New Jersey Raises Minimum Truck Insurance to $1.5 Million, Surpassing Requirements in Many States

Uncertainty looms over whether it will impact trucks merely passing through or solely those with a home base in the Garden State.

A recent modification in New Jersey's legislation mandates a substantial increase in the mandatory insurance coverage for large commercial vehicles, elevating the requirement to $1.5 million. Despite ongoing efforts by certain state legislators over the past few years, the final bill received approval last month and was signed into law by New Jersey Governor Phil Murphy. Proponents of the legislation opted not to respond to several questions sent via email by FreightWaves concerning the specifics of the law. Various websites associated with insurance companies present conflicting information on the previous requirements under New Jersey law. Some suggest that hazardous material trucks were previously required to have $5 million in coverage. However, most assessments of the existing law indicate that the previous mandates were significantly below the newly established threshold of $1.5 million.

The mandate will come into effect for vehicles weighing over 26,000 pounds six months after its "enactment date." A spokesperson for the New Jersey Senate majority, affiliated with the Democratic party, stated that Governor Murphy signed the legislation on January 16. According to the trucking-focused law firm of Scopelitis, there is no indication in the legislation suggesting it is exclusively meant for intrastate New Jersey operations. They emphasized that the indirect evidence implies the intention for the new, elevated minimum limits under this legislation to apply to all commercial vehicles within its scope, irrespective of whether they are involved in interstate or intrastate operations. Greg Feary, a partner at Scopelitis, expressed uncertainty about the enforceability of the bill, stating, "From the four corners of the bill, I can't see how they're going to enforce it."

Is it confined to intrastate operations, interstate operations, or falls somewhere in between?

The precise language of the legislation suggests a potential interpretation that it exclusively pertains to trucking companies headquartered in New Jersey. The law specifies that it is applicable to vehicles "registered or principally garaged in this State." Greg Feary pointed out the complicating factor of the International Registration Plan (IRP). This program, functioning as an agreement among the 50 states and the District of Columbia, allows vehicles traveling in multiple states to register with one state. Subsequently, permission is granted to operate in other jurisdictions after the payment of a registration fee, with the funds allocated to the respective states.

Feary mentioned that the IRP registration can be submitted for all states in which a vehicle operates. As an illustration, he cited a truck registered in Indiana, which, through the IRP, also has its registration fee allocated to Ohio, Pennsylvania, and New Jersey. In such a scenario, he explained, "technically, my truck is registered in all four states." He questioned the interpretation of the law that states it applies to trucks registered in New Jersey, saying, "What does it mean when they say this law applies to trucks registered in our state?" According to Feary, a "strict reading of the law" could potentially consider the Indiana-based truck, with part of its registration fee given to New Jersey under the IRP program, as registered in New Jersey and subject to the new insurance requirement. Feary added that enforcing such a provision by New Jersey might clash with rules governing interstate compacts, making the situation highly technical. He emphasized, "None of this has been fleshed out."

Kevin Abramson, the President of Cover Whale, a commercial vehicle insurance provider, conveyed that the New Jersey law "suggests a potentially significant shift in our industry." Abramson emphasized, "The heightened proof of financial responsibility requirements up to $1.5 million demonstrates a substantial increase from the previous norms." He stressed the importance of prudently assessing the implications, as this change could potentially lead to adjustments in pricing and risk evaluation, considering the increased potential for claim payouts. Additionally, Abramson raised the question of whether the New Jersey rule might "prompt comparable changes at the federal level 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.