This language

effectively precluded

aggregation

of

required

coverage.

In

response to the

NPRM

both the

trucking

and

insurance

industries

objected to

the refusal

to

allow

the

aggregation coverage for

the

following

reasons:

0

Under current practices a single insurer rarely provides 5

million coverage

in a

single policy; instead, coverage at th is

level

is generally

purchased through

more

than one

insurance

company who assumes

responsibi l i ty for

different

layers of

the

tot l

coverage.

Many insurance companies

will be

unable

or

unwilling to

underwrite

policies of 750,000, 1

million,

and

5

million.

These companies

will

ei ther

be forced out of, or withdraw from, the voluntary


33/50

9

market, thereby

reducing the

availability

of

insurance. This

in

turn will

reduce competition,

cause premiums

to r ise

and force

many

trucking

companies

into the residual

market

or out of

business.

Both insurance and

trucking industry

spokesmen

predicted that

disallowance

of

multiple

endorsements

would be a aevere blow

to amall

businesses

in their

respective

i n u s t r i e s ~ They generally

agreed

with

the Insurance

Company

of

North

America which predicted that under a

single endorsement (no aggregation)

rule

the

smaller

insurance

companies would be forced out of the

voluntary

market, throwing the

high limit business to a limited number of companies

capable

of

providing

such

limits.

I t was further predicted

by

other

respondents that the

limited

number of

insurers

capable

of

extending

coverage

would either

avoid

underwriting small

motor

carriers and

new businesses

which

represent

uncertain r isks, or would

require

premiums

so

high that these companies

would

be

unable

to afford insurance.

In i t s

final

rule the MCS announced that

i t

was prepared to

accept

multiple endorsements

as evidence of

compliance i f when

combined they brought

the

insured's

coverage.

to the

minimum level

required.

This decision was based on evidence from interested

parties,

independent experts,

and

the Bureau's own

Regulatory

Evaluation

which

indicated

that

a

single

endorsement requirement

would

(1) have

serious

disruptive effects on the

voluntary

insurance market, and (2)

force

many small

businesses in

both

the

insurance and motor

carrier

industries out

of. the

voluntary

market,

and

in

many

eases,

out of

business. In discussing

i t s

position

on this question in the

preamble


34/50

30

to

the

final

rule ,

the

MCS noted that i t did not accept the

argument

advanced by the ICC that the

acceptance of

multiple endorsements as

evidence of compliance will leave the public inadequately protected

against

potential losses.

Allowing aggregation

will allow many

small

or medium-sized

insurance companies to enter or remain in

the

motor

~ r r i e r

marketplace, thereby enhancing competit{on. I t

is

our bel ief that

allowing aggregation affords the trucking industry additional economic

advantages

which in turn allows easier entry

for

new motor carr ier

ent i t ies

Self-Insurance

The issue of self-insurance was addressed from the onset of the

rulemaking

process and

the

NPRM contained a

proposal that

would

allow

a

motor carrier

to

be a

self- insurer .

I t

was after consideration

of the

comments received and

data

available that

the Department

decided not

to

allow such

evidence of

financial responsibility.

The rationale

for

th is

exclusion

was

based

on

the recognition

that

the public

could

not

be assured adequate

protection under such

an agreement since there

is

no feasible

way

for

a overnment agency to predict the future

solvency

of

a

carr ier

when

even

major lending ins t i tut ions , stock brokers, and

investors cannot.

Such

predictions

would

be

necessary to

assure

public

protection

since i t i s not uncommon

for l i t iga t ion to go on for years

before a settlement is

reached

and there is evidence

that

even

well

established

ent i t ies

can

encounter

financial

reversals

in just a few

years time.

Furthermore, i t

was

evidenced in

comments received throughout

the

rulemaking process

that

a number of

viable

alternatives to


35/50

3

self-insurance

exist

which would adequately safeguard the public

while

providing motor carriers with considerable f lexibi l i ty.

Monitoring Compliance

t

is

clear that

Congress

intended

that

every motor

vehicle

subject

to Sections

29

and 30

of the

Act would be

covered

by

the

appropriate

level of financial responsibil i ty coverage before being

operated

on the

public highways.

Respondents to

the rulemaking action

state unequivocally

that a program

to accomplish

this must be

init iated

by

the

DOT i f

the

intent

of

Congress was to be met.

