Non-Owned Trailer Exposures: Who Owns the Risk?

Non-Owned Trailer Exposures: Who Owns the Risk?
0 20 April 2017

There is a little known and often overlooked issue that continues to grow within the trucking industry.

“Truckers are responsible not only for liability, but also for any physical damage to trailers of others while in their possession.”

The Risk
It is common practice for truckers to use trailers belonging to others in the normal course of their business. All ISO Coverage Forms (Business Auto, Truckers, Motor Carrier) extend Liability Coverage for non-owned trailers while attached to a covered auto.

Truckers however are often responsible not only for liability, but also for any physical damage that occurs to trailers of others while in their possession. Physical Damage Coverage for non-owned trailers is excluded by standard ISO coverage forms, which exclude liability for property of others while in the insured’s care, custody, or control. This coverage must be added, and is occasionally referred to as “bailee coverage” – a bailee being “any individual or entity which holds property of another”, the property in this case being a trailer.

Solutions for Providing Physical Damage for Non-Owned Trailers
1) Non-Owned Trailer Physical Damage
Traditionally this is structured by the insurance carrier including as a covered auto “any non-owned trailer while attached to a covered (or scheduled) power unit”, and listing a separate physical damage coverage limit for these non-owned trailers.

Advantages: The advantage of this approach is that it does not require a written agreement for coverage to apply. A verbal agreement, informal written agreement, or a handshake are commonplace between truckers, or between truckers and shippers. Non-Owned Trailer Physical Damage Coverage is broad enough to encompass the insured’s liability for all of these situations, as well as those for which there are formal written agreements.

Watch Out: It is worth noting that coverage under this approach is most often restricted in the same manner that the policy’s standard liability coverage for non-owned trailers is restricted – the trailer must be attached to a covered power unit at the time of loss.

2) Trailer Interchange Coverage
Prior to deregulation of the trucking industry, authority involved specific geographic areas only, and trailer interchange agreements between truckers were commonplace. These agreements are rarely seen today, and few currently exist outside of the UIIA (Uniform Intermodal Interchange and Facilities Access Agreement). There is a specific Covered Auto Symbol for use with the ISO Truckers and Motor Carriers Coverage Forms to provide Trailer Interchange Coverage, and the coverages and exclusions are a part of the insuring agreement.

Advantage: Trailer Interchange Coverage extends to all liabilities an insured has for damages to a trailer while in his or her possession – it does not require that the trailer be attached at the time of loss. It also includes “a container” under the definition of a trailer. Consequently, it is frequently used for intermodal operations where the equipment interchange often includes both a trailer chassis and a container.

Watch Out: Trailer Interchange Coverage requires that a “written trailer or equipment interchange agreement” be in place at the time of loss, which may not extend to all situations when a trucker has a non-owned trailer in their possession.

3) Hired Auto Physical Damage
This coverage extends to trucks, tractors and trailers that are leased, hired, rented or borrowed by the insured. This coverage is not well suited for long-term trailer leases, but it may be used for short term exposures.

Typically an insured with this coverage must keep a record of the number of vehicles hired and the number of days the coverage was used, as this coverage is subject to audit at the end of the policy term.

Advantage: Similar to Trailer Interchange Coverage, Hired Auto Physical Damage applies based on the insured’s liability and does not require that the trailer be attached at the time of loss.

Watch Out: Pricing is typically based on the estimated cost of hire for the upcoming term, adjusted by annual audit. If this rating approach is used to cover non-owned trailer physical damage exposures, an “if any” approach would not be appropriate. The anticipated cost of hire must be used as the rating basis.

Unsure about which coverage to use for your insured? We’re happy to help!
Call Interstate Insurance 800-452-0297

The author, Denny Beecher, is a Senior Underwriter for Interstate Insurance Management’s Auto division. Founded in 1970, Interstate is a leading commercial transportation MGU, providing specialized underwriting for P&C and transportation risks.

Denny Beecher | Senior Transportation Underwriter | Interstate |

This is not intended to provide legal advice and only the actual policy terms can determine coverage.