This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 04 TORONTO 002609 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD EAGR TBIO CA
SUBJECT: Canada Asks U.S. to Change Rule on Insurance 
for Cross-border Motor Carriers - In Accordance with 
SPP Objectives 
 
¶1.  During a September 26 financial services roundtable 
discussion with Consulate and embassy officials, 
leaders of the Canadian insurance industry advised that 
the Government of Canada would soon request changes to 
the U.S. policy on the certification of insurance 
coverage for cross-border motor carriers.  The 
September 29, 2005, Petition for Rule Making (contained 
in para 2), provided to us by an insurance industry 
contact, asks the U.S. to enact rules that would 
harmonize requirements and certification for motor 
vehicle liability insurance.  The Canadian Embassy in 
Washington sent this request to the Secretaries of 
Transportation, Commerce, State, and Treasury on 
September 30.  The Canadian Embassy letter argues that 
the requested changes would "contribute to enhancing 
the competitive and efficient position of North 
American businesses and would assist in meeting the 
stated goals of the Security and Prosperity Partnership 
(SPP)."  ConGen Toronto notes that this request is 
consistent with the following priority area identified 
in the SPP "...seek ways to improve convenience and 
cost of insurance coverage for carriers engaged in 
cross border commerce." 
 
¶2.  Begin full copy of the Petition for Rulemaking: 
 
September 29, 2005 
 
Annette M. Sandberg 
Administrator 
Federal Motor Carrier Safety Administration 
U.S. Department of Transportation 
400 Seventh St. SW 
Washington, DC 20590 
 
Dear Ms. Sandberg: 
 
Re: Petition for Rulemaking by the Government of Canada 
to Amend 49 CM Part 387 (Financial Responsibility 
Requirements for Motor Carriers) 
 
Interest of the Petitioner 
 
Part 387 of the Federal Motor Carrier Safety 
Administration (FMCSA) Regulations sets out the 
financial responsibility requirements for motor 
carriers.  The combined effect of Part 387.7 and Part 
387.11 of the Regulations is to require Canadian- 
domiciled motor carriers operating in any of the United 
States to obtain the necessary insurance coverage, in 
the form of the MCS-90 endorsement, from or through a 
U.S.-licensed insurer in addition to obtaining 
insurance that is valid in Canada from an insurer 
licensed in the province of Canada in which the motor 
carrier is domiciled. 
 
The result of these requirements is an additional 
administrative burden, inconvenience and cost not faced 
by U.S.-domiciled motor carriers operating into Canada. 
The insurance policy issued by a U.S.-licensed insurer 
to a U.S.-domiciled motor carrier is accepted as valid 
insurance for the Canadian portion of the trip.  The 
insurance policy issued by a Canadian-licensed insurer 
to a Canadian-domiciled motor carrier is not accepted 
as valid insurance for the U.S. portion of a trip. 
 
The Governments of Canada and the US have taken 
significant steps in recent years to improve the flow 
of trade in North America.  The Canada-U.S. Free Trade 
Agreement was followed by the much broader North 
American Free Trade Agreement (NAFTA) signed by the 
U.S., Canada and Mexico.  The focus on trade issues has 
recently been reinforced by the Security and Prosperity 
Partnership of North America (SPP), discussed in more 
detail below.  Cross-border motor carrier insurance 
issues have arisen in the context of the NAFTA treaty 
and the SPP initiative. 
 
The Government of Canada has participated for many 
years in the work of the Trinational Insurance Working 
Group, which was created by and reports to the NAFTA 
Financial Services Committee (comprised of senior 
officials from the U.S. Treasury Department, Canada's 
Department of Finance and Mexico's Hacienda).  Its 
mandate and function is to examine and seek solutions 
to cross-border trucking insurance issues.  All members 
of the Trinational Insurance Working Group have agreed 
that the highest and best solution to these issues is a 
seamless motor vehicle liability policy that would 
require insurance companies to provide the compulsory 
insurance coverages and policy limits required in any 
of the three NAFTA countries, regardless of the home 
jurisdiction of the truck and the country in which the 
policy is written. This would afford mutual recognition 
of motor vehicle liability policies written in any of 
the NAFTA countries. 
 
As between Canada and the United States, one of the 
critical changes required in order to effect full 
mutual recognition of such insurance policies for 
commercial trucks is an amendment to the Federal Motor 
Carrier Safety Administration Regulations to permit 
insurance companies, licensed either provincially or 
federally in Canada to write motor vehicle liability 
insurance policies, to sign the MCS-90. 
 
