49654 Federal Register / Vol. 62, No. 184 / Tuesday, September 23, 1997 / Proposed Rules

1The minimum financial responsibility

requirements for for-hire carriers, formerly

regulated by the ICC and now by the FHWA, are

contained in 49 CFR Part 387.

2These rules are now codified at 49 CFR 387.309

[former 49 CFR 1043.5].

Dated: September 16, 1997.

Nancy-Ann Min DeParle,

Deputy Administrator, Health Care Financing

Administration.

Approved: September 18, 1997.

Donna E. Shalala,

Secretary.

[FR Doc. 97–25343 Filed 9–19–97; 2:27 pm]

BILLING CODE 4120–01–P

DEPARTMENT OF TRANSPORTATION

Federal Highway Administration

49 CFR Part 387

[FHWA Docket No. MC–97–11]

RIN 2125–AE06

Qualifications of Motor Carriers To

Self-Insure Their Operations and Fees

To Support the Approval and

Compliance Process

AGENCY: Federal Highway

Administration (FHWA).

ACTION: Advance notice of proposed

rulemaking (ANPRM); request for

comments.

SUMMARY: This action is being taken

pursuant to the ICC Termination Act of

1995 (ICCTA), which, among other

things, directs the Secretary of DOT to

adopt regulations governing the

standards to approve motor carriers as

self-insurers. The FHWA proposes to

examine the sufficiency of the existing

requirements for self-insurance

authorizations, as well as the need for

additional fees for functions performed

in addition to the processing of the

initial application. More specifically,

the FHWA is considering the need for

fees to cover costs associated with

processing multi-carrier applications

and alterations to self-insurance

authorizations, and for a monitoring fee

to cover costs related to compliance

responsibilities. The FHWA also

requests public comment on the merits

of continuing the self-insurance

program and whether congressional

action should be proposed to terminate

the authorizations.

DATES: Comments must be received on

or before November 24, 1997.

ADDRESSES: Submit written, signed

comments to FHWA Docket No. MC–

97–11, Room 4232, HCC–10, Office of

the Chief Counsel, Federal Highway

Administration, 400 Seventh Street,

SW., Washington, DC 20590. All

comments received will be available for

examination at the above address from

8:30 a.m. to 3:30 p.m., e.t., Monday

through Friday, except Federal holidays.

Those desiring notification of receipt of

comments must include a selfaddressed, stamped postcard.

FOR FURTHER INFORMATION CONTACT: John

F. Grimm, Office of Motor Carriers,

(202) 366–4039 or Stanley M.

Braverman, Motor Carrier Law Division,

Office of the Chief Counsel, (202) 358–

7035; Federal Highway Administration,

400 Virginia Ave., SW, Suite 600,

Washington, DC 20024. Office hours are

from 7:45 a.m. to 4:15 p.m., e.t., Monday

through Friday except Federal holidays.

SUPPLEMENTARY INFORMATION:

Background

The former Interstate Commerce

Commission (ICC), in its earliest days of

motor carrier regulation, considered

applications of carriers seeking

authority to self-insure their operations.

The ICC took the position that selfinsurance requirements should be

stringent and that carriers availing

themselves of that privilege should

maintain adequate reserves to meet

claims. Motor Carrier Insurance

Protection of the Public, 1 M.C.C. 45, 58

(1936).

The ICC set no rules at that time

governing the qualifications for selfinsurers, but decided to consider for

approval the application of any carrier

that could establish its ability to satisfy,

‘‘its obligations for bodily-injury

liability, property-damage liability, or

cargo liability without affecting the

stability or permanency of its business.’’

Id. at 59. Motor carrier requests to selfinsure which were approved by the ICC

required the execution of insurance

endorsements which obligated the

insurance company to pay final

judgments regardless of any policy

defenses it may have against the

insured. Id. at 53. The self-insurance

was based upon deductible levels in the

insurance policies which were

authorized by the ICC. Despite the size

of any deductible, the insurance

company remained liable to the public

for the entire amount of the policy.

Although the ICC considered use of

deductibles to be tantamount to selfinsurance, the motor carrier would be

fully insured since the insurance

company remained liable for the entire

amount of the policy. The self-insurance

authorization posed no additional risk

to the public because the insurance

company would be required to pay a

judgement, without regard to the

deductible, if the carrier refused to pay.

In response to an insurance crisis in

the motor carrier industry in the mid

1980’s which increased the cost of

insurance coverage to extraordinary

levels and affected its availability, the

ICC began authorizing carriers with

adequate financial resources to selfinsure all, or part of, their required

liability coverage backed by adequate

security without the public protection

provided by the traditional insurance

company endorsement.1 The ICC

recognized that self-insurance plans do

not necessarily afford the precise level

of protection that customary insurance

plans provide since insurance policies

cover liability for every accident within

the policy limits. Nevertheless, the ICC

began issuing self-insurance

authorizations subject to an extensive

series of conditions designed to insure

that the public would be protected from

uncompensated losses. See, No. MC–

128527, May Trucking Company

(unpublished decision), served April 22,

1986. (See Appendix to this ANPRM.).

Interim rules designed to establish

minimum criteria that motor passenger

and property carriers must meet to

qualify as self-insurers were adopted by

the ICC. Ex Parte No. MC–178,

Investigation into Motor Carrier

Insurance Rates, served April 12, 1986

(51 FR 15008, April 22, 1986). Final

rules were adopted which included

application guidelines covering the

adequacy of the carrier’s net worth, the

existence of a sound self-insurance

program, a ‘‘satisfactory’’ safety rating,

and additional information the ICC

might require. Investigation into Motor

Carrier Insurance Rates, 3 I.C.C. 2d 377

(1987) (52 FR 3814, February 6, 1987).2

The ICC expanded the list of methods

carriers can use to demonstrate sound

self-insurance programs to include

irrevocable letters of credit and

irrevocable trust funds. Id. at 388. In

reviewing self-insurance applications,

the ICC relied on its general powers to

impose conditions on a case-by-case

basis to insure that the public was

adequately protected. Id. at 383. The

requirement of an irrevocable trust fund

or letter of credit in at least the amount

of the self-insurance liability has been

imposed in virtually all self-insurance

authorizations.

The ICCTA, Pub. L. 104–88, 109 Stat.

803, provides that ‘‘[T]he Secretary of

Transportation shall continue to enforce

the rules and regulations of the

Interstate Commerce Commission, as in

effect on July 1, 1995, governing the

qualifications for approval of a motor

carrier as a self-insurer, until such time

as the Secretary finds it in the public

interest to revise such rules.’’ Section
Federal Register / Vol. 62, No. 184 / Tuesday, September 23, 1997 / Proposed Rules 49655

104(h) amending 49 U.S.C. 31144. The

revised rules must provide for the

continuing ability of motor carriers to

obtain self-insurance authorizations,

and the continued qualification of all

carriers conducting self-insured

operations pursuant to grants issued by

the ICC or the Secretary. Id Section 204

of the ICCTA provides that all

regulations previously issued by the ICC

continue in effect according to their

terms until modified or terminated.

Request for Comments

The purpose of this ANPRM is to

obtain comments from motor carriers,

insurance companies and other

interested persons to determine whether

the public is adequately protected

against uncompensated losses.

The self-insurance regulations require

each applicant to demonstrate that it has

established and will maintain an

insurance program that will protect the

public against all claims to the same

extent as if the carrier maintained

commercial coverage in the prescribed

amounts. 49 CFR 387.309. In support of

such a program, the carrier may make

use of irrevocable letters of credit,

irrevocable trust funds, reserves, sinking

funds, third party financial guarantees,

parent company or affiliate sureties,

excess insurance coverage, or other

similar arrangements. Id. The FHWA is

concerned with the widespread use of

letters of credit to support self-insurance

programs and seeks public comment on

whether these instruments provide the

intended claims protection, especially

when a carrier has terminated its selfinsured operations and is no longer

obligated to maintain this letter of credit

as security for the claims which accrue

during the self-insurance period.

Generally, the ICC, as well as the

FHWA, has permitted carriers to

support their self-insured operations

with either an irrevocable letter of credit

or an irrevocable trust fund in the

amount of the self-insurance liability.

The FHWA requires that the carrier

maintain the trust fund until all

cognizable self-insurance claims are

resolved. No such condition is attached

to the letter of credit because of the

nature of the instrument. Carriers can

terminate their self-insured operations

by discontinuing all operations, by

relinquishing the self-insurance

authorization and obtaining commercial

coverage, or by violating a condition of

the authorization such as losing the

required ‘‘satisfactory’’ safety rating. In

each situation, all cognizable selfinsurance claims arising during the

period of self-insured operations cannot

be identified when the operations are

terminated. The trust fund condition is

designed to protect the potential

claimants when self-insured operations

are terminated. See No. MC–8535,

George Transfer-Application to be a

Self-Insurer (unpublished decision),

served September 24, 1986. (See

Appendix to this ANPRM.) The letter of

credit cannot provide this type of

protection and, by its nature, is of

questionable value as a back-up

security.

