[Federal Register Volume 75, Number 119 (Tuesday, June 22, 2010)]
[Rules and Regulations]
[Pages 35318-35329]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-14866]
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DEPARTMENT OF TRANSPORTATION
Federal Motor Carrier Safety Administration
49 CFR Parts 365 and 387
[Docket No. FMCSA-2010-0189]
RIN 2126-AB21
Cargo Insurance for Property Loss or Damage
AGENCY: Federal Motor Carrier Safety Administration (FMCSA), DOT.
ACTION: Final rule.
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SUMMARY: The Federal Motor Carrier Safety Administration eliminates the
requirement for most for-hire motor common carriers of property and
freight forwarders to maintain cargo insurance in prescribed minimum
amounts and file evidence of this insurance with FMCSA. Household goods
motor carriers and household goods freight forwarders will continue to
be subject to this cargo insurance requirement.
DATES: Effective March 21, 2011.
FOR FURTHER INFORMATION CONTACT: Ms. Dorothea Grymes, FMCSA Insurance
Team, Commercial Enforcement Division, telephone (202) 385-2400.
SUPPLEMENTARY INFORMATION:
Availability of Rulemaking Documents
For access to the docket to read background documents or comments
received, go to http://www.regulations.gov at any time or to 1200 New
Jersey Avenue, SE., Washington, DC, between 9 a.m. and 5 p.m., Monday
through Friday, except Federal Holidays.
Entities That Are Discussed in This Final Rule
This proceeding applies only to for-hire motor carriers and freight
forwarders as defined in 49 U.S.C. 13102. The term ``motor carrier''
means a person providing motor vehicle transportation for compensation.
(Sec. 13102(14)). The term ``freight forwarder,'' in Sec. 13102(8)
means a person holding itself out to the general public (other than as
a pipeline, rail, motor, or water carrier) to provide transportation of
property for compensation and in the ordinary course of its business--
(A) Assembles and consolidates, or provides for assembling and
consolidating, shipments and performs or provides for break-bulk and
distribution operations of the shipments;
(B) assumes responsibility for the transportation from the place of
receipt to the place of destination; and
(C) uses for any part of the transportation a carrier subject to
jurisdiction under 49 U.S.C. subtitle IV-Interstate Transportation.
The term ``freight forwarder'' does not include a person using
transportation of an air carrier subject to part A of subtitle VII of
title 49, United States Code-Aviation Programs.
Of the approximately 252,600 total for-hire carriers and freight
forwarders, there are about 166,700 for-hire motor carriers and 1,600
freight forwarders registered with FMCSA to provide transportation or
services that could be subject to cargo insurance requirements if FMCSA
fully implemented its authority to require motor carriers and freight
forwarders subject to 49 U.S.C. 13906(a)(4) and 13906(c)(2). See Table
1 below. Of these, about 154,700 entities (contract only and ``exempt''
type) have not been subject to the cargo insurance requirements in the
past. About 97,900 of the 252,600 entities are currently subject to the
cargo insurance requirements. About 4,000 entities have authority to
transport household goods, which are defined at 49 U.S.C. 13102(10).
[[Page 35319]]
Table 1--For-Hire Carriers and Freight Forwarders by Authority and Type
[as of February 2009]
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Cargo insurance required Number
Active Authority Type Total % of total ---------------------------------- affected by
Before After rule
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Motor Common Only.......... Household Goods..... 3,600 1.4% Yes............ Yes............
Carriers..........................
Non-Household Goods. 76,035 30.1% Yes............ No............. 76,035
---------------------------------------------
Contract Only........ .................... 70,400 27.9% No............. No.............
Both Common and .................... 16,600 6.6% Yes............ No............. 16,600
Contract.
``Exempt''........... .................... 84,300 33.4% No............. No.............
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Freight ..................... Household Goods..... 435 0.2% Yes............ Yes............
Forwarders........................
Non-Household Goods. 1,200 0.5% Yes............ No............. 1,200
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Source: FMCSA L&I Database Report 4284......................................... ~252,600 100% ............... ............... 93,800
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``Exempt'' for-hire carriers, are not subject to 49 U.S.C. Subtitle IV, Part B, ........... ........... % Affected by Rule 37.1%
and are not required to maintain cargo insurance.
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FMCSA evaluated various combinations of these entity populations
along with the benefits, impacts, and potential registration and
enforcement issues arising for each combination of alternatives. After
consideration of all the comments to the docket, the Agency has decided
to subject only household goods motor carriers and household goods
freight forwarders to the cargo insurance requirements for the reasons
given later in this document.
Legal Basis for the Rulemaking
Cargo insurance requirements for motor carriers were first
authorized in the Motor Carrier Act of 1935 (August 9, 1935, Pub. L.
74-255, 49 Stat. 543 (1935)), which brought motor carriers and brokers
under the jurisdiction of the Interstate Commerce Commission (ICC).
Section 215 of the 1935 Act authorized--but did not mandate--cargo
financial responsibility requirements for common carriers subject to
ICC jurisdiction. The ICC exercised its statutory authority by
establishing minimum cargo insurance requirements for common carriers,
which are now codified at 49 CFR 387.301 and 387.303.
Cargo insurance requirements for freight forwarders were first
authorized by a 1942 statute amending the Interstate Commerce Act
(ICA), which brought freight forwarders under the jurisdiction of the
ICC (Pub. L. 77-558, 56 Stat. 284, May 16, 1942). The 1942 Act added
Section 403(c) to the ICA, which authorized--but did not mandate--the
ICC to establish cargo financial responsibility requirements for
freight forwarders subject to ICC jurisdiction. The ICC established
minimum cargo insurance requirements for freight forwarders in 1944 (9
FR 14548, December 13, 1944). These requirements are now codified at 49
CFR part 387, subpart D.
Section 103 of the ICC Termination Act of 1995 (Pub. L. 104-88, 109
Stat. 803) (ICCTA) terminated the ICC and transferred jurisdiction over
motor carrier and freight forwarder cargo insurance to the Secretary of
Transportation, who delegated this authority to the Federal Highway
Administration (FHWA). The ICCTA eliminated the distinction between
common and contract carriers but, under the transition rule of 49
U.S.C. 13902(d), allowed the Agency to continue to register motor
carriers with these distinctions pending implementation of a new
unified Federal registration system required by 49 U.S.C. 13908.
Jurisdiction over motor carrier and freight forwarder cargo
insurance was transferred to FMCSA following enactment of the Motor
Carrier Safety Improvement Act of 1999 (MCSIA) (Pub. L. 106-159, 113
Stat. 1748, December 9, 1999). FMCSA continued to register carriers as
either ``common'' or ``contract'' under the transition rule because the
Agency had not yet implemented the new unified registration system in
accordance with the requirements of 49 U.S.C. 13908. In the Notice of
Proposed Rulemaking (NPRM) designed to implement this new system (70 FR
28990, May 19, 2005), FMCSA proposed to eliminate the cargo insurance
requirement for all motor carriers and freight forwarders except those
involved in the transportation of household goods for individual
shippers.
Section 4303 of the Safe, Accountable, Flexible, Efficient
Transportation Equity Act: A Legacy for Users (SAFETEA-LU) (Pub. L.
109-59, August 10, 2005) mandated that the transition rule be
terminated by January 1, 2007. Consequently, effective January 1, 2007,
all for-hire motor carriers subject to the Agency's commercial
jurisdiction under Title 49, United States Code, Subtitle IV, Part B,
were required to be issued Motor Carrier Certificates of Registration
which no longer classified them as common or contract carriers. Section
4303 also provided that all ``exempt'' for-hire \1\ and private motor
carriers registered with FMCSA on January 1, 2005, under any section of
title 49 U.S.C. (including FMCSA's safety registration requirements
adopted under 49 U.S.C. 31136) would automatically be considered
registered ``to provide such transportation or service for purposes of
sections 13908 [Unified Registration System] and 14504a [Unified
Carrier Registration].''
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\1\ For-hire carriers not subject to 49 U.S.C. subtitle IV, part
B.