The need to seek ways to improve the convenience, 
efficiency and cost of insurance coverage for motor 
carriers engaged in cross-border commerce was noted in 
the Security and Prosperity Partnership of North 
America (SPP).  The establishment of the SPP was 
announced on March 23, 2005, by President Bush, 
together with the Prime Minister of Canada and the 
President of Mexico.  The Prosperity Agenda that 
accompanied the Leaders' Statement of this Partnership 
stated, among other things, that: 
 
"To enhance the competitive position of North American 
industries in the global marketplace and to provide 
greater economic opportunity for all of our societies, 
while maintaining high standards of health and safety 
for our people, the United States, Mexico and Canada 
will work together, and in consultation with 
stakeholders, to: 
 
- Work towards the freer flow of capital and the 
"efficient provision of financial services throughout 
North America" (e.g., ... seek ways to improve 
convenience and cost of insurance coverage for carriers 
engaged in cross border commerce). 
 
In furtherance of the SPP, on June 27, 2005 a Report to 
the Leaders was signed on behalf of the United States 
by the respective Secretaries of Homeland Security, 
Commerce and State.  One of the stated initiatives in 
the Report, set out at page 17 under the section 
entitled "Financial Services", is to "Seek ways to 
improve the availability and affordability of insurance 
coverage for carriers engaged in cross-border commerce 
in North America".  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." 
 
Rulemaking Requested 
 
The Government of Canada requests that 49 CFR, Part 
387.11 be amended to provide that one of the types of 
policies of insurance that satisfies the financial 
responsibility requirements set out in Part 387.9 of 
the Regulations is a policy of insurance issued by a 
Canadian insurance company legally authorized to issue 
such a policy in the Province 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 of the 
subject matter, may be served in any proceeding at law 
or equity brought in any State in which the motor 
carrier operates.  The Government of Canada further 
requests that any additional or other amendments be 
made to 49 CFR, Part 387 that maybe required in order 
to give effect to the above-referenced initiative of 
the Security and Prosperity Partnership of North 
America. 
 
Current Means by which Canadian-Domiciled Motor 
Carriers are Insured for Cross-Border Commerce 
 
Currently, there are only two insurance options 
available to Canadian motor carriers wishing to engage 
in U.S. cross-border commerce.  They may obtain 
separate insurance policies, one valid in Canada 
written by a Canadian insurer and one valid in the U.S. 
written by a U.S. insurer. This is a very expensive 
option and puts Canadian insurance companies that would 
otherwise earn income on policies issued to Canadian- 
domiciled motor carriers at a distinct trade 
disadvantage. It is rarely used. 
 
The second option, which is by far the most commonly 
used, is for a Canadian-licensed insurer to enter into 
what is known as a "fronting arrangement" with a U.S.- 
licensed insurer whereby the U.S. insurer permits the 
Canadian insurer to sign the MCS-90 as its agent, and 
the entire risk is contractually "reinsured" back to 
the Canadian insurer by the US insurer.  In order that 
the U.S. insurer is not at risk in the event of a claim 
against the Canadian motor carrier, the Canadian 
insurer of the carrier must put up an agreed-upon 
amount of capital under the fronting arrangement. The 
second option also puts Canadian insurers and motor 
carriers at a trade disadvantage, as the cost of 
entering into the fronting arrangement is borne 
entirely by the Canadian insurer, which it in turn 
passes on to the motor carrier.  As well, the capital 
put up under the fronting arrangement by the Canadian 
insurer is capital taken out of the Canadian insurance 
marketplace, thus reducing the capital available to 
underwrite insurance in Canada.  U.S. motor carriers 
and their insurers do not face these additional costs 
in transporting goods into Canada. 
 
Canadian insurers are finding it increasingly difficult 
to find fronting partners in the U.S.  This has come 
about because, as a result of mergers and acquisitions, 
there are few multinational insurers left that write 
motor vehicle liability (i.e. public liability) 
policies for motor carriers in both Canada and the U.S. 
It is much more difficult and much more costly to enter 
into such an arrangement with a company that is not 
part of the same corporate group.  This also has the 
effect of limiting competition in the marketplace 
largely to the very few multinational insurance 
companies writing insurance for motor carriers on both 
sides of the Canada-U.S. border. 
 
