North Carolina Department of Justice
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July 2, 2007

Hon. Drew P. Saunders
House of Representatives
North Carolina General Assembly
Legislative Building 16 W. Jones Street
Raleigh, NC 27601-1096

Re: Advisory Opinion: Workers’ Compensation Act; N.C.G.S. § 97-19.1; Regulation of Motor Carriers

Dear Representative Saunders:

Thank you for presenting the American Trucking Associations’ White Paper concerning Section 97-19.1 of the North Carolina Workers’ Compensation Act for our review. Your letter requests that we review whether N.C.G.S. § 97-19.1 violates the restrictions on State regulation as expressed in 49 U.S.C. § 14501(c).

Does N.C.G.S. § 97-19.1 violate 49 U.S.C. § 14501(c)? No. N.C.G.S. § 97-19.1, which provides that a motor carrier may be liable for workers’ compensation benefits, does not violate 49 U.S.C. § 14501(c).

Section 97-19.1 of the North Carolina Workers’ Compensation Act states in pertinent part:

Any principal contractor, intermediate contractor, or subcontractor, irrespective of whether such contractor regularly employs three or more employees, who contracts with an individual in the interstate or intrastate carrier industry who operates a truck, tractor, or truck trailer licensed by the United States Department of Transportation and who has not secured the payment of compensation in the manner provided for employers set forth in G.S. 97-93 for himself personally and for his employees and subcontractors, if any, shall be liable as an employer under this Article for the payment of compensation and other benefits ...

The intent of this provision is to make it more likely that the independent trucker, his employees and subcontractors are afforded the protection of the Workers’ Compensation Act through the purchase of workers’ compensation insurance or other financial safeguards established in Section 97-93 of the Act. Section 97-19.1 allows the independent driver to purchase insurance or for the motor carriers up the chain of command to have secured coverage for the truckers below them in the chain. Thus, Section 97-19.1 establishes a requirement for workers’ compensation insurance applicable to the trucking industry.

The United States Congress has specifically limited state and local government regulation of motor carriers. Section 14501(c) provides, in pertinent part: 

Motor carriers of property(1)

General rule. Except as provided in paragraphs (2) and (3), a State, political subdivision of a State, or political authority of 2 or more States may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier (other than a carrier affiliated with a direct air carrier covered by section 41713(b)(4) [49 USC § 41713(b)(4)]) or any motor private carrier, broker, or freight forwarder with respect to the transportation of property. (2) Matters not covered. Paragraph (1)(A) shall not restrict the safety regulatory authority of a State with respect to motor vehicles, the authority of a State to impose highway route controls or limitations based on the size or weight of the motor vehicle or the hazardous nature of the cargo, or the authority of the State to regulate motor carriers with regard to minimum amounts of financial responsibility relating to insurance requirements and self-insurance authorization;

49 U.S.C. § 14501(c)(emphasis added); see New Hampshire Motor Transport Assoc. v. Rowe, 448 F.3d 66, 76 (1st Cir. 2006), cert. granted, ___ U.S. ___, 127 S.Ct. 342, 166 L.Ed.2d 14 (2006); Worldwide Moving & Storage v. District of Columbia, 445 F.3d 422, 426 (D.C. Cir. 2006). Under this Federal regulation, “insurance requirements” is a specific exception. New Hampshire Motor Transport Assoc., 448 F.3d at 76; Worldwide Moving & Storage, 445 F.3d at 426.

The effect of the “insurance requirements” exception has only been addressed in a few cases. In New Hampshire Motor Transport Assoc. v. Rowe, 448 F.3d 66 (1st Cir. 2006), cert. granted, ___ U.S. ___, 127 S.Ct. 342, 166 L.Ed.2d 14 (2006), one of the cases cited in the American Trucking Association “white paper,” the First Circuit Court of Appeals ruled that a statute enacted by the State of Maine to regulate the sale and delivery of tobacco products violated 49 U.S.C. § 14501(c), stating:

These provisions combine to bar states (subject to certain exceptions discussed later) from enacting laws related to prices, routes, or services of air or motor carriers of property.

New Hampshire Motor Transport Assoc., 448 F.3d at 69 (referencing 49 U.S.C. §§ 14501, 41713). The exceptions, or areas that the State is allowed to regulate, specifically include insurance regulations:

the authority of the State to regulate motor carriers with regard to minimum amounts of financial responsibility relating to insurance requirements and self insurance authorization.

New Hampshire Motor Transport Assoc., 448 F.3d at 76. The First Circuit concluded that the statutory exceptions are to be interpreted narrowly and do not include the ability to broadly regulate “health and safety,” but specifically allow States to pass laws relating to insurance requirements. Id.

