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What is interchange insurance?

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Interchange insurance is a form of insurance coverage that protects truck drivers or trucking companies against liability for damage to a trailer which, although not their property, is in their possession or control at the time of the loss.

Trucks keep our store shelves stocked by bringing goods from across the country. In order to schedule trips for optimum productivity, truck drivers are frequently required to deliver one load and then pick up someone else’s trailer.

Responsibility Transfers with the Trailer

A trailer interchange agreement between trucking companies facilitates this trading system, while acknowledging on both sides that the truck driver or company in possession of the trailer is responsible for any damage, regardless of whether the trailer is loaded, empty, being towed or sitting idle.

What does trailer interchange insurance cover?

Trailer interchange insurance will protect the policy holder in the event of a damage to the non-owned trailer due to collision, fire, theft, explosion or vandalism. If a trucking company is party to any interchange agreements, separate insurance coverage for borrowed trailers is required.

Why Interchange Agreements are Needed

Although some companies handle their own shipping from origin to point of delivery, most do not. Typically, a company with goods to ship via truck will enter into a contract with a trucking company to handle the logistics.

For example, if a manufacturer in Seattle needs to ship goods to a distributor in Miami, a single trucker would have to drive non-stop for more than 50 hours, which would not be practical, safe or even legal.

Worse yet, upon delivery, the trucker would no longer have a full trailer or container to pay for a return trip of 3,300 miles.

How Interchange Agreements Work

Interchange agreements allow the manufacturer to leave the complex job of optimum routes and transfers to the expertise of the carriers and logistics managers.

As a trailer is transferred from one region to the next, the transfer is covered by a trailer interchange agreement in which the participating carriers agree that the first will be responsible for the condition of the trailer until it is consigned to the next carrier, at which point the receiving carrier is responsible for any damage or loss.

Trading the Completion of Deliveries

Using trailer interchange agreements, the first trucker might deliver the trailer to a transport hub in California, picking up a different trailer for the return run to Seattle. The trucker does not own either of trailers. However, the trailer interchange insurance carried by the driver or transport company protects the driver in the event of a loss.

Meanwhile, the Seattle manufacturer’s goods proceed eastward from one network to the next, perhaps being hauled by four or five different truckers before reaching the customer in Miami.

Elements of a Trailer Interchange Agreement

With each transfer, there is a written trailer interchange agreement that specifies the carriers making the delivery and pickup, the transfer location, the duration of the contract, when and how the trailer can be used, the destination of the goods and respective transport fees.

Interchange agreements also specify when each of the parties would be responsible for damages, which party is responsible for trailer maintenance and who is accountable for public safety while on the road.

The agreement may also specify the types of licensing, certifications and insurance that are required of the company borrowing the trailer. For the entire trip, the trailer is covered by the interchange insurance of each carrier as he or she accepts consignment of the trailer.

The Life Span of a Trailer Interchange Agreement

Some interchange agreements are for a single consignment, closing when the goods are delivered. However, many companies that work together frequently have standing or evergreen agreements that cover recurring transfers or many trailers.

Special Challenges for Interchange Insurance

It is fairly common for trailers to be “re-powered.” This is when a breakdown requires the trailer to be attached to a new truck.

When goods cross the border from Mexico to the United States, there may be three different drivers; one to take the goods to the border, one to process the shipment through customs and one to haul the freight from the border to the destination. Each of these transfers is covered by a trailer interchange agreement and trailer interchange insurance.

There are many companies that own their own trailers for transport and storage, but do not want to be in the trucking business. These shippers use “power only” arrangements, hiring truckers for their deliveries and in all cases, requiring interchange insurance.

Non-Owned Trailer Coverage

Should the logistics network need to use a transport segment that is not covered by an interchange agreement, there is a separate insurance coverage available, referred to as non-owned trailer physical damage insurance.

