Document ID: FMCSA-2006-26262-0040
Agency: fmcsa
Document Type: Rule
Title: Minimum Levels of Financial Responsibility for Motor Carriers
Posted Date: 2010-07-02T04:00Z

[Federal Register Volume 75, Number 127 (Friday, July 2, 2010)]
[Rules and Regulations]
[Pages 38423-38430]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-16009]

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DEPARTMENT OF TRANSPORTATION

Federal Motor Carrier Safety Administration

49 CFR Part 387

[Docket No. FMCSA-2006-26262]
RIN 2126-AB05

Minimum Levels of Financial Responsibility for Motor Carriers

AGENCY: Federal Motor Carrier Safety Administration (FMCSA), DOT.

ACTION: Final rule.

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SUMMARY: The FMCSA amends its regulations concerning minimum levels of 
financial responsibility for motor carriers to allow Canada-domiciled 
motor carriers and freight forwarders to maintain, as acceptable 
evidence of financial responsibility, insurance policies issued by 
Canadian insurance companies legally authorized to issue such policies 
in the Canadian Province or Territory where the motor carrier or 
freight forwarder has its principal place of business. This final rule 
does not change the required minimum levels of financial liability 
coverage that all motor carriers and freight forwarders must maintain 
under the existing regulations. This final rule responds to a petition 
for rulemaking filed by the Government of Canada.

DATES: Effective Date: The effective date of the amendments made by 
this final rule is August 2, 2010.

ADDRESSES: Internet users may download and print this final rule from 
today's edition of the Federal Register's online system at: http://www.gpoaccess.gov/fr/index.html. You may access this final rule and all 
related documents and material from the Federal eRulemaking Portal 
through the Federal Docket Management System (FDMS) at http://www.regulations.gov, by searching Docket ID number FMCSA-2006-26262. 
The FDMS is available 24 hours each day, 365 days each year. For 
persons who do not have access to the Internet, all documents in the 
docket may be examined, and/or copied for a fee, at the U.S. Department 
of Transportation's Dockets Room, 1200 New Jersey Avenue, SE., on the 
ground floor in Room W12-140, Washington, DC, between 9 a.m. and 5 
p.m., e.t., Monday through Friday, except Federal holidays.

FOR FURTHER INFORMATION CONTACT: Ms. Dorothea Grymes, Commercial 
Enforcement Division (MC-ECC), Federal Motor Carrier Safety 
Administration, 1200 New Jersey Avenue, SE., Washington, DC 20590, or 
telephone (202) 385-2400.

SUPPLEMENTARY INFORMATION:

Acronyms and Abbreviated References

ANPRM--Advance Notice of Proposed Rulemaking
ATA--American Trucking Associations, Inc
AIA--American Insurance Association
Canada--Government of Canada
CCIR--Canadian Council of Insurance Regulators
CFR--Code of Federal Regulations
CMV--Commercial Motor Vehicle
FMCSA--Federal Motor Carrier Safety Administration
FMCSRs--Federal Motor Carrier Safety Regulations
IBC--Insurance Bureau of Canada
Leaders--President of the United States, Prime Minister of Canada, 
and the President of Mexico
L&I--Licensing and Insurance Database
MCMIS--Motor Carrier Management Information System
NAFTA--North American Free Trade Agreement
NAIC--National Association of Insurance Commissioners
NIIC--National Interstate Insurance Company
NPRM--Notice of Proposed Rulemaking
OSFI--Office of the Superintendent of Financial Institutions
PAU--Power of Attorney and Undertaking
PACICC--Property and Casualty Insurance Compensation Corporation
PCI--Property Casualty Insurers Association of America
RIA--Regulatory Impact Analysis
SPP--The Security and Prosperity Partnership of North America

Table of Contents

I. Background
    Legal Basis for the Rulemaking
    The Government of Canada (Canada) Petition for Rulemaking
    The Security and Prosperity Partnership of North America
    Advance Notice of Proposed Rulemaking (ANPRM)
    Notice of Proposed Rulemaking (NPRM)
II. Discussion of Comments Received on NPRM
    General Comments
    Specific Comments from PCI and IBC
    Specific Comments from the ATA
    ATA Comment 1
    ATA Comment 2
    ATA Comment 3
    ATA Comment 4
    Specific Comments from the National Association of Insurance 
Commissioners (NAIC)
III. Regulatory Analyses
IV. The Final Rule

I. Background

Legal Basis for the Rulemaking

    Section 30 of the Motor Carrier Act of 1980 (1980 Act) (Pub. L. 96-
296, 94 Stat. 793, 820, July 1, 1980) authorized the Secretary of 
Transportation (Secretary) to prescribe regulations establishing 
minimum levels of financial responsibility covering public liability, 
property damage, and environmental restoration for the transportation 
of property for compensation by motor vehicles in interstate or foreign 
commerce. Section 30(c) of the 1980 Act provided that motor carrier 
financial responsibility may be established by evidence of one or a 
combination of the following if acceptable to the Secretary: (1) 
Insurance; (2) a guarantee; (3) a surety bond issued by a bonding 
company authorized to do business in the United States; and (4) 
qualification as a self-

[[Page 38424]]

