Trucker’s Cargo Liability Insurance
Cargo insurance is separate from general liability insurance coverage, and cargo is NOT covered under general liability policies.
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Why You Need Trucker’s Cargo Liability Insurance Coverage
If you are a for-hire trucker you will, obviously, be carrying goods that belong to other people, and for which you are responsible while the goods are in your possession. What happens if … you have a collision with another vehicle and the goods are damaged, there is a fire in your trailer, your trailer is broken into while you are on a meal break and the goods are stolen, your air refrigeration unit breaks down and foodstuffs you are hauling are ruined, the goods are damaged no matter what the cause. Likely a claim will be filed against you by the shipper for the loss of or damage to the goods. In some cases the shipper might actually be at fault for the loss: if, for example, goods that are susceptible to catching fire within a temperature range that is likely to be encountered during shipping are not packed so as to protect them from this hazard. Even if the loss is caused by the shipper, however, you are still likely to receive a claim and will have to defend yourself from the shipper’s demand for reimbursement. Thus, whether a loss is caused by you, the shipper, or a third party, cargo liability insurance is a must.
What to Look for in Cargo Insurance
Insurance policies vary from insurer (insurance company) to insurer; some of the coverages listed below will not be found in all policies, or might be available but have to be added to the standard policy. Available coverages include:
- Damage occurring during loading or unloading
- Damage due to dampness
- Damage caused by fire (not caused by the vice or nature of the goods)
- Damage caused by collision regardless of whether fault belongs to the carrier or a third party
- Damage caused by inappropriate loading by the carrier (as opposed to damage caused by inadequate packing done by the shipper)
- Damage caused by infestation (by insects, for example)
- Damage to reusable packing containers
- Loss due to theft
- Loss due to missing cargo
- Loss of freight charges due to damage to goods (earned freight coverage)
A further explanation of this: if you arrive at the delivery point with the goods, but are not paid, or are only partially paid, for the delivery due to damage to the cargo, earned freight coverage allows you to recover the freight charges from your insurer (instead of the shipper).
- Loss of perishable items if your heating system or refrigeration unit breaks down
- Salvage efforts, including temporary replacement of your vehicle if it breaks down or is damaged in a collision but the goods being carried are not damaged (cargo recovery extra expense coverage)
- Loss of value to undamaged goods due to shipper’s written contract term (coverage for shipper’s control of undamaged goods)
Shipper’s control of undamaged goods might apply, for example, if pursuant to a contract the cargo had to be delivered by a certain date, and you arrived at the point of delivery a day late. Even if the goods were undamaged, under the contract the shipper might not have to pay you, or would pay you a reduced fee. Coverage for this would allow you recover your full fee from your insurer.
- Pollutant cleanup and removal (most commonly after a collision)
- Debris removal (again most commonly after a collision)
- Cost of defense
Cost of defense is an extremely important item. If, for example, goods in transit are damaged due to their vice or nature (as above, for example, goods that are susceptible to catching fire within a temperature range that is likely to be encountered during shipping are not packed so as to protect them from this hazard), the shipper is nevertheless likely to file a claim against you. Your insurer is likely to deny the claim, meaning it will refuse to pay (on your behalf) the shipper for this loss. In turn the shipper might well file a lawsuit against you. With cost of defense coverage, your insurer will pay lawyers, and all associated fees and costs such as court costs, to defend you. Absent this coverage you will be left in the position of having to pay the shipper’s claim yourself, or pay lawyers to defend you, both of which could be expensive.
Limits of Insurance
All policies of insurance have limits on what they will pay regardless of how big the loss is. A common limit for cargo insurance is $250,000, though policies vary and different amounts of coverage will always be available. A few things:
- For certain types of cargo, higher limits will be appropriate. If you are hauling something that has especially high value, such that your usual limit ($250,000 or whatever it is) would not cover you if the cargo was completely lost or destroyed, you need higher limits.
- One-time increased limits can be arranged. Call your broker prior to taking delivery of the goods and arrange for higher limits for that particular load.
- Shipper-required limits: some shippers, especially those who deal in expensive goods, will have a minimum requirement for you to have on your cargo coverage. Again, a one-time limit can be arranged if necessary.
- Contingent cargo insurance: Another related issue is what happens if for any reason under the sun your insurer refuses to pay a claim. For example, your insurer contends that the shipper did not properly pack the goods and that it is therefore not your fault for the damage suffered, and therefore refuses to pay, but the shipper continues to press its claim. Contingent insurance covers you under circumstances like these: the carrier that provides the contingent coverage pays when the primary insurance does not.
Exceptions to Coverage
There are five exceptions that allow a carrier to avoid liability:
- Act of God (such as a tornado)
- Act of War
- Act of shipper (such as inadequately packing goods)
- Act of the government (such as goods being held up at an inspection point for an undue length of time)
- Vice or nature of goods being transported (as above, for example, goods that are susceptible to catching fire within a temperature range that is likely to be encountered during shipping are not packed so as to protect them from this hazard)
Briefly and in plain English, if a shipper delivers cargo to you that is in good condition, and you deliver it after transport in less than good condition (or the goods are lost or stolen), you are liable for the amount of damages proven by the shipper. To avoid liability you must prove that you were not negligent or that one of the five exceptions applies.
Too Much Business?
If one fine day you find yourself overloaded with business opportunities, you might want to subcontract out some of the work. What if … the trucker you subcontract the work to doesn’t have insurance, or has inadequate insurance, and suffers a collision that causes damage to the cargo. Contingent coverage protects you. This coverage allows you to add subcontractors to your contract of insurance, and provides them, and you, with the same coverages you have.
As with all insurance policies, deductions will apply. Deductions provide that you, the insured, must pay a certain amount of any claim before the insurer begins paying. A typical policy might have a $1,000 deduction for stolen cargo, meaning that if any cargo was stolen you would pay the first $1,000 of the loss, the insurer would pay the rest, up to the limit of liability.
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