Following up yesterday’s blog post, which discusses the differences between freight insurance and freight liability, we thought we’d take a deeper look at freight insurance (also known as cargo insurance). Specifically, what is cargo insurance, and should shippers even request it.
What Is Cargo Insurance?
Legally, all carriers must carry a minimum amount of insurance, known as carrier liability. However, carrier liability provides very limited coverage, and anything from natural disasters to vehicle accidents or even acts of war could damage your cargo. Therefore, shippers can request cargo insurance to protect their goods from loss, damage, or theft while in transit. Generally, goods are insured while being stored and while in transit, until they reach the buyer.
Does Cargo Insurance Have Limitations?
As we discussed yesterday, yes, cargo insurance does have limitations. For example, when shipping via truck in the United States, cargo insurance does not provide protection against all losses a motor carrier may be liable for under the Carmack Amendment or common law. There is not a single, standard form of cargo insurance that a carrier can buy and be fully protected. Similarly, a certificate of insurance stating that a motor carrier has a specific amount of cargo insurance does not mean that the shipper’s or broker’s valid claim will be covered by that insurance.
There are different types of cargo insurance policies, some going by names such as “all risks,” “broad form,” “legal liability,” and “motor truck freight.” Regardless of what the name might imply, none of these policies provide complete protection against Carmack Amendment and common law liability. Policies exclude coverage in many different ways. For example, certain types of cargo are excluded, only specific equipment and terminals are covered, losses caused by certain events are not covered, or coverage applies only if a service is performed in a certain way.
Overall, it’s crucial for shippers to document their cargo’s value in case of disputes, losses, or damages. It may also be necessary to work with a lawyer and insurance agent to fully understand your policy and make sure you are protected.
So, Should You Request Cargo Insurance?
Now that we’ve explored what cargo insurance is, as well as how coverage works; hopefully, you realize its importance when shipping goods. If not, think of the consequences of not having cargo insurance. What would happen to your company if an entire shipment were lost? What if your shipment is being transported via container vessel and the ship sinks? Your company is responsible for a share of the losses. How would that affect your bottom line?
Accidents happen; therefore, shippers need to request cargo insurance to protect their business when errors occur.