insurer (49 U.S.C. 31139(f)(1)). Section 30(c) required the Secretary 
to establish, by regulation, methods and procedures to ensure 
compliance with these requirements.
    In June 1981, the Secretary issued regulations implementing Section 
30, which are codified at 49 CFR part 387, subpart A. The implementing 
regulations provide that for-hire motor carriers operating motor 
vehicles transporting property in interstate or foreign commerce or 
transporting hazardous materials in intrastate, interstate, or foreign 
commerce, must obtain and have in effect minimum levels of financial 
responsibility through, as applicable here, an insurance policy or a 
surety bond. The regulations further provide the specific forms for an 
endorsement to the insurance policy and for the surety bond. These 
forms, entitled Form MCS-90 ``Endorsement for Motor Carrier Policies of 
Insurance for Public Liability under Sections 29 and 30 of the Motor 
Carrier Act of 1980,'' and Form MCS-82, ``Motor Carrier Surety Bond for 
Public Liability under Section 30 of the Motor Carrier Act of 1980,'' 
were required to be maintained at the motor carrier's principal place 
of business as proof that it satisfied the financial responsibility 
requirement. (See 49 CFR 387.7 and 387.15.)
    Section 18 of the Bus Regulatory Reform Act of 1982 (Bus Act) (Pub. 
L. 97-261, 96 Stat. 1102, 1120, September 20, 1982), codified at 49 
U.S.C. 31138, directed the Secretary to prescribe regulations 
establishing the minimum levels of financial responsibility covering 
public liability and property damage for the transportation of 
passengers for compensation by motor vehicle in interstate or foreign 
commerce. Section 18(d) of the Bus Act provided that such motor carrier 
financial responsibility may be established by evidence of one or a 
combination of the following if acceptable to the Secretary: (1) 
Insurance, including high self-retention; (2) a guarantee; and (3) a 
surety bond issued by a bonding company authorized to do business in 
the United States (49 U.S.C. 31138(c)(1)). Section 18(d) required the 
Secretary to establish, by regulation, methods and procedures to ensure 
compliance with these requirements.
    In November 1983, the Secretary issued regulations implementing 
section 18 of the Bus Act. The regulations implementing that law are 
found at 49 CFR part 387, subpart B, and contain the same requirements 
found in Subpart A for an insurance policy, as applicable here, with 
Form MCS-90B endorsement or a surety bond per MCS-82B. (See 49 CFR 
387.39.)
    This final rule is based on the Secretary's authority to establish 
methods and procedures to ensure that certain motor carriers of 
property and passengers maintain the minimum financial responsibility 
liability coverage mandated by 49 U.S.C. 31138(c)(1) and 31139(f)(1). 
This authority was delegated to FMCSA by the Secretary pursuant to 49 
CFR 1.73(f).

The Government of Canada (Canada) Petition for Rulemaking

    On September 29, 2005, Canada submitted a petition for rulemaking 
to amend 49 CFR part 387. Canada specifically requested that FMCSA 
amend Sec.  387.11, which provides that a policy of insurance or surety 
bond does not satisfy FMCSA's financial responsibility requirements 
unless the insurer or surety furnishing the policy or bond is--

    (a) Legally authorized to issue such policies or bonds in each 
State in which the motor carrier operates; or
    (b) Legally authorized to issue such policies or bonds in the 
State in which the motor carrier has its principal place of business 
or domicile, and is willing to designate a person upon whom process, 
issued by or under the authority of any court having jurisdiction of 
the subject matter, may be served in any proceeding at law or equity 
brought in any State in which the motor carrier operates; or
    (c) Legally authorized to issue such policies or bonds in any 
State of the United States and eligible as an excess or surplus 
lines insurer in any State in which business is written, and is 
willing to designate a person upon whom process, issued by or under 
the authority of any court having jurisdiction of the subject 
matter, may be served in any proceeding at law or equity brought in 
any State in which the motor carrier operates.

    Canada asked FMCSA to consider amending this provision to permit 
insurance companies, licensed either provincially or territorially in 
Canada, to write motor vehicle liability insurance policies for Canada-
domiciled motor carriers of property operating in the United States and 
to issue the Form MCS-90 endorsement for public liability to meet 
FMCSA's financial responsibility requirements. Form MCS-90 is the 
endorsement for motor carrier policies of insurance for public 
liability, which for-hire motor carriers of property must maintain at 
their principal place of business. Under 49 CFR 387.7(f), motor 
carriers domiciled in Canada and Mexico must also carry a copy of the 
Form MCS-90 on board each vehicle operated in the United States.
    The combined effects of Sec. Sec.  387.7 and 387.11 required 
Canada-domiciled motor carriers operating in the United States to 
either: (1) Obtain insurance through a Canada-licensed insurer, which 
enters into a ``fronting agreement'' with a U.S.-licensed insurer, 
whereby the U.S. insurer permits the Canadian insurer to sign the Form 
MCS-90 as its agent, and the entire risk is contractually ``reinsured'' 
back to the Canadian insurer by the U.S. insurer; or (2) obtain two 
separate insurance policies, one valid in Canada written by a Canadian 
insurer and one valid in the United States written by a U.S. insurer. 
Canada indicated that the first option is by far the most common. 
Canada contended that the results of these requirements posed an 
additional administrative burden, inconvenience, and cost not faced by 
U.S.-domiciled motor carriers operating in Canada. As Canada stated, 
U.S. motor carriers and their insurers do not face these additional 
costs in transporting goods into Canada. FMCSA estimated that there are 
approximately 9,000 Canada-domiciled, for-hire motor carriers of 
property and passengers, and freight forwarders actively operating 
commercial motor vehicles (CMVs) in the United States that are subject 
to FMCSA's current Federal motor carrier financial responsibility 
rules.
    Canada requested that FMCSA amend 49 CFR part 387 so that an 
insurance policy issued by a Canadian insurance company satisfies the 
Agency's financial responsibility requirements. Canada asserted that 
the insurance company will be legally authorized to issue such a policy 
in the Province or Territory of Canada in which the Canadian motor 
carrier has its principal place of business or domicile. Furthermore, 
the insurance company should also be required to designate a person 
upon whom process, issued by or under the authority of any court having 
jurisdiction over the subject matter, may be served in any proceeding 
at law or equity brought in any State in which the motor carrier 
operates.
    This change would eliminate the need for Canadian insurance 
companies to link with a U.S. insurance company to legally insure 
Canada-domiciled motor carriers operating in the United States. It 
should be noted that although Canada's petition only requested to amend 
49 CFR 387.11, its proposal would require changes in other sections of 
part 387 for the sake of consistency. Section 387.35 applies Sec.  
387.11 requirements to motor passenger carriers, who must obtain a Form 
MCS-90B endorsement. Furthermore, Sec.  387.315 imposes the same

[[Page 38425]]

requirements on motor carriers who must file evidence of insurance with 
FMCSA, and Sec.  387.409 applies similar financial responsibility 
requirements on freight forwarders. Therefore, FMCSA has amended those 
sections for consistency as well.
    Canada pointed out that, for many years, it has recognized and 
accepted non-commercial motor vehicle liability policies issued in 
either country as acceptable proof of financial responsibility. 
Furthermore, all jurisdictions in Canada accept the signing and filing 
of a Power of Attorney and Undertaking (PAU) by U.S.-licensed insurers 
as valid proof of financial responsibility for U.S.-domiciled motor 
vehicles of all categories. The PAU provides that the U.S. insurer will 
comply with and meet the minimum coverage and policy limits required in 
any Canadian jurisdiction in which a crash involving its insured 
occurs. Canada stated that the PAU is similar to the MCS-90 endorsement 
required under part 387. Canada also noted that the PAU is filed with 
the Canadian Council of Insurance Regulators (CCIR), which is the 
Canadian equivalent to the U.S. National Association of Insurance 
Commissioners (NAIC).

