Topic:
HAZARDOUS SUBSTANCES; LIABILITY INSURANCE; AUTOMOBILE INSURANCE; MOTOR VEHICLES; NO-FAULT INSURANCE; MOTOR VEHICLE DEPARTMENT;
Location:
INSURANCE - MOTOR VEHICLE;

OLR Research Report


September 28, 2005

 

2005-R-0728

COMMERCIAL VEHICLE INSURANCE REQUIREMENTS

By: Janet L. Kaminski, Associate Legislative Attorney

You asked (1) what the federal and state motor vehicle insurance requirements are for vehicles with a commercial registration, (2) whether there is a specific state law that sets a penalty for a motor carrier that fails to satisfy the federal requirements, and (3) if an insurer is required to notify the Department of Motor Vehicles (DMV) when it cancels a motor vehicle liability insurance policy on a vehicle with a commercial registration.

SUMMARY

Federal regulations adopted by the U.S. Department of Transportation's Federal Motor Carrier Safety Administration (FMCSA) establish the minimum levels of financial responsibility (e.g., insurance policies, surety bonds, self-insurance) that motor carriers operating motor vehicles on public highways must maintain. (A motor carrier is in the business of transporting property or passengers.) The financial responsibility requirements are meant to ensure that the carrier has sufficient means to cover liability for bodily injury, property damage, and environmental restoration.

The federal regulations set the minimum level of financial responsibility that a motor carrier must maintain from $750,000 to $5,000,000, depending on the (1) type of motor vehicle and (2) type or quantity of property or people transported. Federal law permits a state to require a motor carrier to maintain a higher level of financial responsibility.

The federal regulations require motor carriers to keep proof of financial responsibility at their principal place of business and make it available for inspection upon request. Any person who knowingly violates the federal rules is subject to a civil penalty of up to $16,000 per violation. Each day of continued violation constitutes a separate offense.

Either the insurer (or surety) or the carrier may cancel the financial responsibility by providing written notification to (1) the other party 35 days in advance and (2) if the insured is subject to FMCSA jurisdiction, FMCSA 30 days in advance.

State law authorizes the DMV commissioner to adopt regulations that incorporate by reference the federal financial responsibility requirements. The commissioner has done this, making the requirements applicable for certain motor carriers. State law makes a first violation of the regulations an infraction. It permits the DMV commissioner to impose a civil penalty for a second or subsequent violation of up to $10,000 per violation.

The federal financial responsibility requirements for motor carriers do not apply to all vehicles with commercial registrations. As a result, the state legislature expanded the applicability of the mandatory no-fault motor vehicle insurance law effective October 1, 1994. Thus, the owner of any vehicle with a commercial registration, instead of just those subject to the federal requirements, must continuously maintain throughout the vehicle's registration period, certain minimum financial security. Failure to do so is a class C misdemeanor, which carries a fine up to $500, imprisonment up to three months, or both.

State law also subjects a vehicle owner convicted of operating or allowing the operation of a vehicle with a commercial registration without the required minimum security to a fine between $100 and $1,000. The law requires that DMV suspend his vehicle registration and driver's license for one month for a first conviction and six months for subsequent convictions. The owner whose registration has been suspended may also have his license plates confiscated and vehicle impounded. DMV is prohibited from restoring his license until he obtains and provides evidence of the required financial security.

Under state law, an insurer is not required to notify DMV of the cancellation of any commercial motor vehicle liability insurance policy. (For details regarding this, see the enclosed report, OLR 2005-R-0758.)

FEDERAL REQUIREMENTS

Federal law prohibits motor carriers from operating motor vehicles unless the carrier has obtained and has in effect an appropriate level of financial responsibility (e.g., insurance policies, surety bonds, self-insurance) to cover potential liability for bodily injury, property damage, and environmental restoration. The term “motor carrier” includes a carrier's (1) agent, officer, or representative; (2) employee responsible for hiring, supervising, training, assigning, or dispatching drivers; and (3) employees involved with the installation, inspection, and maintenance of motor vehicle equipment and accessories (49 CFR 387.5 and 387.29). The financial responsibility requirements apply to:

1. for-hire and private carriers operating motor vehicles transporting hazardous (a) materials, (b) substances, or (c) wastes;

2. for-hire carriers operating motor vehicles transporting property in interstate or foreign commerce;

3. for-hire carriers transporting passengers in interstate or foreign commerce; and

4. private carriers domiciled in Mexico transporting property in interstate or foreign commerce (49 CFR 387.3).

For-hire carriers are in the business of transporting, for compensation, (1) the goods or property of another or (2) passengers and their property (49 CFR 387.5 and 387.29).

Minimum Financial Responsibility

Table 1 shows the minimum levels of financial responsibility that a motor carrier of property must maintain under federal regulations. The requirements only apply to a motor vehicle with a gross vehicle weight rating (GVWR) of more than 10,000 pounds. They also apply to a motor vehicle with a GVWR of less than 10,000 pounds if the vehicle is carrying certain hazardous substances, as defined and listed in the federal regulations (49 CFR 387.3 and 387.9).

Table 1: Minimum Levels of Financial Responsibility for Motor Carriers Transporting Property

Type of Carriage

Commodity Transported

Minimum Requirement

For-hire –

in interstate or foreign commerce

Non-hazardous property

$750,000

For-hire or private –

in interstate, foreign, or intrastate commerce

Hazardous substances (with some exceptions)

$5,000,000

For-hire or private –

in interstate or foreign commerce in any quantity or in intrastate commerce in bulk

Hazardous waste, hazardous materials, and any hazardous substances not included above.