Accordingly, the FHWA solicits

comments regarding the elimination of

the use of letters of credit in support of

self-insured operations and the

requirement, in all cases, of the

maintenance of an irrevocable trust fund

which must remain in place and fully

funded until all cognizable selfinsurance claims have been resolved.

The FHWA seeks public comment on

the need to increase the amount of backup collateral maintained in the letters of

credit or trust funds. As a general rule,

these instruments are executed in the

amount of the self-insurance

authorization, and adjustments to reflect

additional claims exposure are not

requested. Should additional security be

required as the level of unpaid claims

increases? Should the scope of the

carrier’s operations be considered in

determining the level of collateral or

back-up security?

The FHWA also requests public

comment on the sufficiency of the

reporting requirements that self-insured

carriers must meet with respect to

bodily injury and property damage

(BI&PD) claims. Generally, each carrier

must submit quarterly and yearly claims

handling and financial data. This

information forms the basis of the

FHWA’s monitoring and compliance

program which now is designed to

insure compliance with the terms and

conditions imposed by the FHWA. The

compliance review, however, does not

include a verification of the carrier’s

claims reserves, a function that can only

be performed by a professional risk

analyst. In the FHWA’s view, the

absence of this information may create

a potential risk for claimants.

Accordingly, the FHWA requests

comments on whether a self-insured

carrier should be required to submit a

yearly certified BI&PD claims report.

The report would indicate that the

yearly claims reserves accurately

represent the best estimate of the

carrier’s liability. This report could be

prepared by the carrier’s excess

insurance provider or any organization

qualified to conduct such an analysis.

Comments are also solicited on whether

the FHWA should impose such a

requirement on carriers that obtained

their authorization before the effective

date of the ICCTA.

Section 387.309 of title 49, CFR,

provides that ‘‘any self-insurance

authority granted by the Commission

[now the FHWA] will automatically

expire 30 days after a carrier receives a

less than satisfactory rating from DOT.’’

The FHWA is considering whether to

extend that period to 45 days to enable

safety inspectors time to evaluate the

corrective measures taken by the carrier

after the less than satisfactory rating was

assigned. This would in no way alter the

FHWA’s insistence that all self-insured

carriers maintain ‘‘satisfactory’’ safety

ratings. See No. MC–176440, Direct

Transit, Inc., Authorization to SelfInsure (unpublished decision), served

February 8, 1996. (See Appendix to this

ANPRM.).

Proposed New Fee Items

The FHWA dedicates resources to

make certain that the carriers authorized

to conduct self-insured operations are

complying with the conditions imposed

in their respective authorizations. This

involves a thorough review of claims

and financial data submitted generally

on a quarterly and yearly basis. In some

instances, the data must be submitted

on a monthly basis. Detailed reports of

these reviews are prepared and

analyzed. In addition, where financial

problems call a carrier’s continuing

ability to self-insure into question,

considerable time is devoted to

determining whether additional

safeguards should be imposed or

whether the authorization should be

terminated. Any trends in the carrier’s

exposure to BI&PD claims must be

scrutinized. Furthermore, review and

analysis of the proposed certified claims

report would add to the monitoring

duties. None of the costs of these duties

is recovered from the current

application fees. Accordingly, the

FHWA is considering a $1900 yearly

monitoring fee on each carrier

conducting BI&PD self-insured

operations which represents only the

FHWA’s current estimate of the salary

and overhead costs for agency

employees to monitor compliance with

the conditions in the self-insurance

authorizations.

The FHWA solicits public comment

on the need to recover costs associated

with performing additional processing

activities beyond the handling of a

single carrier application. Considerable

resources of the former ICC and the

FHWA have been expended in dealing

with multiple carrier applications and

requests to modify outstanding

authorizations by changing the selfinsurance coverage, altering the type
49656 Federal Register / Vol. 62, No. 184 / Tuesday, September 23, 1997 / Proposed Rules

and amount of the security coverage, or

adding a carrier to the self-insured

group. In many instances, these

modification requests require an

extensive reanalysis of the carrier’s

financial condition if additional selfinsurance authorization is requested.

The financial analysis of carrier groups

and their parent corporations is often

complex and time-consuming. Detailed

examination of intercorporate

transactions as well as the asset quality

of intercorporate receivables and debt

(including covenants) must be

conducted. Accordingly, the FHWA

solicits comments on the need to assess

fees in three categories: (1) Request for

an increase in coverage, change in the

letter of credit or trust agreement,

reporting requirements or other

modifications—($2,600); (2) addition of

a single carrier to an existing

authorization—$3,400; and (3) multiple

carrier applications or modification of

applications—($400 per carrier). These

costs represent only the salary and

overhead expenses associated with the

FHWA employees who perform these

functions.

The FHWA requests comments

concerning whether continuing to

permit motor carriers to self-insure their

operations is in the public interest or

whether congressional action should be

requested to repeal the statute directing

the Secretary to continue the selfinsurance program. In this regard the

FHWA proposes the following specific

questions for comments:

1. Does the self-insurance

authorization jeopardize the payment of

BI&PD and cargo claims by allowing

carriers to conduct operations with

insufficient security or collateral to

guarantee payment of claims?

2. Does the ability of large carriers to

conduct self-insured operations create

an unfair competitive advantage over

smaller carriers which must absorb the

expense of the Federal insurance

requirement?

3. Should the FHWA permit a motor

carrier to conduct self-insured

operations with less security or

collateral than an insurance company

would require?

4. Do the savings generated by selfinsured operations justify exposing the

public to the risk of uncompensated

losses resulting from carrier bankruptcy

or termination of operations?

5. Is it possible for the FHWA to

conduct the self-insurance program in a

manner that insures the potential

claimants will not be placed at risk?

6. Is the administration of a selfinsurance program a proper role for a

Federal agency?

Executive Order 12866 (Regulatory

Planning and Review) and DOT

Regulatory Policies and Procedures

The FHWA has determined that a

decision to seek termination of the selfinsurance program would be a

significant regulatory action under

Executive Order 12866, and under the

DOT’s regulations, policies and

procedures because of the substantial

public interest anticipated in this

action.

Currently, 56 carriers have been

authorized to self-insure their

operations, 9 of which have

authorizations which cover only cargo

liability. The gross revenues generated

by carriers holding the BI&PD

authorizations range from $8,396,000 to

$1,207,601,000, or an average of

$174,345,468. These carriers are

exposed to an average claims balance of

$3,412,882. The vast majority of these

carriers self-insure at the $1,000,000

level which corresponds to the required

level of coverage.

The potential economic impact of this

rulemaking is not known at this time.

Therefore, a full regulatory evaluation

has not yet been prepared. The FHWA

intends to use the information collected

from commenters to this docket to

evaluate the economic and other issues

attendant to this regulatory action.

Regulatory Flexibility Act

Due to the preliminary nature of this

document and lack of necessary

information on costs, the FHWA is

unable at this time to evaluate the

effects of the potential regulatory

changes on small entities. The FHWA

solicits comments, information, and

data on these potential impacts.

Executive Order 12612 (Federalism

Assessment)

This action has been analyzed in

accordance with the principles and

criteria contained in Executive Order

12612, and it has been determined that

this action does not have sufficient

federalism implications to warrant the

preparation of a federalism assessment.

Executive Order 12372

(Intergovernmental Review)

Catalog of Federal Domestic

Assistance Program Number 20.217,

Motor Carrier Safety. The regulations

implementing Executive Order

regarding intergovernmental

consultation on Federal programs and

activities do not apply to this program.

Paperwork Reduction Act

This action, if promulgated, would, in

all likelihood, impact existing collection

of information requirements for the

purposes of the Paperwork Reduction

Act of 1995 (49 U.S.C. 3501–3520).

Because of the potential changes,

existing Office of Management and

Budget (OMB) approvals may require

amendment or new approvals may need

to be obtained. Requiring an annual

BI&PD claims report should not

appreciably add to the existing

paperwork burden because the carriers

are currently required to submit the

claims information. However, a

certification requirement will likely

increase the costs associated with the

preparation of the claims report.

National Environmental Policy Act

The agency has analyzed this action

for the purpose of the National

Environmental Policy Act of 1969 (42

U.S.C. 4321 et seq.) and has determined

that this action would not have any

effect on the quality of the environment.