The Security and Prosperity Partnership of North America

    The Security and Prosperity Partnership of North America (SPP) was 
dedicated to increasing security and enhancing prosperity among the 
United States, Canada, and Mexico through greater cooperation and 
information sharing. The President of the United States, the Prime 
Minister of Canada, and the President of Mexico (the Leaders) announced 
this initiative on March 23, 2005. Among other things, the initiative 
reflects the goal of improving the availability and affordability of 
insurance coverage for motor carriers engaged in cross-border commerce 
in North America.
    On June 27, 2005, a Report to the Leaders was signed on behalf of 
the United States by the Secretaries of Homeland Security, Commerce, 
and State. (See http://www.spp.gov, and click on link to ``2005 Report 
to Leaders.'') One of the Prosperity Priorities of the SPP is to 
``[s]eek ways to improve the availability and affordability of 
insurance coverage for carriers engaged in cross-border commerce in 
North America.'' At http://www.spp.gov/report_to_leaders/prosperity_annex.pdf?dName=report_to_leaders, the following key milestone is 
stated for this initiative:

    ``U.S. and Canada to work towards possible amendment of the U.S. 
Federal Motor Carrier Safety Administration Regulation to allow 
Canadian insurers to directly sign the MCS-90 form concerning 
endorsement for motor carrier policies of insurance for public 
liability: by June 2006.''

    Canada advocated a change to part 387 to assist in meeting the 
stated goals of the SPP. Canada stated, ``Achieving a seamless motor 
vehicle liability insurance policy between Canada and the United States 
for motor carriers'' will contribute to enhancing the competitive and 
efficient position of North American businesses. FMCSA recognized the 
importance of considering these requests and granted the petition by 
initiating a rulemaking proceeding to solicit public comment on 
Canada's proposal.

Advance Notice of Proposed Rulemaking (ANPRM)

    On December 15, 2006, FMCSA published an ANPRM (71 FR 75433) in 
response to Canada's petition for rulemaking. The ANPRM also requested 
public comment on a petition for rulemaking from the Property Casualty 
Insurers of America (PCI), which requested that FMCSA make revisions to 
the Forms MCS-90 and MCS-90B endorsements to clarify that language in 
the endorsements imposing liability for negligence ``on any route or in 
any territory authorized to be served by the insured or elsewhere'' 
does not include liability connected with transportation within Mexico.
    The PCI petition was the result of a Federal District Court 
decision holding that the Form MCS-90B endorsement applied to a crash 
that occurred in Mexico. As a result, PCI requested that the 
endorsement be amended by inserting the phrase: ``within the United 
States of America, its territories, possessions, Puerto Rico, and 
Canada'' following the words ``or elsewhere.''
    However, in September 2007, the U.S. Court of Appeals for the Fifth 
Circuit issued a decision, Lincoln General Insurance Co. v. De La Luz 
Garcia, 501 F.3d 436 (5th Cir., 2007), effectively overturning the 
District Court decision that had prompted PCI to file its petition. 
Because the Court of Appeals decision provided PCI with the relief 
requested in its petition and because the issues raised in the PCI 
petition are different from the issues raised in Canada's petition, 
FMCSA decided that a regulatory change need not be considered, and the 
issue would not be addressed further in this rulemaking.
    FMCSA received comments on the ANPRM from six commenters. FMCSA 
addressed the issues raised by the six commenters in its June 10, 2009, 
notice of proposed rulemaking (74 FR 27485).

Notice of Proposed Rulemaking (NPRM)

    FMCSA published an NPRM on June 10, 2009, concerning Canada's 
proposal to amend 49 CFR 387.11 to allow Canadian insurance companies, 
licensed in the province or territory where the motor carrier has its 
principal place of business, to issue proof of financial responsibility 
for Canada-domiciled motor carriers by executing the Forms MCS-90 and 
MCS-90B directly rather than as the agent of a U.S. insurer. FMCSA also 
proposed to amend other sections of part 387 (Sec. Sec.  387.35, 
387.315, and 387.409) for consistency.

II. Discussion of Comments Received on NPRM

    FMCSA provided a 60-day comment period for the NPRM that ended on 
August 10, 2009. In response, nine organizations and one individual 
filed comments as follows: the Insurance Bureau of Canada (IBC); the 
Insurance Corporation of British Columbia; the Canadian Trucking 
Alliance; Canada; NAIC; the American Insurance Association(AIA); the 
American Trucking Associations, Inc. (ATA); the National Interstate 
Insurance Company (NIIC); PCI; and Mr. Michael Stanley. Canada and the 
NAIC filed additional comments in the docket on September 23, 2009, and 
on November 23, 2009, respectively. The Agency reviewed and considered 
all comments submitted to this docket.

General Comments

    Seven commenters supported the NPRM; two commenters were also 
supportive of the NPRM if certain concerns were addressed.

Specific Comments From PCI and IBC

    PCI and IBC stated that a ``U.S.-only'' coverage territory 
definition should be added to the MCS-90 and MCS-90B forms.
    FMCSA Response:
    FMCSA disagrees with this comment. As noted previously and 
described more fully in the NPRM (74 FR 27487), the September 2007 
Fifth Circuit decision addressed this issue and essentially provided 
PCI with the legal resolution requested in its petition for rulemaking. 
Therefore, FMCSA concluded that it was unnecessary to add the 
territorial definition to the MCS-90 and MCS-90B forms. As PCI and IBC 
did not provide any new arguments to support adding the territorial 
definition, FMCSA will not address it further in this final rule.