Respondents

to

the NPRM agreed that the DOT should develop a

system

to

monitor and enforce compliance with Section 30 of the Motor

Carrier Act of 1980. Sixty five percent of those offering

opinions

said

DOT

should

adopt ICC s

certif ication

and

filing system;

14 percent

recommended that

drivers

be

required

to carry a copy of the

cert if icate

of insurance with

them

while

on

the job;

9

percent

said companies

should be required

to

f i le with State Insurance Commissions; and 7

percent said a

sticker should

be displayed on

the windshield of

I

regulated vehicles.

All three

insurance

experts, retained

by

the BMCS under

contract,

recommended the use of a certif ication p r o r ~ similar to

the ICC s

to

verify compliance. One of the

insurance

experts stressed the

i ~ p o r t n c e of a-statutory f i l ing

requirement

which defines the

insurance

company s

obligation

in

terms

of the

language

of the Act.

He

added that the cost

of

the

filing system

could be

covered

by a nominal

f i l ing fee.

The BMCS received many unsolicited opinions and suggestions from

respondents concerning compliance.

Respondents

to the NPRM shared

the


36/50

32

v1ew expressed in

responses

to the NPRM

that

the MCS should

establish

procedures for

1) monitoring

compliance with

the rules, (2)

identifying

cases of noncompliance, and

(3)

imposing penalties on

companies

who

continue to operate

in

violation

of the

rules.

Again,

respondents

from both industries and Government

agencies

recommended a

cert if icat ion program

similar

to that

now

used by the lCC whereby:

Regulated

companies are

required to

f1le

a

cert i f icate

of

insurance

with

the regulat ing agency;

0

The proof of insurance must be received by the regulating agency

before

the

carr ier receives operating authority; and

These filings

are

entered

into

an automated

f i le

which is

updated

regularly

based on information

supplied

by insurers

on

behalf

of

their

motor

carr ier clients .

t is agreed that a

cert i f icat ion

program similar to the one

currently maintained

by the ICC would be an effective way of

implementing

the

congressional

intent

that no

o t ~ r

carrier

subject to

the

Act

will

operate

a

motor

vehicle

unti l

the

motor.carrier

has

obtained

and has in

effect

the minimum levels of

financial

responsibility

as required by

the Department s regulations.

However

to

in i t ia te

such an undertaking at th is time would be

i l l-advised

since

such

action would be

tantamount to imposing

a regis tra t ion

tax

on al l

those

affected

by the Act and would

clearly

increase the

paperwork

reporting burden of

the

trucking and insurance

industries.

The Secretary has chosen to

adopt

a less burdensome program for

the f i r s t 2 years. Each motor carr ier is required to maintain, at i t s

principal place of business, an endorsement, form MCS-90 attached to

i t s policy of insurance,

or

a surety bond, form MCS-82. Such forms


37/50

33

will be reviewed by FHW field staff personnel whenever an audit

of

the

motor

carr ier s operations

is

init iated or whenever a motor vehicle

accident is

investigaLed.

Additional

investigations

y

those

States

that

have adopted the Federal

Motor

Carrier

Safety Regulations are

forseen.

I f

at the end of the f i rs t years following implementation,

a pattern

of

noncompliance is clearly evident, the Secretary

will

address

the problem and

seek whatever administrative

or

legislative

remedies are necessary to affect

compliance


38/50

Secretary

1

s Recommendations

Vehicles exempted by weight

l imitation

34

Motor vehicles having a

gross

vehicle weight

rating GVWR)

of less

than 10,000

pounds are exempt from the provisions of Section 3

Section 3 f ) ) . A number of insurance industry representatives

questioned why vehicles having a

gross

vehicle weight rating of less

than 10,000 pounds were

being

exempted from r e g u l t ~ o n when those

vehicles are capable of

transporting

Class A and B explosives in

quantities

that

could

cause

extensive property

damage

and/or loss of

l i fe . Those representat ives added

that the

transportation

of

explosives in

small vehicles is an every day occurrence. The

Department shares their concern. Additionally,

those

same small

vehicles

are capable of

t ransport ing

poison

gas, radioactive materials,

hazardous substances and

hazardous

wastes in quantit ies suffic ient

to

present

a real

danger

to the safety

of

the general public.

The Inters ta te Commerce Commission ICC),

the

oply

Federal

agency

to

regulate motor carr ier f inancial

responsibility coverage

prior to

the passage of the Motor

Carrier

Act of 1980, does not allow exemption

from i t s rules based on GVWR. The ICC has regulated authorized

for-hire carr iers

for

many years. The

failure

of the Commission to

adopt

such an exemption

recognizes

that the

transportation

of

small

quantit ies

of

extremely

hazardous

commodities

presents

a

real

danger

to

the safety of the general public.

