Motor carriers may institute insurance chargebacks against owner-operators under lease agreement without violating federal leasing regulations, the U.S. Court of Appeals for the 7th Circuit has ruled.

The ruling comes as a result of a suit filed by The Owner-Operator Independent Drivers Association against Mayflower Transit. OOIDA claimed that Mayflower was illegally forcing leased owner-operators to buy insurance from the carrier through a chargeback scheme.

At issue was OOIDA's contention that chargebacks violate 49 C.F.R. §376.12(i), which states that "the lessor is not required to purchase or rent any products, equipment, or services from the authorized carrier as a condition of entering into the lease arrangement."

OOIDA maintained that a requirement to reimburse Mayflower for the expense of insurance (through a chargeback) is the same thing as requiring owner-operators to purchase insurance from the carrier -- Mayflower in this case.

Finding in favor of Mayflower, the court disagreed that insurance chargebacks amounted to the compulsory purchase of insurance. Instead, the court found that since Mayflower is not an insurance company, it cannot "sell" insurance. Rather, Mayflower passed along the cost of the insurance to the owner-operator in a transparent manner. The outcome would have been the same, the court said, if the carrier had reduced the rate per mile paid to the lessor accordingly.

Owner-operators will pay for insurance "indirectly (through lower rates per mile) if they do not pay through a chargeback," Chief Justice Frank Easterbrook observed.

OOIDA says it is currently evaluating its options.

"We are reviewing the ruling and considering our options for next steps but at this time have not made any decisions," says OOIDA's Norita Taylor. "We certainly take the issue of chargebacks very seriously with regard to lease regulations."

You can read more about this case at www.leagle.com.