Trailer Leasing Exposure: Are You Fully Covered?

Is Your Trailer Leasing Exposure Covered?

Freight brokers that lease trailers for use by motor carrier customers may be taking on liabilities that their existing insurance policies were never designed to cover. The exposure can involve equipment maintenance, trailer ownership responsibilities and accidents that occur while a leased trailer is in service.

Andy Kuchar, president of Centerline Insurance Company, said a recent review of broker insurance certificates at one trailer leasing company found that none of the certificates covered the leased trailers. The brokers had passed the lessor’s onboarding process, but the documentation had been accepted by compliance personnel rather than insurance specialists.

“Every single certificate of insurance that those freight brokers had did not cover those trailers and they didn’t know it,” Kuchar said.

That gap can remain hidden until a serious crash occurs. At that point, the leasing company, the freight broker and the motor carrier may all become involved in the claim or lawsuit. The parties could then discover that the insurance documentation submitted at the beginning of the lease did not satisfy the agreement or provide coverage for the equipment.

For professional drivers, the issue is important because a leased trailer can introduce another layer of responsibility into a transportation operation. A broker that only arranges transportation generally does not maintain or control equipment. A broker that leases trailers, however, may become responsible for ensuring that the equipment remains safe and roadworthy.

Maintenance can become a broker responsibility

Kuchar identified maintenance obligations as one of the primary reasons trailer leasing increases liability exposure. Depending on the lease agreement, the lessee may be responsible for inspections, repairs and upkeep. A mechanical failure involving brakes, tires, bearings or other components could lead to a crash and raise questions about whether the equipment was properly maintained.

Kuchar said he had personally witnessed two incidents involving brake or bearing failures near Chattanooga, Tennessee, on Interstate 24. While a driver’s pretrip inspection can identify visible problems such as damaged or deteriorated tires, it may not reveal an impending bearing failure or another defect that requires more detailed inspection.

Leasing companies sometimes offer maintenance tiers as part of their agreements. Those arrangements can help establish who is responsible for keeping the trailer in serviceable condition, but the obligations still need to be clearly documented and followed.

“It will change your entire business model, managing a fleet of trailers versus standard brokering of freight, which is already a complicated and intricate process,” Gonzales said. “The fact that you would add assets on top of that further elaborates the process and it takes a dedicated team to be able to manage that. Not simple, but very rewarding.”

Traditional broker coverage may not be enough

Freight broker auto liability insurance, often called contingent auto liability coverage, generally protects a broker from lawsuits involving accidents caused by contracted motor carriers. Such policies can provide legal defense and coverage for judgments, with limits that may reach $1 million per occurrence, depending on the policy.

That coverage does not necessarily address an accident caused by the condition of a leased trailer. Kuchar said a fatality involving a leased trailer would not be covered by a contingent auto policy or a standard primary freight broker auto policy. He also cautioned that a motor carrier’s commercial auto policy may not respond to the loss.

Motor carrier policies can require each trailer’s vehicle identification number to be listed. A leased trailer’s VIN may not appear on the carrier’s policy, leaving the equipment outside the intended coverage. Kuchar also noted that premium-financed policies can lapse without the broker immediately knowing about it.

Being named as an additional insured on a carrier’s policy does not automatically solve the problem. Brokers and lessors still must determine whether the policy covers the trailer itself, the relevant liability and the responsibilities assigned under the lease agreement.

Kuchar urged brokers involved in trailer leasing to obtain a dedicated policy written specifically for that exposure. He also warned that the word “contingent” in a policy name should prompt a close review of exclusions, conditions and limits rather than an assumption that the equipment is protected.

Verification remains a key risk-control step

Brokers already face liability concerns when contracted carriers have inadequate, fraudulent, expired or cancelled insurance. The Federal Motor Carrier Safety Administration’s SAFER System can be used to verify a carrier’s operating and insurance information, while certificates of insurance should be obtained directly from the insurer whenever possible.

Those checks are also relevant when trailers are placed with motor carriers. Insurance compliance should confirm that the specific equipment and use are covered, rather than relying only on a certificate supplied by a carrier or a document accepted during the original lease onboarding.

Lease agreements may run for several years, but insurance certificates are commonly renewed annually. Kuchar said that creates an ongoing compliance risk, particularly for leasing companies managing hundreds or thousands of customer files. Coverage and equipment information can fall out of alignment unless they are reviewed at each renewal.

More parties are facing scrutiny after crashes

Leasing companies themselves are also seeing greater attention in accident litigation. Centerline issued roughly a half-dozen policies for equipment lessors during the three to four months before Kuchar’s interview. He linked the trend to litigation following the Montgomery ruling, in which courts have examined whether liability can extend beyond the motor carrier to other parties involved in transportation arrangements.

Freight brokerage remains an important source of capacity for shippers, particularly when contracted carrier networks cannot cover a lane or when shipment volumes change. Leasing trailers can give brokers another way to support customers and provide equipment to motor carriers. But the move also changes the broker’s risk profile.

For drivers and carriers operating leased equipment, the practical issue is that a trailer is more than a piece of capacity. Its inspection history, maintenance responsibilities, listed VIN and insurance status can all affect what happens after a crash. A broker that adds trailers to its business must manage those details with the same care used to vet contracted carriers and verify their coverage.