What is Cargo Legal Liability Insurance?
Cargo legal liability insurance is a type of coverage that protects insurance companies and other entities who are legally liable for physical loss or damage to the goods while in their care. This form of insurance is tailored for those engaged in the business of transporting cargo, including freight forwarders, customs brokers, warehouse operators, container depot operators, and shippers. Pursuant to federal regulations, carriers are required to maintain liability insurance that covers the liabilities set forth in the Canada Transportation Act. Cargo legal liability insurance is a practical solution for the preservation of such companies’ financial viability, and can be determines on an annual basis. This, however, does not apply if the carrier is transporting cargo under a "no remedial clause," in which case the extent of the insurance coverage is dictated by the Canada Shipping Act (which provides for a $2 per kg maximum liability regardless of the type of cargo). Businesses that offer warehousing services , storage, freight forwarding, or customs brokerage often choose to procure the cargo legal liability "add on" to their insurance policies, as the liability is as high as the insurance limit obtained. For instance, a freight forwarder may purchase a CAD $10,000,000 cargo legal liability insurance policy. Suitability is determined in view of the type of goods being handled. Certain insurance companies typically cap coverage at CAD $1,000,000, and the premiums can be cost prohibitive. If a cargo loss or damage occurs to a shipment while in your care, custody, or control, cargo legal liability insurance will ensure that the monetary burden is lifted from your shoulders. Here, the legal liability of the insured company would be covered up to CAD $10,000,000, and the insurer would handle any damages suffered by the cargo owner subject to the terms and conditions of the policy.
Advantages of Cargo Legal Liability Insurance
Financial Protection: With cargo legal liability insurance, businesses are safeguarded against potential losses or claims due to damage, theft or any external event that might cause harm to the goods in transit. This kind of financial security is crucial for shippers, as it ensures that they do not suffer financially from circumstances beyond their control.
Risk Management: The world of logistics is filled with uncertainties, ranging from natural calamities to human errors. Cargo legal liability insurance helps in mitigating these risks, enabling businesses to focus on their core operations without the constant fear of unpredictable financial burdens.
Operational Security: Knowing that every shipment is covered under a legal liability policy adds a layer of security and assurance to the operational process. Shippers can operate with peace of mind, safe in the knowledge that even in the event of a mishap, their business is protected.
Protecting Your Interests: Whether you are an exporter, importer, freight forwarder, or a carrier, cargo legal liability insurance ensures that your liability is covered in case of any unforeseen circumstances. This protection allows you to sign carrier and bill of lading contracts more confidently, knowing that your liabilities are mitigated.
Scenarios where Cargo Legal Liability Insurance can be advantageous:
Loss/Damage in Transit: Goods may get damaged or go missing during transit due to various reasons. In such cases, a legal liability insurance will cover the value of the lost or damaged goods, subject to deductibles and limits.
General Average: In case of a catastrophic event like a sinking ship, where the loss is shared among all parties, carrying cost of the insured cargo shall be compensated within the terms and conditions of the contract of carriage.
Delay in Delivery: If the insured shipments get misplaced in the transit or reach the consignee after the stipulated time, insurance will cover the delays caused by such transits.
Various Types of Coverage
The types of coverage available on a cargo legal liability policy can vary widely based on factors including the type of transportation method actually used by the shipper when the loss occurred. For example, for ocean shipments, coverage is generally provided from the time of the "port-to-port" contract between the carrier and the shipper/ consignee. The coverage provided is based upon the "United States Carriage of Goods by Sea Act" (the "COGSA"). The COGSA limits certain liabilities for ocean carriers as long as carriers meet certain conditions. It provides an absolute limit on the liability of the carrier for property on a shipment basis. If the COGSA applies, carriers cannot exempt or reduce their liability to less than $500 per package (or customary freight unit), whichever is higher. As discussed above, many contracts signed between carriers and shippers provide that the COGSA applies to the shipment. Most standard ocean coverages are written to cover the damages for which the carriers are responsible under the COGSA. This coverage can also provide excess cargo legal liability coverage to the extent that the terms of the applicable bill of lading increases the carrier’s liability beyond the COGSA limitations. In addition, cargo legal liability insurance may also:
First, cover damages in excess of the COGSA limitations in the event of a loss.
Second, cover damages due to carrier negligence.
Third, provide increased coverage for commodities that are perishable, as well as "assured’s own goods" if damaged by leakage or breakage.
Fourth, provide coverage despite the fact that physical movement of the cargo was not the immediate cause of the physical loss or damage to the insured goods.
Fifth, provide coverage even if the bill of lading provides the carrier with exclusive control.
Finally, coverage may vary based upon the transportation method actually used by the shipper when the loss occurred. For example, air shipments are generally covered "cause of damage", while domestic ground shipments are generally covered "all risks".
Policy Limitations and Exclusions
Policies, exclusion and limitations – understanding your "freight forwarder’s legal liability policy" (or "CGL policy")
Like other insurance products, policies may include exclusions that restrict the cover provided. Some exclusions limit the scope of claims that can be made under the policy while others apply to specific circumstances.
Common exclusions in a typical cargo legal liability policy include:
There are certain things a CGL policy will not provide cover for. Comprehending your policy’s coverage limitations is essential, so losses or damages don’t fall through the cracks.
The interpretation of policy exclusions is assessed based on the language of the exclusion, the context provided by the policy and the wording of any applicable extensions and conditions. An assessment of the interpretation of the policy and the exclusions within it should be based on all facts available and ascertained only after scrutiny of the policy.
Importantly, the wells of the insurer and insured are not equivalent and there is usually good reason for a loss or damage to be excluded. Insurers will usually only be required to indemnify its policy-holder for compensation for loss or damage to property where the loss or damage is caused as a result of the circumstances covered by the policy.