Specific Comments From the ATA

    ATA was generally supportive of the NPRM but requested that the 
Agency

[[Page 38426]]

respond to its concerns. ATA believed that several issues still needed 
to be resolved and addressed, as follows:
    ATA Comment 1:
    ATA argued that Canadian insurance companies should be required to 
comply with all FMCSA's requirements for U.S.-based insurers (i.e., as 
required by FMCSA under 49 CFR 387.11(b)). ATA also contended that 
Canadian insurance companies should comply with any other applicable 
U.S. insurance regulations on a State-by-State basis. ATA suggested 
that this could prove to be difficult for Canadian insurers because 
they would need to register in each State and be subject to a variety 
of additional requirements in each jurisdiction. ATA also suggested 
that these aspects of the U.S. financial responsibility requirements 
would tend to discourage Canadian carriers and insurance companies from 
participating in the U.S. market.
    FMCSA Response:
    Under part 387 of the FMCSRs, the Agency has authority to prescribe 
the minimum levels of financial responsibility required to be 
maintained by motor carriers, freight forwarders and property brokers. 
In terms of making determinations about what laws and regulations will 
apply to U.S.-based insurers, that is a State process. FMCSA does not 
intend to enter into that process as part of this rule. However, FMCSA 
indirectly imposes requirements on U.S. insurers by not accepting the 
Forms MCS-90 and MCS-90B unless the insurer meets certain requirements. 
The Agency could impose a requirement for Canada-based insurance 
companies as a condition of accepting their policies. Such a 
requirement would be contrary to the purpose of this rulemaking, 
however, given that if the companies were licensed by a State, they 
would already satisfy the existing rule. Furthermore, based on the 
information reviewed by the Agency, such a requirement is unnecessary, 
considering that the Canada-based insurers must be licensed in the 
Canadian Province or Territory where the motor carrier or freight 
forwarder has its principle place of business. Currently, the Agency 
has an internal process to verify that U.S-based insurers are solvent 
and duly licensed in the State(s) where they write and issue insurance 
policies for the motor carrier entities that must comply with part 387. 
FMCSA verifies the name of the insurance company, its home office 
address and telephone number, and its solvency by checking the Best 
Insurance Reports \1\ or by going online to http://www.ambest.com. 
FMCSA leaves it up to the States to monitor U.S.-based insurance 
companies and, if this rule is implemented, would leave it up to the 
Canadian government and its Provinces and Territories to monitor 
Canada-based insurance companies in the same manner (see RIA, pages 14 
and 15).\2\ Thus, the Agency disagrees with ATA about the need for 
requiring licensing in the U.S. FMCSA can readily verify if the 
companies are solvent and duly licensed in the jurisdictions where the 
insurance is issued.
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    \1\ For most insurance companies domiciled in the U.S., the data 
in the Best Insurance Reports is based on each insurance company's 
sworn annual and quarterly financial statement as prescribed by the 
National Association of Insurance Commissioners (NAIC) and as filed 
with the Insurance Commissioners of the States in which the 
companies are licensed to do business. This source also provides 
data related to companies operating outside of the U.S., but it is 
presented in accordance with customs or regulatory requirements of 
the country of domicile.
    \2\ The Canadian federal government and the Provinces/
Territories share jurisdiction over insurance regulation in Canada. 
Property and casualty (P&C) insurers can be incorporated under 
either level of government. The Canadian federal and provincial 
governments share jurisdiction over insurance matters in Canada; 
therefore both levels of government are involved in the regulation 
and supervision of participants in Canada's P&C insurance industry. 
Canadian federal authorities look after the solvency of companies 
incorporated federally, as well as Canadian branch operations of 
firms incorporated outside Canada. Provincial authorities are 
responsible for the solvency of provincially incorporated insurers, 
for reviewing and interpreting insurance contracts and for licensing 
and supervising agents and adjusters.
    Approximately three-quarters of the P&C insurers active in 
Canada are supervised by the federal government through the Office 
of the Superintendent of Financial Institutions (OSFI), as they 
operate in more than one province or are branches of foreign 
companies. These federally regulated insurers make up more than 80 
per cent of the total business of the P&C insurance industry in 
Canada. Federally regulated companies must, however, also be 
licensed in each Province and Territory in which they undertake 
insurance activities.
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    Likewise, FMCSA does not agree with ATA that it is necessary to 
require, indirectly, that Canada-based insurance companies comply with 
U.S.-based insurance regulations. As noted above, the Canadian federal 
government and its Provinces and Territories share jurisdiction over 
the insurance regulation of Canada-based motor carriers. Indeed, FMCSA 
is engaged in an on-going process with its Canadian counterparts to 
identify opportunities for establishing reciprocity arrangements to 
achieve a seamless motor vehicle liability insurance policy for 
adequate protection of the public between the two nations, but it does 
not regulate the insurance industry in this country or any other.
    This final rule amends Sec. Sec.  387.11, 387.35, 387.315, and 
387.409 to allow a Canadian insurer to submit an insurance policy on 
behalf of a Canada-based motor carrier that will satisfy the financial 
responsibility requirements if the insurer is: legally authorized to 
issue a policy of insurance in the Province or Territory of Canada in 
which a motor carrier has its principal place of business or domicile; 
and is willing to designate a person upon whom process, issued by or 
under the authority of any court having jurisdiction of the subject 
matter, may be served in any proceeding at law or equity in any State 
in which the motor carrier operates. Thus, any Canadian insurance 
policy submitted on behalf of a Canada-based motor carrier must 
designate an agent in each State upon whom service of process may be 
served as required by FMCSA regulations under part 387.
    ATA Comment 2:
    ATA also argued that the oversight of Canada-based insurance 
companies must be at least as stringent as that over U.S.-based 
companies.
    FMCSA Response:
    Prior to this rule, Canadian insurers providing coverage to 
Canadian motor carriers operating in the U.S. were already responsible 
for the insurance coverage limits in the U.S. when they were arranging 
insurance through a U.S.-based insurance company. The Agency believes 
Canada has a very strong, prudential Federal regulator of its financial 
institutions, as evident from the comments submitted by IBC and NAIC. 
NAIC stated that the financial responsibility levels required in Canada 
for commercial vehicles are comparable to those requirements in the 
U.S. The Office of the Superintendent of Financial Institutions (OSFI) 
is responsible for monitoring the solvency of Canadian federal 
financial institutions, including banks and insurance companies (i.e., 
those which are licensed at the federal level and in each Province and 
Territory in which they undertake insurance activities), and ensuring 
that these companies are in sound financial condition. NAIC noted that, 
similar to the NAIC insurer's quarterly financial filing requirements, 
OSFI posts extensive financial information (e.g., balance sheet, income 
statement, some operating information, and solvency calculation) for 
each federally regulated Canadian insurer on its Web site each quarter 
at http://www.osfi-bsif.gc.ca/osfi/index_easpx?ArticleID=3.
    NAIC also stated there are significant similarities between the 
States' insurance regulations and Canadian Federal, Provincial, and 
Territorial

