August 2005 | Commentary | Risks and Rewards

Protecting High-Value Cargo

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Q: My company moves sensitive, high-value instruments throughout North America for hospitals, universities, and government facilities. Because these instruments are difficult to handle, we use special riggers to install them. Given these instruments' specialized nature, when damage occurs during transit and the instruments must be repaired or replaced, it means significant costs and delays.

We can't, therefore, afford the risk of a loss during transit when carriers issue a transportation document containing only the standard limitation of liability. We're looking to get carriers to assume risk of loss during transit that is in line with the risk of loss these units pose.How can I avoid carriers' standard limited liability in contracts, and hold them fully responsible for damage to this equipment during transit?

A: Your question poses an interesting situation because the services you provide are unique.

Typically, when shippers of sensitive, high-value goods contract for services, those services are performed under special agreements that contain indemnification, or "hold harmless" provisions.

An indemnification provision is a contractual obligation between service providers and shippers that allows the shipper to turn a claim over to the carrier for losses suffered during transit.

If you decide to enter into these special agreements, seek assistance from an attorney, as there are numerous structural issues to consider.

Getting Carriers to Agree

Under the terms of such an agreement, you effectively opt out of any liability limitation carriers may have. Carriers are required to assume the defense and pay the claim, regardless of whether or not they are covered by insurance.

Your service provider should also be required to carry insurance for losses suffered during transit. Transportation insurance policies typically offer low limits, so make sure your provider obtains excess insurance to cover the higher limits your equipment requires.

You may want to use a provider who can both transport and install your specialized units. The U.S. inland marine insurance market has a policy called a "scientific equipment floater" that is designed to cover the risks operators face in this specialized area.

Provided the operator has an established record, this policy covers both the transportation and installation of the units, at higher limits.

Keep in mind, however, that this does not come cheap. Whether you bear the expense of insurance directly, or whether your carriers assume it in their rates, absorbing the cost of insuring such a specialized risk is not easy.

Finally, if you and your service provider cannot agree on a liability limitation waiver, your customer contracts should have a provision that references your service provider's terms. This gives you the benefit of your service provider's limitation in the event of a loss.

Whichever option you choose, maintaining your own cargo liability insurance is a must. Cargo liability insurance offers additional protection if your underlying carrier is not properly insured, for example, or if any other contingencies arise during transit.

As always, speak to your insurance broker to be sure you have adequate protection for these situations.

Looking for expert liability advice? Send your questions to Dan Negron, dan.negron@thomasmiller.com.

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