June 2004 | Commentary | Risks and Rewards

Making Sense Out of Transportation Insurance Policies

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Q: I am a freight forwarder, providing freight transportation services to my customers. I use all modes of transport to all parts of the world. I operate a small warehouse, own two trucks, and when necessary, partner with other operators to give my customers a complete intermodal service. Can you help guide me through the morass of insurance policies that I have to buy in order to protect myself?

A: Navigating through the many insurance policies that are available to the transportation industry is not an easy task. And as the services you provide to your customers increase, so does your need for greater protection.

Typically, a policy is available to protect each service you provide to your customers. The advantage to this approach is that you only need to purchase a policy to cover you for a specific service you provide. The disadvantage is that, as your services grow, you might find yourself with a patchwork of policies that you have purchased piecemeal over time.

For example, to cover your freight forwarding operation, you may have purchased an Errors & Omissions (E&O) policy. This policy protects you for the professional liabilities you incur in providing services to your customers. It typically protects your interests anywhere in your trading area, wherever that may be.

As a trucker, you may have a "motor truck cargo" policy to cover losses to goods on your vehicles during transit. This cover is not part of the standard auto liability policy and must be purchased separately.

You might have a Commercial General Liability (CGL) policy to cover your office exposures, while you also might have a separate property policy to cover loss to your building or warehouse.

Many CGL policies do not include cover for the operations in your warehouse, and you may need a separate "Warehousemen's Legal Liability" policy. Because this is a "legal liability" policy, it will not indemnify any cargo losses unless you are actually responsible for the loss.

To cover cargo losses irrespective of fault (with some minor exceptions), you might have insurance under your property policy for direct damage to the goods in your care, custody, and control. This is typically referred to as "CCC" cover.

This cover is also often obtained through an endorsement to your "open cargo" policy—a policy that pays cargo owners directly for losses to their goods during transit.

You get the idea. Making sense out of all this can be daunting, and the danger is that these policies may have gaps or overlaps in their coverage.

Fortunately, some insurers that specialize in the transportation field now combine several related covers into a single manuscripted policy.

For example, some insurers will combine errors & omissions insurance with cargo liability, motor truck cargo, and all-risk cargo insurance into a single form.

Some insurers combine insurance for consolidation, warehousing, and related exposures in their general liability forms. If you look hard enough, you might even find most of these covers under a single policy.

The logistics industry is constantly expanding the services it provides to its customers, and the challenge now being addressed is the creation of a single "logistics" policy that will cover virtually all the risks that an operator faces. This would include cover for the special services and enhanced liabilities that operators may agree to under specific customer contracts.

You might consider asking your insurance agent about some of these specialized products.

Do you have a question about cargo insurance or liability?

Ask the expert. Send your question to Dan Negron at Dan.negron@thomasmiller.com

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