[[Page 38427]]

insurance regulations. In Canada, there is a guarantee fund mechanism 
in case an insurer becomes insolvent. This mechanism is the Property 
and Casualty Insurance Compensation Corporation (PACICC), which is an 
industry-financed policyholder protection scheme for most insurance 
policies that are issued by property and casualty insurance companies 
in Canada. PACICC, which is approved by government regulators, is the 
national guarantee fund that protects insurance customers from undue 
financial loss in the event that a member insurer fails. It guarantees 
payments up to $250,000 per claim, less deductibles, should an insurer 
become insolvent. More information about PACICC is available at http://www.pacicc.com/english/sub_contents.htm.
    The Canadian government and the insurance companies it regulates 
have demonstrated that they have the ability and willingness to honor 
their financial obligations without the need for any additional 
oversight. Therefore, FMCSA believes that Canada has a satisfactory 
oversight system in place to ensure the solvency of Canada-based 
insurance companies.
    In addition, FMCSA believes that Canadian insurers are seeking the 
same level of fair and equal treatment that is afforded to U.S insurers 
that insure U.S.-domiciled carriers operating in Canada. The objective 
of this rulemaking initiative is to provide reciprocity between the 
U.S. and Canada. As noted previously in this final rule, FMCSA would 
leave it up to the Canadian government and its Provinces and 
Territories to monitor Canada-based insurance companies in the same 
manner as the States monitor U.S.-based insurance companies (See FMCSA 
response to ATA comment 1.)
    ATA Comment 3:
    ATA contended that every Canadian insurance policy must contain an 
endorsement stating that the insurance company complies with U.S. laws 
and 49 CFR part 387.
    FMCSA Response:
    In an effort to garner the transportation and insurance industries' 
compliance with the 1980 Act's mandated levels of financial 
responsibility, FMCSA established the MCS-90 endorsement to make the 
insurer a surety to the public. The Act requires the MCS-90 endorsement 
be attached to any liability policy issued to motor carriers operating 
commercial motor vehicles in interstate or foreign commerce. It ensures 
that members of the public are protected when injured by members of the 
transportation industry. The motor carrier must specify that coverage 
will remain in effect continuously until terminated as required by the 
law (see 49 CFR 387.15).
    With regard to ATA's argument that every Canadian insurance policy 
must contain an endorsement stating that the insurance company complies 
with U.S. laws and 49 CFR part 387, FMCSA believes this type of 
endorsement is unnecessary because the MCS-90 forms already fulfill 
this purpose.
    ATA Comment 4:
    FMCSA must require Canadian insurance companies to acknowledge and 
give ``full faith and credit'' to any final and non-appealable judgment 
rendered against their insured Canadian carriers who operate in the 
U.S.
    FMCSA Response:
    Pursuant to the terms of the MCS-90 endorsement, Canadian insurance 
companies would have to pay, within the limits of the stated liability 
in the MCS-90 forms, any final judgment rendered by a U.S. court with 
competent jurisdiction against their insured Canadian carriers. 
Additionally, U.S. consumers have access to the mandatory third-party 
dispute resolution mechanism required of Canadian insurers and 
therefore could raise their disputes directly with Canadian insurers. 
If the U.S. consumer is not satisfied with this alternative, the 
consumer could seek a judicial resolution through the Canadian court 
system. The traditional common law rule is clear. In order to be 
recognizable and enforceable, a foreign judgment must be: (a) For a 
debt, or definite sum of money (not being a sum payable in respect of 
taxes or other charges of a like nature or in respect of a fine or 
other penalty); and (b) final and conclusive, but not otherwise. Pro 
Swing Inc. v. Elta Golf Inc., 2006 Can. Sup. Ct. LEXIS 52; 2006 SCC 52; 
[2006] S.C.J. No. 52. Thus, a Canadian-insurance company would be 
legally bound to make payments to U.S. claimants based on a final 
judgment issued by a U.S. court.\3\
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    \3\ In furtherance of this principle, IBC also notes that 
legislation pertaining to automobile insurance in each of Canada's 
Provinces and Territories mandates the coverage that is required 
under automobile insurance policies that are provided when the 
vehicles are being operated in Canada or in the U.S. while being 
transported between these countries.
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    We realize that pursuing these matters through the Canadian court 
system could be an inconvenience for most U.S. claimants, but FMCSA 
does not regulate the insurance industry. FMCSA will, however, continue 
to monitor Canadian insurers that submit insurance policies on behalf 
of Canada-based motor carriers to ensure that these companies are in 
sound financial condition (see RIA, pages 14-15). The Agency will also 
continue to invite comments from members of the public and encourage 
them to keep FMCSA informed of any problems they incur with Canadian 
insurers that fail to honor their financial obligations to U.S. 
claimants against Canada-domiciled carriers.

