Cargo policies provide a somewhat hybrid form of coverage, involving elements of both third party liability coverage and first party property coverage.  The coverage is intended to respond to damages involving goods of others which are in the care, custody, and control of and being transported by the insured, which is typically a trucking or transportation company of some type.  Once the cargo is turned over to the insured in seemingly good condition, the insured is generally presumed to be responsible for any damage to or loss of those goods up to the time they are delivered.

Most cargo claims are governed by the Carmack Amendment, a federal statute intended to lay out overall rules, and which generally trumps state laws when a shipment involves interstate transit.  According to these rules, the designated transporter of the cargo is generally viewed as responsible for any loss or damage, regardless of the cause.  There are a very few exceptions which include so called Acts of God as well as acts of the shipper.  The rules are somewhat vague, and various courts have not always consistently agreed on their interpretation.

One example might involve damage to cargo that was packaged and/or loaded by the shipper, which was later found to be damaged as a result of inadequate or improper packaging or loading, and not by anything done by the transporter.  It would seem on the surface that a loss in these circumstances was not intended by the governing statute to be the responsibility of the transportation company.  Unfortunately, the facts are not always crystal clear, and courts have ruled both ways on the issue, often depending on the specific details of the case.

Insurance policies providing cargo coverage are not nearly so standardized as some other types of policies, and can vary significantly in how they are written and what they intend to cover.  Some policies provide coverage for losses resulting from a limited list of causes, similar to a basic property policy.  These might include only specified causes such as collision, overturn, fire, theft, etc.  Other policies more typically provide coverage on an “All Risk” basis, again similar to a more comprehensive property policy.  Some cargo policies provide coverage for the insured’s legal liability for damage to property of others which is being transported.  However, even the so called All Risk and legal liability coverage will contain some exclusions such as theft or illegal acts by the insured, losses resulting from war or terrorism, and other such causes which are considered to be uninsurable.

Another somewhat unique feature of many cargo policies is the insurer’s option to settle a claim with either the “claimant” or with the insured.  Cargo policies typically are subject to a deductible, which must be paid by the insured.  These can be modest amounts, such as $1,000.00, or can be fairly significant.

Cargo policies also may include specific endorsements or coverage limitations for certain types of losses.  One common example is the Refrigeration Endorsement or “Reefer Breakdown” endorsement, which typically limits or excludes coverage for loss resulting from the freezing or thawing of a temperature controlled load unless there is clear evidence of a mechanical or electrical malfunction of the refrigeration system.  This limitation is intended to avoid providing coverage for simple driver error in properly setting the temperature controls.

I am reminded of one Reefer Breakdown claim handled by our company.  The temperature control apparatus, similar to a home thermostat, included settings for either “F” (Fahrenheit) or “C” (Celsius).  The driver dutifully explained that he had correctly set the machine for “Cold” rather than “Freeze”, and couldn’t understand why the cargo of fresh vegetables had turned into tomato popsicles by the time he reached his destination. 

There are also a number of specialized types of cargo which can require specific coverage forms and endorsements.  Certain high risk and/or high value commodities such as furs or liquor may be excluded, or require additional premium.  Another example is pharmaceutical products such as prescription medications and other drugs, many of which can fall into the category of controlled substances.  Like most every other commodity in the world, these must be transported by truck, and can require particular underwriting and claim handling.  

Our firm handles a number of bank courier claims, which also fall into this category.  Because the “cargo” typically consists of paper checks which have been deposited into and credited to various accounts, but have not yet been processed for collection from the issuers, the loss of these checks involves damages which are not typical of other cargo claims.  For that reason, insurers of this type of cargo have created coverage forms which refer to “Face Value” amounts and “Reconstruction” costs as damages.

Cargo claims can also involve some of their own unique words and phrases.  The shipper is obviously the party who ships the load.  The party to whom the load is intended to be delivered, or to whom it is consigned, is typically known as the consignee.  The “shipper” may not be the same party who manufactured the goods, but may be involved only in providing shipping services.  There are often others involved in the flow, such as transportation logistics providers, load brokers or other middlemen, motor carriers who subcontract a particular load to another trucker, etc.  Different rules and obligations may apply to a Common Carrier as opposed to a Contract Carrier, although in recent times the distinctions between and among these various roles have tended to blur somewhat.

