Bodily Injury and Property Damage Liability Insurance Requirements for Regulated Interstate Motor Carriers of Passengers

Memorandum prepared by Michael F. Morrone, Partner, Keller and Heckman LLP, Washington DC, and Counsel to the National Limousine Association

If a carrier is operating a mixed fleet of motor vehicles, i.e., vehicles with a seating capacity of 16 passengers or more, as well as vehicles with a seating capacity of 15 passengers or less, then the carrier must maintain a minimum of $5 million of bodily injury and property damage liability (BIPD) insurance coverage with respect to each vehicle in its fleet.

Indeed, in the instructions that accompany the OP-1(P) application for Motor Passenger Carrier Authority that initially would have been filed with the FMCSA to secure such rights, Section 4 Step 4 thereof states as follows:

Motor Carriers of Passengers are required to maintain BIPD insurance as follows:

• $1,500,000 minimum liability coverage is required if all vehicles in the company’s fleet have a seating of 15 passengers (including the driver) or fewer;

• $5,000,000 minimum liability coverage is required if any vehicle in the company’s fleet has a seating capacity of 16 passengers (including the driver) or more.

The only way in which Company A, an interstate regulated motor carrier of passengers, lawfully could avoid having to insure the entirety of its mixed fleet of motor vehicles at the $5 million level would be to pursue the following course of action:

(1) Company A could create an affiliate Company B

(2) Company B would then apply to interstate motor carrier of passenger authority and secure a grant of that authority.

(3) Company A could retain in its fleet all motor vehicle equipment having a seating capacity of 15 passengers (including the driver) or fewer and insure such equipment for BIPD purposes at the $1.5 million level. Company A thereafter would solely operate equipment whose capacity does not exceed that 15 passenger threshold.

(4) Company A would lease on a long-term dedicated basis to its affiliate Company B all the motor vehicles from Company A’s fleet that manifested a seating capacity of 16 passengers (including the driver) or more.  Company B would then insure each of those pieces of equipment for BIPD coverage purposes at the $5 million level.  Company B alone would operate that equipment.

If the foregoing measures were initiated, Company A could spare itself the higher BIPD insurance premium it otherwise would have been obligated to pay annually for continuing to operate a mixed fleet.  Obviously, however, Company A must first evaluate whether the insurance premium savings it would realize from initiating these measures would more than offset the cost of creating and operating an affiliated carrier entity as well.