Regulation Identification Number

A regulation identification number

(RIN) is assigned to each regulatory

action listed in the Unified Agenda of

Federal Regulations. The Regulatory

Information Service Center publishes

the Unified Agenda in April and

October of each year. The RIN number

contained in the heading of this

document can be used to cross reference

this action with the Unified Agenda.

List of Subjects in 49 CFR 387

Commercial motor vehicles,

Hazardous materials transportation,

Highways and roads, Insurance, Motor

carriers, Motor vehicles safety,

Penalties, Reporting and recordkeeping

requirements, Surety bonds.

Issued on: September 11, 1997.

Gloria J. Jeff,

Acting Administrator.

Appendix

[The Appendix to this ANPRM should

include the full text of the following three

cases: (1) No. MC–128527, May Trucking

Company (unpublished decision), served

April 22, 1986; (2) No. MC–8535, George

Transfer-Application To Be A Self-Insurer

(unpublished decision), served September

24, 1986; and (3) No. MC–176440, Direct

Transit, Inc., Authorization to Self-Insure

(unpublished decision), served February 8,

1996].

Interstate Commerce Commission

[Decision No. MC–128527; Service Date:

April 22, 1986]

May Trucking Company—Application To Be

a Self-Insurer

Decided: April 16, 1986.

Subject to certain conditions, applicant

authorized to self-insure bodily injury and

property damage liability.
Federal Register / Vol. 62, No. 184 / Tuesday, September 23, 1997 / Proposed Rules 49657

1The Commission’s grant of this authority does

not release May from its obligation to meet the

financial responsibility regulations of the

Department of Transportation (DOT). In this regard,

we take official notice of May’s recent filing with

the DOT requesting a waiver of DOT’s requirements

to allow the carrier to self-insure.

2Although the prior decision is styled as also

denying May’s application to self-insure its cargo

liability, May takes clear in the Petition to Reopen

that it does not request such authority. May’s

Petition to Reopen, P. 7, note 3.

3May’s 1984 Annual Report filed with the

Commission fails to identify this company as an

affiliate. However, we will require applicant to file

information on any affiliate whose business is

supportive of the operations of May trucking.

4Our analysis of the figures provided by May

indicates that the aggregate claims against the

carrier never exceeded $500,000 in any given

calendar year. The figures submitted by May are

based on a non-calendar year used by the carrier’s

insurance company.

Summary of Decision

In this decision, the Commission is

granting the application of May Trucking

(May) to self-insure, under 49 U.S.C. 10927

and 49 C.F.R. 1043.5(a), its bodily injury and

property damage liability subject to certain

conditions.1

Background

In an application filed September 30, 1985,

May Trucking Company (May) requested that

the Commission allow it to act as a selfinsurer for bodily injury and property

damage (BI&PD) claims. No protest were

filed. In a decision served December 9, 1985,

May’s application was denied by a majority

of the Commission,2 without prejudice to

refiling by the carrier. On December 30, 1985,

May filed a Petition to Reopen, requesting

that the Commission vacate the prior

decision and approve the application for selfinsurance.

May’s initial application and supplemental

petition reveal that, as an irregular route

common carrier of general commodities, it

operates 275 tractors (175 of which are leased

from owner-operators), and 550 trailers. It

specializes in the transportation of frozen

vegetables, dry grocery products, boxed meat,

dairy products and paper goods and handles

no highly hazardous materials. Its

headquarters facility and terminal is located

at Payette Idaho. It also has a terminal at

Salem, Oregon, and one planned at Salt Lake

City, Utah. The only direct employees of May

are the Management and Administrative

personnel. An unspecified number of

company drivers are employees of Drivers’

Employment Services, a wholly-owned

subsidiary.3 May is currently rated

‘‘satisfactory’’ by the Department of

Transportation, Federal Highway

Administration. As pertinent, May presently

has a $3,000 deductible public liability

policy and processes its own claims for

collision and property damage liability under

$5,000. In addition, United States National

Bank of Oregon (National Bank) has

established a $1 million credit line in the

name of May which it indicates is dedicated

to fund liability claims brought against the

applicant.

As of December 31, 1984, May’s financial

statements reflect total assets of $9.0 million,

including $5.2 million in current assets, of

which $628,000 was reported as cash or cash

equivalents. Its current liabilities amounted

to $4.0 million and its total stockholders’

equity was $3.4 million. (During 1984 it

retained after-tax earnings of $700,000,

bringing its retained earnings balance to $3.4

million). Its freight revenue in 1984 was

$32.3 million out of its $41.2 million

operating revenue, while its operating

expenses amounted to $40.1 million. This

yielded $1.0 million in operating earnings

and net earnings of $700,000.

While not a part of the application, the

quarterly financial report (QFR) filed by May

for the fourth quarter 1985, shows that for

1985, the carrier generated a net operating

profit of $172,000, down sharply from the

operating profit it reported for the twelve

months of 1984. The year to year decline in

operating profit was due, in part, to a

$501,000 or 50 percent increase in insurance

expense. The fourth quarter 1984 and fourth

quarter 1985 insurance expense increase of

$291,000 accounted for the bulk of the

annual increase of $501,000. May’s reported

net income of $419,000 for 1985 was

achieved largely on the strength of a gain on

the disposition of non-operating assets. May’s

QFR report also shows that, as of December

31, 1985, it has a balance of $8,000 in its cash

account and had total stockholder equity of

$3.8 million.

From September 1980 to September 1981,

May had excess insurance limits extending to

$15 million. From 1981 to September, 1984

the carrier had coverage to $25 million, at

which time it increased its excess limits to

$30 million. From 1980 through 1985, May’s

claims handled by insurance companies

averaged $390,000 per year. In only two of

those years, 1980–1 and 1983–4, did claims

against it exceed $500,000.4 Its 1984–5

claims handled by the insurance company

amounted to $354,000. The average amount,

in round numbers, of each claim, by year,

was 1980–1, $23,000; 1981–2, $8,000; 1982–

3, $10,000; 1983–4, $16,000; and 1984–5,

$7,000. From the number of claims reported,

it appears that few required a payout in

excess of $25,000 and that none required a

payment of more than $50,000. May states

that none of its claims for the period

September 1980–September 1985 required

resort to its ‘‘umbrella’’ policies (i.e. coverage

exceeding the $500,000 limit of its primary

insurance during that time).

In its original application, May proposed to

pay its liability claims from the $1 million

line of credit maintained with National Bank.

Despite the carrier’s favorable loss history, its

safety program, and its high credit rating,

May’s proposal was still considered

inadequate to protect the public in certain

key respects.

Specifically, the Commission rejected

May’s application for the following reasons.

First, among other things, its proposed line

of credit was revocable and, therefore,

provided little protection for the public

above May’s ability to meet claims from

current revenues. Also, May’s proposal

included no provisions for meeting

obligations in the event of catastrophic

occurrences. In the initial decision, the

Commission set forth some guidance for any

carrier seeking self-insurance authorization.

The Commission indicated that any future

application by May should include: a selfretention feature related to the carrier’s

recent claims experience; acceptable

insurance to meet multiple occurrences

above the self-insured retention levels; an

irrevocable trust fund (also related to the

carrier’s claims experience), and information

to allow the review of the retention levels,

the carrier’s loss adjustments, and loss

reserves. Any future application was also to

provide for periodic submission of

statements of account, including profit and

loss figures. May’s Petition to Reopen

addresses those specific concerns. In the

Petition to Reopen May’s offers to tie any

authorization to self-insure to the carrier’s

maintenance of a minimum net worth.

Further, May offers to convert the $1 million

line of credit into an irrevocable line of

credit. We believe that with May’s suggested

changes (and additional conditions that we

will impose) May’s application provides

adequate protection to the public and should

be granted.

Discussion

Any decision to allow self-insurance must

reflect the carrier’s ability to absorb both

known predictable losses and unpredictable

ones. Predictability is greatest at the lower

claims levels. From our observations and

knowledge of the claims experience of selfinsured carriers the greatest frequency and

predictability of losses for commercial auto

BI&PD claims is in the $1–$10,000 range.

May’s recent claims experience fits within

these limits. Each incremental step upward

in claims typically has progressively fewer

losses. However, to have the same degree of

coverage through self-insurance as traditional

insurance at a higher level of exposure to

loss, the size of a motor carrier’s operation

must be significantly larger in scope. In this

way we can to assured that adequate assets

will be available to pay claims.

Self insurance is not new. See 49 C.F.R.

