The Insurance Review - December 2010
ANATOMY OF A CARGO CLAIM
By Roland L. Enz - President, California Plus Insurance
If you remember, I covered the “Anatomy of a Claim” in regards to Liability and Physical Damage back in the October issue. These represent two of the three most written coverages for you, the trucker. If you have not read the article, look for that issue and take the time to review the material. This will bring the entire subject (claims) together.
Cargo is the third leg of your insurance coverage “tripod” and, for the most part, the one that has the most problems when it comes time to settle a claim. Some of you may be required to provide General Liability coverage from a shipper or broker, but that is pretty rare. I will touch on that type of coverage in another article later.
Insurance coverage is, essentially, a contract between you and the insurance company. In essence, you have contracted with a third party to pay any insured claim made against you. The contract is very specific and outlines what they will pay (the insuring statement) and what they will not pay (exclusions and conditions). No other policy, or that part of a policy that covers cargo, has such particular language that will affect you or your shipper as the cargo policy. I have seen many cargo claims denied because you or your agent have not paid attention to the product that you have purchased.
Not all cargo policies are created equal. There are two basic forms, and with those forms, there is a great deal of differences between companies that offer this coverage. The basic forms are Specified Perils or Broad Form. Specified Perils means just that – the coverage is outlined, item for item, what is covered. If something is not listed, it is not covered. You still have to deal with exclusions and conditions, like any other policy, but this coverage is limited. It is also less expensive. Do not fall into the trap of buying insurance on price alone (which most of you do). Not much attention is given to coverage – the majority of you are fixated on price and not what you are actually buying. The majority of you do not take the time to understand what you have purchased until it is too late.
The second type of cargo coverage is known as Broad Form. Broad Form Cargo Liability states that “the insurance company will pay, on your behalf, what you are legally obligated to pay.” It differs from policy to policy, but that is the jest of it. The most important part of the policy is the exclusions and conditions. If nothing else, familiarize yourself with that part of the policy.
Always insure to value. If you are hauling $200,000 in cargo, and you have only $100,000 in coverage, you are leaving yourself wide open. Many cargo policies have what is called a co-pay clause in it. The quick and dirty explanation of that, using the above example, is that you are insuring only to half of the value of the freight that you are hauling, therefore, since you are only insuring to 50% of the value, the insurance company will only pay out 50% of the coverage, or $50,000. $150,000 is a big gap for you to be picking up. The “Exclusions” are one thing, but the “Conditions” are yet another. The time to understand them is when you are purchasing your insurance – not when you have a claim.
In the event of a loss, you have the responsibility to protect the load, or any part of it (if anything is left), until representation from the insurance company is established and they take responsibility of the load. That might mean staying with the load, making some arrangements to have the load picked up and/or stored (even cold storage in the event of refrigerated product), or any other thing necessary to safeguard what is left of the load. Keep in mind the word responsibility – it could be your nickel until the time that the insurance company assumes control. Towing companies will not do anything unless they are assured payment. If they are part of the clean up, money stacks up quickly. For the most part, they (the towing company) will require payment from you. It will be up to you to collect those charges from the insurance company later.
One of the major problems that we often run into, relating to conditions, is Reefer Breakdown. First, you have to purchase this coverage and, secondly, you have to adhere to specific conditions outlined in the policy. Each company spells it out differently, but they all require you to maintain the equipment per their requirements. Usually they require monthly inspections and service by a qualified service provider, other than the insured. Good records must be kept because the insurance company will require you to present them at the time any claim is made.
What about theft – is it covered or not? The policy outlines what theft is and what is not. Usually, forcible entry has to exist. Again you have to look at the policy to see what the limitations are. Cargo coverage, for the owner operator, usually follows the tractor, not the trailer. I cannot tell you how many loaded trailers I see, detached from a tractor, and parked on the side of the road unattended. In this case, coverage usually does not exist. Again, you have to understand what you are buying. I cannot stress the importance of discussing the coverage and, more importantly, understanding the exclusions and conditions, of the product that you have already purchased (or are looking to purchase).
Price is not everything. If you have a claim – and you eventually will – it will be too late, at that point, to understand the ramifications of the insurance that you have purchased and/or correct any of the things you have overlooked or not prepared for properly. So don’t wait – do it now! If you have any insurance-related comments or questions, I can be reached through California Plus Insurance Service in Modesto, California at 1-800-699-7101.