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As a result of the termination of the transition rule, FMCSA's
cargo insurance regulations, which expressly applied only to common
carriers and freight forwarders, were no longer consistent with the
governing statute. Because of this inconsistency and the resulting
confusion over the scope of the Agency's cargo insurance requirements,
FMCSA considers it necessary to issue a final rule amending these
requirements prior to issuance of a final
[[Page 35320]]
rule in the section 13908 rulemaking proceeding.\2\
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\2\ Because certain SAFETEA-LU provisions impacted proposals
made in the May 2005 NPRM implementing section 13908, a Supplemental
Notice of Proposed Rulemaking will be published in that proceeding
revising the NPRM and soliciting additional public comment, further
delaying issuance of a final rule.
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Background
Current Regulatory Requirements
Prior to enactment of the ICCTA, a ``motor common carrier'' of
property was defined as ``a person holding itself out to the general
public to provide motor vehicle transportation for compensation over
regular or irregular routes, or both.'' \3\ Approximately 79,600 active
common carriers were registered with FMCSA at the end of February 2009.
Pursuant to 49 CFR 387.303(c), in order to obtain operating authority,
common carriers were required to ensure that their insurance provider
or surety company file with FMCSA:
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\3\ 49 U.S.C. 10102(15) (1995).
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(1) Evidence of bodily injury and property damage liability in the
minimum amount of $750,000 to $5 million depending on the nature of the
cargo being transported; and
(2) Evidence of cargo liability in the minimum amount of $5,000 per
vehicle and $10,000 per incident.
In addition to the cargo insurance filing requirement, normally
accomplished by filing Form BMC-34, Motor Carrier Cargo Liability
Certificate of Insurance with FMCSA, insurance companies must issue an
endorsement using Form BMC-32, Endorsement for Motor Common Carrier
Policies of Insurance for Cargo Liability attached to the cargo
insurance policy. The name of the insurer/surety and the policy number
is a matter of public record available on FMCSA's Web site. Under 49
CFR 387.313(d), insurers and sureties may not cancel a carrier's
insurance without notifying FMCSA in writing 30 days prior to
cancellation.
The cargo insurance and surety requirements have been relatively
low, but they covered claims up to the $5,000 and $10,000 limits
regardless of deductibles or exclusions that the policy might have.
Shippers normally file claims for loss and damage with the motor
carrier(s) involved in the transportation, which either pay, deny or
settle the claims. However, if they are dissatisfied with the motor
carrier's response or if the motor carrier is insolvent, shippers have
the option of filing a claim directly with the insurance or surety
company to recover actual losses to property up to the limits on the
insurance policy or surety bond. The insurance or surety company would
then have the right to seek to recover the amount of any policy
deductibles from the motor carrier.
Prior to enactment of the ICCTA, a ``motor contract carrier'' of
property was defined as: ``a person providing motor vehicle
transportation of property for compensation under continuing agreements
with one or more persons--
[1] By assigning motor vehicles for a continuing period of time for
the exclusive use of each such person; or
[2] designed to meet the distinct needs of each such person.'' \4\
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\4\ 49 U.S.C. 10102(16)(1995).
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Approximately 87,000 active ``contract'' carriers were registered
with FMCSA in February 2009. About 70,400 of these 87,000 carriers had
contract authority only, while about 16,600 had both common and
contract authorities issued by FMCSA or its predecessors. Contract
carriers are subject to the same bodily injury and property damage
public liability requirements described above for common carriers.
However, FMCSA does not require contract carriers to have cargo
insurance or provide evidence of cargo insurance. Shippers who
establish contracts with contract carriers generally require such
carriers to maintain cargo insurance in specified minimum amounts.
For-hire motor carriers transporting specific ``exempt''
commodities or providing other exempt transportation, as generally
delineated in 49 U.S.C. 13502 through 13506, are exempt from FMCSA's
commercial jurisdiction under Title 49, subtitle IV, Part B and are not
required to obtain FMCSA operating authority or maintain cargo
insurance.
Exempt for-hire carriers, however, have always been subject to
FMCSA's safety requirements under 49 U.S.C. 31136 and 31502, including
the public liability financial responsibility requirements under 49
U.S.C. 31138 and 31139 for any crashes that occur to their motor
vehicles on the highways. These for-hire exempt carriers must register
with FMCSA to obtain a USDOT registration number. Approximately 84,300
active for-hire exempt carriers were registered with FMCSA in February
2009. In accordance with 49 CFR 387.7, such carriers must maintain at
their principal place of business one of the following forms,
confirming coverage in the minimum amount of $750,000 up to $5 million,
depending on the type of cargo the carrier is transporting:
(1) A Form MCS-90 titled, ``Endorsement for Motor Carrier Policies
of Insurance for Public Liability Under Sections 29 and 30 of the Motor
Carrier Act of 1980;'' or
(2) A Form MCS-82 titled, ``Motor Carrier Public Liability Surety
Bond Under Sections 29 and 30 of the Motor Carrier Act of 1980.''
Motor Carrier Liability for Cargo Loss or Damage
The requirements for cargo insurance do not affect the statutory
liability of carriers for loss or damage to cargo. Congress addressed
carrier liability in the 1906 Carmack Amendment to the Interstate
Commerce Act. When motor carriers and freight forwarders were brought
under the ICC's jurisdiction in 1935 and 1942, respectively, they
became subject to the Carmack liability requirements. The Carmack
Amendment, now codified at 49 U.S.C. 14706, provides ``first dollar''
coverage to all shippers for cargo loss or damage. Under 49 U.S.C.
14706(a)(1), a carrier providing transportation or service subject to
jurisdiction under subchapter I or III of chapter 135 \5\ must issue a
receipt or bill of lading for property it receives for transportation,
and is liable for the actual loss of or injury to the property caused
by the receiving carrier, delivering carrier, or any other carrier
involved in the line-haul transportation. Failure to issue a receipt or
bill of lading does not affect a carrier's liability.
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\5\ The definition of ``carrier'' in 49 U.S.C. 13102(3) includes
freight forwarders. Subchapter I applies to motor carriers and
subchapter III applies to freight forwarders.
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Under 49 U.S.C. 14706(c), the carrier and shipper may agree to
limit the carrier's liability to a value established by written or
electronic agreement if that value would be reasonable under the
circumstances surrounding the transportation. Carriers providing
contract carriage, as defined in 49 U.S.C. 13102(4), may enter into
contracts with shippers whereby the shipper waives its right to carrier
liability for actual loss and damage (see 49 U.S.C. 14101(b)(1)). Such
carriers, therefore, may establish both liability and insurance levels
in their contracts with their customers.
With the elimination of the distinction between common and contract
carriers for registration purposes, FMCSA had to determine whether the
requirement for cargo insurance should be retained and extended to all
carriers, including the 70,400 contract carriers currently exempt from
the requirement, or eliminated for some or all 96,300 common carriers
and 1,600 freight forwarders. In its NPRM on the unified registration
system, FMCSA proposed limiting the requirement for cargo
[[Page 35321]]
insurance to household goods motor carriers and household goods freight
forwarders in order to protect individual shippers, who are relatively
unsophisticated consumers of transportation services.\6\
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\6\ Approximately 3,600 household goods motor carriers and 400
household goods freight forwarders were registered with FMCSA as of
February 2009.
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In its discussion of the proposal, the Agency noted that motor
carriers typically have cargo insurance well in excess of the
regulatory requirements, in part because many shippers require such
insurance as a condition of doing business. Some common carriers offer
shippers the opportunity to purchase additional cargo insurance.
Shippers have always had the opportunity to purchase cargo or inland-
marine insurance directly from insurance providers rather than rely on
motor carriers and freight forwarders to provide coverage for loss and
damage risks. Contract carriers negotiate issues of insurance and
liability when they write contracts with shippers. Extending the
coverage to the approximate 70,400 exclusive contract carriers would
impose a burden on these carriers while providing little or no benefit
to their customers, who already had contractual agreements dealing with
carrier liability and insurance.
The only shippers that FMCSA considered in need of the protection
provided by the cargo insurance requirement are individuals who arrange
to move their own household goods. FMCSA concluded that such
individuals are less knowledgeable about carrier liability requirements
and need the protection afforded by the existing regulations. FMCSA,
therefore, proposed limiting the requirement for obtaining and filing
evidence of cargo insurance to household goods motor carriers and
household goods freight forwarders.
