- October 25, 2009 4:44 pm
- Rick McCord
- No Comments
Cargo Claim Basics
Motor Truck and other cargo claims can present some unique issues for an adjuster, and should generally be handled by someone who knows his or her business.
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.