Q&A: For Shippers, Time to Self-Insure?

Q: As a motor carrier broker, I’m troubled that, while so many new laws and regulations adversely impact us, the government actually has done away with regulations regarding cargo insurance by truckers.

Yes, I’m aware that it’s usually a loser for our clients, the shippers, to file claims against a carrier’s insurance. There are so many exclusions in cargo policies these days as to make them useless in most cases. Acts of God aren’t covered; preventable accidents aren’t covered; most electronics aren’t covered; and so on. Remember the Orlando hotel that was swallowed by a sinkhole? The hotel guests originally were told their goods would be covered, but now they’re being told to file under their own homeowners’ policies. Same thing here.

I wonder whether it’s time for shippers to insure their own products, as the legal owners of the freight. Rail and ocean shippers already must; try to pursue a claim against either one. Should shippers buy their own insurance (or self-insure), and pay for line-haul only? I mean, they’d pay for loss or damage if it occurred other than in transportation, right?

If the government will no longer track cargo insurance, why should we as brokers have to do so?

A: An interesting idea, and not the first time I’ve heard it. The main argument against it is more a matter of tradition than anything else — but it’s centuries’ worth of tradition.

First off, wipe the question of carriers’ cargo insurance off the table. Yes, I know many carriers basically use their insurers as claims departments, and a surprising number of shippers have come to accept that. But the reality is that cargo insurance is for the benefit of the carrier, not its shippers.

As a shipper, your claim if goods are lost or damaged en route lies against the carrier, not its insurer. The carrier maintains a cargo policy to protect itself against claims for which it’s liable, not to protect its shippers. Any exclusions in a cargo policy are therefore the carrier’s problem, and don’t affect the shipper unless the same exclusions also are found in the underlying law of carrier liability.

To use your illustrations, loss or damage of goods due to an act of God indeed may be excluded, although under much tighter restrictions than apply to insurance policies. Other policy exclusions, though, such as a “preventable” accident and electronics products, don’t affect a shipper’s claim against a carrier. So whether or not the carrier is reimbursed under terms of its cargo policy, it still owes the shipper.

Now, to be sure, the carrier may not have the financial wherewithal to pay the shipper’s claim if the claim falls outside its cargo insurance coverage. That’s why your shipper clients push you to make sure the carriers you select have cargo insurance. But that’s a practical problem, not one of law — which is why it falls outside the purview of governmental oversight.

If you’re suggesting that shippers buy their own insurance (or self-insure) on this basis, I guess you have an argument. If what you’re saying is that carriers themselves should be relieved of loss-and-damage liability, though, good luck with that one.

The principle of absolute carrier liability for goods entrusted to them for transportation actually dates back, not just centuries, but millenia. It harks back to an era when carriers tended to be itinerants of uncertain (at best) reliability and not at all part of the commercial mainstream of the local community, and was an effort to maintain at least some sort of protective structure for the shippers.

Sure, things have changed since then. I find the idea that maintaining this regimen in order to be sure carriers protect the goods they’re given by their shippers laughable these days; a carrier that’s sloppy about securing shippers’ wares won’t last long in the marketplace.

Still, tradition has its place. Everybody’s used to the current way of doing business, and the kind of change you propose would be nothing less than revolutionary. In the real world, it just isn’t going to happen.

So carriers will continue to be liable, and shippers will continue to care about the insurance that lets them support that liability economically, notwithstanding that it runs beyond government’s regulatory purview. Sorry, but that’s the way it is and I expect will be. This is simply one new trick that you can’t teach the old dog that is the modern transportation industry.

Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at 5201 Whippoorwill Lane, Johns Island, S.C. 29455; phone, 843-559-1277; e-mail, BarrettTrn@aol.com. Contact him to order the most recent 351-page compiled edition of past Q&A columns, published in 2010.

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