June 2005 | Commentary | Risks and Rewards

Triple Threat: Fighting Multiple Cargo Claims

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Q: I am an NVOCC. Recently, I imported a shipment of assorted metal products to the United States. During shipment, some of the goods were damaged, and the receiver filed a claim against me. I paid the claim based on the limited liability in my bill of lading.The goods were insured under a cargo policy so the receiver was paid the balance of the claim, less a deductible. To my surprise, I received two new claims for the same damaged goods—another claim from the receiver, seeking reimbursement for the deductible, and one from the cargo insurer, seeking recovery for the sums paid to the receiver. How can I be responsible for the same loss three times?

A: It is not uncommon for operators to receive multiple claims arising from a single incident. Shippers often attempt to resolve claims with service providers without involving insurance companies so the incident does not affect their coverage.

Complications arise, however, when shippers obtain a recovery from the responsible party that is less than the total claim, then try to recover the difference from the cargo insurer.

When insurance companies—such as cargo underwriters—pay a claim, they receive a benefit known as a right of subrogation. The right of subrogation allows insurers to take the claimant's place and recover the sum from the responsible party.

Insurers typically prove the right of subrogation with a document called an assignment or subrogation receipt. With this document, claimants pass their rights to the insurer in exchange for the insurer's payment. If insurers make a recovery, they will reimburse the claimant for any sums, such as a deductible, that may still be due.

Assignment receipts vary from insurer to insurer. Though claimants usually assign their entire claim to the insurer, they sometimes reserve part of a claim for themselves. In this case, they are free to pursue that portion of the claim against any responsible party.

Protect Yourself

In your case, when the insurance company paid the initial claim, it likely obtained the claimant's right to proceed against you. The claimant probably reserved a right in the assignment, which led to the two subsequent claims against you.

Protecting yourself in these scenarios is not impossible. Contacting your liability insurer is the most important thing to do when faced with a cargo claim. If you are insured for the loss in question, it is best to have your insurer process the claim. If you are not insured for the loss, see if the claimant will submit the claim to his cargo insurer first.

If the cargo insurer makes the claim, request a copy of the subrogation or assignment form. This will establish whether or not the entire claim has been transferred to the insurer.

If the claimant makes the claim, you should only deliver payment in exchange for a "general release." This document states that the claimant releases you from all future claims arising from the incident.

The general release should contain the claimant's agreement to defend you if any other person, such as a cargo insurer, asserts a claim against you for this incident.

If you find yourself faced with multiple claims, remember that you are only responsible for the legal liability under your bill of lading. Payment is a defense. Once paid, claimants may not assign rights that are greater than the rights they themselves have.

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