$1,000,000

(Source: 49 CFR 387.9)

“Hazardous material” means a substance or material that the U.S. Secretary of Transportation has determined is capable of posing an unreasonable risk to health, safety, and property when transported in commerce and designated as hazardous. “Hazardous waste” means any material that is subject to the Hazardous Waste Manifest Requirements of the U.S. Environmental Protection Agency (49 CFR 171.8).

Table 2 shows the minimum levels of financial responsibility that a for-hire motor carrier of passengers operating in interstate or foreign commerce must maintain.

Table 2: Minimum Levels of Financial Responsibility for Motor Carriers Transporting Passengers

Vehicle Seating Capacity

Minimum Requirement

16 passengers or more

$5,000,000

15 passengers or less (with exceptions)

$1,500,000

(Source: 49 CFR 387.33)

The requirements for vehicles with a seating capacity of 15 passengers of less do not apply to a motor vehicle that:

1. transports only school children and teachers to and from school;

2. provides taxicab service with a seating capacity of fewer than seven passengers that does not operate on a regular route;

3. carries fewer than 16 people in a single daily round trip commute to and from work; and

4. a motor carrier operates under contract to provide transportation for extracurricular school trips organized, sponsored, and paid for by a school district (49 CFR 387.27).

Proof of Financial Responsibility

The federal regulations require a motor carrier to maintain proof of financial responsibility at its principal place of business. The regulations make such proof public information. Carriers must produce it for review if any member of the public requests it. The regulation specifies the form of proof, including specific insurance or surety forms. If the carrier is self-insured, the proof is a written decision, order, or authorization from FMCSA authorizing it to self-insure (49 CFR 387.7 and 387.31).

Cancellation

With respect to financial responsibility in the form of insurance or a surety bond, either the (1) insurer or surety or (2) carrier may cancel the agreement by providing written notification to the other party 35 days in advance. If the carrier is subject to FMCSA jurisdiction, FMCSA must receive cancellation notification 30 days in advance (49 CFR 387.15 and 387.39).

Federal Penalty

Any person who knowingly violates the federal rules is subject to a civil penalty of up to $16,000 for each violation. If any violation is a continuing one, each day of continued violation constitutes a separate offense. The FMCSA administrator determines the penalty amount by considering the nature, circumstances, extent, and gravity of the violation; degree of culpability; history of prior offenses; ability to pay; effect on the carrier's ability to continue doing business; and other matters justice may require (49 CFR 387.17, 387.41, and 386, Appendix B).

STATE REQUIREMENTS

State law authorizes the DMV commissioner to adopt regulations that incorporate by reference (i.e., adopt as state regulations) the federal financial responsibility requirements for any motor vehicle:

1. in intrastate commerce with a GVWR over 18,000 pounds;

2. in interstate commerce with a GVWR or gross combination weight rating (the combined GVWR of the power unit and towed units) over 10,000 pounds;

3. designed to transport more than 15 passengers, including the driver; and

4. transporting hazardous materials and required to be placarded in accordance with federal regulations (CGS 14-163c).

The state regulations also apply to the (1) driver of any motor vehicle listed above and (2) the motor carrier responsible for the operation of such motor vehicle or driver (Conn. Agencies Regs. 14-163c-2).

Enforcement

State law authorizes state and municipal police officers and motor vehicle inspectors to (1) inspect any carrier's motor vehicle in operation and examine its operator to determine compliance with the financial responsibility requirements, (2) enter a motor carrier's premises to inspect its records, (3) conduct a safety rating procedure for any motor carrier that owns or operates a motor vehicle subject to the requirements, (4) declare a motor vehicle or its operator out of service, or (5) issue an infractions complaint (CGS 163c(d)). A violation of an out-of-service order is an infraction (Conn. Agencies Regs. 14-163c-6 and 14-163c-8).

State Penalty

Under state law, a first violation of the financial responsibility regulations is an infraction. The law authorizes the DMV commissioner to impose a civil penalty for a second or subsequent violation of up to $10,000 per violation. A person assessed a civil penalty may request a hearing. If he does not comply with the commissioner's final decision and order, the commissioner may suspend any motor vehicle registration issued to him or his privilege to register any motor vehicle in the state until he complies with the order (CGS 14-163c(e)).

State No-Fault Motor Vehicle Act

Since the federal financial responsibility requirements for motor carriers, as adopted by the state, do not apply to all vehicles with commercial registrations, the state legislature also expanded the applicability of the mandatory no-fault motor vehicle insurance law, effective October 1, 1994 (PA 94-243). A “commercial registration” is the type of registration required for any motor vehicle designed or used to transport merchandise, freight, or people in connection with any business enterprise (CGS 14-1(14)).

Under the no-fault law, the owner of a vehicle with a commercial registration must continuously maintain throughout the vehicle's registration period financial security including, at a minimum, (1) bodily injury liability of $20,000 per person and $40,000 per accident; (2) property damage liability of $10,000 per accident; and (3) uninsured and underinsured motorist coverage of $20,000 per person and $40,000 per accident. Failure to provide the required security is a class C misdemeanor, subject to a fine up to $500, imprisonment up to three months, or both (CGS 38a-371).

If convicted of operating or allowing the operation of a vehicle with a commercial registration without the minimum security required by CGS 38a-371, the Superior Court judge will fine the vehicle owner between $100 and $1,000. The law requires that DMV suspend the ower's registration and the driver's license for one month for a first conviction and six months for subsequent convictions. DMV is prohibited from restoring his license until he obtains and provides evidence of the required financial security (CGS 14-213b). The owner whose registration has been suspended may also have his license plates confiscated and vehicle impounded (CGS 14-12h).

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