Discussion of Comments to May 2005 NPRM
Thirty-two commenters addressed the proposal to eliminate the cargo
insurance requirements for motor common carriers and forwarders of
general freight. Commenters, included carriers, carrier associations,
shippers, insurance companies and associations, freight claims
collection services, brokers, traffic consultants, attorneys, and
individuals. FMCSA received comments from Williams & Associates;
Transportation and Logistics Council; T.D.L. Associates Commerce
Consultant; National Small Shipments Traffic Conference, Inc; Lowe's
Co.; Property Casualty Insurers Association of America; James
Middleton; International Foodservice Distributors Association; Daniel
C. Sullivan; Advocates for Highway and Auto Safety; Freight
Transportation Consultants Association (FTCA); Transportation
Intermediaries Association; National Conference of State Transportation
Specialists; Third Party Logistics Providers; Certain Transportation
Factors; C.S. Henry Transfer, Inc.; Dahlonega Transport, Inc.; Milan
Express Co., Inc.; Silver Arrow, Inc.; National Association of Small
Trucking Companies; Wisconsin Manufacturers & Commerce; Corporate
Transportation Coalition; American Moving and Storage Association;
National Private Truck Council, Inc.; Exel Transportation Services,
Inc.; Owner-Operator Independent Drivers Association, Inc.; National
Industrial Transportation League; Sysco Corporation; Wal-Mart
Transportation, LLC; American Trucking Associations, Inc. (ATA); TM
Claims Service, Inc.; and The Ooster Brush Company.
FMCSA considered all comments in developing this final rule. A
summary of and the Agency's response to pertinent comments is provided
here.
General Comments
Three commenters supported FMCSA's proposition to eliminate the
cargo insurance requirement for most carriers and freight forwarders.
The Property Casualty Insurers Association of America stated that the
insurance marketplace is best qualified to determine appropriate
insurance coverage. The Owner-Operator Independent Drivers Association
agreed with FMCSA that most shippers require a higher amount of
insurance coverage than the current federal minimums, so the current
amount required serves little purpose.
ATA stated that given the statute authorizes carriers registered as
common carriers today to enter into contracts, and that the definitions
of ``common carrier'' and ``contract carrier'' have been eliminated,
the cargo insurance requirement must apply to all motor carriers or
none. It wrote, ``ATA does not support extension of the cargo insurance
requirements to all motor carriers and thus believes FMCSA's proposal
to eliminate the cargo insurance endorsement requirement is the right
approach.''
Twenty-two commenters, mostly representing shippers, shippers'
freight claims collection services, brokers, traffic consultants, and
attorneys, stated that FMCSA should retain broad mandatory cargo
insurance requirements because it is the most important protection for
the shipping public with respect to loss and damage claims. They argued
that the elimination of cargo insurance requirements is unjustified and
contrary to the best interests of the shipping public. Sixteen
commenters noted that the BMC-32 endorsement is the only protection
against deductibles and other exclusions from liability found in cargo
liability policies. They noted that in many cases the carriers'
deductibles can be very high and the exclusions may eliminate most
sources of loss or damage recovery. They also stated that the BMC-32
endorsement permits the shipper to proceed directly against the
insurer, providing relief to shippers in the event the carrier becomes
insolvent or bankrupt.
FMCSA Response. As stated above under the heading ``Legal Basis for
the Rulemaking,'' the ICC had the statutory discretion under section
215 of the Motor Carrier Act of 1935 to impose cargo insurance
requirements on motor common carriers. The ICC chose to require such
insurance beginning in 1937 based on the conditions existing in the
marketplace during the mid-1930s (1 FR 1156, August 20, 1936, see also
1 M.C.C. 45 (1936)). The transportation industry has changed
significantly since that time. For more than 40 years, the ICC granted
operating authority to new applicants only if they could demonstrate
that existing carriers were not providing adequate service. Moreover,
the agency permitted contract carriers to serve only a limited number
of shippers. As a result, the market was dominated by common carriers
facing little or no competition. Beginning around 1980, the statutory
standards for obtaining operating authority were changed to encourage
competition and the ICC removed the prior restrictions on the number of
shippers that could be served by contract carriers. Accordingly, the
number of new carriers entering the market increased significantly,
particularly those providing only contract carrier service. As a result
of this market shift, the ability of commercial shippers to negotiate
the terms of their transportation arrangements has been significantly
enhanced.
When Congress transferred the remaining motor carrier provisions of
the Motor Carrier Act of 1935 from the ICC to the Department of
Transportation in the ICCTA, the House of Representatives' report
accompanying the legislation specifically requested that DOT refrain
from allocating scarce resources to resolve private disputes and only
provide general oversight in the areas of regulations governing
[[Page 35322]]
commercial transactions between businesses. Congress wanted ``private,
commercial disputes to be resolved the way all other commercial
disputes are resolved--by the parties.'' See H.R. Rep. No. 104-311, at
87-88 (1995). See also pages 117 and 121.
Cargo insurance entails the transfer of financial risk from the
purchaser to an insurer and subsequent risk-sharing with other
insureds. FMCSA does not agree with those commenters who believe the
BMC-32 endorsement is the only protection against deductibles and other
exclusions from liability found in cargo liability policies. The
Carmack Amendment, 49 U.S.C. 14706, establishes ``first dollar''
liability regardless of deductibles and other exclusions from liability
found in cargo liability policies. While the Form BMC-32 offers
additional protection in the event of the motor carrier's insolvency or
refusal to pay legitimate claims, a carrier must compensate the shipper
for the actual loss or damage of its property regardless of policy
deductibles or exclusions, unless the shipper has agreed to limit or
waive carrier liability.
The Form BMC-32 endorsement does not mean that the shipper is
necessarily entitled to proceed directly against the insurer without
first filing a claim with the carrier. Under the regulations
established in 49 CFR part 370 ``Principles and Practices for the
Investigation and Voluntary Disposition of Loss and Damage Claims and
Processing Salvage,'' shippers should be filing loss and damage claims
directly with the appropriate motor carrier.
FMCSA believes the cargo insurance requirement may have allowed
commercial shippers and for-hire motor carriers to conduct business in
economically inefficient ways. Shippers and motor carriers may have
been taking transportation and business risks they probably would not
have taken absent the BMC-32 endorsement. Carriers also may not have
been spending adequately on cargo anti-theft/anti-damage systems,
including training carrier personnel. When this final rule becomes
effective, FMCSA believes the market will improve itself. Shippers and
motor carriers will begin to better assess their risks and provide
better cargo theft and loss prevention measures. FMCSA asked five
insurers with the largest number of cargo policies on file with FMCSA
what percentage of their clients carry more than the $10,000 aggregate
minimum, as required by FMCSA. All five insurers responded that most of
the policies they write for cargo liability are well above the FMCSA
minimum. Most said their policies are for $50,000 to $100,000
liability. Based on our inquiries, FMCSA believes most carriers will
continue to carry cargo insurance because their customers will require
it.
In summary, FMCSA does not believe it is necessary to mandate cargo
insurance requirements for the benefit of most commercial shippers.
Commercial shippers should be able to protect their own property loss
and damage interests in the marketplace without continued FMCSA
intervention. In this respect, it should be noted that the current
cargo insurance requirements apply to, at most, 30 percent of for-hire
motor carriers regulated by FMCSA.\7\
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\7\ This figure is based on the fact that approximately 252,600
for-hire motor carriers had USDOT numbers at the end of February
2009. Approximately 76,000 of these carriers were classified as
motor common carriers potentially subject to the cargo insurance
requirements (the actual number of carriers subject to the cargo
insurance requirements may be smaller, because some common carriers
haul only low value commodities that are exempt from cargo insurance
requirements). 76,000/252,600 = 30.1%. The 70,400 carriers holding
only contract carrier authority and the 84,300 for-hire carriers
exempt from commercial registration requirements are not required to
have cargo insurance.
