Before moving any further, let's talk about cargo insurance because of its importance. Surprisingly it's not often thought of topic when shippers select their freight providers.
Evaluating insurance coverage is crucial for the freight service provider vetting process. All too often, firms determine the insurance they have on their shipment is when they are filing a claim, which is way too late
There are several types of insurance provided and we recommend reading as much on the topic as possible, so let’s start the discussion.
Shipper's Interest Cargo Insurance Policy
Cargo insurance is a shipper’s interest “all-risk” coverage policy.
This type of insurance focuses on the actual cargo, not the carrier’s liability.
Damage or loss of goods is covered during the shipment from the point the carrier signs for shipment (pick-up) to the point the receiver signs (delivery), but with the following exclusions:
- Damage Due to Improper Packaging or Loading
- Employee Negligence
- Infestation
- Abandonment
Motor freight carriers and freight forwarders are the parties to carry shipper interest policies.
As mentioned earlier, it is important for shippers and receivers not to “rubber stamp” the BOL signing process, as it marks the time when the carrier is on and off the hook for loss and damage.
Contingency Cargo Insurance
Contingency cargo insurance is also held by freight brokers and logistics companies.
The purpose of contingency cargo insurance is to cover gaps that may be present with the cargo insurance of the underlying carrier on the shipment.
The insurance is “contingent” because it comes into effect only when the motor carrier fails to cover the damage or loss to the shipment. Specific factors that fall in the motor carrier’s shipper's interest cargo liability coverage include policy cancellation, loss or damage exclusions, refusal to cover, etc.
Carmack Amendment
An important aspect of filing insurance claims is the Carmack Amendment. This amendment is part of every freight provider policy a shipper signs and is one that will not be negotiable, which makes understanding what it means a top priority.
From a carrier’s perspective, this amendment is pivotal in listing the duties, rights, and liabilities of carrier parties in the event of cargo damage or loss claim, which are far too common in the day-to-day operations in the freight industry.
Essentially, the Carmack Amendment places 100% liability onto the motor carriers, unless they provide proof of negligence on behalf of the shipper or one of the five exceptions can be proven.
Five Exceptions under Carmack Amendment
Act of God
The “Act of God” exclusion can defend the carrier when a carrier experiences a natural disaster or physical anomaly. It is important to note this defense is not applicable in situations where a naturally occurring event such as a severe thunderstorm could be foreseen and predicted.
The “Public Enemy” or the “Act of war”
As the name of the exclusion implies, this defense is applicable when military forces, that are enemies of the United States government, cause the damage or loss.
An example of this defense would be most damaging acts during times of war, but not in the even the act is considered “organized crime.” Due to the fact that war has not been physically imposed on United States homeland, terrorism would be more commonly involved with the defense, but has yet to be brought into court as a defense.
Act of Default of Shipper
There are instances where the shipper is held responsible for the mistakes or negligence on their part. The faults of shippers can be found in loading and securing a load, insufficient packaging or mislabeling contents of a shipment.
The BOL is the overriding document when the details of the shipment are brought into question.
Public Authority
Government actions can negatively impact shipments and cause cargo damage indirectly, such as road closure or trade embargoes. This defense also extends to actions affecting the product itself, like product recalls. Since the carrier is not in control of implemented government actions, it cannot undertake a liability brought on because of it.
The Inherent Vice or Nature of Goods Transported
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If the product being shipped has an inherent nature or vice, meaning a motor carrier cannot prevent loss or damage because of it, the carrier cannot be held liable for it.
Temp-controlled food is a good example. Perishable products are susceptible to become spoiled or destroyed if not shipped property, but if the motor carrier took the appropriate steps to prevent all the issues it could, yet the product still is damaged, then this defense is appropriate.
Other Topics to Consider with Regards to Cargo Insurance
There are many other topics to consider under cargo insurance, here are a couple more to think about:
- LTL cargo insurance coverage is based on the NMFC LTL classification, so while it may be great to get an FAK assignment on the cost of the freight, it also means that the insurance coverage is reduced also.
- Keep in mind most LTL coverage is a price per pound, so this could have a major impact and worth negotiating more coverage or aligning with an outside insurance company to gain the additional cargo coverage required.
- Shipping in and out of Mexico is another cargo insurance topic to be aware of when shipping cross-border.
- Any and all shipments within Mexico have zero cargo insurance coverage. Additional insurance can be purchased, but shippers need to know that it is not standard on their Mexico shipments.
To sum up the topic of cargo insurance, a shipper needs to know how to protect its product in transit. An ounce of prevention is worth a pound of cure. Two additional articles worth reading are: and .
