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PF&M at a Glance Motor carrier cargo legal liability insurance Cargo moves over United States highways on owned trucks or by motor carriers for hire. Customers expect carriers for hire to deliver their cargo to the correct destination, without damage and on time. The carrier for hire purchases motor carrier cargo legal liability insurance to pay for loss or damage that may occur to the cargo during transportation. Motor carriers are responsible for the cargo they control up to a point. The extent or degree of that responsibility is established by a written contract or through a bill of lading. The carrier that hauls freight subject to a written contract with the customer is known as a contract carrier. The carrier that uses published tariffs and bills of lading is known as a common carrier. The written contract or bill of lading establishes the terms and extent of the motor carrier’s responsibility to its customer. The bill of lading is both a shipping contract and a receipt for the cargo carried. It shows the dates of shipment, describes the property shipped, names both the owner of the cargo and the motor carrier and identifies the intended destination. It also specifies the carrier’s liability. The bill of lading can be for the full value of the shipment or on a released value basis. Released value bills of lading are subject to a dollar limitation on the value of the cargo or a dollar limit of liability. Since shipping costs are much higher with a full-value bill of lading, the released-value bill is frequently selected instead, but doing so can cause problems with claim settlements if a loss or damage occurs. The liability under a written contract is to the extent stated and agreed on by the motor carrier and its customer. Motor carrier cargo legal liability insurance covers loss or damage to freight or cargo in transit. Two different types of entities can be involved in transporting customer goods under motor carrier arrangements. Common carriers offer their services to the general public and are liable for the cargo under terms of the bill of lading. Contract carriers haul for specific shippers based on terms of a negotiated contract and are liable to the shipper subject to the terms of that contract. Some carriers are able to offer services as both a common carrier and a contract carrier. This insurance applies only when the cargo is in transit. Transit usually begins when the insured trucker takes possession of the property being shipped and includes needed stops, such as for rest, meals and even temporary warehousing incidental to the transportation. It ends when the cargo arrives at the intended destination and is accepted by the designated party, commonly referred to as the consignee. A delivery receipt usually concludes the transaction. Because there are times when it is not clear if the cargo is actually in transit or not, disputes can arise. For example, if the goods are delivered to the wrong destination or are accepted by the wrong party, lawsuits may arise where the insurance company takes the position that the cargo was not in transit, but the customer states that it was because it was not delivered as agreed to or arranged. The legal liability of contract and common carriers is not the same. The common carrier is generally responsible for the safe delivery of the cargo it transports and consequently owes it a high degree of care. This is frequently referred to as “strict liability” or liability without fault. However, the common carrier has several defenses or exceptions available to it. These are: • Acts of God, such as an unanticipated storm or other natural event • Acts of the public enemy, which includes warlike acts or political strife against the country • Inherent vice, which is a fault or condition in the property that causes its deterioration, damage or self-destruction • Acts or faults of the shipper, such as negligent or careless packaging • Acts of a public authority, such as a drug bust by police who confiscate or quarantine a truckload of goods because they suspect the cargo to be contaminated A contract carrier is responsible only to the extent of the contract with its customer. The contract itself provides the details of the liability assumed. If the contract does not address legal responsibility, the contract carrier is responsible only for loss or damage resulting from its own negligence, and not the strict liability imposed on the common carrier. In other cases, the contract makes the trucker responsible for any loss to cargo, regardless of negligence. Motor carriers for hire are subject to federal and state insurance regulation and filing requirements. This includes providing evidence of insurance at certain minimum limits for which the insurance company endorses the policy and makes certain filings. Self-insurance arrangements are permitted for carriers with an acceptable level of financial stability. An unusual feature of the regulation involves situations where the motor carrier is responsible for a cargo loss due to a peril or cause of loss not covered by the insurance policy. In these cases, the insurance company pays the claim to the owner of the cargo, even though it is excluded. It then seeks reimbursement for the payment it made from its insured motor carrier whose negligence caused the loss. The motor truck cargo legal liability policy is usually endorsed or modified to meet the needs and exposures of the particular carrier for hire. Since this is not a filed class of business, forms and coverages should be compared and evaluated carefully when recommending a change in insurance carriers. Exclusions and warranties are especially important and must also be reviewed, along with the definition of transit and policy territory. The insurance company must be able to respond to regulatory requests and make the appropriate filings on a timely basis. Insurance companies are also very interested in the financial condition and strength of the trucking entities they cover because they may need to seek reimbursement from them for losses they are required to pay that are not covered by the policy. Please note that this is only a brief overview of the coverages available in this program. The PF&M Analysis from The Rough Notes Company, Inc., contains broader and more thorough discussions of this and other related subjects. Agency OnLine subscribers can refer to PF&M Section 142.11, AAIS Motor Truck Cargo Legal Liability Coverage Form, for a detailed evaluation, discussion and additional information on this and related subjects. * |
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