Canada Extends Full Recognition to Motor Vehicle 
(Public Liability) Insurance Policies Issued by U.S.- 
Licensed Insurers 
 
Between the U.S. and Canada, in regard to private 
passenger vehicles and light trucks, there has been for 
many years full mutual recognition and acceptance of 
motor vehicle liability policies issued in either 
country as acceptable proof of financial 
responsibility. All of the American states and Canadian 
provinces recognize the certificate of insurance issued 
by a motor vehicle insurer licensed in any state of the 
US or any province of Canada as acceptable proof of 
financial responsibility for private passenger vehicles 
and light trucks domiciled in the jurisdiction of issue 
of the policy. 
 
In addition, Canada has long extended this recognition 
in respect of motor vehicle liability insurance for US- 
domiciled motor carriers.  All Canadian jurisdictions 
accept the signing and filing by insurers licensed in 
any jurisdiction of the U.S. of a Power of Attorney and 
Undertaking as valid proof, in Canada, of financial 
responsibility of U.S.-issued motor vehicle liability 
policies on U.S. resident motor vehicles of all 
categories.  In essence, the Power of Attorney and 
Undertaking (PATJ) provides that the U.S. insurer will 
comply with and meet the minimum compulsory coverages 
and policy limits required in any Canadian jurisdiction 
in which an accident involving its insured occurs.  The 
PAU is similar to the combined provisions of Sub-Parts 
387.11 and 387.15 (MCS-90 Form) of the FMCSA 
Regulations.  The PAU is filed with the Canadian 
Council of Insurance Regulators (the Canadian 
equivalent to the U.S. National Association of 
Insurance Commissioners). 
 
Protection for U.S. Citizens if a Canadian-Licensed 
Insurer is authorized to sign the MCS-90 
 
As indicated above, the general current practice for 
Canadian-domiciled motor carriers operating into and 
throughout the U.S. is for the motor carrier's Canadian 
insurer to enter into a fronting arrangement with a 
U.S. insurer.  Typically, the fronting agreement 
provides that the U.S. insurer will handle any claims 
made in the U.S. against the Canadian motor carrier in 
return for an additional fee to be paid to the U.S. 
insurer by the Canadian insurer.  However, it is always 
open to the Canadian insurer to retain an independent 
insurance adjusting company in the U.S. to handle the 
claim on its behalf.  In either case, the dollars paid 
to settle the claim or to pay any judgment by a U.S. 
Court against the Canadian motor carrier are always 
paid directly by the Canadian insurer. 
 
Motor vehicle liability laws and the judicial systems 
of the U.S. and Canada are very similar.  The terms of 
Canadian motor vehicle liability insurance policies, 
Canadian insurance claims handling practices, and the 
use by Canadian insurers of independent claims 
adjusters located in the jurisdiction where an accident 
occurs to handle the front-line investigation of 
claims, are very similar to their U.S. counterparts. 
In the many decades during which Canadian vehicles, 
including commercial trucks, have traveled throughout 
the United States, there has not been one single 
reported incident where a Canadian insurer has failed 
to pay a judgment awarded against its Canadian insured 
to a U.S. citizen or resident to the full extent of its 
legal obligation to pay.  Canadian motor vehicle 
insurers have decades of direct experience in handling 
motor vehicle liability claims in the U.S. through 
their private passenger and light truck line of 
business.  There is no reason to expect this to change 
if Canadian insurers are permitted to issue proof of 
financial responsibility to Canadian-domiciled motor 
carriers by way of signing the MCS-90 Form directly 
rather than as the agent of a U.S. insurer. 
 
Conclusion 
 
Achieving a seamless motor vehicle liability insurance 
policy between Canada and the U.S. for motor carriers 
would contribute to enhancing the competitive and 
efficient position of North American business and would 
assist in meeting the stated goals of the Security and 
Prosperity Partnership. 
 
We request that in view of the foregoing this petition 
be considered and that a Rulemaking be initiated to 
make the proposed amendments to the FMCSA Regulations. 
 
Yours very truly, 
 
Claude Carriere 
Minister (Economic) and Deputy Head of Mission 
 
Copy to: 
Norman Y. Mineta, Secretary of Transportation 
Carlos Gutierrez, Secretary of Commerce 
Condoleezza Rice, Secretary of State 
John Snow, Secretary of the Treasury 
 
End Text. 
 
LECROY