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FMCSA believes it is best to allow most motor carriers, insurance
carriers, and general non-household-goods property shippers to conduct
business efficiently, allow fair and expeditious decisions, and allow
the industry to begin offering more variety in quality and price
options to meet changing market demands and the diverse requirements of
the shipping community.
Check on Financial Stability. Nine commenters stated that the
mandatory cargo insurance requirement is one of the few remaining
objective checks on the financial stability of new carriers entering
the marketplace. Under the current system, FMCSA will prohibit a motor
carrier applicant from obtaining common carrier operating authority if
it cannot obtain cargo insurance. These commenters argue that
elimination of the requirement for cargo insurance will encourage
financially unstable new entrants to enter the market.
FMCSA Response. For-hire motor carriers that have been subject to
the cargo insurance requirement will continue to be subject to the
financial responsibility requirements for public liability. The costs
of complying with the public liability requirements are far higher than
the costs of purchasing cargo insurance at the current minimum levels
and provide a more effective check on new carriers' financial
stability. A November 2006 article in an industry periodical,
Overdrive, \8\ estimated an owner-operator with a good safety record
would likely pay about $5,000 for primary liability insurance of $1
million to cover damage or injury done to others in case of a crash;
$2,400 for physical damage insurance to cover damage done to the owner-
operator's vehicles in case of a crash; $1,000 for cargo insurance to
cover damage to or theft of the load; and $450 for $1 million in non-
trucking-use liability insurance. While the Overdrive article did not
state how much cargo loss or damage protection the $1,000 premium would
cover, it did state that fleets typically buy $100,000 on the owner-
operator's behalf, which is the amount mandated by many shippers.
Specialty haulers can carry far more, the Overdrive article said.
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\8\ Overdrive, November 2006, http://www.etrucker.com/apps/news/article.asp?id=56256.
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Fraud Prevention. Three commenters stated that the shipping
community relies on the BMC-32 endorsement to protect against
unscrupulous motor carriers and freight forwarders seeking to avoid
their financial responsibilities. One commenter stated that filing
evidence of cargo insurance with FMCSA is essential to prevent fraud.
The commenter stated that many instances of insurance fraud have been
thwarted by having an independent government source for checking
carrier insurance.
FMCSA Response. As stated above, it may be true that the BMC-32
endorsement may permit the shipper to proceed directly against the
insurer as a last resort, possibly providing relief to shippers in the
event the carrier becomes insolvent or bankrupt. FMCSA believes,
however, that shippers should assume greater responsibility in
assessing the risk of offering their property to authorized motor
carriers and that the Agency should focus its scarce resources on motor
carrier highway safety, rather than continuing to mandate a system that
regulates loss exposure in connection with shipping commercial
property. Commercial shippers getting rate quotes from motor carriers
can simply ask additional questions of motor carriers offering their
services to ascertain whether the motor carriers maintain cargo
insurance in the amount and with the features the shipper desires.
Benefit to Brokers and Intermediaries. Three commenters argued that
the mandatory cargo insurance requirement is important to carriers that
interline freight or use local cartage companies for pickup and
delivery. Under the
[[Page 35323]]
Carmack Amendment, the shipper may seek recovery from either the
receiving or delivering carrier, and a carrier paying a claim may seek
indemnification from a connecting carrier that is responsible for the
loss or damage. These commenters believe the right of subrogation
against the BMC-32 endorsement is a valuable protection for such
carriers when a connecting carrier that is responsible for a loss goes
out of business or files for bankruptcy. The Transportation
Intermediaries Association (TIA) commented that its members benefit
from mandatory cargo insurance because brokers and other third-party
intermediaries are often caught in the middle when shippers cannot
collect claims from the motor carrier or freight forwarder. TIA
commented that the BMC endorsement is often the only remedy available
to a broker, and to its shipper customer, when a carrier routinely
refuses claims that are within its deductible or fall into an exclusion
from its insurance coverage. One commenter also noted that consignees
who did not arrange for the transportation and have no business
relationship with the delivering carrier often experience losses and
file claims.
FMCSA Response. Responsible transportation intermediaries generally
screen potential carriers to ascertain which carriers would provide the
best service to their clients. Cargo insurance monitoring and
inspection can and should be part of the service intermediaries provide
for their clients.
Brokers and intermediaries should be offering loads only to
financially responsible authorized motor carriers. Responsible brokers
and intermediaries should not be using motor carriers that are unable
or unwilling to pay loss and damage claims. The market should encourage
such carriers to leave the market sooner than they would have under the
current system. Brokers and intermediaries also have the court system
to help them recover actual damages for their shipper clients.
FMCSA's rationale for eliminating the cargo insurance requirements.
Eight commenters argued that while the market drives the shippers to
generally require cargo insurance as a condition of doing business,
this is not an acceptable rationale for eliminating the cargo insurance
requirements. Four commenters stated that smaller, occasional shippers
rarely negotiate contracts or related cargo protections or ask carriers
about their insurance coverage, and large shippers may be unaware of
the deductibles and exclusions in carriers' cargo policies. Similarly,
one commenter noted that many small-freight shippers may have no direct
contact with the carriers that move their freight.
Other commenters disagreed with FMCSA's statement that there does
not appear to be a need to require common carriers of property to
maintain cargo insurance because these carriers typically have cargo
insurance well above FMCSA limits ($5,000/$10,000). Four commenters,
including Wal-Mart and Sysco, stated that it is incorrect for FMCSA to
assume that all motor carriers already carry more cargo insurance than
the regulations require. Four other commenters noted that while
responsible, financially secure motor carriers typically carry cargo
insurance for amounts that exceed the federal minimum, this is not a
valid basis for eliminating this requirement. The commenters noted that
even when a carrier has substantially greater coverage, it may have
deductibles and exclusions that make it difficult for the shipper to
recover losses; the first dollar coverage provided by the Carmack
Amendment protects small shippers who can recover from the insurance
company up to the limits of the policy. The FTCA noted that although
carriers usually have cargo insurance for amounts that exceed the
Federal minimum, this explanation demonstrates FMCSA's lack of
understanding of the real value to the shipping public the BMC-32 has
provided. The FTCA also noted that 97.87 percent of the claims filed
against less-than-truckload (LTL) motor carriers in the year 2000 were
under $5,000.
FMCSA Response. Shippers are like any other party in a transaction
where one party will be providing services to another party. If the
parties do not communicate the terms and conditions, or read the terms
and conditions in their contracts (also known as bills of lading in
transportation), the shipper assumes the risk. Shippers should ask
carriers for copies of their policies, including all endorsements,
exclusions, and declarations, to see whether the shippers' property or
interests will be served by a particular motor carrier. While some
small-freight shippers may have no direct contact with the carriers
that actually move their freight, FMCSA believes these shippers should
hold the service provider with whom they have direct contact
accountable for checking to ensure motor carriers transporting the
freight have adequate insurance. If the small-freight shippers cannot
ensure the motor carriers have adequate cargo insurance, the small-
freight shippers' service providers may acquire cargo insurance on
behalf of the small-freight shippers.
FMCSA does not agree with the commenters who claim there is no
rationale for eliminating the requirement based on the fact that common
carriers typically carry cargo insurance in excess of the minimum
requirements. As stated above, five insurers informed FMCSA that most
of the policies they write for motor carrier cargo liability are for
$50,000 to $100,000 liability. By eliminating the distinction between
common and contract carriers for registration purposes, the ICCTA and
SAFETEA-LU essentially mandated that we change our cargo insurance
requirements so that carriers registered with the Agency are treated
uniformly. As mentioned above, only 30 percent of for-hire carriers
operating in interstate commerce are subject to the current
requirements. Approximately 155,000 contract carriers and exempt for-
hire carriers are not required to maintain cargo insurance.
FMCSA believes the individual shippers using the 3,600 for-hire
household-goods motor carriers and 435 household-goods freight
forwarders need the protection of cargo insurance, but not commercial
shippers who can assess cargo loss and damage risks and cargo insurance
requirements as a part of their normal business operations.
