Decisions 2003: Insurance

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The engine of growth for many Canadian carriers — transborder hauls into and out of the U.S. – is quickly degenerating into one of the greatest threats to their continued operations thanks to accident insurance claims spiralling out of control. The U.S. has become very unfriendly country for Canadian carriers, a place where the costs of being involved in any type of accident could very well jeopardize a trucking company’s existence.

“The claims that used to be a million dollars or a million and a half dollars just three or four years ago, are getting settled for four or five million dollars today and the problem is getting worse. It’s just going out of control in the United States, ” is the dire warning Mark Ram, President and CEO of Markel Insurance Company of Canada, delivered to carriers attending the recent Ontario Trucking Association annual convention.

Consider some recent settlements handed out by U.S. juries:

$2M (all figures converted to Canadian dollars) in the case of a truck whose improper lane change led to the death of a man. In Canada damages for such an accident would likely have been settled for $700,000, according to Edward Knoblauch, Vice President Claims for Markel.

$5.8M in the case of a truck crossing the centre line and killing two teenagers. The truck driver was found to be considerably over his legally allowed hours of operation. Damages for such a case would have likely been settled for about $500,000 in Canada, according to Knoblauch.

In fact, the number of U.S. verdicts exceeding U.S.$1M tripled from 1993 to 1999 when 12% of verdicts included a settlement over $1M.

The larger claims payouts of course are having a definite impact on an insurance industry already battered from the effects of the September 11, 2001 terrorist attacks and the collapse of the stock market (insurance companies make a great deal of their money by investing in the stock market). Many companies have left the trucking insurance business – Markel points out that an astounding 70% of its own competitors in Canada have either walked away or substantially withdrawn from the long-haul trucking insurance market. Those that are left are trying to recoup their losses by charging significantly higher rates. Trucking insurance premiums increased 32% last year.

The situation is getting to the point that the consequences of being found at fault, just once, can be financially catastrophic for any company, Ram said, and in particular smaller carriers, who often don’t have an adequate appreciation for the extra risks and costs associated with operating in the U.S.

There are several factors at work in turning U.S. soil into a litigious minefield for motor carriers. The core factor is a distinctly different approach to general damages followed by U.S. courts from that employed by Canadian courts. In Canada courts look to previous cases as a measure when determining what damages should be awarded. There is no such measure in the U.S.; juries are free to offer what they want.

The U.S. legal system is also considerably more aggressive in pursuing accident claims than what we are used to north of the border. U.S. lawyers are able to take cases on a contingency fee basis, allowing a claim to be filed without a client having to pay any money up front, something that is not prevalent here. Higher Canadian liability limits combined with the opportunity U.S. lawyers have to receive up to 40% of the total court award, means there is no shortage of eager lawyers willing to presecute Canadian truckers, warns Markel in its Hauling in the U.S.? Odds are you are more exposed than you think! informational handout.

“The U.S. system is very aggressive. It always amazes me the things we are okay with in Canada and they will fight tooth and nail over. They will make a mountain out of a mole hill,” says James Hrycay, President of BTS Consulting Engineers, an accident reconstruction firm often called to testify as expert witness. “It’s not so much what you have but what you don’t have that they will make a big issue about. The absence of information is your biggest enemy.”

Another factor, according to Knoblauch, is an attitude in the U.S. that tends to be very anti-trucking, in particular against non-U.S. companies and drivers.

Geography also tends to have a large impact on the frequency of litigation and the size of damages being awarded. Canadian carriers are finding out the hard way that areas in southern Texas, especially those that border Mexico, are gaining notoriety for large damage awards. Other hot spots include most of North and South Carolina, New York, New Jersey, Pennsylvania and Mississippi. In New Jersey, the personal injury award is 60% higher than the national average, and plaintiffs win big in 70% of contested cases, which also dwarfs the national average, Markel points out. Cook County in Illinois, Bronx County in New York as well as most of western New York, including Erie County near Buffalo, are also litigation hot spots about which carriers should be vigilant.

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