What to know about cargo, warehouse insurance

I once asked a potential client how much he paid for the last book he purchased. His response was $25. I then asked him if he read it. His answer was yes. I then asked if he read his cargo policy and he said no. I pointed out that he paid $25,000 for this policy, which contained less than 5 percent of the words in the novel, so why hadn’t he read it? His reply was “it was too difficult to understand.”
There are millions of people out there who just don’t read manuals, no matter what they’re for.
Any buyer of a motor truck cargo or warehouseman’s legal-liability insurance policy who does not take the time to read it will, at some point, generally after a major loss, regret not having done so.
All states regulate the sale of insurance. State insurance “departments” control policy language and pricing of most insurance policies. However, not all insurance is subject to the same degree of regulatory control, with one exception being Marine Insurance, both ocean and inland.
Motor truck cargo and warehouseman’s legal liability are classified as commercial inland marine (CIM) and both policy forms are “free of rate and form filing.” Inland marine underwriters are free to write their own terms and conditions (generally referred to collectively as “proprietary coverage forms”) and to charge what the market will bear.
Think of them this way; the essential difference between outerwear and clothing is that outerwear comes “ready-to-wear” while clothing, to fit right and look good, requires the services of a tailor. Motor truck cargo and warehouseman’s legal-liability insurance policies require the services of a “tailor,” in this case an insurance agent or broker, to “custom-fit” it to properly cover the buyer’s exposures.
This can be good or bad. Meaning that the insured literally gets what he pays for with these policies. The good news is that whatever coverage an insured needs can usually be supplied, albeit for a price. Conversely, whatever coverage the underwriter wants removed, can also be removed. This freedom means motor truck cargo and warehouseman’s legal-liability insurance policies, while preprinted by the insurance companies for their convenience, are at least theoretically, modifiable and therefore more susceptible to errors in “tailoring.” Confused yet? Okay, you’re probably not alone. So here’s an example.
Late one Friday evening, ABC Trucking Co. receives direction from the Great Products Company to pick up an outbound seafaring container that is heading to the local shipping port valued at $158,360. ABC sends a driver to Great Products. He signs for the container. However, he realizes that he will not make the port by closing, so he asks to leave the container in a remote section of the facility. He proceeds to move and unhook the container, and then heads home for the weekend. On Monday morning when he returns to Great Products, the driver is surprised to find the container had been stolen over the weekend.
Great Products initiates a suit seeking reimbursement for their loss of $158,360. The motor truck cargo insurance policy ABC purchased states that only loads hooked up to vehicles are covered, as well as terminals and drop yards listed on the policy. The insurance company denies the claim, referencing the fact that the load was unhooked from the tractor and the Great Products yard was not a listed terminal on the ABC policy.
ABC is now left to pay the legal fees, related court costs and any judgment or settlement out of the income ABC earns. This is a case where the exposures from operations of the company did not mesh with the coverage they obtained. Coverage for goods being transported is different than coverage for goods being stored, for instance in a public warehouse. That’s where a warehouseman’s legal-liability policy comes into play.
Insurance carriers generally design policies to cover the warehouseman’s legal liability for property of others stored at your warehouse. But things can get tricky. What does the “legal liability” mean? A simple example is: If someone brings suit against the warehouse for property stored at your warehouse, which was damaged by a covered peril, then the insurer would pay the claim.
Yet, what happens in the case where your largest warehouse client has goods valued at more than $600,000 in your rented public warehouse when the sprinklers let go. Such was the case in Boston in 1999 when maintenance being performed at the property by the landlord triggered the event. The warehouse owner arrived to water rushing from the dock doors of the building. The property was ruined and the customer wanted to be paid.
Assuming they had the unendorsed policy referenced above, that pays the “legal liability” of the warehouseman, the loss would not have been covered. Why not? Because the owner of the warehouse had nothing to do with the sprinklers going off. Even if a claim is covered, unless otherwise agreed to, the claim will be settled for the maximum amount that the warehouse specifies on their warehouse receipt.
If you fail to completely understand your insurance policy, you may find that leap of faith taking you over a high cliff, with nothing to break your fall but a large financial hit to your company. •


Robert Mucci of Wolpert Insurance Agency Inc., in Worcester, Mass., is a certified insurance counselor and accredited and licensed insurance adviser.

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