The FTCA did not indicate how many of the under $5,000 claims filed
against LTL motor carriers in the year 2000 were paid out of pocket and
how many loss or damage claims they, in turn, filed with their insurer
under their cargo insurance policy. The survey data FTCA provided from
the Transportation Loss and Prevention and Security Association (TLPSA)
does not break down this information. A cargo insurance policy, like a
homeowner's insurance policy, is used generally for large claims, not
claims the motor carrier, like the homeowner, believes it can handle
out of its own treasury. In fact, FMCSA believes this is probably why
many cargo insurance policies have high deductibles; for-hire motor
carriers and insurers contemplate that motor carriers would handle all
claims from the first dollar under their Carmack liability up to the
deductible, thus self-insuring for the deductible amount.
Flawed certificates of insurance. Seven commenters stated that
certificates of insurance are flawed documents because they do not
typically indicate the deductible and do not disclose exclusions in the
policy; and that there is no mechanism for insuring the validity of the
certificate or whether the policy remains in place. One commenter
claimed that while a certificate of insurance may be useful in
[[Page 35324]]
determining that a policy has been issued with a face amount larger
than the $5,000 BMC-32 requirement, the certificate of insurance is not
evidence that a particular loss will be covered and is therefore of
marginal utility. Three commenters stated that it is important to rely
on the BMC-32 endorsement to confirm the existence of cargo insurance
and satisfy that there is a policy that will offer true indemnity of
claims.
FMCSA Response. FMCSA believes all seven commenters were referring
to the ACORD (Association for Cooperative Operations Research and
Development) \9\ certificate of insurance document, rather than the
BMC-34 Certificate of Insurance. The comments from Certain
Transportation Factors and the Third Party Logistics Providers
specifically name the ACORD certificate of insurance used by cargo
insurers. The FTCA provided a virtually blank copy of an ACORD
certificate on the last page of its submission.
---------------------------------------------------------------------------
\9\ ACORD is a global, nonprofit insurance association whose
mission is to facilitate the development and use of standards for
the insurance, reinsurance and related financial services
industries.
---------------------------------------------------------------------------
FMCSA did not propose to modify the ACORD certificate. ACORD
documents are written by an insurance standards organization and are
not required to be filed with FMCSA. Nothing FMCSA does in this rule
will change the number of carriers obtaining ACORD certificates of
insurance or correct any perceived ``flaws'' in such forms.
The Agency recognizes that elimination of the BMC-32 endorsement
will make it less convenient for commercial shippers to confirm the
existence of cargo insurance. However, FMCSA believes that motor
carriers, in order to effectively compete for desirable traffic, will
devise alternative means of facilitating shipper verification of their
cargo insurance policies.
Effect on small carriers/shippers/brokers. Another commenter stated
that FMCSA, in proposing to eliminate the cargo insurance requirements,
did not recognize the extent to which obtaining adequate cargo
insurance is a problem for small carriers, as well as the ripple effect
that abolition of the financial responsibility endorsement would have
on small transportation service providers and small shippers and
brokers, as well. The commenter argued that security-adequate,
reasonably comprehensive cargo insurance is a particular problem for
small carriers. Shippers are reluctant to do business with small
carriers because the shipper fears that small carriers will be unable
to pay for any cargo claim not covered by a cargo insurer. Three
commenters argued that the BMC-32 endorsement allows smaller carriers
to gain credibility in the marketplace. Similarly, one commenter noted
that the current minimum cargo insurance requirement promotes
competition and increases available capacity because shippers are more
willing to trust a new entrant or ``Mom and Pop Trucking,'' knowing
that mandatory minimum cargo coverage is available and can readily be
accessed.
FMCSA Response. The Agency does not believe that gaining
credibility in the marketplace is an appropriate justification for
maintaining existing cargo insurance requirements. The purpose of
mandatory insurance minimums was to protect shippers, not to protect
market share for carriers or new entrants lacking credibility. FMCSA
believes that credible and trustworthy carriers have better and more
efficient means of establishing themselves in the marketplace and
should not have to rely on government-mandated insurance. The Agency
does not believe it should use its regulatory authority to provide
credibility to carriers or new entrants not otherwise equipped to
establish themselves in the marketplace.
FMCSA believes that the markets can solve credibility issues
without continued government intervention. As stated above, firms in
the motor carrier industry, especially small carriers, choose
combinations of insurance and cargo security systems to ensure cargo
safely gets to its destination. Some small motor carriers may prefer to
obtain little cargo insurance but spend a lot on cargo anti-theft/anti-
damage systems, while other small motor carriers may choose to obtain
more insurance but spend little on such anti-theft/anti-damage systems.
FMCSA has been limiting all possible combinations by imposing a minimum
insurance amount. All motor carriers will now be able to choose the
combination which best suits their needs and abilities and those of
their shippers and clients. The firms will have a better choice on how
to best allocate resources, be financially responsible, and protect
their exposure to risk without unnecessary government intervention.
Congressional intent. Two commenters stated that there has been no
indication of any intent by Congress to eliminate minimum mandatory
cargo insurance coverage and, to the contrary, believe that Congress
intended to preserve the requirement. Three commenters noted that the
survival of these regulations throughout the deregulation process
should demonstrate their value to the shipping community and thus
justify their continued existence in the current regulatory
environment. One commenter said elimination of the cargo insurance
requirements would be an inadvertent endorsement of lower industry
performance standards. Another commenter stated that FMCSA should
enforce the current regulations rather than eliminate them, and FMCSA
should be re-staffed and re-engineered to provide the essential
services that Congress intended for the protection of the shipping
public.
FMCSA Response. FMCSA disagrees that Congress intended the Agency
to preserve the cargo insurance requirement. Congress did not alter the
existing statutory language, which permits -- but does not mandate --
the Agency to require cargo insurance. Congress continued to leave the
decision about the need for cargo insurance to the Agency, as it had in
the past. Because the level of required cargo insurance is already
fairly low and many carriers maintain more than the required minimum,
FMCSA does not believe that elimination of the requirements would be an
inadvertent endorsement of lower industry performance standards.
Cargo insurance requirements should be expanded to include all
motor carriers. Nine commenters concluded that the mandatory cargo
insurance requirement should not only be maintained, but extended to
all for-hire motor carriers. One of these commenters, Advocates for
Highway and Auto Safety, did not limit its recommendation to for-hire
motor carriers, notwithstanding the fact that private carriers
transport their own goods.
FMCSA Response. FMCSA's authority to impose cargo insurance,
codified at 49 U.S.C. 13906(a)(4), is limited to carriers required to
register with the Agency under Chapter 139 of Title 49 of the United
States Code. Consequently, we lack the necessary statutory authority to
require ``exempt'' for-hire carriers or private carriers to obtain
cargo insurance.
FMCSA believes that extending the requirement to all non-exempt
for-hire property carriers and passenger carriers is unnecessary.
Entities engaged in contract carriage resolve cargo liability issues
through contracts negotiated with their customers. The financial
arrangements they elect to make with shippers are not a concern for the
public, nor do they raise safety issues that might justify such Federal
intervention. Although passenger carriers transport a limited amount of
[[Page 35325]]
cargo, the ICC declined, in its original cargo insurance rule, to
require such carriers to have cargo insurance. See 1 FR 1156, at 1158,
August 20, 1936.
Minimum amounts of required cargo insurance should be increased.
Six commenters strongly urged that, not only should the cargo insurance
requirements remain intact for all motor carriers and freight
forwarders, but the minimum amounts established in 1976 ($5,000/
$10,000) should be increased because: (1) The cost of living and the
price of virtually all transported goods have increased, (2) modern
trucks and trailers have significantly greater carrying capacity, and
(3) new carriers entering the market and competition among carriers
have increased the rate of carrier business failures. The FTCA
suggested doubling the minimum amount of cargo insurance required for
motor carriers and freight forwarders to $10,000/$20,000. Six
commenters suggested that the levels should be increased to $25,000/
$50,000 to adequately compensate a shipper for a loss. Two commenters
stated that insurers should be allowed, but not required, to post BMC-
32 endorsements higher than the $5,000 regulatory minimum.