It can be critical to obtain the Bill of Lading and other shipping documents, which often spell out the parties involved and the specific terms of the shipping agreement.  The details of these documents might specify a particular motor carrier as the party responsible for any damage to the cargo, even though the actual transporting of the load has been subcontracted to another trucking firm.  Or, they might limit the transporter’s liability to a specific amount per pound, for example.  We handled a claim several years ago involving a load valued at close to a half million dollars, which was destroyed, and for which the insured trucking firm appeared to be responsible.  Upon reviewing the “fine print” of the Bill of Lading, we discovered that the insured’s liability was limited to a small amount per pound, and the claim was ultimately settled for something like $17,000.00.   

Most cargo policies provide coverage for what is typically termed “direct physical loss” to the goods being transported, and often specifically exclude any indirect or consequential damages.  For example, a shipper may have sent out a load of goods which cost it $10,000.00 to produce, but which they had tentatively sold for $15,000.00.  If that load of goods is completely destroyed in transit, there is a question regarding the extent of the “loss”.  The direct physical loss, or the actual cost to the shipper of the load was $10,000.00.  However, the shipper will logically feel that they also lost their prospective profit of $5,000.00.  Under many policies, this potential profit falls under the category of consequential damages, which are not covered.

It is particularly important to determine who owned the cargo at the time the loss occurred.  In the example given above, let’s assume that the buyer or consignee had already purchased the load for $15,000.00.  When the cargo is destroyed before being delivered to them, they have arguably lost the full $15,000.00 they paid for the load, and that may very well constitute the amount of their “direct physical loss”.  Confirming ownership and the actual value of the load can be critical when handling a cargo claim.

We recently handled a cargo loss for which the shipper presented a claim in the amount of approximately $30,000.00 for a load of food products.  This figure was based on the invoice issued by the shipper/manufacturer.  However, when the adjuster obtained further documentation it was determined that the shipper’s actual “cost” for the load was only approximately $7,500.00, and the settlement was based on that figure.  This obviously represents a substantial savings for the cargo insurer as a result of diligent claims work.

The nature of the cargo can also drive the method in which a claim is handled.  A load of steel girders that overturns in Montana in the middle of a blizzard can be picked up by a towing company and stored outside at their location for a time without any great danger of additional damage.  However, a load of fresh strawberries in the same situation will obviously not fare so well, and will likely require some immediate attention if it is to be saved.  Obviously, the timely reporting of a loss and prompt action can be critical in these situations.

Cargo claims come in all shapes and sizes.  One claim may involve general goods which can be handled fairly routinely, and the next one a cargo that requires specialized handling.  A load of live animals, such as livestock, may require rounding up and relocation to a fenced pasture where they can have the opportunity to calm down and continue feeding in order not to lose a significant portion of their value.  A steel coil being transported by flatbed trailer may sustain what appears to be only superficial damage to the edge, but is likely to be refused by the consignee because the risk of running that product through their plant might result in damage to their multimillion dollar machinery.

Another key element in the handling of cargo claims involves what can be done with the damaged or refused load.  As the old saying goes, “one man’s junk is another man’s treasure”, and determining what to do with the damaged items can have a significant impact on the ultimate cost of the claim.  Dealing with the so called salvage is very important. 

A load of meat may have suffered some degree of exposure to the elements or temperature that renders it unusable for sale in a grocery store, but it might still be completely useful for some other purpose such as pet food.  Fresh citrus may have lost its consumer preferred color, but still be perfectly fine for making juice.  That steel coil with the bent edges might have great value to another factory which can cut off the damaged section to create a smaller piece of steel exactly the size they need.

It is critical that the cargo adjuster have access to those who are interested in buying such damaged salvage.  The return in some cases can be surprising.  Although it is extremely rare, we have been involved in cases where the value of the salvage, or damaged goods, actually turned out to be greater than the amount of the original claim.

Our company handles a wide variety of cargo claims, the majority of which are generally fairly routine, but some of which can be somewhat exotic.  Within the past year we have dealt with everything from damage to a one-of-a-kind “priceless” custom concept car, to construction equipment worth hundreds of thousands of dollars which was being shipped overseas, to multimillion dollar shipments of pharmaceutical products.

There are several critical elements involved in the handling of cargo claims.  It starts with understanding the coverage and the scope of the insurer’s intent when issuing the policy.  Another involves properly identifying the cargo and the various parties involved, and their respective relationships, duties, and contractual responsibilities.  A crucial step involves the appropriate valuation of the damaged cargo.  Yet one more involves critical decisions regarding the handling and disposition of the damaged cargo. 