As with other insurance policies, before entering into an insurance contract, it is always a good idea to obtain your legal advisor’s input as to what the policy may cover to avoid unexpected liabilities.
Selecting the Appropriate Insurance Carrier
When it comes to cargo legal liability insurance, selecting the right provider is crucial for shippers. A reputable insurance provider should possess solid experience in the industry and a track record of customer service. They should be willing to provide guidance on complex matters and be responsive to questions or claims. Additionally, an insurance provider that is financially sound and has good ratings from third-party evaluators will typically provide additional confidence to shippers . One should also consider the costs associated with the policy. While it’s important to get an effective policy, it’s also necessary to obtain a policy that is affordable within the scope of one’s business operations. All of these factors will help ensure that one is protected from the liability risks that are associated with shipments and cargo.
Making an Insurance Claim
Should there be a problem with a carrier, such as mis-delivered cargo, a lost shipment, or damage to cargo, it will be necessary to file a claim or claims under the cargo legal liability insurance policy. The following might help you with how to file a claim:
- If the damage or shortage was in fact caused by the insured’s failure to exercise due diligence to properly care for the goods, the insured will be barred from recovery.
- A claim must be for actual loss and there are a number of ways to show the amount of the loss. The amount of loss can come from the carrier, the shipper, or even the insurance company. It might be argued that the carrier should be 100% liable (because there was a total loss) or the insured (for instance the freight could be 50% of the loss).
- Apply to the carrier to handle the short run.
- Send a Notice of Claim to your insurer.
- The insurer may appoint a surveyor to survey the loss.
- It is very important to take pictures to document the condition of shipment.
- You should retain all of the records in the transaction, all communications between you an the parties to the transaction, as well as the bill of lading.
- After the insurer has had the opportunity to complete its survey, you should arrive at a settlement with the insurer.
- If not, there may need to be arbitration or litigation.
Liabilities of Shippers in the Real World
Expecting assurances from carriers that your cargo is "covered" is simply not good enough. If your cargo is lost, damaged or any combination of the two, you’ll be at a loss figuring out where your chances of a recovery stand. Are you fully protected? Partially protected? Unprotected? As a shipper, your legal responsibilities with respect to cargo liability and insurance must be clearly understood; as, insurance does not exempt you from your legal liability should a loss or damage occur.
The law can be unforgiving when a claimant positions itself within the shadows of limiting statutory and/or contractual liability provisions. However, if you don’t hold your carrier accountable, under no circumstances will you ever be able to recover.
The positioning of the carrier
The carrier’s position under common law is that it is not liable for a loss of or damage to cargo if it can prove that the loss or damage was caused by one or more of the following:
- An Act of God
- An inherent vice
- The Goods’ own natural characteristics
- An Act of War
- Adverse Weather Conditions
- An Act or Default of Any Person or persons other than the carrier (or its employees)
The positioning of the shipper
The shipper’s position under common law is that it is only liable for the loss of or damage to the cargo – if at all – if it can prove that each of the listed items set forth above did not contribute, in manner good enough, to the loss or damaged suffered by the carrier. In this event, if the carrier has suffered significant loss as a result of the shipment awaited, a court may assess damages against the shipper/claimant in an amount over and above the contractual value of the goods.
In the interests of an expedited and verifiably correct assessment of losses, many shippers prefer to reduce the assessment of losses to contractually agreed sums, i.e. within a specific formula limiting the carrier’s liability to a stated amount regardless of the true costs incurred (known as the carrier’s limit of liability). Many carriers in the business of transporting cargo also limit their liability for loss or damage to the lesser of the actual value of the goods, or the value declared by the shipper at the time of shipment.
In an attempt to increase the carrier’s recovery prospect and speed, slips: are often signed, promising that the shipper will sign further documentation; often containing little more than a signature; often with no indication of intent.
Case Studies and Takeaways
Consider these real-world examples of how cargo legal liability insurance has played a crucial role in resolving disputes and preventing costly litigation for shippers.
Case 1: Conflicting Rules and Liabilities
A marina customer contracted a yacht transport company to deliver his $6 million pet project to its new owner. The transport company agreed to assume liability for the shipment and purchase $6 million in total loss insurance on the yacht. The yacht was stolen off the transport truck. The carrier claimed the yacht’s owner had signed a contract that limited the transport company’s liability to $50,000, and that he was not in fact liable for the loss. However, the contract was not properly signed. The truck driver who later testified at trial said that the contract had been handed to him for signature as he was leaving with the yacht. The transport company’s paperwork showed that the driver had taken possession of the yacht before the contract was signed and without obtaining a written declaration. The trucker was required to report his load to the authorities for insurance purposes. The authorities required the driver to provide a declaration that he was transporting the yacht to the marina. He did this, but failed to mention that he had been contracted to do so , and substituted his employer’s name for his own. In doing so, he misrepresented that the vessel was owned by the yacht’s owner rather than the carrier. This paperwork indicated that the yacht was in his care as an employee of the carrier. This mistake caused the insurer to disclaim coverage, and resulted in the yacht owner suing the carrier. Lessons learned:
Case 2: Theft Compensated in Full Without Litigation
A furniture manufacturer contracted with a drayage service that promised delivery of 200 antique wardrobes to New York. The drayage service displayed "care and custody" legal liability signs, which confused the shipper as to whether the total loss amount was $500 or $15,000. The antique wardrobes were picked up from the manufacturer and properly loaded. Halfway into the trip to New York, the driver stopped at a truck stop to eat. The drayage service was unable to reach him by cell phone, and alerted authorities. The authorities later recovered the truck and driver, but the truck was empty and the driver’s answer for the disappearance of the load was that he had delivered it in New York. The driver denied having sold the load to anyone. The drayage company settled for the full value of the load without litigation.