The Challenges of Third-Party Hauling

Third-party hauling has become increasingly common, driven by high supply chain complexity and driver shortages across the U.S. While third-party hauling allows companies to adapt to changes in product sourcing and navigate labor shortages, it presents a unique set of challenges compared to exposures from company-owned vehicles.

“Insurance towers that involve third-party haulers are more complex due to the involvement of multiple insurers,” said Rich Magold, Casualty Product Line Insurance Underwriting Manager, at Safety National. “Overall, there is a much higher degree of complexity in understanding, pricing, and managing these risks.”

For organizations that hire third-party haulers, the following details should be considered to better understand exposures, coverage gaps, and risk mitigation.

Common Misconceptions of Third-Party Hauling Risks

A frequent misconception is that once a company outsources hauling, such as hiring a third party to deliver goods to a warehouse, it is no longer liable for what happens during transit. Many believe that the third party’s insurance policy fully protects them, leading to a false sense of security. In reality, legal precedents demonstrate that companies can still be held responsible through vicarious liability, negligent hiring, insufficient insurance limits, and contractual limitations on risk transfer. There are numerous ways that liability can return to the original company. Simply outsourcing the service does not absolve responsibility, especially when control over vehicle operators is lost, and companies lack direct knowledge of third-party drivers. Therefore, conducting thorough due diligence before engaging third-party haulers is essential.

Changing Exposure in an Auto Liability Risk Profile

The exposure associated with third-party hauling is often underestimated. In the past, insurance carriers placed less value on third-party hauling risks and risk transfer practices, but scrutiny has intensified as litigation outcomes have evolved. Insurers use supplemental applications and improved pricing models to better understand and manage this exposure. The methods clients use to engage third-party haulers and their risk mitigation strategies are critical factors in underwriting decisions. Companies that use a single third-party hauler can more easily track important data such as Federal Motor Carrier Safety Administration (FMCSA) safety scores. However, using multiple or unknown haulers increases uncertainty and risk, making exposure more challenging to manage.

Key Drivers of Severity in Third-Party Hauling Losses

Several factors currently contribute to the severity of losses in third-party hauling. These include:

• Vicarious liability, where companies are held responsible for the actions of their third-party haulers.
• Negligent hiring practices, which expose companies to claims if proper vetting is not performed.
• Inadequate insurance limits, leaving gaps in coverage for significant losses.
• Contractual limits, as more stringent risk transfer clauses may not fully protect the hiring company.
• Failure to thoroughly vet third parties, which can allow persistent safety infractions to go unnoticed.

Blind Spots and Opportunities in Vetting Third-Party Haulers

A significant challenge in using third-party haulers is the lack of transparency regarding their insurance coverage. Even when provided with a Certificate of Insurance (COI), companies may not be aware of exclusions or limitations that could invalidate coverage. This uncertainty creates blind spots in risk assessment, underscoring the importance of thorough, careful vetting processes. Ensuring comprehensive insurance coverage with adequate limits and implementing effective contract management can help mitigate risks. Regular training and safety programs, proactive safety measures, and ongoing risk assessments of third-party haulers can ensure that organizations are taking the appropriate steps to limit their exposures.