Specific Comments From the National Association of Insurance 
Commissioners (NAIC)

    In its initial comment letter dated August 7, 2009, NAIC expressed 
concern that FMCSA would defer to the OSFI to monitor the solvency of 
the Canadian insurers executing the MCS-90 forms without ensuring the 
comparability of the Canadian insurer solvency system to our U.S. 
insurer solvency standards. NAIC submitted another letter to the 
docket, dated November 23, 2009, which states: ``As a result of ongoing 
dialogue with OSFI, NAIC now has greater confidence that there are 
significant similarities between the U.S. State insurance regulatory 
system and Canadian federal insurance regulation. NAIC has also learned 
that, similar to the NAIC's insurer quarterly financial filing 
requirements, OSFI posts extensive financial information (e.g., balance 
sheet, income statement, some operating information, and solvency 
calculation) for each federally regulated Canadian insurer on its Web 
site each quarter[.]'' at http://www.osfi-bsif.gc.ca/osfi/index_easpx?ArticleID=3. Based on this additional information, NAIC indicates 
that it and State Insurance Regulators now support the rulemaking, but 
made two recommendations to FMCSA as follows:
    (1) NAIC contends that FMCSA should develop an early warning system 
to notify the NAIC of any financial difficulty arising with any 
Canadian insurer operating on a cross-border basis. Furthermore, FMCSA 
should have the authority to require the affected motor carriers to 
find an alternate insurance provider. Once the Canadian regulators 
certify that the Canadian insurer is no longer in financial difficulty, 
then that insurer could again become eligible to execute the MCS-90 and 
MCS-90B forms; and (2) In the interest of true reciprocity, NAIC 
contends that FMCSA should require Canadian insurers executing the Form 
MCS-90 to file a duly executed Power of Attorney and Undertaking (PAU) 
with the NAIC, since existing regulations require U.S.-based insurers 
to file a PAU with the Canadian Council of Insurance Regulators (CCIR) 
for their cross-border activities. The PAU would give U.S. State 
insurance regulators--and U.S. claimants--equivalent

[[Page 38428]]

reassurance that there would be a Canadian insurer agent/representative 
within that State to accept notice and service of process on behalf of 
the Canadian insurer and, more importantly, preserve necessary 
protections to U.S. consumers.
    FMCSA Response:
    First, developing a notification system for NAIC is unnecessary 
because FMCSA informally monitors the financial solvency of U.S-based 
insurers and will work with OSFI in the future to perform the same 
level of monitoring of Canada-based insurers. Thus, FMCSA will not 
develop a system to notify the NAIC of any solvency problems arising 
from Canadian insurers operating on a cross-border basis.
    Second, FMCSA does not have the authority to require Canadian 
insurers executing the Form MCS-90 to file a duly executed PAU with 
NAIC. However, we are exploring non-regulatory alternative processes, 
such as facilitating reciprocity agreements between the parties so that 
Canada-based insurers could agree in the future to file a PAU with U.S. 
insurance regulators for their cross-border activities. While these 
reciprocity arrangements have not yet been established, FMCSA will keep 
the public informed of any new developments in this area.
    Other comment(s):
    Mr. Stanley generally opposed the NPRM because, he stated, FMCSA 
should keep the current requirements in place, and because it is 
impossible to receive compensation from a Canadian insurer. He did not, 
however, provide any substantiated data or evidence to support his 
opposition.
    FMCSA Response:
    Based on the existing practice of the two nations to enter into 
insurance fronting arrangements, the additional data submitted to the 
docket showing the willingness of Canadian insurance companies to honor 
their financial obligations and the Canadian government's mandate to 
ensure their solvency, including Agency research that shows Canadian 
courts give full faith and credit to U.S. judgments, FMCSA has no 
reason to believe that Canadian insurance companies will not be 
responsive to claims filed by U.S. citizens or businesses against 
Canada-domiciled carriers.
    In view of the preceding consideration of comments and responsive 
analysis, FMCSA amends its regulations regarding the minimum levels of 
financial responsibility for motor carriers and freight forwarders, as 
proposed.

III. Regulatory Analyses

Comments on FMCSA's Regulatory Impact Analysis (RIA)

    The National Interstate Insurance Company (NIIC) requested 
information on how the Agency derived the annual effect of the rule on 
the U.S. economy. Also, NIIC asked what portion of the current revenue 
was attributed to NIIC.
    FMCSA Response:
    As stated in the RIA, the potential costs and benefits of this rule 
largely apply to Canada-based entities. The analysis addressed trade 
benefits (i.e., elimination of trade barriers) pursuant to the NAFTA 
and increased cooperation among the U.S. and Canada pursuant to the 
SPP.
    As to NIIC's question, FMCSA could not obtain revenue information 
on the impact of Canada's petition for rulemaking on U.S.-domiciled 
insurance companies, but the Agency estimates that the effects of 
forgone revenues, per company, will likely be insignificant. This is 
due to the following reasons: (1) Canadian motor carriers are only a 
small proportion of total clients; (2) only certain U.S. insurance 
companies do, and wish to, contract with foreign entities; and (3) 
transportation insurance is only one of many types of insurance.

Summary of Regulatory Impact Analysis

    In examining the economic impact of this rulemaking, FMCSA 
considered two options: (1) The Agency's proposed amendments to 49 CFR 
part 387 that would permit Canadian insurance companies to issue 
insurance policies for Canada-domiciled carriers and freight forwarders 
operating CMVs in the U.S., and (2) maintaining the status quo.
    Under the first option, FMCSA included active, Canada-domiciled, 
for-hire motor carriers of property and passengers and freight 
forwarders. It is assumed that a small proportion of Canada-domiciled 
motor carriers and freight forwarders will elect to continue with the 
status quo, at least in the short term, and will not seek direct 
insurance representation by a Canadian insurance company for their U.S. 
operations. Those carriers and freight forwarders are assumed to be a 
negligible percentage of the total affected entities and are thus not 
considered in the analysis.
    The RIA examined the direct costs of implementing the final rule in 
terms of administrative costs incurred by the FMCSA in processing 
insurance filings and in forgone revenue by U.S.-based insurance 
companies currently representing Canadian motor carriers and freight 
forwarders (of which there are approximately five). In addition, the 
RIA examined the functional impact of rule compliance under this option 
from the perspectives of the FMCSA's enforcement program and the 
Canadian motor carriers.\4\
---------------------------------------------------------------------------

    \4\ The FMCSA notes that cost information used in its analyses 
was obtained from the Agency's data base, Canada Finance, the 
American Insurance Association, the Property Casualty Insurers 
Association of America and publicly available information.
---------------------------------------------------------------------------

    The RIA also examined the benefits of this rulemaking, which are 
largely the relief from a disproportional cost and administrative 
burden and inconvenience currently borne by Canada-domiciled motor 
carriers in comparison to their U.S. counterparts. Other benefits 
include the elimination of trade barriers (i.e., disproportionate cost 
burden) in accordance with the goals of NAFTA, and increased 
cooperation between the U.S. and Canada pursuant to the SPP.
    This analysis was conducted under the assumption that there are 
approximately 9,000 \5\ active Canada-domiciled motor carriers and 
freight forwarders conducting CMV operations in the U.S.\6\
---------------------------------------------------------------------------

