The rising costs of government regulation now appears in the form of a recently-issued notice of proposed rulemaking from the Federal Motor Carrier Safety Administration (“FMCSA”), released November 28, 2014; 79 Fed. Reg. 70839.  In it, the Agency proposes substantially raising the minimum financial responsibility levels of (i) for-hire motor carriers, (ii) hazardous materials carriers and (iii) freight forwarders and brokers.

Under current law, carriers of 1.3G fireworks are required to maintain a minimum of $5M of liability insurance coverage for personal injury and property damage while, by comparison, carriers of 1.4G fireworks are required to maintain a minimum of $1M insurance.  These thresholds have been unchanged since 1985 and, apparently, FMCSA wants to adjust them to more properly reflect prevailing market conditions and, considering its comments, it would not be surprising if current minimum levels were more than doubled.

Significantly, the rulemaking does not provide, nor propose, any guidance regarding the hard data to defend FMCSA’s proposal.  Instead, the Agency is actively soliciting industry stakeholders for pertinent information that will, presumably, substantiate an upward adjustment to current minimum levels.  Included amongst the topics that FMCSA is seeking input is information demonstrating the frequency and severity of motor incidents that involve an unintentional release of hazardous materials resulting in damages exceeding current levels of liability.  It stands to reason that the greater the frequency of damages exceeding the current minimums the greater the desire or need to raise them.  On another level, FMCSA is seeking to ascertain how frequently carriers declare bankruptcy in instances where damages caused by an incident exceed the current minimum.  Here, once again, it stands to reason that the greater the number of companies seeking bankruptcy protection  (as a result of unintentional release of hazardous materials) increases the desire or need to raise current minimum levels, on the theory that the minimum level should always be adequate to satisfy the average amount of damages proven.  Here, public policy is advanced by ensuring that minimum levels are adequate to satisfy the damages caused by the unintentional release of hazardous materials.  FMCSA is also seeking the perspective of industry stakeholders regarding any anticipated increases in insurance premiums; for instance, what is the ratio by which insurance premiums will likely increase in relation to certain increases in minimum liability insurance requirements (e.g., $2,000 increase in premium for every $1M increase above current levels).

It appears pre-ordained that FMCSA will raise minimum levels, if only due to the great passage of time since the current minimums were imposed, leaving unresolved only the question of its magnitude.  On this point, the devil is in the details.  It is vitally important for stakeholders to ascertain whether or not current levels are adequate to satisfy the vast majority of the damages caused by unintentional releases of hazardous materials.  If, in reality, the findings demonstrate that current prescribed premium levels are sufficient to cover all damages to persons and property associated with the peril (of unintentional releases of hazardous materials) then no genuine reason exists to support FMCSA’s proposed increases to current minimum levels.  Increasing the minimums against the weight of the facts can only serve to increase the costs of doing business that, in turn, may cause some financially weaker businesses to become insolvent.  For all others, increasing the minimums will necessarily increase the barrier of entry.

It may be incumbent upon industry stakeholders to educate FMCSA regarding the reportedly ever-improving safety record of transportation of 1.3G and 1.4G fireworks in aggregate terms.  For example, according to various national fireworks organizations, the volume of 1.3G and 1.4G fireworks being transported has only increased while, at the same time, damages to both  person and property relating to transportation has, in the aggregate, decreased.  This is not typically an environment warranting an increase in insurance levels.

In conclusion, while FMCSA’s desire to align insurance minimum levels with actual damage levels is laudable, the Agency seemingly lacks good cause to enact a change at this point in time. Indiscriminately raising minimum levels is an anathema to free commerce, open competition and innovation.  Accordingly, an ulterior motive for FMCSA’s desire to increase minimum levels of liability cannot be eliminated at this juncture.

CategoryAll Articles

© 2016 Creadore Law Firm All Rights Reserved.

Creadore Law Firm