1043.5. However, most self-insurance

programs previously approved by the

Commission provide that losses that are not

predictable are transferred to professional

risk takers by way of insurance coverage. In

the past, motor carriers that wanted to selfinsure their BI&PD liability negotiated

deductibles or self-retention levels in their

policies of insurance. The level of selfinsurance retention depended upon the size

of the operation and on the carrier’s financial

strength. Motor carriers handled the great

bulk of their ordinary claims at the lower

levels of losses but insured against and

passed on the unpredictable, severe losses to

the insurance industry. These motor carriers

met our security requirements by having

insurance companies attach an endorsement

to their policies of insurance and by filing

our prescribed certificate of insurance (socalled ‘‘accommodation’’ filings) on behalf of

carriers. The endorsement makes the

insurance companies liable to the public

from the first dollar of liability to the

minimum limits set by law.

The current insurance crisis in the industry

has resulted in a decrease in the availability
49658 Federal Register / Vol. 62, No. 184 / Tuesday, September 23, 1997 / Proposed Rules

5 49 C.F.R. 1043.1 and .2. The term per

occurrence means that the protection of the

insurance company extends to all vehicles used in

the interstate operation of the motor carrier for each

accident which may occur during the life of the

policy for the prescribed minimum limits. Thus,

any approval to self-insure must ensure that the

carrier can absorb both predictable losses and

unpredictable ones.

6May advised that it transports commodities

requiring a minimum coverage of $1 million.

7This is technically incorrect, as the $1 million

statutory requirement is per occurrence and it has

not been established that May’s proposal offers

identical coverage.

8May expects to pay BI & PD claims out of

current earnings as it has in the past, thereby,

obviating the need to replenish the funds available

under its line of credit.

of commercial auto BI&PD liability insurance

coverage and a precipitous increase in

insurance costs. Many insurance companies

have withdrawn from underwriting motor

carriers’ insurance, while others have

curtailed their underwriting. The severity of

the increased costs of BI&PD coverage has

been so unprecedented that some carriers

have gone out of business, either unwilling

or unable to increase freight rates or to pay

the increased premiums. Additionally, it

appears that many underwriters also are

refusing to negotiate policies with higher

deductibles or are not providing significantly

reduced premiums for policies with high

deductibles. For example, May’s insurance

premiums for primary BI&PD coverage

increased from $398,855 for the year ending

September, 1985, to $2.2 million for the year

ending September 1, 1986. This increase in

premium expense, however, is not based on

any increase in losses paid by the insurance

company. May’s net profits for 1984 were

only $700,000. Thus, it is faced with the real

possibility of not being able to meet

extraordinary insurance costs. May’s history

in this crisis is similar to many other motor

carriers of property. As such, it presents the

Commission with an example of the problem

we face in meeting our responsibility to

ensure that carriers have reasonable

alternatives available to meet statutory

security obligations, while not compromising

our duty to ensure the existence of a safe

motor carrier industry capable of paying all

claims to the level required by law. See H.R.

Rep. No. 96–1069, 96th Cong. 2d. Sess. 41

(1980) (‘‘The purpose of [section 10927] is to

create additional incentives to carriers to

maintain and operate their trucks in a safe

manner as well as to assure that carriers

maintain an appropriate level of financial

responsibility’’).

Accordingly, while we must continue to

ensure that motor carriers have sufficient

security for the protection of the public, we

will consider reasonable proposals to entirely

self-insure. Such an approach is consistent

with our broad authority in section 10927 to

approve various types of security—and our

obligation to promote a safe, efficient, and

reasonably priced transportation system. 49

U.S.C § 10101. A carefully crafted proposal

by a carrier to insure its own losses appears

to be a reasonable method by which we can

aid the industry without jeopardizing the

public.

In order for the Commission to approve a

motor carrier’s application to self-insure its

BI&PD liability, we must carefully weight the

qualifications presented by the applicant

against the protection to the public available

in our prescribed insurance and surety

programs. The prescribed insurance and

surety programs give the public protection

from the first dollar of liability up to our

minimum requirements of $750,000, $1

million or $5 million per occurrence,5

depending on the commodity transported.6

There is, however, no requirement that a

motor carrier like May obtain so-called

‘‘umbrella’’ coverage to cover claims

exceeding its primary coverage. See 49 C.F.R.

1043.2(b)(2) and parallel DOT regulations at

49 C.F.R. 387.9.

In the initial application, May offered to

establish a $1 million line of credit,

dedicated to paying liability claims brought

against it. In response to the Commission’s

objection that the letter of credit, without

more, did little to enhance the protection of

the public, May has amended the line of

credit in two respects. First, the bank which

issued the line of credit has made an

irrevocable commitment to May to maintain

the credit line until March 31, 1988. Second,

the bank has agreed with May to notify the

Commission If the credit line is drawn upon.

It is May’s contention that these

amendments to the line of credit significantly

improve the protection being offered to the

public. It further claims that the credit line

is now for the full amount of financial

responsibility required by the Commission.7

Moreover, May is willing to have its selfinsurance conditioned on maintenance of at

least $2 million in net worth (retained

earnings and share-holders equity). The

applicant intends to look to operating

revenues as its first source of funds to pay

liability claims. Its net worth, in excess of the

$2 million, will function as its net source of

funds. Finally, the $1 million irrevocable line

of credit will be drawn upon as a last resort.8

Thus, May has ensured that substantial sums

of money will be available to pay claims.

We recognize that self-insurance plans will

not necessarily afford the precise level of

protection that customary insurance plans

provide. In the normal situation, a carrier

that is covered for $1 million in liability will

be protected up to a million dollars for each

accident. With the plan before us, however,

we are convinced that the public will be

adequately protected. Indeed, with the

conditions that we will impose, May’s plan

should protect the public in a manner that is

functionally equivalent to the protection

provided under traditional insurance plans.

We will require May to have and maintain a

‘‘satisfactory’’ safety rating as determined by

the DOT, which is the highest possible rating.

We will require the carrier to maintain a

minimum net worth. If its net worth falls

below this level, May’s self-insurance

authorization will automatically be

terminated, unless the carrier corrects this

situation within 30 days. The Commission

will also monitor the carrier’s financial

condition and claims experience and revoke

permission to self-insure should events occur

that we believe could jeopardize its ability to

pay future claims. See 49 C.F.R. 1043.9. We

believe that, subject to these conditions

designed to ensure the maintenance of assets

necessary to pay all claims up to the level

provided by law, May should be permitted to

self-insure.

The imposition of these conditions allows

the Commission to balance the needs of the

public for a high level of security and the

need of the public for an efficient, reasonably

priced, and safe transportation system.

Accordingly, we will approve the application

subject to the following specific conditions.

First, May must submit to the Commission

carrier quarterly and annual financial

statements, as they become available, during

the time the self-insurance, authorization is

in effect. The financial statements (income

statement, balance sheet and statement of

changes in financial position) must include

a certification by an appropriate May

management official verifying the accuracy of

the information provided in the statements.

Financial disclosure is also required of

affiliated companies which provide support

services to the operations of May Trucking

Company. These financial statements will

provide up to date information on May’s

financial condition and thus will permit the

Commission to ensure, among other things,

that the net worth requirement is being

maintained. In this regard, we will insist that

if, at any time, the applicant’s net worth

balance falls below the $2 million minimum,

this self-insurance authorization will

automatically terminate unless within 30

days from the date of the notice, May corrects

the situation or obtains other security for the

protection of the public.

Second, May must file with the

Commission carrier quarterly and annual

claims reports, within two weeks of the close

of the previous quarter, during the time the

self-insurance authorization is in effect.

These claims reports should detail the

number, dollar amount and nature of May’s

claims experience. May must also provide

the Commission with a quarterly report

detailing pending court cases or other actions

which relate to or arise from the claims

experience. As with the financial statements,

these claims reports must be certified as to

their accuracy by an appropriate May

management official.

Third, the carrier must notify the

Commission immediately of any pending or

contingent liability claim(s) which

individually exceeds $50,000 or collectively

exceed $250,000. If any of these reports or

notices of liability claims indicate that the

public is being jeopardized by May’s failure

to maintain an appropriate level of financial

responsibility, May’s self-insurance may be

revoked.

Fourth, during the time the self-insurance

authorization is in effect, May must have

unrestricted access to the entire $1 million

line of credit. In addition, drawdowns from

the $1 million credit line may only be made

to satisfy bodily injury and property damage

claims. The Commission must be notified

immediately of the specific purpose and

amount of any May drawdown. Furthermore,

we will require that May provide, at the time

of the notice of the drawdown, a plan

detailing how it proposes to respond to

further liability claims. Again, should

drawdowns suggest that May’s financial
Federal Register / Vol. 62, No. 184 / Tuesday, September 23, 1997 / Proposed Rules 49659

1The two subsidiaries are George International

Warehouse, Inc., which provides a warehousing

service, and Marden Bros. Inc., which leases motor

vehicles.

arrangements do not adequately protect the

public, we will consider revocation of this

authorization.