FMCSA Response. FMCSA recognizes that the current minimum levels of
required cargo insurance are relatively low. As discussed above, the
limits do not affect the motor carrier's liability for actual cargo
loss or damage. Arguments for or against the proposal based on the
observations that most shippers require an amount of insurance above
the government-established minimum is largely irrelevant to the issue
of whether the requirement should exist.
Increased cost. Four commenters stated that there is no explanation
offered for the FMCSA's estimate that the elimination of the insurance
requirements would save carriers $3.95 million over 10 years. They
stated that the elimination of the requirements will increase the cost
to claimants. Commenters stated that without the BMC-32 endorsement,
claimants would be forced to take settlement into their own hands, file
claims against bankrupt carriers in Bankruptcy Courts, and recover
little, if anything, for valid claims. They alleged the cost to
shippers due to multiple exclusions, unpaid cargo claims, and the need
to purchase their own cargo insurance would far exceed the potential
savings claimed in the preamble to the proposed rule. One commenter
stated that only 70 claims a year that are now covered by the terms of
the BMC-32 endorsement need to be denied to offset the alleged savings
to the motor carrier industry.
Two commenters asserted that the elimination of mandatory cargo
insurance will raise the transaction costs for shippers and motor
carriers. The commenters stated that shippers have learned to rely on
the terms and conditions of the FMCSA endorsement instead of reviewing
the carrier's insurance policy. Therefore, if the protections of the
BMC-32 endorsement are eliminated, shippers will be required to review
the terms and conditions of the cargo insurance policies of every motor
carrier with whom they interact to identify loopholes and determine
whether there is actual protection or whether the existence of
insurance coverage is illusory.
FMCSA Response. FMCSA agrees that shippers have learned to rely on
the terms and conditions of the FMCSA endorsement instead of reviewing
the carrier's insurance policy. Shippers should be more proactive in
determining what level of insurance protection they are actually
receiving and take necessary safeguards.
FMCSA agrees that many shippers now pay for insurance from the
motor carrier in the form of higher transportation charges. The motor
carrier is providing a service or product just like the shipper. The
shipper, for example, may carry its own liability insurance in the
event its products injure consumers and passes such costs along to
consumers.
Once this rule takes effect, some of the additional costs predicted
by opponents of the proposal could develop due to the absence of a
cargo insurance requirement. However, these costs are expected to be
negligible. FMCSA has reevaluated the costs and benefits of this final
rule. The Agency believes the market will react to the commenters'
concerns by developing better ways of addressing these problems than
the current insurance requirement.
Elimination Will Cause a Litigation Increase. Three commenters
stated that the proposed elimination of the requirements would cause a
significant increase in litigation by encouraging insurance companies
to deny more claims for more reasons. This increase in litigation would
also increase shipper costs.
FMCSA Response. These commenters do not provide any support for
this proposition, which assumes that insurance companies and motor
carriers are not now acting rationally (because they are not denying as
many claims as they could). There is no evidence suggesting that
insurance companies and motor carriers will behave differently as a
result of this rule.
Updated Cost and Benefit Figures for the Final Rule
Costs
FMCSA calculates the costs of this final rule to be small and
indirect. Commercial shippers relying on motor carrier cargo insurance
to cover their property against loss or damage will have to do some
additional work identifying for-hire motor carriers and freight
forwarders who have adequate cargo insurance (through phone calls, e-
mails, correspondence or other communications). The costs of this final
rule are negligible and result primarily from shippers of shipments
valued at less than $5,000 now having to verify that their potential
carrier has adequate cargo insurance. FMCSA assumes that shippers of
non-exempt cargo valued at greater than $5,000 are already verifying
whether their shipments would be adequately insured, because their
shipments would not be fully protected under the existing minimum cargo
insurance requirement. Inasmuch as shippers of cargo valued at less
than $5,000 already have to call or otherwise contact a carrier or
broker to arrange for transportation, the additional time necessary to
verify the existence of appropriate cargo insurance during this contact
should, in most cases, be negligible. See the Regulatory Evaluation for
the final rule in the docket for a detailed discussion of the cost
estimates for this rule.
Benefits
Direct benefits of this final rule include time savings to: (1)
Industry and FMCSA personnel resulting from streamlining the motor
carrier registration process; and (2) the industry's insurance
representatives by eliminating cargo insurance filing requirements for
most carriers formerly referred to as ``common carriers'' and freight
forwarders of non-household goods.
The total annual savings from the rule are estimated to be about
$452,000 in the first year and $3.95 million over a ten-year period.
The cost savings increase in each subsequent year of the analysis
period because the entire carrier population increases by 3.71 percent
annually.\10\ These future costs savings are discounted at seven
percent. Thus, the total discounted cost saving
[[Page 35326]]
associated with this provision equals $452,000 in the first year and
$3.95 million over the ten-year period. See the Regulatory Evaluation
for the final rule in the docket for a detailed discussion of how FMCSA
arrived at these figures.
---------------------------------------------------------------------------
\10\ The eight-year (2000-08) average annual growth in motor
carrier registrations with the FMCSA (interstate hazmat and non-
hazmat, and intrastate hazmat only) is 3.71%. Source: MCMIS
Snapshot, 29-July-2009.
---------------------------------------------------------------------------
The Final Rule
The final rule limits the requirements for cargo insurance filings
during registration (Sec. 365.109) to household goods motor carriers
and household goods freight forwarders. Similarly, the requirement to
maintain cargo insurance as a condition of retaining active operating
authority, as codified in Sec. Sec. 387.301(b), 387.303(c) and
387.403(a), is limited to household goods motor carriers and household
goods freight forwarders. Furthermore, the list of commodities exempt
from cargo insurance requirements is being removed from Sec.
387.301(b) as it is no longer needed.
Forms BMC-32 and BMC-34 for Non-Household-Goods Motor Carriers and
Freight Forwarders
All BMC-32 endorsements and BMC-34 certificates of insurance that
insurers have issued to motor carriers and freight forwarders, except
household goods motor carriers and household goods freight forwarders,
will expire on the effective date of this final rule, March 21, 2011.
FMCSA will be amending the BMC-32 endorsement and BMC-34 certificate of
insurance to reflect the requirements of this final rule by removing
the references to common carriers and amending other incorrect
references. FMCSA will be seeking Office of Management and Budget (OMB)
approval of the new forms before the effective date of the final rule.
Insurance companies will not need to cancel any previous FMCSA filings.
FMCSA will not remove the names of insurance companies and the
appropriate policy numbers from FMCSA web sites and any other FMCSA
distribution methods until March 18, 2013, the second anniversary of
the effective date of this final rule, to facilitate identification of
insurance coverage for claims arising from transportation occurring
while the policies were in effect.
The Agency has added a new paragraph (f) to both Sec. Sec. 387.313
and 387.413. These new paragraphs will serve as notice to the public
that any valid form BMC-32 endorsements and BMC-34 certificates of
insurance on the day before the effective date will expire on the
effective date of the final rule for those 70,000+ for-hire motor
common carriers and freight forwarders that do not transport household
goods for individual shippers. FMCSA believes it is unreasonable to
require the insurance companies to cancel the filings electronically or
manually, as they may do under Sec. Sec. 387.313(d) or 387.413(d).
FMCSA will continue to maintain the previously filed data in its data
systems until March 18, 2013, which is two years after the effective
date of this final rule. Two years from notification of disallowance of
the claim is the standard statute of limitations for filing a civil
action based on a loss and damage claim under a receipt or bill of
lading pursuant to 49 U.S.C. 14706(e).
Finally, FMCSA removes from the authority citation for 49 CFR part
365 the reference to 16 U.S.C. 1456, a provision of the Coastal Zone
Management Act (CZMA) of 1972. The ICC added that reference in 1987 (52
FR 18365, May 15, 1987) because its regulations governing operating
authority (49 CFR part 1160) required water carriers subject to ICC
jurisdiction to comply with the CZMA. As a result of the ICCTA, many
ICC regulations were transferred to FMCSA; 49 CFR part 1160 was
recodified as 49 CFR part 365. In 2002, FMCSA rescinded the passage in
part 365 dealing with water carriers (49 CFR 365.101(c), 67 FR 61818,
61820, October 2, 2002). We are now deleting the reference to the CZMA
as well.
