In our previous issue, we brought you a rundown of some of the various types of documentation and certification you may need to run and build your delivery firm. Depending on the type of deliveries you do, some of that information was useful; some was not. In this issue, we touch on a vital aspect to all delivery businesses: insurance.
According to Peter Schlactus, principal and managing director of Brightstone Insurance Services, LLC in New Rochelle, N.Y., the first type of insurance each company needs to have documented is auto insurance.
“Statutory minimums are set by individual states,” says Schlactus, an insurance veteran specializing in the delivery arena. “But companies need to realize that simply meeting these standards may not be enough to satisfy or impress potential clients -- or adequately protect your investment in your business.”
Schlactus recommends at least $1 million in auto liability and notes that although that may be 10-40 times the minimum and sounds like a lot of money, the premiums may only be twice the cost of the minimum, which would be well worth the cost in order to impress clients and put them at ease when they are arranging shipments.
“Not all customers are savvy enough to check on a courier company’s insurance, but any successful delivery firm will reach a point where new opportunities can be obtained by showing adequate insurance coverage,” Schlactus points out.
Looking ahead, if a company skimps on this insurance and doesn’t build its cost structure based on a sustainable amount of insurance, the entire cost structure would have to be re-established when it becomes evident that the company needs more. That could mean hiking rates on existing customers as well as all the potential for disruption that entails.
Interstate or Intrastate?
Another major factor is determining whether your company needs to be insured as an interstate or intrastate carrier. According to Greg Feary of Scopelitis, Garvin, Light, Hansen & Feary, located in Indianapolis, Ind., the largest legal transportation firm in the nation, this is not as easy as it might seem.
One way to determine if you should be considered interstate is if your vehicles cross state lines routinely, which the federal government considers to be once every four months. That piece is pretty straightforward.
“The other way of looking at it is far more nebulous,” Feary notes. “Even though you may not be moving from state to state, you may still be considered to be involved in interstate shipping. If the character of the goods changes, that one simple fact can change your classification.” Not so easy.
Feary gives an example of auto parts from California and Oregon arriving at a Texas firm, where they are re-packaged to be distributed as a packet. Your drivers have not left the state, yet those conditions change the classification to interstate.
Failure to be properly classified can lead to stiff penalties and fines, especially since the enactment of MAP 21 regulations in October 2012. To be secure in your classification, it is prudent to consult with an experienced transportation attorney.
It’s also important to note that if drivers are using their own vehicles, a delivery firm’s insurance must include “hired and non-owned auto coverage.” They are acting as your agents, so without this coverage there is no protection for your firm.
The next common requirement is general liability and again, $1 million is the recommended minimum amount. The irony here is that although customers feel more confident knowing this coverage is in the mix, this type of insurance really doesn’t cover much of what people think it does. For example, it does not cover any injuries or property damage that occurs during loading or unloading.
“It does cover small pieces of the delivery process and fills in some nooks and crannies,” says Schlactus. “Since it’s so widely expected by customers, you’d be crazy not to have it, but don’t pay a lot for it.”
Small and new companies often question why they should have cargo insurance if they’re not carrying anything valuable. Having this insurance is one of those instances in which your credentials could make or break you obtaining a contract. Whereas you won’t always need it, it’s good to know it’s there when opportunities knock.
“Often, companies receive a package with unknown contents,” Schlactus warns. “If something happens to the contents, the client may claim much more value than we imagine. In these cases it’s difficult to prove or disprove.” That’s one more way cargo insurance provides peace of mind to the courier companies.
Workers Comp and Occupational Accident Insurance
What all companies need to be aware of is the need to protect against injuries to drivers. Typically, what courier companies look for is Workers Compensation when they are working with employee drivers. Without it, if these drivers are injured, the delivery firm may be responsible for unlimited liability, not to mention legal penalties for operating illegally. Workers Comp protects the company from financially draining lawsuits.
“Even if courier companies are working with independent contractors, it’s important to consult with a specialist to be sure that appropriate insurance is in place,” Schlactus warns.
Because independent contractors (IC’s) are not employees, they are not entitled to Workers Compensation. But nothing stops an IC driver from making a Workers Comp claim and the system is sympathetic. And such claims can trigger expensive audits by your insurance company.
Contract drivers can obtain Occupational Accident Insurance through associations like the Association for Delivery Drivers (for more information, visit a4dd.org). This insurance covers IC’s for injuries sustained on the job, reduces the risk of driver Workers Comp claims, and can qualify the courier company for Workers Comp without IC-related audit risks.
The specific details of the delivery industry are different from most businesses. Dealing with an insurance broker who is familiar with the industry is vital when setting up your protection.
“Some policies become a ticking time bomb because they are not set up for growth,” Schlactus explains. When insurance companies don’t tailor their approach, changes down the road can cause large unexpected increases in policy premiums and imbalance your books.
About the Author
Mary DeLuca is the former editor of Courier Magazine and a freelance writer and PR consultant to the courier industry. You can reach her through her website, writestyle.biz, or by e-mail at firstname.lastname@example.org.