The Insurance Review - March 2009
CARGO AT REST IS AT RISK
By Roland L. Enz - President, California Plus Insurance
As our economy continues to crumble around us, it amazes me that I continue to see loaded tractor/trailers and detached trailers unattended, along the side of every highway, in every state. I realize parking is a concern, but drivers should make a better effort to make arrangements for secure parking. It sounds like I am beating a dead horse, but theft is on the rise. The east coast continues to dominate the theft scene, but be concerned – we have seen a major increase in west coast thefts as well.
Cargo theft is estimated to cost the United States $15 to $30 billion a year. Where does this theft take place? Everywhere! Yards, truck stops, hubs, drops, ports and streets are all popular places where cargo theft occurs. The theft network is highly motivated, organized and educated. You might be an unwilling participant through neglect and/or careless conversation with strangers, but the cold hard facts say that the majority of all thefts include a willing participant (driver). Money in hand and a blind eye seems to account for much of the problem.
The simple fact is that cargo at rest is cargo at risk. As an owner operator, you have a high stake in this problem – MONEY. You also can be part of the solution. As drivers, you are the eyes and ears of the trucking industry, and it is crucial that you take a proactive part in its administration. The money that you risk covers a wide range of exposures including the loss of your equipment and down time, out-of-pocket costs like deductibles, exclusions of coverage (the stuff you end up paying for), and increased insurance rates. Are you insured for a loss? Just because you are paying for an insurance policy doesn’t necessarily mean that coverage exists or that you or your shipper will be paid in the event of a loss.
The two most contested areas of insurance, at the time of a loss, are stolen trailers and cargo. The majority of you pull trailers for someone else. With this situation, you are probably indemnifying the owner of the trailer with physical damage on the non-owned or unidentified trailer. As I have said before, coverage does not exist if the trailer is detached from the power unit (in this case). Every weekend I see loaded trailers parked on the side of the road, just waiting for someone to haul them away. Coverage can be provided through a trailer interchange agreement, if the insurance company writes that coverage, but many companies will not write this coverage.
The coverage premiums for a trailer interchange agreement are based on the values and number of trailers that you have in your care and custody. This, along with the cargo coverage, should be discussed with your agent or broker at the time of purchase. Please take time to review and understand the coverages in your insurance policy. Price is not the only thing that you should consider when purchasing insurance. The policy and its coverages, along with the knowledge of your insurance agent or broker, should be the major factors in determining your overall risk prevention program.
Your cargo coverage probably provides the most confusion when it comes time to settle a claim (in this article, I am focusing on theft as the loss). There are two distinct types of policies: Named Peril and Broad Form. Within both of these types of policies, insurers have added or deleted coverage or conditions as they deem appropriate to their operations.
The Named Peril policy is just what is implies – it only covers what is specifically stated or outlined – which is why it is the least expensive of the cargo policies. The policy’s exclusions and conditions have to be carefully considered when purchasing this type of policy as theft coverage might be limited and partial load thefts may be excluded. Broad Form coverage provides the most protection, but there are still exclusions and conditions that have to be taken into consideration. With any insurance policy, cargo included, care has to be taken when reviewing or understanding the coverage. In the understanding of the policy, you have to take into consideration not only the policy but the endorsements that modify the policy.
Does theft coverage exist if the tractor/trailer is unattended? There are many different takes on this, ranging from no coverage to coverage. There may be coverage if the trailer is unattended, but for only a certain period of time (or it may be covered for any period of time). There may be conditions that specify that the trailer has to be parked in a lighted and fenced yard for coverage to exist. Your insurance agent or broker is the only person that should interpret your policy for you. If an attorney gets involved in its interpretation, it is too late (something has happened).
The Co-Insurance Clause of your policy, if you have one, can also be hard to understand. But if your cargo policy has this as a condition, the fast and simple fact is that you have to be insured to value. If you are not, any claim you make will be adjusted as a percentage of the total loss. Let me use the following example: you are hauling a $100,000 load but you only have $50,000 in coverage and the entire load is lost. Since you are insuring only to 50% of the load value, the insurance will only pay out 50% of your insuring limits, or a mere $25,000, which leaves $75,000 for you to pay. These are just a few of the many exclusions and conditions that you should be concerned about regarding your cargo coverage. Be sure to review all of them with your agent or broker before you have a problem.
I will close with the following consideration, which is not related to theft, but if you’re hauling refrigerated product, it should always be considered. Refrigeration Breakdown is excluded in most policies, however this coverage can be bought back through an endorsement. There are many conditions related to proper maintenance and record keeping with the purchase of this endorsement, and if you are not following their schedule properly, in the event of a loss, coverage may be denied.
With all of this said, you have an obligation to your shipper to provide insured service for the transportation of their goods. Know your policy and understand its limits so you can protect your customer’s cargo. If you have any comments or questions, I can be contacted through California Plus Insurance Service in Modesto, CA at 1-800-699-7101.