Fifth, the Commission must, at all times, be

made aware of the terms and conditions

under which the line of credit is being made

available. In particular, the Commission must

be notified no later than 90 days prior to the

effective date of any change in the terms of

the line of credit or its cancellation.

Applicant is further required to notify the

Commission of the renewal of the line of

credit no later than 6 months prior to its

expiration date.

Sixth, this application is granted with the

express condition that the information

required will be timely filed with the

Commission. Any failure to timely file any of

the information will subject the carrier to

termination of its self-insurance

authorization.

Seventh, we repeat that the Commission

retains the authority to terminate May’s selfinsurance authorization at any time if, after

notice and hearing, it appears to the

Commission that applicant’s financial

arrangements fail to provide satisfactory

protection for the public.

Eighth, the Commission retains the right to

require May to submit any additional

information that it deems necessary.

Finally, the Commission has reopened Ex

Parte No. MC–178, Investigation Into Motor

Carrier Insurance Rates. In that proceeding,

interim rules are adopted pending

completion of notice and comment on

proposed final rules respecting many of the

issues raised in May’s application. That

decision is being served today. Should any of

the conditions required of May be

inconsistent with any interim or final rules

adopted in Ex Parte No. MC–178, May will

be required to conform its financial

arrangements to those rules.

Energy and Environmental Statement

This action will not significantly affect

either the quality of the human environment

or conservation of energy resources.

It is ordered: The application is granted

subject to the conditions set forth in this

decision.

(1) Applicant must submit carrier quarterly

and annual financial statements to the

Commission. The statements must include a

certification by an appropriate May official

verifying the accuracy of the information

provided. Disclosure is also required of

affiliated companies which provide support

services for the operations of May Trucking

Company;

(2) Applicant must file with the

Commission quarterly claims reports

detailing the number, dollar amount, and

nature of its claims experience and quarterly

reports detailing pending court cases which

relate to or arise from the claims experience.

These reports must be certified as to accuracy

by an appropriate May official;

(3) Applicant must notify the Commission

immediately of any pending or contingent

liability claim(s) which individually exceeds

$50,000 or collectively exceed $250,000;

(4) Applicant must maintain an irrevocable

$1 million line of credit and must submit,

within 15 days of the service date of this

decision, a copy of any agreement with the

bank covering the credit line; and notify the

Commission immediately upon any

drawdown on the line of credit; also May

must have unrestricted access to the entire

line of credit and drawdowns from the line

of credit may only be made to satisfy BI &

PD claims;

(5) At the time of any notification of any

drawdown the applicant will also provide

the Commission with a plan detailing how it

proposes to respond to further liability

claims;

(6) The applicant must notify the

Commission no later than 90 days prior to

the effective date of any change or

cancellation of the line of credit and must

notify the Commissioner of the renewal of

the line of credit no later than 6 months prior

to its expiration date;

(7) Applicant must maintain a new worth

of at least $2 million and must notify the

Commission at any time that the applicant’s

net worth falls below $2 million. The

applicant will have 30 days to correct this

situation or face termination of the authority

to self-insure;

(8) The Commission retains the authority

to terminate May’s self-insurance

authorization, at any time, if it appears to the

Commission that applicant’s financial

arrangements fail to provide satisfactory

protection for the public.

(9) This decision will be effective 30 days

after service.

By the Commission, Chairman Gradison,

Vice Chairman Simmons, Commissioners

Sterrett, Andre, and Lamboley,

Commissioner Lamboley would have granted

the application subject to further clarification

and conditions. Vice Chairman Simmons and

Commissioner Andre commented with

separate expressions.

James H. Bayne,

Secretary.

Vice Chairman Simmons, commenting:

Approval of May Trucking Company’s selfinsurance application in today’s decision is

grounded in a conclusion that the May

proposal contains adequate safeguards for

protection of the public. A necessary

component of those safeguards is meaningful

Commission monitoring of May’s selfinsurance program. At this time, I believe the

commission possesses sufficient resources to

carry out this oversight function. Depending

on the number of other self-insurance

applications filed and granted, however,

current resources may not be adequate to

maintain an appropriate level of oversight. If

this situation arises, I will not hesitate to seek

additional resources from Congress.

Commissioner Andre, commenting:

I am hopeful that we will be able to reduce

the burden both on self-insurers and on this

agency as we further develop these selfinsurance procedures. It seems essential that

the procedures be as simple as is consistent

with maintaining protection for the public.

However, I do not think it desirable to delay

approval of this application any further.

Interstate Commerce Commission

[Docket No. MC–8535; Service Date:

September 24, 1986.]

George Transfer, Inc.—Application To Be a

Self-Insurer

Decided: September 18, 1986.

Subject to certain conditions, applicant

authorized to self-insure bodily injury and

property damage and cargo liability.

Summary of Decision

In this decision, the Commission is

granting the application of George Transfer,

Inc., (hereinafter ‘‘George Transfer’’ or

‘‘Applicant’’) to self-insure its automobile

BI&PD liability for $1,000,000 and its cargo

liability under 49 U.S.C. 10927 and 49 C.F.R.

1043.5(a), subject to certain conditions.

Background

George Transfer holds irregular route

common and contract motor carrier authority

from this Commission to transport general

commodities throughout points in the United

States. Approximately 90 percent of its

traffic, however, involves the transportation

of fabricated and processed metals and metal

products. The applicant operated over 1,200

equipment units out of 29 terminals

generating $34,000,000 of operating revenue

in 1985. It uses owner-operators extensively

in its motor carrier operations. Normally,

they supply the power tractors, and the

carrier supplies the trailers. The carrier’s

corporate headquarters is located at Parkton,

Maryland. The applicant is not owned or

controlled by any other corporation. It has

two small subsidiaries, neither of which

holds authority from this Commission.1

In support of its application, the carrier has

submitted detailed financial statements

prepared as of December 31, 1985. As of that

date the carrier’s balance sheet shows total

assets of $12,310,290 and liabilities of

$6,813,000. Current assets exceed current

liabilities by $3,283,588. The carrier had a

net worth of $5,497,779 as of that date.

George Transfer generated total operating

revenues of $34,776,494 in the calendar year

ending December 31, 1985. Its net operating

revenue was $761,168. It reported ordinary

income before income tax of $509,649 and

net income after taxes of $290,549. The

operations of George Transfer were profitable

in 1983 and 1984 as well as 1985.

Applicant states that it is safety conscious

and expends considerable time and resources

in developing safety awareness, The

applicant’s Safety Department is headed by a

Safety Manager, who reports to its Director of

Operations. This department is responsible

for the overall safety program of the carrier.

The program calls for a multifaceted

approach to safety. Monthly safety meetings

of drivers are held at each of the carriers’ 29

terminals. Spot-check inspections of vehicles

and of drivers’ hours-of-service logs are

required. Vehicles are required to be

inspected every 30 days. Safe driving

incentive awards are given to drivers with
49660 Federal Register / Vol. 62, No. 184 / Tuesday, September 23, 1997 / Proposed Rules

2The deductible or self-retention level is a

binding condition between the insurance company

and its motor carrier insured, not the public. The

Commission’s prescribed BI&PD and cargo

insurance forms override the policy terms and

conditions and give the public protection from the

first dollar of liability up to the required minimum

limits. In the case of George Transfer, the

commodities it transports requires the carrier to

maintain a minimum BI&PD limit of $1,000,000 per

occurrence and a cargo limit of $5,000 per vehicle,

$10,000 aggregate per occurrence. 49 C.F.R. 1043.2.

perfect driving records. Drivers are given

intensive training in company and

Department of Transportation safety

requirements. New driver applicants are

thoroughly screened by the carrier before

they are hired. A complete background

investigation is a part of this screening

process, including contacts with past

employers, reference checks, and verification

of safe driving records. Applicant has a safety

rating of ‘‘satisfactory’’ from the Department

of Transportation. (Exhibit F to the

application)

George Transfer has handled its own

BI&PD and cargo liability claims in the past

under self-retention insurance programs. If

this application is granted, it plans to

continue the same program. The only

difference will be that an insurance company

will not certify primary coverage with the

Commission from the first dollar of liability.2

Under the carrier’s claims program, all claims

are handled expeditiously. Claims reserves

are established within ten days of reported

accidents. Any claim with a possible liability

exceeding $50,000 is reviewed monthly by its

corporate attorney. The applicant is ready to

supply the Commission with any reports

detailing its financial condition and claims

experience as a condition to the grant of selfinsurance authority. The applicant offers to

maintain a minimum net worth of $2 million

dollars in order to ensure that funds will be

available to pay liability claims. It also

proposes, as an additional safeguard to the

public, to establish trust funds for the

payment of BI&PD and cargo liability claims.

The BI&PD liability trust will be funded in

the amount of $1,000,000; and the cargo fund

will be funded in the amount of $250,000.