The Department believes that the

public

safety would be bet ter

ensured i f the exemption in paragraph

f) of

Section 3 did not include

vehicles transporting any quanti ty

of

Class A

or

B explosives, any


39/50

quantity

of poison gas,

large

quantity

radioactive

materials, or

rep;rtable quantit ies of hazardous wastes, or

hazardous

substances.

Foreign transportation of h z r ~ o u ateriale

5

t

is

clear

that

Congress

intended

the

transportation

of hazardous

materials,

substances,

or

wastes,

especially those

transported

in bulk

quantities, to

be

covered

by

the minimum levels

of

financial

responsibility. However the

foreign

traasportation of

hazardous

materials

was omitted from paragraphs

(b)(l)

througp (4)

of

Section 30.

This

causes concern within

the

Department since now

the

transportation

of

all reported hazardous

materials,

substances,

or wastes are not

subject to the minimum levels of financial responsibility of the

Act.

The Department

of Transportation presently regulates the

transportation

of hazardous materials moved

in

foreign commerce.

Concurrently, the

Department

generally regulates the safety of

operations

of

all

commercial

motor vehicle

movements

in

foreign

commerce.

The language

of paragraphs

(b)(l)

through (b)(4) -

1. allows a

foreign

government

to

set the

f i n ~ n c i l

responsibility

requirements for foreign

motor carriers

operating in

this

country;

2.

creates an inconsistency in

the

Department s overall safety

program; and

3. creates a

possible

economic disadvantage for domestic motor

carriers.

Therefore, i t is

recommended

that

paragraphs

(b)(l)

through

(4) of

Section 30 be amended

to include

the foreign transportation

of

hazardous materials.


40/50

6

Private carriage

Section

30(a)(l)

of the Act clearly exempts

the

interstate and

foreign transportation of property

(nonhazardous)

by private motor

carr iers

from

the

minimum

levels

of

financial

responsibility.

The

interst te movement of

property (nonhazardous)

by private carriage

makes up a

substantial

segment of the

motor carr ier

industry.

Many

respondents (trucking companies and associations,

insurance

companies

and

associations,

and

labor

unions)

urged

the Department

to

recommend

to

the Congress that private carriage of this type

be

included under

Section

30.

The American Trucking Associations, Inc. ATA) contended

that

private

carriage should be

included

so that the

interests

of

public

safety would be adequately served. The International

Brotherhood

of

Teamsters

(IBT)

strongly recommended such an inclusion.

The IBT stated, To

exclude

a

significant

segment

of

the industry from

this regulat ion is an anomaly and works against the Congressional

purpose espoused in Section

30.

Several insurance

companies claimed

that there

is

nothing inherent

in

the

differences in

risks between private and for-hire

carriage

that

affects

safety

performance.

Therefore,

they

urged

the

Secretary to

approach

the

Congress with a recommendation to include private carriage

of property

(nonhazardous) under

Section 30.

Several other

commenters

stated that

i t

made l i t t l e sense to

exclude

private

carriage since

i t

would make

l i t t l e

difference

to

an

injured party

whether

or not

the

truck involved was engaged in private or

for-hire

carriage. The

Department is in agreement

with

the statements made above. To

exclude

a

large

segment of

the

industry from

this regulat ion dramatically

and

negatively affects the

protection afforded

the public.

Presently

the

Department, through

the Federal Motor Carrier Safety Regulations,


41/50

7

generally regulates

the safety

of operations of al l

motor carriers

engaged

in the transportation of

property


and fcreign commerce. The exclusion of private carriage of property

(nonhazardous) from

Section

30

creates

an

inconsistency

in the

Department's

overall safety

program.

t should

be

noted,

however

as

pointed out in the discussion

of

intercorporate hauling above

that

an argument can be made

that ,

inasmuch

a s ~ r i v a t e

carriers can be

required to satisfy

claims or judgments

of l iabi l i ty

from

their

nontransportation

assets and

in

view

of the fact

that

the

nontransportation

operations of

such a

business

entity

is

i ts

primary

operation,

private

carriers possess an

incentive to

operate

their

motor

vehicles safely

which for-hire motor carriers do not share. However

the

DOT believes that

there remains

a question of equity

involved

with

such

an exclusion.

For-hire

motor

carriers of property (nonhazardous)

could

be subjected to an economic

disadvantage

i f

the exclusion is

allowed

to

remain.

Finally,

there

is

no evidence, based on the

accident data

maintained by the Department's Bureau q Motor Carrier

Safety, to

warrant such an

exclusion

from Section 30. Therefore, i t

is

recommended

that

Section

30(a)(l) of the

Motor

Carrier

Act of 1980

be

amended

to include

the private

carriage o f ~ p r o p e r t y (nonhazardous)

in interstate

or

foreign

commerce.