While this sounds like the same thing as trailer interchange insurance, there are some important differences. Non-owned trailer coverage only applies to someone else’s trailer hat is attached to the insured’s tractor. A trailer that is parked at a transfer hub or on a motor carrier’s lot is not covered by non-owned trailer insurance.

In contrast, trailer interchange insurance covers a non-owned trailer whether it is attached or in storage, rolling or parked, and empty or loaded.

So, is it always best to use trailer interchange insurance instead of non-owned trailer coverage? Not exactly.

The Right Coverage for Different Situations

Trailer interchange insurance only covers trailers specified in an interchange agreement, while non-owned trailer coverage protects any leased or borrowed trailer that may be used, whether or not it is scheduled in a trailer interchange agreement.

In most cases, however, regional hub drivers will be hauling for one of the large trucking companies or their logistic partners, all which have specific requirements for interchange agreements, as well as trailer interchange insurance coverages, limits and deductibles.

These drivers will also carry non-owned trailer coverage, so that both types of hauling are protected.

Limits and Deductibles

Limits are the amounts the insurance company will pay if a trailer is damaged while in the possession and control of the insured, requiring a claim against the interchange insurance. As with car insurance, the deductible is the amount the insured has agreed to pay out of pocket for repairs to or replacement of a damaged trailer. Typically, accepting a higher deductible amount will lower the premium for purchasing the insurance.

Example Trailer Interchange Insurance Claim

A driver for ABC Trucking is hauling a non-owned trailer under an interchange agreement with a logistics network. The driver pulls into a highway rest stop for a bathroom break. While he is inside the building, a fatigued driver overshoots the parking lot and collides with the ABC truck and the borrowed rig. There is extensive damage to both the trailer and the truck.

Because the driver owns the truck, that portion of the damage is covered by his regular trucker’s policy. However, the driver does not own the trailer, so the trucker’s insurance will not cover any part of that damage. Instead, the driver’s trailer interchange insurance will pay to repair or replace the trailer.

If the interchange policy has a limit of $25,000 with a $1,000 deductible, the driver must pay the first $1,000 toward the adjusted value of the repair or replacement, and then the insurance company will cover the remainder, up to $25,000. If the trailer was worth more than the $25,000 policy limit, the driver will be responsible for paying for the remaining portion of the value over $25,000.

Liability Insurance Requirement

In most cases, truckers or motor carriers must also carry liability insurance in order to purchase trailer interchange insurance. Their standard commercial, liability and physical damage policies cover their truck and any trailers they own. None of these policies cover trailers that are not owned.

However, a trucking company may have a trailer interchange endorsement on its regular commercial insurance.

Covering Gaps in Trailer Interchange Insurance

Interchange insurance does not cover third-party bodily injury or property damage caused by the commercial or personal use of a leased or borrowed trailer.

Non-trucking liability insurance covers personal injury or property damage that is caused by personal use, such as giving someone a ride before starting a route. Unladen insurance covers injury or damage caused while a non-owned trailer is being pulled without cargo. Unladen insurance also covers damage that occurs while the trailer is being used for a personal purpose.

How much does trailer interchange insurance cost?

Premiums for trailer interchange insurance coverage can vary, based on a trucker’s driving history, the region where the motor carrier operates, the condition of the trailers being covered, what types of freight are being hauled by the carrier and whether the insured driver or company has a history of claims.

The average policy with limits in the range of $20,000 to $30,000 will cost $1,000 to $1,500 per year, depending on the foregoing variables.

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Peace of Mind for All Parties

According to the American Trucking Association, the nation’s 3.3 million truck drivers deliver more than 10 billion tons of freight each year, driving over 175 billion miles. The trust that powers this vast and complex system is made possible by trailer interchange agreements and trailer interchange insurance.

All parties to a shipment of goods, including the manufacturer, distributor, truck driver, motor carrier, retailer and eventual customer, can look forward to successful outcomes with the peace of mind provided by trailer interchange insurance.

In addition to insurance, we also provide safety and loss prevention services to reduce your costs over the long haul. Contact us for a review of your commercial truck insurance program.

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