Because cargo losses can be so varied, and can potentially involve some very unique issues, they require particular expertise on the part of those handling the claims.  A cargo insurer’s decision on how their claims will be handled, and by whom, can make the difference between a successful program and one that is unprofitable.

My father was an independent claims adjuster who worked from our home, and when I was growing up I helped him on weekends and over the summer.  I was answering the phone and taking reports of new losses starting when I was maybe twelve.  I do remember that my voice hadn’t changed yet, and the callers generally assumed I was a female secretary.  When I was old enough to drive, and possibly slightly before, my dad would send me to take photos of wrecked cars and to the police station to pick up accident reports.

I had decided pretty firmly that I was not going to go into the claims business.  In fact, my father always preached that if I ended up in insurance for some incomprehensible reason, I should at least go into marketing, since that paid better than claims.  Needless to say, I did eventually drift into handling claims, and that’s what I’ve done all my life.

I recall that my dad had an old photocopy machine that actually took a picture of the document, and what came out was essentially a negative.  The page on the copy was dark, with the lettering in white – an exact opposite of the original.  The copy was on heavy slick paper, and was initially blank.  You had to place it in a pan of liquid developing fluid for several minutes, and then hang it up to dry.  We had a place in the corner of the office with a small clothesline where we would use clothespins to hang the documents until they were dry enough to put in a file.

As a young adjuster I spent most of my time in the car.  To call someone, I had to find an outdoor, drive-up pay phone.  Usually the cord would barely stretch to the car window, no matter how close you were, and so you usually had your head part way out the window.  I can tell you that in the winter in Nebraska the phone calls were kept as short as possible.  You also had to make sure you always had plenty of dimes for the pay phones.

Along with every other adjuster at the time, I used to take handwritten statements from insureds, claimants, and witnesses.  Some of the old timers I worked with when I was getting started carried around a portable typewriter in their car for typing statements, release forms, and the like.  They would sit in the car, or at someone’s kitchen table or picnic bench, with an old Underwood on their lap, and usually with one finger, type everything out for signatures right on the spot.

At times I used an old fashioned Polaroid camera, the kind where you would snap the picture and then pull out the undeveloped negative by the tab.  It was covered with some kind of developing goo, and much like the old photocopy machine needed several minutes before you could peel off the covering and actually see your picture.  I learned that in cold weather the goo became thick and wouldn’t work well.  When I was out at an accident site in the winter I would have to tuck the undeveloped pictures under my arm, or take them back to the car and put them on the floor under the heater vent.  In fact, ballpoint pens would freeze as well, and I learned to keep a spare under one arm to remain thawed, and then switch them back & forth as one stopped working.
Naturally, we had no GPS in those days, so as an outside adjuster it was important to get good directions to where you were going.  Being in the Midwest there were plenty of claims involving farms and travel in rural areas.  The layout in Nebraska is pretty simple.  There is generally a country road every mile.  So the directions would be something like “three miles north and one and a half miles west” of some particular town or landmark.  It usually worked out OK.

At one point I was handling claims in Houston, Texas, and ran into a somewhat different method of giving directions.  One old guy I was going to see directed me to a specific convenience store.  He explained that when I walked in there, they would have a big tub of iced beers right inside, and I should buy myself a cold beer.  Then, while sipping on my beer (it was legal then in Texas to drink and drive) I should start driving north on a certain road.  When my beer was getting down to about half empty I should watch for a big red barn, and make a right turn.  Then when my beer was almost gone I would be there.  It was the first and only time I’d ever been given directions “by beer”.  I can’t help chuckling to myself when I think of telling someone that I’ll meet them “two beers north, and then half a beer west”.  I guess it would be important that the driver drink his or her beer at approximately the same pace as the one providing the directions, or it would never work.

I also recall that when faxes were first introduced, they were only used for particularly important messages.  And back then they were printed on very thin slick paper that curled up from being on a roll, and it was hard to flatten them out to put in a file.  It probably didn’t matter that much since the ink always faded after awhile anyway.

While I am not a techie by any stretch, I have to admit that some of the gadgets and technology that have come along have certainly made our lives easier.  Everyone has a cell phone, and most business people have a Blackberry or similar device.  A great deal of our communication these days involving claims is done by e-mail.  And you can obviously get on the internet and have access to a wealth of information, not to mention quite a bit of junk.

