Why Insure, or Not?

Why Insure, or Not?

Q: As a long-time reader of your column, I must admit I rarely disagree with your advice and assessment of a question. I really don’t with your column, “Carrier’s Insurer Denies Claim,” in the JoC Nov. 23, 2009, issue either, but I believe you omitted an avenue of relief in your answer to the shipper who lost $300,000 worth of cargo in the uninsured truck.

The facts as laid out indicated the driver of the shipper’s hired truck was not at fault and there were witnesses to that effect; a van swerved in the road just in front of the truck, causing it to jackknife into a gasoline pump, resulting in a fire that consumed both truck and cargo.

I expect you assumed the driver of the van that swerved in front of the truck kept going and wasn’t identified. That’s probably correct, but I believe it should be stated that if the driver of the van were identified, his or her insurance would be liable to the extent of the coverage, and the driver for the remainder.

I admit this isn’t too likely, but it’s something to look into.

A: No, I can’t agree.

Auto insurance covers accidents that involve the insured vehicle. The van wasn’t in the accident, and the policy doesn’t apply to bad driving. So the van’s insurer wouldn’t have liability.

One could, I suppose, sue the van’s owner/driver personally, but this kind of cause-and-effect scenario is a nightmare to prove legally, recovery would likely be minimal, and what you’d probably do is merely enrich the lawyers who fought it out in court.

But I appreciate the suggestion. It’s certainly creative, and if I knew Bill Gates was driving the van, I might be tempted.

Q: Regarding your Nov. 23, 2009, article, why is it you don’t recommend that companies carry cargo insurance? I’m sure you are privy to more information about the companies than is shared in the articles — such as, the size of the company may make it impractical — but I could not imagine not having a policy.

Is there any reason you don’t at least throw it out there for your readers?

A: It took me a moment to get the gist of your question, since there was cargo insurance in effect on the shipment in question, it just didn’t apply because the vehicle was excluded from the policy.

But then I realized that you were speaking not of insurance maintained by the carrier, but of insurance that the shipper itself might buy to cover its own goods while in transit.

And as soon as I read your signature block, the other shoe dropped. You identify yourself as the executive director of “international logistics and compliance” for your company, which puts your question into perspective for me.

On international cargoes, especially those moving by sea, it’s quite common (and prudent) for shippers to maintain so-called all-risk insurance to cover shipped goods. That’s because of the severe limits on maritime carrier liability under the Hague Rules and COGSA, the U.S. Carriage of Goods by Sea Act.

As I’ve written before, a ship’s captain can steer the vessel onto a reef while blind drunk (shades of the Exxon Valdez!) and the carrier has no cargo liability. And despite recently ratified amendments to Hague and COGSA, even if you can show liability on the part of the carrier, the dollar amounts are still pretty pitiful.

Where goods are moving by air, the governing Warsaw Convention, although vastly superior to Hague/COGSA in this regard, still leaves enough cargo liability loopholes that the wise shipper may take out its own insurance to plug the gaps.

Shipper insurance also makes sense on goods crossing the border over land into Mexico, where carrier liability fluctuates (based on exchange and labor rates) between two and four cents a pound. You must, however, use a Mexican insurer — Mexican law doesn’t recognize foreign companies in that line of business — and the law is biased in their favor.

For U.S. domestic rail or motor transportation, however, I know of few, if any, shippers who buy their own cargo insurance. Given the absolute liability of carriers in this country under the Carmack Amendment, the cost would be prohibitive compared to the potential benefit.

So while you, in the international end of the transportation management business, “could not imagine not having (an insurance) policy,” your counterparts in the domestic surface side of it probably can’t imagine having one. Big difference, huh?

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 536-page compiled edition of past Q&A columns, published in 2001, at $80 plus shipping.