The Owner-Operator Coverage Dilemma

In most states, worker's compensation is elective for sole proprietors or self-employed persons such as owner-operators. Thus, most owner-operators can legally forgo worker's comp insurance for themselves. Many states make it compulsory for the very smallest companies--those with two, three or sometimes even five workers. So, an owner-operator who opted out of coverage for himself may be able to hire a couple of drivers and not worry about worker's comp for them.

It means considerable savings for what's typically a shoestring business, but is it the smart thing to do? Equally important, is it the smart thing for a motor carrier to allow? Insurance experts and many attorneys, in fact, say that allowing owner-operators to opt out of coverage is simply asking for trouble.

Owner-operators who run without some type of medical coverage risk financial devastation if they are injured on the job. Their wives' medical insurance may not cover work-related illnesses or injuries. Even if they do, a trucker who can't drive for a while has to cope with lost income. When that happens, many forget their "independence" and go after their lease carrier for compensation.

The risk isn't from the guy out to "get" the carrier, but from the catastrophic accident where an owner-operator is temporary or totally disabled or even killed. Then you have a man unable to pay his bills or a family with no support. Ultimately, the motor carrier has a possible lawsuit charging that the owner-operator was really an employee after all.

In worker's comp cases, the courts tend to broadly define "employee" in order to give legal protection to those who need it. And some attorneys are adept at finding chinks in the independent contractor status. Thus, owner-operator worker's comp claims against carriers are often hard fought and still lost.

If the carrier is found to be the owner-operator's "employer," the consequences may not be confined to one worker's comp claim. Likely the carrier's insurance company will want to add all of the carriers' owner-operators to the policy, often demanding retroactive premium payments.

The worker's comp decision may also attract the attention of the state and federal tax agencies interested in unemployment and other withholdings. And the owner-operators themselves, buoyed by this new "employee" status, may demand employee benefits like profit sharing and retirement plans.

So what's the protection? Motor Carriers that use owner-operators have a few choices.

Some motor carriers try to have their cake and ice cream at the same time by including owner-operators in the company's work comp insurance carried for the company drivers and either pay the premiums out of pocket or charge the owner-operators. Many carriers often do this but overcharge the owner-operators and even add administrative fees. Only licensed third party administrators may charge these fees.

But this choice could jeopardize the independent contractor status. It will only be a matter of time until this is challenged in the courts. After all, would you pay the work comp for or charge the plumber that comes to your house to fix a leak. Of course not, but it the same thing.

Another option is to require, as part of the lease contract, that the owner-operator have some kind of protection, either worker's comp for his drivers or occupational accident insurance for himself.

In some states such as California where worker's comp isn't mandated, the decision hinges on cost vs. benefit and/or competition vs. exposure.

Since worker's comp premiums differ by state, there is no national or industry standard. On average in California, it runs from 5% of the weekly gross ($260 per month) to as high as 22% for a new company ($1,143 per month).

Occupational accident premiums depend on the coverage. Fairly extensive coverage can be purchased for anywhere from $175.00 (from the National Association of Independent Truckers) to $120.00 or $140.00 per month (NorthAmerican Transportation Association) and can be as low as $54.00 per month (NTA) when coupled with a health plan.

Thus, motor carriers who mandate the occupational accident insurance are thusly giving their owner-operators a bit of a cost break. Carriers that demand worker's comp could even drive owner-operators away.

Occupational accident insurance usually has lump-sum death benefits sometime higher than workers' comp. Occupational accident insurance often times pays more than worker's comp on disability claims.

Trucking companies that require either worker's comp or "occ/acc" are by far the smarter companies. Companies who also have a policy of no pay settlements deductions are actually better to work for and are also doing their owner-operators a favor by making the owner-operator protect himself and his family. After all, without trucks nothing moves.

Most trucking companies will be very careful to maintain an arm's distance relationship with their owner-operators, making certain they don't breach that independent contractor relationship.

Owner-operators must remember because of the arm's length distance motor carriers must take they can't give owner-operators any benefits, even if they wanted to. Companies who don't require coverage, in my opinion, simply don't care. The average guy that gets hurt and has no money is in a much more desperate situation than the guy who gets hurts and has $500 a week coming to count on.

Whatever kind of coverage a motor carrier chooses, it may have to overcome skepticism on the part of the owner-operators who, too often, get burned. Some have purchased coverage through carriers only to find when they had a claim, that they weren't covered.

A suit last year against Mayflower charged that the carrier overcharged owner-operators when they tacked it on their pay settlements without telling them. Moreover, Mayflower pressured the truckers to buy its coverage.

All owner-operators should know that according to federal lease regulations, a carrier CANNOT require their owner-operators to buy coverage from them or from their designated agent. If the company adds an administrative or other fee onto the price of the premium, the owner-operators must be told.

The occupational accident insurance offered by NorthAmerican Transportation Association is truly designed for owner-operators with the most coverage available and the lowest price on today's market. The plan is underwritten by one of the country's AAA top rated life insurance companies.

For more information, call (800) 805-0040 or in California call (562) 630-7637.

Until next month, "Drive Safe! Drive Smart!"

Written By: Wayne Schooling