Perhaps the biggest change for the claims industry brought about by the introduction of some of these new technologies has been a sense of immediacy.  At one time an insurance company claim examiner, upon receiving a new loss, would send a typewritten assignment to an independent adjusting firm by mail, and diary the file ahead for 30 or 40 days.  It was accepted that the local adjuster would conduct their investigation, get photos of the damage developed, and mail in a full report generally within a month or so.  Upon receipt, the examiner would review the adjuster’s report, write back (again by snail mail) with any questions or clarifications, and maybe extend authority to the adjuster to try and settle the claim.  Or, the examiner might need to request the paper policy file from the Underwriting Department, and it would eventually show up in the interoffice mail cart in a few days or a week.  Then, maybe in another month, the signed Releases and payment recommendations from the local adjuster would show up.  The examiner might then submit a payment request, which could languish on someone else’s desk for several days or a week, and eventually a check would be typed and mailed out.  It could be months in some cases between the time the loss occurred and the time the settlement check was received, even in fairly routine cases.

These days, particularly in the world of transportation claims, those kinds of timeframes are no longer acceptable.  It isn’t unusual for our office to receive notice of a new loss shortly after it occurs.  Sometimes we’re contacted by the driver calling right from the accident scene.  With faxes and e-mail, communication is almost instantaneous.  We often have electronic access to our clients’ policy information so that coverage can be confirmed right away.  We may assign a local adjuster by phone, fax, or e-mail upon receipt of a new loss, and in the case of an emergency we may instruct the adjuster to immediately drive to the accident scene.  We no longer can afford to wait weeks for the adjuster’s report, but often receive them within days or weeks of the loss.  In many cases where we have the ability to issue payments on behalf of our clients, we may issue a check to a towing company or for temporary repair costs in order to minimize downtime or further costs, or to get a cargo reloaded and delivered.  We have literally had claims that were reported one afternoon, and we were able to have a check delivered across the country the following morning.

There is definitely a sense of urgency involved with many losses in the current claim environment.  Because of advances in technology, our claim handlers are able to gather information and get things done with a speed that would astound adjusters from decades ago.  While the basic elements of investigating and handling a claim may not have changed dramatically, the timeframes have undoubtedly done so.

No, I don’t miss those old days much when I think about what now seem like pretty silly things we had to do.  I do sometime wish I still had that old Polaroid camera; it would probably bring a few bucks on E-Bay as an antique.

Step One: Coverage

The first key element is Coverage. The adjuster must review and understand the policy, its intended scope, coverage forms and endorsements, effective dates, and key provisions. Does this particular policy apply to the loss? If there is a vehicle involved, is it required to be listed on the policy schedule, and is it there? Does the policy require that the driver be specifically insured, or in the alternative is this particular driver excluded from coverage? If the loss involves a transportation accident, does this particular policy apply to liability, physical damage to the tractor and/or trailer, cargo, injuries to the driver or any passengers? Is the person or firm involved, or the particular location, the same as the one intended to be covered under the policy?

Once the coverage issues have been analyzed, a key decision must be made. If there is no coverage applicable to the loss involved, there may be no need to move on to the next categories. However, the answer is oftentimes not completely clear. A vehicle or driver or location required to be listed on the policy schedule may not be included, but it is possible that it is in the process of being added. Many policies involve the monthly reporting of vehicles and/or drivers, and there is always some delay in that information reaching the appropriate party in order for the policy to be updated. It may be necessary to check with the agent, insurer, or underwriter to confirm.

It may be that the adjuster does not have the complete policy or coverage details. Most policies include various endorsements, some of which may potentially have an effect on a particular loss. It may be necessary to obtain and review additional parts of the policy in order to make an informed coverage opinion.

If it appears there may be no coverage, more decisions must be made. It can be dangerous to simply take the position that the policy doesn’t apply, and take no further action. There is no way of knowing whether the information initially provided concerning the loss is complete or accurate. If there are questions, it may be necessary to conduct additional investigation in order to rule out coverage. In such a case, the adjuster may make the decision to issue a formal Reservation of Rights to the insured, or obtain a Non-Waiver Agreement, which formally notifies the insured that there is a question regarding coverage. It essentially allows the adjuster to develop more information, while at the same time protecting against the allegation that such action implied that coverage was in order.

