Risks and potential liability from automobiles and trucks have dominated conversations between insureds and insurers over the past decade. Societal dynamics of distracted driving, social inflation, and nuclear verdicts fueled in part by third party litigation financing have forever changed the underwriter’s view of excess liability. A new topic of concern has emerged in underwriting discussions regarding the liability both energy and non-energy firms face from hiring third parties to haul their property and products.
The commercial auto insurance form contains symbols that designate types of autos insured by the form. For example, Symbol 1 addresses any owned or leased vehicle and Symbol 9 addresses non-owned vehicles such as an employee’s personal autos used for business. Symbol 8 captures hired vehicles, which extends to vehicles rented, but also liability associated with hiring a third party to haul on your behalf.
For decades, insurers’ principal risk concerns for non-trucking firms regarding hired liability emanated from employees renting cars on business or personal vehicle use for business purposes. While the principal basis of pricing auto liability consisted of the number of owned or leased power units, some insurers would request insureds’ rental car receipts or similar information to attempt to quantify the potential additional exposure. It generally was a lesser issue for firms with larger fleets but could become a more leading issue for professional firms such as geoscience and engineering with common employee travel. However, the broader insurance community viewed this exposure overall as fairly benign from a risk standpoint.
The trend of skyrocketing verdicts, some pundits have labeled as “nuclear,” have progressively rocked the liability marketplace over the past five years. Delays in court dockets during and post COVID have challenged insurers’ adjusters and actuaries’ ability to accurately reserve for the increased volatility of judgements and often creative maneuvers of the plantiffs’ bar in seeking non-traditional sources of recovery for personal injury claims. This dilemma reached a series of flash points in the first half of 2023 with a series of large claims involving third party hauling firms. While the details and dynamics have varied case by case, the cases tend to have the commonality of the underlying tortfeasor of the hauling firm with very limited insurance policy limits and significant injuries to the plaintiff. To seek additional limit, plaintiff’s counsel brings in the firm that contracted the hauling firm by alleging they were negligent in properly credentialing the hired hauling firm to haul their property on their behalf. These cases have included oil and gas contractors and operators, midstream firms, aggregate firms, chemical companies, and even manufacturers.
A large insurer has recently published a listing of recent claims involving arguments of negligent credentialing of third-party haulers. These cases range from mid-seven figures to mid eight figures in value. They and a few other insurers have been proactively working with their large trading partners including WTW Natural Resources to help clients navigate these issues.
Recent fourth quarter renewals have been hallmarked by underwriters’ questions asked in an attempt to quantify the potential exposures associated with third party hauling. It appears that both facultative and insurance markets are also asking similar questions to the retail insurance carriers as well, signifying the increase in demands and settlements for firms contracting third-party hauling companies. It is imperative that clients begin to focus on and prepare details on the following topics:
Carriers have been attempting to address this emerging trend by either imposing minimum attachment points on third party hauling exposures or instituting one time corridor retentions below their capacity. At WTW we have built a solution to address these raised attachment points/corridor retentions. Using a combination of traditional insurance and structured solutions, we can solve for this emerging trend to assist in mitigating the potential impact to firm's balance sheets.
Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).