Each fund will be irrevocable and used

exclusively for the payment of designated

claims liability. The trust funds may only be

drawn upon when the carrier certifies to the

trustee that it does not have sufficient

operating funds to satisfy its BI&PD or cargo

liability. If drawn upon, George Transfer will

replenish the trust funds to the required

minimum amounts within 30 days—

$1,000,000 for BI&PD or $250,000 for cargo.

Applicant believes that a grant of selfinsurance authority for its BI&PD and cargo

liability is essential to its ability to continue

profitable operations in the face of the

current insurance crisis. Its insurance

premiums for the present policy year, from

May 1986 to May 1987, total $832,000. This

represents more than a 400 percent increase

over the previous policy year premiums of

$201,000. This latter premium figure

provided excess BI&PD and cargo liability

coverage to $10,000,000. The current cost of

$832,000 provides excess coverage only to

$1,000,000. By the terms of the policy, the

motor carrier is not permitted to handle third

party liability claims, even though it has had

eight years experience in this activity. It must

absorb such losses up to its deductible

amount and pay the insurance company a fee

of 15 percent of the loss for handling the

claim. The deductibles in the current policy

are $250,000 per occurrence for BI&PD and

$150,000 per occurrence for cargo. The

applicant stresses that these increases in

premiums and reductions in coverage have

been made despite the fact that the carrier

has paid all of its BI&PD and cargo claims

over the past five years. Stated another way,

the insurers of George Transfer have paid no

claim under their excess policies because all

losses feel within the motor carrier’s selfretention level.

The applicant conducted an exhaustive

search for renewal coverage before accepting

the terms of its present insurance company.

Ten insurance companies simply made no

response to the carrier. Several would not

consider primary coverage. One offered

coverage up to $1,000,000 at an annual

premium of $2,500,000. Another offered the

same coverage but at a premium of

$3,000,000. Several others told the carrier

that they simply refused to consider

underwriting any motor carrier risk. The

carrier estimates that it will save $900,000 a

year in costs if is permitted to self-insure.

The following tables provide details as to

the loss experience of George Transfer over

the past five years:

TABLE I.—AUTOMOBILE BODILY INJURY AND PROPERTY DAMAGE LIABILITY

Policy year

Average

claim

amount

Number of

claims

Total claim

expense

1981–1982 ................................................................................................................................................ $4,971 110 $546,828

1982–1983 ................................................................................................................................................ 2,420 96 232,274

1983–1984 ................................................................................................................................................ 3,879 105 407,274

1984–1985 ................................................................................................................................................ 8,219 120 986,333

1985–1986 ................................................................................................................................................ 3,059 105 321,181

5 year average .................................................................................................................................. 4,510 107 498,778

TABLE II.—CARGO LIABILITY

Policy year

Average

claim

amount

Number of

claims

Total claim

expense

1981–1982 ................................................................................................................................................ $3,045 64 $194,939

1982–1983 ................................................................................................................................................ 1,880 47 88,395

1983–1984 ................................................................................................................................................ 1,621 60 97,245

1984–1985 ................................................................................................................................................ 6,283 42 263,903

1985–1986 ................................................................................................................................................ 4,658 38 177,015

5 year average .................................................................................................................................. 3,497 50 164,300

Discussion

George Transfer, we believe, has presented

a strong case for authority to self-insure its

BI&PD and cargo liability. It has more than

adequate financial qualifications. The

company has strong cash and working capital

positions. A positive working capital position

is important as it indicates that the carrier

can meet its current obligations from its

current assets. Furthermore, its debt to debt

plus equity ratio is favorable. In addition, it

has handled its own BI&PD and cargo

liability claims for a number of years and is

capable of doing so in the future under a

Commission approved self-insurance

program. It also has an active and successful

safety program, which it intends to maintain.

In our prior decisions, we have taken a

conservative approach to the question of

permitting motor carriers to self-insure their
Federal Register / Vol. 62, No. 184 / Tuesday, September 23, 1997 / Proposed Rules 49661

3Ex Parte No. MC–5, Motor Carrier Insurance for

the Protecting of the Public, 1 MCC 45, 58 (1936);

MC–128527, May Trucking Company—Application

to be a Self-Insurer (not printed); and Ex Parte No.

MC–178, Investigation Into Motor Carrier Insurance.

BI&PD and cargo liability.3 We are charge by

the act to provide adequate security for the

protection of the public. See 49 U.S.C. 10927.

Because of this, the Commission has been,

and will continue to be, very selective in

approving carriers to exercise this privilege.

As we stated in MC–128527, May Trucking

Company, supra, ‘‘(A) carefully crafted

proposal by a carrier to self-insure its own

losses appears to be a reasonable method by

which we can aid the industry without

jeopardizing the public.’’ We believe that the

application by George Transfer meets these

criteria. We will approve this application

subject to certain conditions necessary to

ensure that there is adequate protection for

the public.

In our view, the minimum net worth

requirement and the trust funds offered by

applicant are such as will provide the type

of protection we seek for the public. The net

worth requirement will ensure protection

against unpredictable claims. Moreover, the

trust fund is an easily understood and easily

monitored financial arrangement for

establishing a means to compensate the

public in the case of any accident. However,

in order to ensure the protection of the public

to the greatest extent possible we will require

some modifications in the terms and

language of the trust agreements. An

explanation of these modifications and our

rationale for these changes follows.

The trustees appointed by George Transfer,

Inc. are Joseph Kiel and T. Bernard Williams.

Mr. Kiel is apparently George Transfer’s

house counsel with the responsibility for

reviewing personal injury and property

damage claims. However, Mr. Williams is not

further identified. Although we have no

reason to believe the trustees are not legally

competent, we believe that they should be

further identified to the extent of describing

their relationship to the applicant and their

business addresses so the Commission will

know who will have legal title to the trust

money and how they may be contacted.

Similarly, we believe that the beneficiaries

of the trusts should be more clearly

designated. The reason for this designation is

to prevent claims on the trust funds from

creditors other than persons who have BI&PD

and cargo claims.

Generally, creditors of a beneficiary who

has an interest in a trust can subject the

beneficiary’s interest in the trust to

satisfaction of a debt. The purpose of the

trust fund created here is the payent of

BI&PD claims. As established, the trustee will

transfer funds to George’s Transfer when

applicant certifies its inability to pay the

involved claims. George’s Transfer will

presumably pay the claims with the trust

funds. The arrangement may present a

problem. The settlor’s (George’s Transfer)

continuing involvement could complicate a

determination as to who is the intended

beneficiary of the trust. Additionally, it

creates a potential for abuse because George’s

Transfer will actually have possession of the

funds. Applicant’s possession of the funds

subjects them to potential attached by George

Transfer’s other creditors because of the

applicant’s continuing interest.

To avoid any potential misconstruction

and abuse we will require the applicant to

revise the agreements to identify explicitly

BI&PD and cargo claimants as the intended

beneficiaries. Specifically, the class of

beneficiaries under the cargo trust agreement

should be more clearly defined, in paragraph

3 of the cargo trust agreement, ‘‘to retire

claims of persons or corporations for loss and

damage to cargo arising as a result of

transportation provided by George’s

Transfer.’’ Further, both the cargo trust and

liability trust agreements should be revised to

provide that payment will be made to such

claimants directly rather than to George’s

Transfer. This should be accomplished by

modifying the liability trust agreement

(paragraph 3, line 10) and the cargo trust

agreement (paragraph 3, lines 7–8) deleting,

‘‘Grantor funds to meet such obligations’’ and

inserting, ‘‘claimants identified by the

Grantor sufficient funds to meet such

obligation.’’

Moreover, in order to insure that the trust

agreements will not be subject to attachment

by George Transfer’s creditors in any

bankruptcy proceeding we will require the

agreements be further modified (paragraph 3,

line 10 in the liability trust agreement and

paragraph 3, line 8 in the cargo trust

agreement) in the following manner: After

‘‘obligations’’ insert: ‘‘The payment of those

funds to claimants is solely and exclusively

for settlement of outstanding claims. Those

claims shall be paid from the trust fund

irrespective of the financial responsibility or

lack thereof or insolvency or bankruptcy of

the Grantor’’.

Finally, we address the issue of revocation.

Each trust is irrevocable ‘‘so long as the

Grantor continues to insure itself.’’ However,

this construction of the trust could present a

problem. For example, if applicant ceased to

perform operations it might no longer be

insuring itself and the trust fund would be

dissolved, yet there might be claims

outstanding against it which it would not be

able to pay. In order to ensure that trust fund

assets will be applied to these outstanding

claims, we require the following language

added after the first sentence in paragraph 9

of both agreements: ‘‘Notwithstanding the

preceding sentence, this trust shall not be

revoked until all legally cognizable claims

arising prior to the date Grantor ceases to

insure itself have been settled. The purpose

of this provision is to insure that these funds

are available to reimburse claimants who

present their claims within the time

allowable by the applicable statute of

limitations before residual funds, if any, may

be returned to the Grantor upon termination

of the trust.’’