Regulatory Analyses and Notices
Executive Order 12866 (Regulatory Planning and Review) and DOT
Regulatory Policies and Procedures
FMCSA has determined that this action is a significant regulatory
action within the meaning of Executive Order 12866 due to public
interest. The final rule has minimal costs. The Office of Management
and Budget (OMB) has reviewed this document. The Agency has prepared a
regulatory analysis of the costs and benefits of this action. A copy of
the analysis document is included in the docket referenced at the
beginning of this notice. The estimated ten-year costs and benefits of
the analysis are shown in Table 2.
Table 2--Estimated Ten-Year Costs, Benefits, and Net Benefits
[$ millions]
------------------------------------------------------------------------
------------------------------------------------------------------------
7% Discount Rate:
Costs............................................... Negligible
Benefits............................................ $3.95
Net Benefits........................................ $3.95
3% Discount Rate:
Costs............................................... Negligible
Benefits............................................ $4.67
Net Benefits........................................ $4.67
------------------------------------------------------------------------
Regulatory Flexibility Act
In compliance with the Regulatory Flexibility Act (5 U.S.C. 601-
612), FMCSA considered the effects of this regulatory action on small
entities, as defined by the U.S. Small Business Administration's Office
of Size Standards.
The final rule applies to both new entrant (filing) and existing
(re-filing) motor carriers and freight forwarders. Regarding new
entrants, data from the FMCSA Licensing and Insurance database indicate
that the number of new entrant for-hire motor common carriers filing
annually with FMCSA averaged 18,442 in fiscal years 2007 and 2008.
Subtracting out new entrant passenger carriers (886) and household
goods carriers (859) because they will not be affected by this final
rule, while adding in the average 183 new entrant freight forwarders
estimated to have filed with FMCSA during the same fiscal years,
results in an average of 16,880 annual new entrant for-hire carriers
and freight forwarders whose insurance agents would not have to file
proof of cargo insurance with FMCSA under this rule.
Small Business Administration (SBA) regulations (13 CFR part 121)
define a ``small entity'' in the motor carrier industry by average
annual receipts, which is currently set at $25.5 million per firm for
truck transportation and $7 million per firm for freight
transportation. Although general freight transportation arrangement
firms fall under this $7 million threshold, there is an exception for
``non-vessel owning common carriers and household goods forwarders.''
This exception stipulates that, for this sub-set of freight forwarders,
$25.5 million should be the revenue threshold. Since this subset
appears to apply to freight forwarders in the trucking industry, we use
$25.5 million as the revenue threshold for freight forwarders as well.
Motor carriers and freight forwarders are not required to report
revenue to the FMCSA, but are required to provide FMCSA with the number
of power units they operate when they apply for operating authority and
to update this figure biennially. Because FMCSA does not have direct
revenue figures, power units serve as a proxy to determine the carrier
and forwarder size that would qualify as a small business given the
SBA's revenue threshold. In order to produce this estimate, it is
necessary to determine the average revenue generated by a power unit.
The Agency determined in the 2003 Hours of Service Rulemaking
Regulatory Impact Analysis
[[Page 35327]]
and Small Business Analysis \11\ that a power unit produces about
$172,000 in revenue annually (adjusted for inflation).\12\ According to
the SBA, motor carriers and freight forwarders with an annual revenue
of $25.5 million are considered a small business.\13\ This equates to
148 power units (25,500,000/172,000). Thus, FMCSA considers motor
carriers and freight forwarders with 148 power units or less to be a
small business for SBA purposes.
---------------------------------------------------------------------------
\11\ Regulatory Analysis for: Hours of Service of Drivers;
Driver Rest and Sleep for Safe Operations, Final Rule. Federal Motor
Carrier Safety. Published 4/23/2003. Docket FMCSA-1997-2350 item
23302. It may be accessed on the Internet at this URL--http://www.regulations.gov/search/Regs/contentStreamer?objectId=090000648034dc9d&disposition=attachment&contentType=pdf.
\12\ From the 2000 TTS Blue Book Of Trucking Companies, number
adjusted to 2008 dollars for inflation.
\13\ U.S. Small Business Associate Table of Small Business Size
Standards Match to North American Industry Classification Systems
Codes (NAIC), effective August 22, 2008. See NAIC Subsector 484,
Truck Transportation.
---------------------------------------------------------------------------
FMCSA has used data on revenue generated per power unit to
determine that a motor carrier with approximately 148 power units would
exceed the small business revenue level set by the SBA. Ninety-nine
percent of motor carriers have fewer than 148 power units, and
therefore could be expected to fall under the SBA's definition of a
small business for this industry, with annual receipts of less than
$25.5 million. Examining all freight forwarders within NAICS Code 4885,
using the 2002 Economic Census, there are 12,266 freight transportation
arrangement firms. Of these firms, 10,640 operated for the entire year,
and 111, or approximately 1 percent, had revenues exceeding $25
million.
Thus, assuming that roughly 99 percent of both for-hire trucking
firms and freight forwarders benefiting from this proposal have annual
receipts of less than $25.5 million, FMCSA estimates that (93,800 times
0.99) 92,900 for-hire small entity motor carrier trucking firms
formerly holding common carrier authority and 1,176 small entity
freight forwarder \14\ firms will benefit from this final rule. The
average benefit per small entity will be $10 in direct or indirect fees
the small motor carriers and freight forwarders would not be charged by
their insurance carriers.
---------------------------------------------------------------------------
\14\ A MCMIS data query on 14 February 2009 showed the FMCSA
Licensing and Insurance database had 1,188 freight forwarders
subject to FMCSA cargo-insurance regulations and 435 household-goods
freight forwarders: 99 percent of 1,188 equals about 1,176 small
entity freight forwarder firms.
---------------------------------------------------------------------------
In addition, FMCSA notes that commercial shippers and freight
brokers, which are indirectly affected by this final rule and which use
motor carriers and freight forwarders that will no longer be subject to
cargo insurance requirements, may incur minimal (indirect) costs to
verify that carriers have insurance for shipments worth less than the
eliminated insurance floor of $5,000.
This final rule will remove the Federal mandate to purchase and
maintain a minimum level of cargo insurance for most motor carriers and
freight forwarders using trucks and trailers, including small entity
motor carriers and freight forwarders. It will also reduce the Federal
mandate for most motor carriers and freight forwarders to direct their
insurance and surety providers to prepare a BMC-32 Endorsement for
Motor Common Carrier Policies of Insurance for Cargo Liability and to
file with FMCSA a BMC-34 Motor Carrier Cargo Liability Certificate of
Insurance. The insurance or surety provider must pay FMCSA a $10 fee to
file each BMC-34 Motor Carrier Cargo Liability Certificate of
Insurance.
The Agency considered the alternative of extending the cargo
insurance requirements to all for-hire carriers (both former common and
former contract carriers) in order to treat all regulated carriers
uniformly. Rather than saving $452,000 as the elimination of the cargo
insurance filing for common carriers would do, this alternative was
estimated to have a one-time first-year cost of $891,000 and annual
costs of about $222,000 thereafter--with little benefit to shippers
that have contracts with for-hire motor carriers formerly known as
contract carriers.
FMCSA has determined that the impact on motor carrier and freight
forwarder entities affected by this final rule will not be significant.
The effect of the final rule will be to allow most motor carriers and
freight forwarders to choose the optimal level of cargo insurance
protection without having to notify or seek approval from FMCSA. FMCSA
expects the impact of the final rule will be a reduction in the
information collection burden for most motor carriers and freight
forwarders, and their cargo insurance providers. FMCSA asserts that the
economic impact of the reduction in paperwork will be minimal and
entirely beneficial to small motor carriers and freight forwarders.
Accordingly, the Administrator of the FMCSA hereby certifies that this
final rule will not have a significant economic impact on a substantial
number of small entities.
Unfunded Mandates Reform Act of 1995
This rulemaking will not impose an unfunded Federal mandate, as
defined by the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1532, et
seq.), that will result in the expenditure by State, local, and tribal
governments, in the aggregate, or by the private sector, of $140.3
million or more in any one year.
Executive Order 12988 (Civil Justice Reform)
This action will meet applicable standards in sections 3(a) and
3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden.
