BMC-32 Cargo Liability Endorsement Lost Relevance Long Before Ending

The BMC-32 Cargo Liability Endorsement has been gone for more than a year, extinguished in March 2011 by the Federal Motor Carrier Safety Administration. But does anyone really miss it? Many of you probably have no idea what the “BMC-32 Endorsement” was or what it meant, let alone that it’s no longer with us. So first, we should look at why it existed. The BMC-32:

  • Provided proof of a motor carrier’s cargo insurance policy to a shipper.
  • Was originally required by the Interstate Commerce Commission after many trucking companies experienced financial problems.
  • Was an endorsement to a carrier’s cargo liability policy that guaranteed a minimum level of coverage for loss or damage in transit at $5,000 per shipment and $10,000 per incident.
  • Protected shippers with an ironclad assurance that no matter what the financial condition of their carrier, their cargo had the minimum level of insurance.
  • Meant a shipper could file a damage claim directly against the carrier’s insurer if the carrier went out of business.
  • Was one of the last vestiges of federal economic regulation of motor carriers.
  • Now only exists in the world of movers of household goods.

The problem with this protection was that the $5,000/$10,000 minimums remained fixed and became unimportant as inflation and technology raised the value of shipments well beyond the mandated protection. A full truckload of cell phones, for example, can easily be worth more than $1.5 million, while a truckload of paper used for printing business cards might be worth $100,000. Full trailerloads of less-than-truckload shipments could easily exceed $2 million in total value.

For most shippers, the order of insurance recovery precedence further diminished the value of BMC-32 protection to the point of irrelevance.  A shipper collects on cargo loss and damage claims in this order: First, a claim is filed with the carrier to invoke the carrier’s coverage up to the maximum shipment value specified in the carrier’s rules tariff or shipper-carrier contract. If, after receiving payment from the carrier, the loss is still not satisfied, the shipper’s own deductible comes into play.  If there is still unrecovered loss, a claim for the balance would be filed with the shipper’s outside insurance company.

If a shipper is self-insured up to a certain amount, the order of payment changes to insert the shipper’s corporate-insurance-program-imposed deductible — in essence, a second, corporate level of self-insurance — before filing a claim for the remainder against the shipper’s insurance company. What follows is an example of the tortuous route a loss and damage claim can take, with typical amounts used for clarity.

Some shippers, especially divisions of large corporations, have tried to get around their imposed corporate deductibles by purchasing shipment-specific “valuation” coverage from their carrier to insure against losing that deductible. Carriers cannot sell “insurance” or they would be bound by each state’s cumbersome insurance regulations, but they can and do sell “valuation coverage” in thousand-dollar increments, which repay a shipper for higher damage or loss due to the carrier’s fault. Because the “looks like a duck” discussion on valuation would consume another article by itself, let’s acknowledge that the valuation charges of a carrier raise the carrier’s loss and damage liability.

However a division or plant might try to insure away their deductible exposure, corporate insurance departments quickly clamp down on this practice, and still require their operations to absorb the standard deductible before any corporate coverage can be accessed. Therefore, many operations will simply purchase valuation coverage for the entire shipment value, in violation of Insurance Department rules, because their budget can’t afford even the shared loss (deductible) their insurance process mandates, while the relatively low extra-valuation charges can be absorbed with little financial pain.

We haven’t mentioned the BMC-32 yet because it would have been irrelevant to the shipper, because only the shipper’s deductible is at risk — even if the carrier went bankrupt, the low $5,000 provided by the BMC-32 isn’t significant. Granted, individual small shipments made by smaller shippers might theoretically be covered by a $5,000 policy, but in a trailerload of LTL shipments, the BMC-32-mandated $10,000 per incident could have ended up as pennies on the dollar shared among all affected shippers.

When the FMCSA stated in its decision to end the BMC-32 requirement that “shippers are like any other party in a transaction where one party will be providing services to another party” and that “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,” they placed cargo insurance in the same category as every other element of inter-company transactions, even though, in that final rule, the FMCSA stated that elimination of the BMC-32 endorsement would make it “less convenient to confirm the existence of cargo insurance.”

Better-managed large shippers and others with leverage in the form of traffic that carriers want or need to haul have specified, for years, in their long-term contracts with their carriers insurance minimums at levels much higher than the BMC-32’s $5,000/$10,000. And the best-in-class contracts have required the carrier or his agent to provide proof of cargo and general liability coverage, plus add the shipper as a “named insured” on these policies. This is prudent because it offers the following advantages over the traditional Certificate of Insurance:

  • It gives the shipper full rights to coverage for losses arising out of the services the carrier provides.
  • It requires the insurer to notify the shipper of any material changes to, or cancellation of, the policy.
  • It increases the probability the insurer will accept the claim more quickly.

As you can see, and probably already knew, most shippers today don’t miss the BMC-32, if they ever cared about it, because their standards of due diligence for all suppliers would include confirming the existence of adequate insurance in all critical categories. Some smaller shippers, however, without the protection of an overall contract, and who therefore must rely on the carrier’s paperwork or tariff rules for loss and damage recovery, would be limited to whatever their carrier specifies in their tariffs unless those shippers have purchased their own overall cargo insurance policy.

Finally, of far greater importance to shippers than cargo loss and damage coverage are the automobile and liability coverage their carriers maintain. In our increasingly litigious society, the search for the deepest pockets when people are harmed or property is damaged invariably leads to the shipper being named in whatever legal actions result, so having carriers with sufficient coverage in all of these areas is critical. And only each shipper can determine, under its own risk management program, what levels of insurance should be required of all their carriers, as well as their other suppliers.

The BMC-32 in its final years wasn’t really protecting many shippers or shipments against cargo loss and damage, and offered nothing to protect against the far greater exposures of a carrier’s insufficient general liability coverage. Since the 1981 deregulation of the motor carrier industry, the cargo-loss coverage situation, like carrier pricing, routing and other insurance protections, has evolved into the basic “buyer beware” relationship. And so the BMC-32, like other transportation economic regulations, is gone and forgotten -- resting in peace and not missed.

Thomas Tanel is founder and CEO of CATTAN Services Group and chair of the Institute for Supply Management’s Logistics and Transportation Group. Contact him at tanel@cattan.com. George Yarusavage is a principal with Fortress Consulting and treasurer of the ISM’s Logistics and Transportation Group as well as a member of the board for the American Society of Transportation and Logistics. Contact him at gyarusavage@yahoo.com.

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