Subject to these modifications, we will

accept the applicant’s offer to establish a

trust fund in the amount of $1,000,000. We

emphasize the fact that this trust fund will

be utilized only for payment for liability

claims. Further, we will require that

applicant keep the Commission informed

about the trust, its maintenance and

operation, at all times. Finally, the trust fund

will be replenished to the required minimum

amount after each drawdown.

Applicant seeks authority to self-insure its

cargo liability as well as its BI&PD liability.

Our insurance rules provide for this type of

self-insurance. 49 C.F.R. 1043.5. The

standard for granting an application for selfinsurance for cargo liability is the same as

that for BI&PD liability. Namely, that the

carrier ‘‘will furnish a true and accurate

statement of its financial condition and other

evidence which will establish to the

satisfaction of the Commission the ability of

such carrier to satisfy its obligation for * * *

cargo liability without affecting the stability

or permanency of the business of such motor

carrier.’’

As demonstrated above, applicant has the

ability to self-insure its cargo liability claims

as well as its BI&PD claims. The present

minimum security requirements for cargo is

$5,000 or $10,000 for aggregate losses. 47

C.F.R. 1043.2(c). George Transfer’s current

self-insurance retention program has required

it to pay all claims under $250,000 for the

last five years. The claims chart reproduced

above also shows that there have been no

claims in excess of that amount during that

period. In fact, in the last five years, George

Transfer has not had a cargo claim exceed

$40,000. Thus, in reality George Transfer has

been self-insured for its cargo liability for

several years. In granting its application for

self-insurance with respect to cargo liability,

we are doing nothing more than allowing the

carrier to continue its present practice, albeit

without an insurance company intermediary

between the public and the applicant. The

record before use shows that George Transfer

has the qualifications necessary to self-insure

its cargo liability, and we approve its

application subject to the conditions set forth

below.

As in the case of its BI&PD liability,

applicant has offered to establish a separate

trust fund of $250,000 for the sole purpose

of the payment of claims attributable to cargo

loss or damage. This trust fund will be

utilized in the event that George Transfer is

unable to pay claims from operating

revenues. Notably, the amount of this fund

will equal the present coverage of George

Transfer’s existing policy. We will accept the

applicant’s offer to establish a trust fund for

the payment of cargo claims subject to the

conditions set forth above in the discussion

of the liability trust fund.

Findings

Given the carrier’s financial position, its

claims history and experience and its safety

record we find that the establishment of these

trust funds with the conditions discussed

above will provide protection for the public.

Therefore, we accept George Transfer’s offer

to establish these trust funds. We emphasize

that these funds will be utilized only for

payment of BI&PD and cargo liability claims.

Further, we will require that applicant keep

the Commission informed about the trusts,

and their maintenance and operation, at all

times. Finally, the trust funds will be

replenished to the required minimum

amount after each drawdown. In addition, we

will impose the following conditions on this

grant of self-insurance authority.

Applicant must submit to the Commission

a carrier quarterly and annual financial
49662 Federal Register / Vol. 62, No. 184 / Tuesday, September 23, 1997 / Proposed Rules

statements, as they become available, during

the time the self-insurance authorization is in

effect. The financial statements (income

statement, balance sheet and statement of

changes in financial position) must include

a certification by an appropriate management

official verifying the accuracy of the

information provided in the statements.

These financial statements will provide up to

date information on the carrier’s financial

condition.

Further, applicant must file with the

Commission carrier quarterly and annual

claims reports, within two weeks of the close

of the previous quarter, during the time the

self-insurance authorization is in effect.

These claims reports should detail the

number, dollar amount and nature of George

Transfer’s claims experience. As with the

financial statements, these claims reports

must be certified as to their accuracy by an

appropriate management official.

Additionally, the carrier must notify the

Commission immediately of any pending or

contingent liability claim(s) which

individually exceeds $50,000 or collectively

exceed $250,000. If any of these reports or

notices of liability claims indicate that the

public is being jeopardized by the carrier’s

failure to maintain an appropriate level of

financial responsibility, George Transfer’s,

self-insurance may be revoked.

Moreover, the Commission must, at all

times, be made aware of the terms and

conditions under which the trust agreements

are operating. In particular, the Commission

must be notified no later than 90 days prior

to the effective date of any change in any of

the terms of the trust or its cancellation.

The application is granted with the express

condition that the information required will

be timely filed with the Commission. Any

failure to timely file any of the information

will subject the carrier to notice of

termination of self-insurance authorization.

Finally, the Commission retains the

authority to terminate applicant’s selfinsurance authorization at any time if, after

notice and hearing, it appears to the

Commission that applicant’s financial

arrangements fail to provide continued

satisfactory protection for the public.

It is ordered: The application is granted

subject to the conditions set forth in this

decision.

(1) Applicant must submit carrier quarterly

and annual financial statements to the

Commission. The statements must include a

certification by an appropriate applicant

official verifying the accuracy of the

information provided. Financial disclosure is

also required of affiliated companies which

provide support services for the operations of

the motor carrier.

(2) Applicant must file with the

Commission quarterly claims reports

detailing the number, dollar amount, and

nature of its claims experience and quarterly

reports detailing pending court cases which

relate to or arise from the claims experience.

These reports must be certified as to accuracy

by an appropriate carrier official;

(3) Applicant must maintain a net worth of

at least $2 million dollars and must notify the

Commission at any time that the applicant’s

net worth falls below $2 million dollars.

(4) Applicant must establish a trust fund in

the amount of $1,000,000 for the payment of

BI&PD liability claims and one in the amount

of $250,000 for the payment of cargo liability

claims as set forth in Exhibits ‘‘G’’ & ‘‘H’’

attached to its application and as modified in

this decision. The trust funds must be

irrevocable and used only for the payment of

its BI&PD or cargo liability. If drawn upon,

applicant must contribute to the trust fund,

within a period of 30 days after the date on

which the trust funds are used to retire

claims, sufficient cash to increase the BI&PD

trust fund to the $1,000,000 minimum. or the

cargo trust fund to the $250,000 minimum.

The executed trust fund agreements, must be

submitted within 15 days of the service date

of this decision. Any changes in their terms

must be given prior approval by the

Commission. Furthermore, any draw down

on these funds and failure to replenish

within 30 days must be reported immediately

to the Commission, along with an

explanation as to how it proposes to respond

to further BI&PD or cargo claims.

(5) Applicant must notify the Commission

immediately of any pending or contingent

BI–PD liability claim(s) which individually

exceeds $50,000 or collectively exceed

$250,000; and any pending or contingent

cargo liability claims which exceed $50,000

individually or $100,000 collectively.

(6) The Commission retains the authority

to terminate George Transfer’s self-insurance

authorization, at any time, if it appears to the

Commission that applicant’s financial

arrangements fail to provide satisfactory

protection for the public.

(7) This decision will be effective 30 days

after service.

Energy and Environment Statement

This action will not significantly affect

either the quality of the human environment

or the conservation of energy resources.

By the Commission, Chairman Gradison,

Vice Chairman Simmons, Commissioners

Sterrett, Andre and Lamboley.

Noreta R. McGee,

Secretary.

Federal Highway Administration

[Docket No. MC–176440; Service Date:

February 8, 1996]

Decision; Direct Transit, Inc. (North Sioux

City, SD); Authorization To Self-Insure

Decided: February 8, 1996.

By decision of the former Interstate

Commerce Commission (Commission) served

May 25, 1995, Direct Transit Inc. (Direct) was

authorized to self-insure its bodily injury and

property damage (BI&PD) liability subject to

certain conditions. The self-insurance

authorization was activated on August 1,

1995. As a result of a safety audit conducted

by the Federal Highway Administration

(FHWA), Direct was notified that it was

assigned an ‘‘Unsatisfactory’’ safety rating

effective January 12, 1996.

Section 1043.5(a)(3) of Title 49 of the Code

of Federal Regulations governing

qualifications for a self-insurer, provides in

part:

Any self-insurance authority granted by the

Commission will automatically expire 30

days after a carrier receives a less than

satisfactory rating form the U.S. Department

of Transportation (DOT).

Direct’s self-insurance authorization will

expire automatically on February 11, 1996.

By virtue of the ICC Termination Act of

1995, P.L. 104–88, the responsibility for

making determinations regarding the selfinsurance program and all authorizations

pursuant thereto was vested in the Secretary

of Transportation, and subsequently by

delegation, in FHWA.

