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What Is MCS 90 Insurance?
The Federal Motor Carrier Act was passed by Congress in 1980 to reduce the myriad of regulations that applied to for-hire motor carriers. The aim was to encourage more competition among freight transporters by introducing price competition. This was done by introducing self-coverage in the form of MCS 90 insurance, which in practice allowed carriers to publish their own rates of hauling freight to replace the mandatory prices imposed by rating bureaus.
However, the MCS-90 in practice became one of the most misunderstood sections in insurance, civil litigation and the motor carrier industry in general. Different insurers have come up with unique ways of addressing compliance with the Act, which in turn creates extra confusion when it comes to the requirements. Courts also disagree in the way they interpret and apply the MCS-90 endorsement, particularly in the way it relates to the underlying insurance cover. It’s therefore important to learn the distinction between what MCS-90 is and isn’t.
Proof of Financial Responsibility
While the main aim of the Act was to ease regulations, it also had additional requirements imposed on motor carriers. This Act required each carrier to provide some proof that they have the financial capability equal to, or exceeding the thresholds set by each state. Specifically, all carriers are obligated to ensure that their vehicles have in effect the minimum levels of responsibility. The proof of this financial responsibility also had to be maintained at the carrier’s premises.
Carriers could demonstrate their financial responsibility in one of several ways. One of them was to choose to self-insure their firm. Here, one essentially states that they have the financial capability to cover all and any claims arising from their firm’s negligence, and which they’re eligible to pay. Financial responsibility could also be demonstrated by providing a surety bond. This is a promise made by the issuer to pay on behalf of another party in case the latter fails to do so. The carrier could also opt to procure a conventional insurance cover, which is where the MCS-90 endorsement came into play.
In practice, the MCS-90 is just but a guarantee that there will be some funds to cater for a loss in the event that the insured had the legal liability. As such, it falls close to acting as an umbrella policy of proof that the transporter has enough resources to cover all foreseeable damages of the vehicles they use. All vehicles owned, operated and/or maintained by the insured are covered, irrespective of whether each vehicle is specifically mentioned in the policy.
This guarantee mainly caters for the public by assuring them that there’ll be no loss if the carrier doesn’t meet the required minimums. But if any claim is compensated under the MCS-90, the insurance provider could recoup their losses by subrogating claims paid against the transporter. For this reason, it’s crucial that all equipment is listed on the scheduled unit policy.
The MCS-90 Isn’t Equal to Insurance
As mentioned, all for-hire transporters are required to have an MCS-90, just like is the case with insurance. But contrary to popular belief, the MCS-90 isn’t insurance per se. Instead, it’s more of a guarantee that the carrier has demonstrated proof of financial responsibility; that they have some source of funds to cover a loss in which the insured is held liable. This requirement makes sense because most carriers use exceptionally large vehicles which tend to cause a higher degree of damage when they’re involved in an accident. Because the MCS-90 is a federal requirement and not insurance in itself, the insurer isn’t obligated to determine the carrier’s financial responsibility. This is usually the carrier’s own obligation.
This is one of the most misunderstood elements of the act, especially when as far as the ‘when’ and ‘to whom’ the requirements apply. A motor carrier is legally defined as “A firm that employs big semi-trucks and bus drivers.” However, the MCS-90 could also be required for a vehicle of any size, depending on the type of cargo it’s ferrying. This especially applies when it comes to the transportation of hazardous material; small trucks carrying such goods have to abide by the requirements.
The MCS-90 also applies to both intrastate and interstate operations. It’s commonly assumed that because it’s part of federal law, the Act only applies to carriers operating across state lines. But the MCS-90 clearly states that the requirements don’t apply according to the size or classification of vehicles, or the geographical extent of their operations. In a nutshell, the Act applies more in respect to how risky the vehicle is based on various factors, mainly the size of cargo and how hazardous it is. High-risk freight will certainly necessitate bigger contingencies due to the potentially larger extent of damage.
The MCS-90 is basically a complex, confusing endorsement. However, it is one of significant importance to all freight carriers. While it doesn’t equate to insurance, it could go a long way in helping carriers and insurers protect themselves.