Executive Order 12630 (Taking of Private Property)
This rulemaking does not effect a taking of private property or
otherwise have taking implications under Executive Order 12630,
Governmental Actions and Interference with Constitutionally Protected
Property Rights.
Executive Order 13132 (Federalism)
FMCSA analyzed this rule in accordance with the principles and
criteria contained in Executive Order 13132. FMCSA has determined that
this rulemaking will not have a substantial direct effect on States,
nor will it limit the policy-making discretion of the States. Nothing
in this document will preempt any State law or regulation. FMCSA has
therefore determined this rule does not have federalism implications.
Executive Order 12372 (Intergovernmental Review)
The regulations implementing Executive Order 12372 regarding
intergovernmental consultation on Federal programs and activities do
not apply to this program.
Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) requires
that FMCSA consider the impact of paperwork and other information
collection burdens imposed on the public. The changes in this final
rule affect OMB Control No. 2126-0017 titled ``Financial
Responsibility, Trucking, and Freight Forwarding.'' The final rule
requires that cargo insurance filings be made only by household goods
motor carriers and household goods freight forwarders.
OMB Control No. 2126-0017 has 10 information collections (ICs) for
10 different forms covering all FMCSA insurance, surety bond, trust
fund, and performance bond filings for for-hire motor carriers of
property and freight forwarders. IC-3, within the information
collection request, is devoted to Form
[[Page 35328]]
BMC-34 entitled ``Motor Carrier Cargo Liability Certificate of
Insurance.'' IC-3 will now be limited only to the 4,000 motor carriers
and freight forwarders involved in authorized for-hire household goods
carriage, but the other nine ICs in OMB Control No. 2126-0017 will
still be applicable to all for-hire motor carriers of property and
freight forwarders. The information collection burden for IC-3 will
decrease from approximately 13,458 hours to about 673 total hours, a
decrease of almost 12,800 hours.
FMCSA has submitted a revised information collection request to OMB
for this reduced information collection burden in IC-3.
National Environmental Policy Act
FMCSA analyzed this final rule for the purpose of the National
Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.) and
determined under our environmental procedures Order 5610.1, issued
March 1, 2004 (69 FR 9680), that this action is categorically excluded
from further environmental documentation under Appendix 2, paragraph
6.v. of the Order (regulations prescribing minimum levels of financial
responsibility). In addition, the agency believes that this action
includes no extraordinary circumstances that will have any effect on
the quality of the environment. Thus, the action does not require an
environmental assessment or an environmental impact statement.
FMCSA also analyzed this rule under the Clean Air Act, as amended
(CAA), section 176(c) (42 U.S.C. 7401 et seq.), and implementing
regulations promulgated by the Environmental Protection Agency.
Approval of this action is exempt from the CAA's general conformity
requirement since it involves rulemaking action. (See 40 CFR
93.153(c)(2)). It will not result in any emissions increase nor would
it have any potential to result in emissions that are above the general
conformity rule's de minimis emission threshold levels. Moreover, it is
reasonably foreseeable that this final rule will not increase total CMV
mileage, or change the routing of CMVs, how CMVs operate, or the CMV
fleet-mix of motor carriers. By this action, FMCSA merely removes a
requirement that certain motor carriers purchase and maintain insurance
for loss or damage to cargo and file evidence of such insurance with
the Agency.
Executive Order 13211 (Energy Effects)
FMCSA analyzed this action under Executive Order 13211, Actions
Concerning Regulations That Significantly Affect Energy Supply,
Distribution, or Use. We determined that it is not a ``significant
energy action'' under that Executive Order because it will not be
economically significant and will not be likely to have a significant
adverse effect on the supply, distribution, or use of energy.
List of Subjects
49 CFR Part 365
Administrative practice and procedure, Brokers, Buses, Freight
forwarders, Mexico, Motor carriers, Moving of household goods.
49 CFR Part 387
Buses, Freight, Freight forwarders, Hazardous materials
transportation, Highway safety, Insurance, Intergovernmental relations,
Motor carriers, Motor vehicle safety, Moving of household goods,
Penalties, Reporting and recordkeeping requirements, Surety bonds.
0
In consideration of the foregoing, FMCSA amends title 49, Code of
Federal Regulations, chapter III, as follows:
PART 365--RULES GOVERNING APPLICATIONS FOR OPERATING AUTHORITY
0
1. The authority citation for part 365 is revised to read as follows:
Authority: 5 U.S.C. 553 and 559; 49 U.S.C. 13101, 13301, 13901-
13906, 14708, 31138, and 31144; 49 CFR 1.73.
0
2. In Sec. 365.109, revise paragraph (a)(5)(iii) to read as follows:
Sec. 365.109 FMCSA review of the application.
(a) * * *
(5) * * *
(iii) Form BMC 34 or BMC 83 surety bond--Cargo liability (household
goods motor carriers and household goods freight forwarders).
* * * * *
PART 387--MINIMUM LEVELS OF FINANCIAL RESPONSIBILITY FOR MOTOR
CARRIERS
0
3. The authority citation for part 387 continues to read as follows:
Authority: 49 U.S.C. 13101, 13301, 13906, 14701, 31138, 31139,
and 31144; and 49 CFR 1.73.
0
4. In Sec. 387.301, revise paragraph (b) to read as follows.
Sec. 387.301 Surety bond, certificate of insurance, or other
securities.
* * * * *
(b) Household goods motor carriers-cargo insurance. No household
goods motor carrier subject to subtitle IV, part B, chapter 135 of
title 49 of the U.S. Code shall engage in interstate or foreign
commerce, nor shall any certificate be issued to such a household goods
motor carrier or remain in force unless and until there shall have been
filed with and accepted by the FMCSA, a surety bond, certificate of
insurance, proof of qualifications as a self-insurer, or other
securities or agreements in the amounts prescribed in Sec. 387.303,
conditioned upon such carrier making compensation to individual
shippers for all property belonging to individual shippers and coming
into the possession of such carrier in connection with its
transportation service. The terms ``household goods motor carrier'' and
``individual shipper'' are defined in part 375 of this subchapter.
* * * * *
0
5. In Sec. 387.303, revise paragraph (c) to read as follows:
Sec. 387.303 Security for the protection of the public: Minimum
limits.
* * * * *
(c) Household goods motor carriers: Cargo liability. Security
required to compensate individual shippers for loss or damage to
property belonging to them and coming into the possession of household
goods motor carriers in connection with their transportation service;
(1) For loss of or damage to household goods carried on any one
motor vehicle--$5,000,
(2) For loss of or damage to or aggregate of losses or damages of
or to household goods occurring at any one time and place--$10,000.
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6. In Sec. 387.313, add a new paragraph (f) to read as follows:
Sec. 387.313 Forms and procedures.
* * * * *
(f) Termination of Forms BMC-32 and BMC-34 for motor carriers
transporting property other than household goods. Form BMC-32
endorsements and Form BMC-34 certificates of insurance issued to motor
carriers transporting property other than household goods that have
been accepted by the FMCSA under these rules will expire on March 21,
2011.
0
7. In Sec. 387.403, revise paragraph (a) to read as follows:
Sec. 387.403 General requirements.
(a) Cargo. A household goods freight forwarder may not operate
until it has filed with FMCSA an appropriate surety bond, certificate
of insurance, qualifications as a self-insurer, or other securities or
agreements, in the amounts
[[Page 35329]]
prescribed in Sec. 387.405, for loss of or damage to household goods.
* * * * *
0
8. In Sec. 387.413, add a new paragraph (f) to read as follows:
Sec. 387.413 Forms and procedures.
* * * * *
(f) Termination of Forms BMC-32 and BMC-34 for freight forwarders
of property other than household goods. Form BMC-32 endorsements and
Form BMC-34 certificates of insurance issued to freight forwarders of
property other than household goods that have been accepted by the
FMCSA under these rules will expire on March 21, 2011.
Issued on: June 15, 2010.
Anne S. Ferro,
Administrator.
[FR Doc. 2010-14866 Filed 6-21-10; 8:45 am]
BILLING CODE 4910-EX-P