    \5\ Licensing and Insurance database, at http://li-public.fmcsa.dot.gov, and the Motor Carrier Management Information 
System (MCMIS) database, at http://MCMIS.fmcsa.dot.gov, as of 
February 20, 2009.
    \6\ The FMCSA Licensing and Insurance (L&I) system provides up-
to-date information about authorized for-hire motor carriers who 
must register with FMCSA under 49 U.S.C. 13901 and 13902. FMCSA 
utilized the L&I database as its primary source for its RIA because 
it does not include overlapping carrier data. Under MCMIS, a motor 
carrier may have multiple carrier classifications and thus may be 
counted more than once. The Agency did, however, use MCMIS as a 
source to obtain the number of Canada-domiciled, for-hire carriers 
exempt from registration under 49 U.S.C. 13901 and 13902 since they 
are not found in the L&I database.
---------------------------------------------------------------------------

    The RIA finds that the final rule yields a discounted net benefit 
of $273 million estimated over a 10-year period. These quantified net 
benefits accrue to the Canada-domiciled for-hire motor carriers and 
freight forwarders which are impacted by this rulemaking . This amounts 
to approximately $30,000 per carrier over that period.

Executive Order 12866 (Regulatory Planning and Review) and DOT 
Regulatory Policies and Procedures

    The DOT and the Office of Management and Budget (OMB) do not 
consider this action to be a significant regulatory action under 
Executive Order 12866 (Regulatory Planning and Review) and the DOT's 
Regulatory Policies and Procedures (44 FR 11034, February 26, 1979). No 
changes have been made to this rule subsequent to its review by DOT and 
OMB, and therefore

[[Page 38429]]

it is not subject to OMB review. A final regulatory evaluation is 
available in the docket.
    While the Agency expects a positive discounted net benefit of 
approximately $273 million over a 10-year period, the net benefits are 
for Canada-domiciled motor carriers. Because the benefits pertain to 
foreign entities, they are not considered for the purposes of 
determining whether the rulemaking is significant under Executive Order 
12866, as amended. Therefore, the Agency determined this action is not 
an economically significant regulatory action under section 3(f), 
Regulatory Planning and Review, because it will not have an annual 
effect on the United States' economy of $100 million.

Regulatory Flexibility Act

    The FMCSA determined that this final rule will not have a 
significant impact on a substantial number of small entities under the 
Regulatory Flexibility Act (5 U.S.C. 601-612), as amended by the Small 
Business Regulatory Enforcement and Fairness Act (RFA) (Pub. L. 104-
121). Small entities are defined in the Act to include small 
businesses, small non-profit organizations, and small governmental 
entities. This rule provides relief primarily to foreign entities, 
which are not considered for the purposes of determining whether the 
rule is significant under Executive Order 12866, as amended. In 
addition, no significant adverse comments were received from small 
entities during the NPRM comment period.

Federalism (Executive Order 13132)

    The FMCSA analyzed this final action in accordance with the 
principles and criteria contained in Executive Order 13132 (64 FR 
43255, August 10, 1999), and determined that this final rule will not 
affect the States' ability to discharge traditional State government 
functions.

International Trade and Investment

    The Trade Agreement Act of 1979 (19 U.S.C. 2531-2533) prohibits 
Federal agencies from establishing standards that create unnecessary 
obstacles to the foreign commerce of the United States. Legitimate 
domestic objectives such as safety are not considered unnecessary 
obstacles. In developing rules, the Trade Act requires agencies to 
consider international standards and, where appropriate, requires that 
those standards be the basis of U.S. standards. FMCSA assessed the 
potential effect of this final rule and determined that the expected 
economic impact of this rule is minimal and should not affect trade 
opportunities for U.S. firms doing business in Canada or for Canadian 
firms doing business in the United States because, in accordance with 
the goals of NAFTA, the rule merely relieves the Canada-domiciled 
carriers from a disproportional cost and administrative burden that was 
not borne by their U.S. counterparts.

Unfunded Mandates Reform Act of 1995

    The Unfunded Mandates Reform Act of 1995 (UMRA) (Pub. L. 104-4; 2 
U.S.C. 1532) requires that each agency assess the effects of its 
regulatory actions on State, local, and tribal governments and the 
private sector. This final rule does not impose unfunded mandates under 
UMRA. It does not result in costs of $140.8 million (as adjusted by DOT 
Guidance, April 28, 2010, to reflect inflation) to either State, local, 
or tribal governments, or to the private sector in any one year. 
Therefore, FMCSA has determined that this rule will not have an impact 
of $140.8 million in any one year.

Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520), a 
Federal agency must obtain approval from OMB for each collection of 
information it conducts, sponsors, or requires through regulations. 
This final rule contains no new information collection requirements or 
additional paperwork burdens on existing OMB Control Number 2126-0008, 
``Financial Responsibility for Motor Carriers of Passengers and Motor 
Carriers of Property,'' an information collection burden which is 
currently approved at 4,529 annual burden hours per year through March 
31, 2013.

National Environmental Policy Act

    The Agency analyzed this final rule for the purpose of the National 
Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321 et seq.), the 
Council on Environmental Quality Regulations Implementing NEPA (40 CFR 
parts 1500 to 1508), and FMCSA's NEPA Implementation Order 5610.1 
(issued on March 1, 2004, 69 FR 9680). This action is categorically 
excluded from further environmental documentation under Appendix 2.6.v. 
of Order 5610.1, which contains categorical exclusions (CEs) for 
regulations prescribing the minimum levels of financial responsibility 
required to be maintained by motor carriers operating in interstate, 
foreign, or intrastate commerce. In addition, FMCSA believes this final 
action does not involve circumstances that would affect the quality of 
the environment. Thus, this final action does not require an 
environmental assessment or an environmental impact statement.
    The FMCSA also analyzed the final rule under the Clean Air Act 
(CAA), as amended, section 176(c), (42 U.S.C. 7401 et seq.) and 
implementing regulations promulgated by the Environmental Protection 
Agency. Approval of this final action is exempt from the CAA's general 
conformity requirement since it involves policy development and civil 
enforcement activities, such as investigations, inspections, 
examinations, and the training of law enforcement personnel. See 40 CFR 
93.153(c)(2). It will not result in any emissions increase or result in 
emissions that are above the general conformity rule's de minimis 
emission threshold levels, because the action merely relates to 
insurance coverage across international borders between the U.S. and 
Canada.