By a petition filed February 6, 1996 with

FHWA, Direct seeks a waiver of the

automatic termination provision and an

emergency extension of its self-insurance

authorization for a period of 30 days or until

it is issued a ‘‘Satisfactory’’ safety rating,

whichever occurs first.

In support of its petition, Direct contends

that the automatic termination provision is

inappropriate and will simply penalize the

carrier by increasing its insurance premiums.

While acknowledging that the ‘‘Satisfactory’’

safety rating requirement is justifiable in

most circumstances, the carrier claims

nonetheless that the public is protected and

that it is not in the public interest to invoke

the automatic termination rule in this

instance. Direct maintains that automatic

termination should apply only to a

‘‘withering and desperate carrier’’. (Petition

at 7).

Direct’s arguments are groundless and

disturbing. In developing the self-insurance

requirements, the Commission recognized

the possibility that ‘‘Unsatisfactory’’ or

‘‘Conditional’’ ratings militate against

allowing an applicant to self-insure because

such ratings indicate operations that might

result in a higher than average claims

experience or the potential for substantial

liability, both of which could adversely affect

a carrier’s ability to indemnify claimants.

Investigation Into Motor Car. Insurance

Rates, 3 I.C.C. 2nd 377,379 (1987). The

Commission further noted, ‘‘It is also

consistent with our intent that safe

operations serve as the touchstone for any

self-insurance authorization.‘‘Id. at 384. The

30-day expiration provision was

implemented because ‘‘a diminution in a

carrier’s safety status would warrant

immediate reexamination of self-insurance

authority.’’ Id. at 385.

Direct, having begun self-insured

operations only several months ago, has too

short a track record to trumpet the success of

its program and can hardly profess that the

public will be protected based on that meager

record. The Commission’s self-insurance

requirements were imposed ‘‘to guarantee

that a carrier can meet its financial

responsibility to the public’’. Id. at 380.

Carriers that conduct unsafe operations

cannot make such guarantees. The issue

before me concerns the relationship between

unsafe operations and self-insurance. I reject

Direct’s contention that the payment of

premiums for additional commercial

insurance coverage is a relevant factor. I also

note that the circumstances surrounding this

matter do not appear to justify the eleventhhour filing of Direct’s petition.

It should come as no surprise that FHWA,

the agency charged with ensuring safe
Federal Register / Vol. 62, No. 184 / Tuesday, September 23, 1997 / Proposed Rules 49663

operation of commercial vehicles on our

Nation’s highways, will continue to insist

that all carriers operating with self-insurance

authority maintain ‘‘Satisfactory’’ safety

ratings. Nevertheless, I will authorize an

extension of the self-insurance authorization

to March 7, 1996 for the sole purpose of

conducting another compliance review of the

carrier’s operations.

Direct should understand that failure to

obtain a ‘‘Satisfactory’’ safety rating during

the extension period will not provide support

for a further extension. Accordingly, the

carrier should begin the process of securing

commercial insurance coverage in the event

its self-insurance authorization terminates.

It is ordered: 1. A waiver of the automatic

30-day period for expiration of petitioner’s

self-insurance authority and an extension of

the self-insurance authorization until March

7, 1996, is hereby granted.

2. The terms and conditions of the selfinsurance authorization activated August 1,

1995, will remain in effect throughout the

extension period.

3. As of 12:01 A.M. on March 8, 1996, in

the absence of the issuance of a

‘‘Satisfactory’’ safety rating, Petitioner’s selfinsurance authorization will terminate

without further order of the FHWA.

4. A copy of this decision is to be filed in

Docket No. MC–176440 and all sub numbers

thereunder.

5. This decision is effective when served.

By the Federal Highway Administration.

John F. Grimm,

Director, Office of Motor Carrier Information

Analysis.

[FR Doc. 97–24714 Filed 9–22–97; 8:45 am]

BILLING CODE 4910–22–P–M

DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety

Administration

49 CFR Part 571

Denial of Petition for Rulemaking;

Federal Motor Vehicle Safety

Standards

AGENCY: National Highway Traffic

Safety Administration (NHTSA);

Department of Transportation.

ACTION: Denial of petition for

rulemaking.

SUMMARY: This notice denies the

petition by John Chevedden for the

issuance of a mandatory Federal

regulation that would require all new

cars to be manufactured with

windshield edge coating in the space

between the center rear view mirror and

the lowered sun visors. The petitioner

stated that this will prevent blinding

glare from the sun in the early morning

and late afternoon. According to the

petitioner the targeted windshield

coating is currently standard on the

Hyundai Accent. Based upon the

information provided by the petitioner

and other information available to

NHTSA, the agency has concluded that

there is insufficient evidence to support

a mandatory Federal requirement that

all new cars be manufactured with a

windshield shade band that is identical

to the shade band currently installed on

the Hyundai Accent.

FOR FURTHER INFORMATION CONTACT:

Kenneth O. Hardie, Safety Performance

Standards, NHTSA, 400 Seventh Street,

SW, Washington, DC 20590. Mr.

Hardie’s telephone number is (202) 366–

6987.

SUPPLEMENTARY INFORMATION: By letter

dated May 21, 1997, John Chevedden of

Redondo Beach, California, petitioned

NHTSA to issue a new rule that would

require that all new cars be

manufactured with windshield edge

coating in the space between the center

rear view mirror and the lowered sun

visors. Mr. Chevedden’s petition stated

that the targeted windshield coating is

currently standard on the Hyundai

Accent. Mr Chevedden stated that this

will prevent blinding sun glare and

enhance safety by reducing collisions in

the early morning and late afternoon

sun.

The specific area of the windshield

that Mr. Chevedden’s petition addresses

is called the ‘‘glazing shade band,’’ i.e.,

the area immediately adjacent to and

below the top edge of the vehicle

glazing, through which light

transmission is less than that required

for glazing that are requisite for driving

visibility, as defined in ANSI Z26.1.

ANSI Z26.1 is the American National

Standard for Safety Glazing Materials

for Glazing Motor Vehicles Operating on

Land Highways; Safety Code. Examples

of shade bands are:

a. Laminated Safety Glass—A color

band in the laminated product formed

by the application of a dye or pigment

to the interlayer material prior to

lamination.

b. Tempered Safety Glass—A pattern

comprised of lines and spaces, or dots

and voids, printed into the glass surface

from a durable opaque or translucent

material.

Mr. Chevedden asked that all new

cars be required to be manufactured

with a windshield edge coating

(windshield shade band) identical to

that which is installed on the Hyundai

Accent. Federal law requires that the

area of window requisite for driving

visibility have light transmittance of not

less than 70%. Motor vehicle

manufacturers place a mark on the

windshield designating the AS1 line.

The windshield below that line is

‘‘requisite for driving visibility’’ and

must comply with the 70% light

transmittance requirement. Federal law

does not specify any minimum light

transmittance for the windshield above

the AS1 line. Thus, manufacturers are

free to install any shade band design

they choose above that line.

In addition to the Federal limit that

windshield shade bands can only

extend down to the AS1 mark, there are

some States that have motor vehicle

regulations that prohibit the windshield

shade band from extending downward

from the top edge of the vehicle by more

than six inches. Further, there is a

voluntary standard for windshield

shade bands promulgated by the Society

of Automotive Engineers (SAE). This

SAE standard is SAE J100, Vehicle

Glazing Shade Bands. Although the use

of the SAE Standards by anyone in the

automotive industry is entirely

voluntary, SAE standards are widely

used by the automotive industry. All

SAE Standards are submitted to the

American National Standards Institute

for recognition as American National

Standards.

Mr. Chevedden petitioned to change

the status quo and make the Hyundai

Accent shade band design mandatory

for all new cars, light trucks and sport

utility vehicles. While NHTSA has

carried out many suggestions from

concerned citizens regarding motor

vehicle safety, to change or impose a

new Federal motor vehicle safety

standard, NHTSA must present

information to the public demonstrating

that there is a safety problem with the

current situation and that the proposed

solution will address the problem and

improve safety in a cost effective way.

The petitioner provided no information

to support his contention that there is a

safety problem with the current

situation or that his proposed solution

will improve safety in a cost effective

manner. NHTSA has no information

indicating that the Hyundai Accent

windshield shade band design is more

effective than any other vehicle that is

equipped with a windshield shade

band, nor does the agency possess

information regarding the efficacy of

any shade band in reducing motor

vehicle-related deaths and injuries.

Absent such information, NHTSA has

no basis for initiating a rulemaking

proceeding.

After carefully considering the

petition, NHTSA concludes that there is

not a reasonable possibility that the

order requested by the petitioner would

be issued at the conclusion of a

rulemaking proceeding. Accordingly,

the petition is denied.