The direct costs resulting from an accident, such as vehicle repair or towing charges, are generally easy to quantify. However, the indirect costs associated with an accident are often overlooked. These indirect costs can take a tremendous toll in more ways than you might think.
Consider this hypothetical situation: A truck is involved in a crash that causes the vehicle to be towed. The cargo being hauled remains intact and sustains no damage; it is successfully hand-transferred to another vehicle. The other motorist’s automobile is totaled and the occupants suffer serious injuries. The investigation by authorities attributes the cause of the accident to driver fatigue and the driver is found to be at fault and legally “liable” for the accident.
Using the scenario presented here, let’s take a look at the impact an accident of this magnitude can have on the carrier and his or her business.
Direct costs can usually be placed into two categories — third-party loss and first-party loss. In our example, third-party losses would be incurred by people other than the truck driver. First-party losses refer to the carrier's losses and would include damage to his or her truck and towing expenses.
Third-party and first-party losses will vary depending on the particular accident. Keep in mind, however, medical expenses could become the responsibility of the defendant for years to come. This is particularly true in cases of serious or severe injuries.
While direct costs can, and often do, add up and must be considered, look beyond these figures to evaluate the real cost of the accident.
While some indirect costs are easy to assign a dollar amount to once they are identified, others may be more difficult to assess. Let’s examine the indirect costs that could be associated with our scenario:
- Fines and Penalties. In a typical vehicular accident, one party will be cited for a traffic violation(s) in connection with an accident. In this case, the carrier is that party. Because the carrier is operating under Federal Motor Carrier Safety Association regulations, the accident may result in fines and penalties levied by the Department of Transportation.
- Accident Investigation and Legal Proceedings. Accident investigation often involves research and many man hours, all of which add to an accident’s indirect costs. To help with the legal aspect of the accident, the carrier may be off the road and instead spending time gathering records, information and assisting insurance company representatives, as well as his or her defense counsel.
- Loss of Revenue. Because the carrier may need to attend to certain aspects of their legal case and/or their truck will need to be repaired, the vehicle will sit idle, decreasing their efficiency and productivity. Worse yet, trips may have to be canceled. These situations could result in a loss of revenue that is not recoverable under any typical insurance policy.
- On-Going Expenses. Fuel taxes, truck payments and permit fees must continue to be paid while the truck is not in operation.
- Image. Depending on its severity, an accident could make the local news and because of the media’s attraction to accidents, coverage could extend regionally or nationally. This type of publicity could have a negative impact on the carrier's reputation, the potential for future income and the trucking industry as a whole.
- Insurance Premium Costs. As a result of the accident, insurance premiums would increase in all lines of coverage (physical damage, liability, cargo, workers’ compensation, etc.). The carrier may even have a difficult time retaining insurance coverage.
- Punitive Damages. Where the defendant’s conduct is found to be intentional or willfully malicious, the courts may permit an award of punitive damages in addition to compensatory damages. Punitive damages are intended to punish the defendant and to discourage the conduct of the type in which the defendant engaged. Normally, punitive damages are excluded from a company’s insurance policy. This would mean money directly out of the carrier's pocket.
Although the scenario presented above is fictitious, it is likely concluded by now that the real cost of an accident is nearly impossible to determine. In fact, many of the factors we have presented here cannot actually be assigned a dollar figure.
Indirect costs will vary in each situation and the total figures will be based upon the individual accident. By adding other variables such as spilled cargo and closure of roadways to this scenario, we could see the amount of indirect costs increase substantially. What we do know is any accident will take a toll on a carrier and your business. Safety is one intangible objective that can produce tangible results for everyone now and in the future.
For more information on commercial truck insurance for the owner-operator visit owneroperatordirect.com.