Environmental Justice

    The FMCSA considered the environmental effects of this final rule 
in accordance with Executive Order 12898 and DOT Order 5610.2 on 
addressing Environmental Justice for Minority Populations and Low-
Income Populations, published April 15, 1997 (62 FR 18377). The Agency 
has determined that there are no environmental justice issues 
associated with this final rule, nor any collective environmental 
impact resulting from its promulgation. Environmental justice issues 
would be raised if there were ``disproportionate'' and ``high and 
adverse impact'' on minority or low-income populations. Neither of the 
regulatory alternatives considered in this final rule will result in 
high and adverse environmental impacts.

Executive Order 12630 (Taking of Private Property)

    The FMCSA analyzed this final rule under Executive Order 12630, 
Governmental Actions and Interference with Constitutionally Protected 
Property Rights, and we do not believe that this final action will 
effect a taking of private property or otherwise have implications 
under the Executive Order.

Executive Order 12372 (Intergovernmental Review)

    The regulations implementing Executive Order 12372 regarding 
intergovernmental consultation on Federal programs and activities do 
not apply to this final rule.

Executive Order 13211 (Energy Supply, Distribution, or Use)

    The FMCSA analyzed this final action under Executive Order 13211, 
Actions

[[Page 38430]]

Concerning Regulations That Significantly Affect Energy Supply, 
Distribution, or Use. The Agency determined that it is not a 
significant energy action within the meaning of section 4(b) of the 
Executive Order and will not likely have a significant adverse effect 
on the supply, distribution, or use of energy. Therefore, the Agency 
has determined that a Statement of Energy Effects is not required.

Executive Order 12988 (Civil Justice Reform)

    The FMCSA has determined that this final rule meets applicable 
standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil 
Justice Reform, to minimize litigation, eliminate ambiguity, and reduce 
burden.

Privacy Impact Assessment

    The FMCSA conducted a privacy impact assessment of this final rule 
as required by section 522(a)(5) of the Transportation, Treasury, 
Independent Agencies, and General Government Appropriations Act, 2005, 
Public Law 108-447, div. H, 118 Stat. 2809, 3268, (December 8, 2004) 
[set out as a note to 5 U.S.C. 552a]. The assessment considered any 
impacts of the final rule on the privacy of information in an 
identifiable form and related matters. FMCSA determined this final rule 
contains no privacy impacts.

Executive Order 13045 (Protection of Children)

    The FMCSA analyzed this final rule under Executive Order 13045, 
entitled ``Protection of Children from Environmental Health Risks and 
Safety Risks.'' The Agency determined that this final rule will not 
cause any environmental risk to health or safety that may 
disproportionately affect children.

Executive Order 13175 (Tribal Consultation)

    The FMCSA analyzed this action under Executive Order 13175, dated 
November 6, 2000, and determined that this final rule will not have 
substantial direct effects on one or more Indian tribes; will not 
impose substantial compliance costs on Indian tribal governments; and 
will not preempt tribal law. Therefore, a tribal summary impact 
statement will not be required.

 List of Subjects in 49 CFR Part 387

    Buses, Freight, Freight forwarders, Hazardous materials 
transportation, Highway safety, Insurance, Intergovernmental relations, 
Motor carriers, Motor vehicle safety, Moving of household goods, 
Penalties, Reporting and recordkeeping requirements, Surety bonds.

IV. The Final Rule

0
For the reasons stated in the preamble, FMCSA amends 49 CFR part 387 in 
title 49, Code of Federal Regulations, chapter III, subchapter B, as 
follows:

PART 387--MINIMUM LEVELS OF FINANCIAL RESPONSIBILITY FOR MOTOR 
CARRIERS

0
1. The authority citation for part 387 continues to read as follows:

    Authority: 49 U.S.C. 13101, 13301, 13906, 14701, 31138, and 
31139; and 49 CFR 1.73.

0
2. Amend Sec.  387.11 to add paragraph (d) to read as follows:

Sec.  387.11  State authority and designation of agent.

* * * * *
    (d) A Canadian insurance company legally authorized to issue a 
policy of insurance in the Province or Territory of Canada in which the 
Canadian motor carrier has its principal place of business or domicile, 
and that is willing to designate a person upon whom process, issued by 
or under the authority of any court having jurisdiction over the 
subject matter, may be served in any proceeding at law or equity 
brought in any State in which the motor carrier operates.

0
3. Amend Sec.  387.35 to add paragraph (d) to read as follows:

Sec.  387.35  State authority and designation of agent.

* * * * *
    (d) A Canadian insurance company legally authorized to issue a 
policy of insurance in the Province or Territory of Canada in which a 
Canadian motor carrier has its principal place of business or domicile, 
and that is willing to designate a person upon whom process, issued by 
or under the authority of any court having jurisdiction over the 
subject matter, may be served in any proceeding at law or equity 
brought in any State in which the motor carrier operates.

0
4.Amend Sec.  387.315 to add paragraph (d) to read as follows:

Sec.  387.315  Insurance and surety companies.

* * * * *
    (d) In the Province or Territory of Canada in which a Canadian 
motor carrier has its principal place of business or domicile, and will 
designate in writing upon request by FMCSA, a person upon whom process, 
issued by or under the authority of a court of competent jurisdiction, 
may be served in any proceeding at law or equity brought in any State 
in which the carrier operates.

0
5. Amend Sec.  387.409 to add paragraph (d) to read as follows:

Sec.  387.409  Insurance and surety companies.

* * * * *
    (d) In the Province or Territory of Canada in which a Canadian 
freight forwarder has its principal place of business or domicile, and 
will designate in writing upon request by FMCSA, a person upon whom 
process, issued by or under the authority of a court of competent 
jurisdiction, may be served in any proceeding at law or equity brought 
in any State in which the freight forwarder operates.

    Issued on: June 18, 2010.
Anne S. Ferro,
Administrator.
[FR Doc. 2010-16009 Filed 7-1-10; 8:45 am]
BILLING CODE 4910-EX-P