A recent change in New Jersey law requires a significant increase in the amount of coverage a large commercial vehicle must carry, raising the requirement to $1.5 million. 

While some state legislators have been pursuing the change for several years, the final bill was approved last month and signed by New Jersey Gov. Phil Murphy.

Backers of the law declined to answer several questions emailed by FreightWaves regarding the specifics of the law. Various websites tied to insurance companies have differing numbers on what was required previously under New Jersey law, with some hazardous material trucks said to need $5 million in coverage. But most of the reviews of the existing law put the requirements at well under the new mandate of $1.5 million.

The requirement will kick in for vehicles with a weight in excess of 26,000 pounds six months after its “enactment date.” A spokesman for the New Jersey Senate majority–which is the Democratic party–said Gov. Murphy signed the legislation January 16.

“There is no indication in the legislation that it is intended to apply only to intrastate New Jersey operations,” the trucking-focused law firm of Scopelitis said in a blast email. “There appears to be indirect evidence that the intent is that the new higher minimum limits under this legislation will apply to all commercial vehicles within its scope, whether in interstate or intrastate operations.”

Greg Feary, a partner at Scopelitis, told FreightWaves that “from the four corners of the bill, I can’t see how they’re going to enforce it.”

Intrastate or interstate or something in between?

The actual wording of the legislation could be read as applying only to trucking companies that are based in New Jersey. It says the law applies to vehicles “registered or principally garaged in this State.”

Feary said complicating the matter is the International Registration Plan (IRP). That program, operated as a compact among the 50 states and the District of Columbia, permits vehicles that travel in two or more states to register with one state and then extend permission to operate into other jurisdictions, after a registration fee is paid and the funds allocated to the other states.

Feary said the IRP registration can be submitted for all the states a vehicle operates in. He gave the example of a truck registered in Indiana but that through the IRP also has that registration fee allocated to Ohio, Pennsylvania and New Jersey. When that occurs, he said, “technically, my truck is registered in all four states.”

“What does it mean when they say this law applies to trucks registered in our state?” he said. A “strict reading of the law,” he added, could be interpreted to mean that the Indiana-based truck, with part of its registration fee given to New Jersey under the IRP program, could be seen as registered in New Jersey and coming under the new insurance requirement. 

Feary added that such an enforcement effort by New Jersey could come into conflict with rules on interstate compacts. “So it can get really technical,” Feary said, adding, “None of this has been fleshed out.”

Kevin Abramson, president of Cover Whale, which insures commercial vehicles, said in an email to FreightWaves that the New Jersey law “hints at a potentially significant shift in our industry.”

“The heightened proof of financial responsibility requirements up to $1.5 million demonstrates a substantial increase from the previous norms,” Abramson said. “It’s essential to prudently consider the implications. They could lead to changes in pricing and risk evaluation due to the potential for increased claim payouts.”

Abramson raised the question of whether the New Jersey rule could “spur comparable changes federally or in other states.”

The cost of additional insurance

Joe Schreiner, the executive vice president of sales at Reliance Partners, which focuses solely on truck insurance, said a “general rule of thumb” for a truck insured at $1 million is that to purchase another million dollars in coverage would increase the premium by 40% to 60% in premiums. 

Schreiner raised the prospect of trucking companies that could move operations to neighboring states to avoid the higher insurance requirements. “They’re going to say, ‘You know what, that increase could easily run the company out of business,’” Schreiner said. “So now they’re probably going to pick up and set up operations elsewhere.”

J.J. Burns, an attorney with the law firm of Dollar, Burns, Becker & Hershewe, which normally would find itself suing trucking companies rather than defending them, said most commercial auto policies (a term that includes trucking) will have a provision to deal indirectly with the issue of liability mandates in other states than the vehicle’s home domicile.

“Your policy will say, ‘Hey, by the way, policyholder, if you are in a different state that has a different requirement, this policy will be read to meet those requirements whatever they are,’” Burns said. That provision will be part of the decision-making an insurer will go through in determining risk and the resulting premium, so that the costs of that coverage are baked into what the vehicle owner pays.”

Referring to the federal minimum, Burns said policies with coverage of $750,000 “are becoming the minority.” But he said the New Jersey law with its $1.5 million minimum would still be a significant change.

Burns noted a separate consideration: trucks avoiding the Garden State whenever they could. “I’d be curious to see whether there becomes an incentive to find freight routes that try to bypass New Jersey entirely,” he said. 

Ironically, the Safe Streets blog, published by OpenPlans, a 501(c)(3) nonprofit organization that focuses on motor vehicle safety, posted an article earlier this week about federal insurance minimums for trucks, which now require coverage of $750,000.

The blog post said that Rep. Chuy Garcia, D-Ill., and Hank Johnson, D-Ga., had recently introduced a bill that would require that minimum to rise to $5 million. It said the $750,000 minimum goes back to the 1980 deregulation of trucking, and that the minimum would be $5 million if it had been forced to rise with the rate of inflation. The blog post made no reference to the New Jersey bill.

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