Additi'onal Exemption from Regulation

Section

30(b)(3)(B) of

the Act

gave

the

Secretary the

authority

to

effectively exempt the intrastate (nonbulk) transportation of

hazardous

materials,

substances, and wastes from

the

provisions of

Section 30.

The

Secretary so

exempted this

class of carriage in 49 CFR 387.3(c)(2).

~


42/50

38

The

fOregoing

language

may have

created an unexpected

inequity

in

the

regulations.

The Secretary proposes to eliminate such an inequity by

congressional

authority

to

t i e the transportation of

nonbulk

quanti t ies

of hazardous materials,

substances,

and

wastes in interst te

commerce

to the Department s hazardous materials placarding requirements. With

the

congressional

authority,

the

Secretary, pursuant to rulemaking,

would require

motor vehicles

transporting nonbulk q u ~ n t i t i s of

hazardous

materials,

substances,

and wastes

to be

covered by the

appropriate level of financial responsibi l i ty only when the vehicles

would be subject to

the

placarding

requirements

found at 49 FR

172.504. Such action would effect ively exempt any vehicle from the

financial responsibi l i ty

requirements

when

transporting less

than 1,000

pounds (aggregate

gross weight) of one or more

materials covered

by

Table 2 of 49 FR

172.504.

Such action would effect ively exempt from

Federal

regulation,

the

plumber,

the

dry

cleaner , . the

hardware

store

operator, and the farmer who by necessity, crosses

State

l ines with

small quantities of hazardous materials, without

compromising

highway

safety.

From a public safety point of view, there is no difference between

the intr st te and interst te transportation of small

quantities

of

hazardous materials,

substances,

or

wastes.

The exemption

authorized

by the Act intended to exempt those motor carriers (private or for-

hire) that had

not

previously

been

subjected to

a Federal requirement.

e

can

see no

operat ional

difference nor decreased hazard potential

between the intr st te transportation of nonbulk

hazardous

materials

from Trenton, New

Jersey

to Camden New Jersey, and the interst te


43/50

39

transportation of the aame hazardous materials from

Trenton,

New Jersey, to

Philadelphia,

Pennsylvania. The only

difference

is the

fact

that

the

intrastate motor carrier

is

exempt from

regulation

and

the

interstate motor

carrier

is

subject to

Federal

regulation

and must

have in effect a substantially higher level of financial responsibility

coverage.

,

M o d ~ f i c a t i o n of inimum Statutory Levela

Sixteen

months have

elapsed since the

Motor

~ r r i e r

Act

of

1980

was signed into law. Four months

have passed since the Department s

implementing

regulations

became

effective.

The

Secretary

is

satisf ied

that the minimum levels of financial

responsibil i ty

established for

motor

carriers is (1) sufficient to adequately satisfy l iabi l i ty

amounts covering public l iabi l i ty, property damage, and environmental

restoration, while (2) at the

present

time placing minimal economic

hardship on either the motor

carriers

subject

to the provisions of the

Act or the insurance companies

who service those

motor carr iers , and

(3) not adversely

effecting

small and minority moto; carriers and

independent owner-operators.

Since

so l i t t l e time has passed

aince implementation

of the

provisions

of Section 30

of the Act, the S e c ~ e t a r y

cannot, with any

degree of certainty, project -

1.

what

levels of financial

responsbility

will

be adequate to

protect

the public

as

of July

1,

1983;

2. the motor carr ier s abil i ty

to

obtain higher levels of

coverage

ahould

the mandated 1983 levels become

effective;

3.

the

insurance industry s abil i ty to provide coverage at the

higher

mandated levels;


44/50

40

4. what the impact o

t

mandated higher

levels will

be on small

and minority

motor ca:r iers

and independent

owner-operators;

and

5.

what the impact

o

t - ~ mandated higher

levels will be on small

insurance

companieb.

The Secretary therefore recommends that Section 30 of the Act be

amended

to

allow the minimum

levels of

financial responsibi l i ty

established by

the

Secretary

remain in force

af ter June 30

1983

and

permit

the

Secretary

thereafter

to

in i t ia te

rulemaking

relative to

requiring

different

levels

of

financial

responsibi l i ty

being required

as

the needs of

public

safety

dictate .

Such action would allow the

Secretary

to

obtain current valid substantive information upon which

reasonable decisions could be made that would provide adequate

protection

for

the

public

and not

adversely affect ei ther the motor

carrier or

insurance

industry. Future

increased

limits would be based

on a

public

record compiled according

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