Read the fine print

Read the fine print

Every motor carrier is required to insure the goods of others during transportation. That's hardly a revelation. What is dispiriting is the lack of attention motor carriers pay to the terms and conditions of the Motor Cargo coverage they purchase. Sadly, many insurance brokers who are not specialists in the transportation area pay no attention to the typically restrictive wording contained in many Motor Cargo policies until a claim occurs, and a reservation of rights or an outright denial letter is received from the insurer. That's when the motor carrier reaches for Excedrin.

While virtually every Motor Cargo policy contains disparate terms, let us examine some of the more frequent areas of coverage that must be agreed upon before the motor carrier purchases the coverage. Hopefully, if these fundamental problem areas are resolved prior to issuance, the motor carrier should obtain the reassurance to which it is entitled when a major claim occurs. Most, but surely not all, Motor Cargo policies are written to pay on behalf of the motor carrier for "risk of loss to customers' goods while in the due course of transportation." These policies invariably purport to pay on the carrier's behalf for loss or damage to covered goods except for losses caused by those perils the insurer specifically excludes. But many Motor Cargo policies are issued to provide coverage only for those perils specifically named in the policy. Consequently, under this more limited form, losses caused by any other peril not specifically named as being covered is excluded. There are volumes of case law on this subject alone. Motor carriers are admonished to avoid "Specified or Named Perils" coverage.

While every Motor Cargo policy agrees to pay on behalf of the motor carrier, many Motor Cargo policies are still written without the cost of defense included as a policy condition. This is a critical extension to coverage, since the cost of defending a claim can be astronomical.

Be especially alert to property that the insurer intends to exclude from coverage. In prior years, these typically were identified as target commodities, and included liquor, cigarettes, furs and jewelry. Exclusions today will likely contain piece goods, pharmaceuticals, computers, electronic data equipment and watch movements. Motor carriers and their agents should have an intimate familiarity with the type of property that is specifically excluded. The type and nature of the commodity being transported must be discussed with the insurer in advance of policy issuance. Ideally, we prefer as few exclusions as may reasonably be negotiated.

There are volumes of litigated cases involving goods temporarily stored at various unnamed locations. These may be at warehouses, or predetermined storage locations while awaiting further shipping instructions. The insurer may take the position that the chain of transportation is broken, denying a claim on that basis. Always secure at least a 60-day extension of coverage on the policy applicable to any storage or warehouse location. Many Motor Cargo policies limit this coverage to as little as 10 days.

Warranties of physical protection of equipment - typically alarm systems, guard and cargo-escort services and GPS systems - are becoming more common. This is especially true for high-value shipments. I abhor warranties. I much prefer to see the motor carrier assume a higher retention for loss with the use of higher deductibles than accepting warranty terms, the constructive breach of which often results in litigation.

Virtually every Motor Cargo policy we review contains an often-overlooked exclusion for the defense and payment for losses caused by employee dishonesty or by others to whom the goods are entrusted. There can be no dispute that the motor carrier entrusts customers' goods to the owner-operator. If the owner-operator, acting alone or in collusion with others, steals or fraudulently converts those goods, the insurer will deny the claim. Losses of this type occur with predictable frequency. Where's the coverage? Don't waste time looking for the coverage under the motor carrier's crime or employee-dishonesty coverage, because it isn't there. Remember that those tireless efforts to classify the owner-operator as an independent contractor permit the insurer to forgo payment for any dishonesty losses not caused by an employee. Be absolutely certain that your crime and employee-dishonesty coverage is amended to include owner-operators as employees for the purpose of providing coverage for this type of claim. And be sure that the coverage is written with adequate limits, preferably with the same insurer that provides the Motor Cargo coverage. Shalom!

Thomas A. Laffey is chairman of Polaris Risk Managers Inc., a transportation insurance consulting firm. He may be reached at (973) 882-3100, or via e-mail at polarisins@aol.com. On Insurance is a monthly column.