The insurance exclusion from the Federal Motor Carrier regulation was also discussed by the United States Court of Appeals for the District of Columbia in Worldwide Moving & Storage v. District of Columbia, 445 F.3d 422 (D.C. Cir. 2006). In this case, Worldwide challenged a District of Columbia regulation requiring a surety bond asserting that the federal regulation preempted the local regulation. Worldwide Moving & Storage, 445 F.3d at 424. More specifically, Worldwide asserted that it complied with federal bonding requirements for interstate carriers, and thereby, the additional bonding requirements of the local ordinance violate 49U.S.C. § 14501(c). Id. The Court of Appeals rejected the moving company’s arguments stating:

Worldwide contends the Superior Court’s enforcement proceedings is preempted under two federal statutes. ... The second statute is 49 U.S.C. § 14501(c)(1), which prohibits a state from enacting or enforcing laws or regulations governing aspects of interstate transportation. Section 14501(c)(2)(A), however, expressly states that the prohibition “shall not restrict ... the authority of a State to regulate carriers with regard to minimum amounts of financial responsibility relating to insurance requirements and self-insurance authorization,” which appears to exempt from the prohibition the surety bond requirement imposed on Worldwide. Id. At 426. Thus, the D.C. Circuit refused to enjoin the enforcement of a District of Columbia surety bond ordinance.

The “white paper” presents numerous decisions, which address the broad reach of the federal regulations prohibiting local laws that relate “to a price, route, or service of any motor carrier.” These cases, however, do not address the specific exception presented by Section 97

19.1 of the North Carolina Workers’ Compensation Act; to wit, Section 14501(c)(2)(A)’s specific permission for the State “to regulate motor carriers with regard to minimum amounts of financial responsibility relating to insurance requirements and self-insurance authorization.” Because Section 97-19.1 appears to fall clearly within the exception to the Federal legislation, Section 97-19.1 should not be precluded by the Federal legislation. See New Hampshire Motor Transport Assoc., 448 F.3d at 76; Worldwide Moving & Storage, 445 F.3d at 426; 49 U.S.C. § 14501(c)(A)(2)(States permitted to regulate insurance).

North Carolina has an interest in protecting the health and financial security of employees who are subject to its jurisdiction. See Jenkins v. American Enka Corp., 95 F.2d 755 (4th Cir. 1938)(N.C. Workers’ Compensation Act is constitutional). The philosophy of the Workers’ Compensation Act is that the wear and tear of human beings in modern industry should be charged to the industry, just as the wear and tear of machinery has always been charged. Vause v. Vause Farm Equipment Co., 233 N.C. 88, 92, 63 S.E.2d 173, 176 (1951). The social policy behind the North Carolina Workers’ Compensation Act is two-fold: First, the Act provides employees with a swift and certain compensation for the loss of earning capacity and Second, the Act provides limited liability for employers. Hendrix v. Linn-Corriher Corp., 317 N.C. 179, 190, 345 S.E.2d 374, 381 (1986).

North Carolina, consistent with other States, has chosen to protect employees through workers’ compensation insurance. On Page h of the “white paper,” the American Trucking Association suggests that its preferred coverage is “occupational accident insurance.” This coverage provides some of the benefits available through the Workers’ Compensation Act; however, occupational accident insurance is not a replacement for workers’ compensation insurance. Occupational accident insurance policies often have limitations on triggering events (such as disability within 10 days of injury) and limitations on the benefits provided (i.e., $100,000 cap). Further, the occupational accident insurance policies are not administered by an administrative body and thereby do not assure the injured employee a swift and certain compensation for injuries received on the job. See Hendrix, 317 N.C. at 190, 345 S.E.2d at 381(one of the purposes of workers’ compensation is to provide swift and certain benefits). Moreover, occupational accident insurance policies do not comply with the insurance requirements of the Workers’ Compensation Act, and thereby do not necessarily afford the employer the protections of the Act. See N.C.G.S. § 97-98.

The current requirements expressed in Section 97-19.1 do not appear to violate 49 U.S.C.§ 12405(c). See New Hampshire Motor Transport Assoc., 448 F.3d at 76; Worldwide Moving & Storage, 445 F.3d at 426; 49 U.S.C. § 14501(c)(A)(2)(States permitted to regulate insurance).
 

Respectfully yours,

Ann Reed
Senior Deputy Attorney General

Robert Hargett
Deputy Attorney General

Gary A. Scarzafava
Assistant Attorney General