If the first notice of the claim was in the form of a lawsuit, with a specific timeframe in which an answer must be filed, the adjuster has additional decisions to make. Should he or she retain an attorney to file a response, in order to avoid a default judgment potentially being entered against the insured or driver? Is it possible to obtain an agreed extension of the answer date from the plaintiff attorney? If the coverage issues are not clear, as is often the case, should the adjuster hire coverage counsel to look into the matter and research the applicable law?

If there is clearly no coverage, or once additional steps have been taken to confirm that there is no coverage, there may be no need to move to the next element of the claim. If coverage does apply, it is then necessary to move on to the second phase.

Step Two: Liability

Once coverage is confirmed, the second key element is to determine Liability. Was the insured at fault or legally responsible for the loss? This obviously can involve such straightforward facts as who ran the red light, or who failed to clear the ice from the sidewalk. But it may not always be as simple as that. There may be contracts or leases that could create legal liability on the part of the insured. The insured may or may not be responsible for acts of another party. Or the loss may involve a jurisdiction where comparative fault can be the basis for a claim. For example, your insured may be only slightly responsible for an accident, but in some states still potentially at risk for a proportionate share of the resulting injuries or damages.

If the loss involves “First Party” damages, the Liability phase may be moot. For example, if coverage is provided contractually under the policy for damage to the insured’s vehicle, or the driver’s medical bills, or for Workers Compensation, or for some type of property, or some other type of loss, it may be considered to apply automatically without regard to fault.

If the investigation indicates that there is no liability on the part of the insured, those presenting claims must be appropriately notified of that determination. In certain states this requires that the claimant also be referred to a state insurance department for a possible review of their claim.

Once sufficient investigation and fact finding has been completed to establish coverage as well as liability on the part of the insured, the adjuster can move on to the next phase of the claim.

Step Three: Damages

Once it’s been determined that there is coverage and the insured is at fault (or in certain instances is not required to be at fault), the adjuster must then determine what damages resulted from the loss.

Damage to a vehicle or some other physical object can be relatively simple to ascertain. A vehicle appraiser can inspect the damage and write an estimate for the cost to repair it, or determine what its market value was prior to the accident. The cost to replace a damaged roof, or repair a destroyed guardrail, can be determined fairly easily.

However, the damages involved in an injury can be much more difficult to quantify. The nature and extent of the injury, the scope and costs involved in treatment, the time missed from work, additional expenses, and other types of “special” damages can be determined. But what of the so called pain and suffering, or “general” damages to which the injured person might be entitled? This is much more subjective and open to interpretation. The situation is typically complicated by the wish of the injured claimant to get a settlement as large as possible. It is oftentimes further complicated by the presence of an attorney who might intentionally or otherwise exaggerate the extent of the injury, or even encourage the injured party to incur additional medical bills, in order to enhance the perceived value of the claim.

The location of the accident, and the jurisdiction in which the case might potentially be tried, are also significant factors. Juries in some areas are generally considered to be much more liberal in awarding damages than in other areas. An injury claim in New York City or the Rio Grande River Valley may be worth much more than the same injury in North Dakota, or even in a small rural area of New York State. These are all factors the adjuster must weigh.

Conclusions

Some would add a fourth critical element in the handling of a claim: Settlement. Once the coverage, liability, and damages have been reasonably determined, the final phase involves bringing the claim to a conclusion by way of reasonable settlement. The terms and figures must be explained clearly to the claimant, who must agree to accept the proposed settlement. This can involve back and forth negotiations, depending on the situation. This would generally be followed by the signing of some type of document such as a Release or Proof of Loss, and the actual issuing of the settlement check.

In a relatively small percentage of cases it may not be possible to reach a reasonable settlement, for various reasons. Maybe the demands or expectations of the claimant or his/her attorney are not realistic or in line with the facts. Or there may simply be a wide gap between what each side sees as the true value of the claim. In these cases it may sometimes be necessary for the case to be tried, and for a judge and/or jury to determine the ultimate value of the claim.

Whether a claim involves a rock chip in a windshield or total destruction of a vehicle, a shingle blown off the roof or the complete collapse of a skyscraper, a cut on the hand or a catastrophic brain injury, the basic elements are the same. The process can appear to be fairly simple, and in many cases it is, but there are a huge number of variable factors at each stage of the claim process which can complicate things. The trained and professional claim handler will take these into account, but will still remain focused on the key components of each claim.