During the last decade, the insurance industry has responded to the growing third party logistics industry with a variety of insurance products that are marketed to brokers as protection for cargo claims. For those who are not familiar with the “real world” contract obligations and duties assumed as a matter of practice (in many instances without an express contract with the shipper customer) by those who broker motor carrier and other methods of transport, it is sufficient to say that, for competitive reasons, many brokers assume the ultimate obligation for cargo loss and damage claims. If the real world of market competition was perfect, brokers would not need cargo insurance, since it is well established that they have no liability for cargo loss or damage absent special circumstances. However, brokers must market their service in competition with asset based carriers who, of course, have Carmack liability for such claims. In doing so, they typically assume various versions of direct responsibility for cargo claims. They may, for instance, sign a shipper agreement that makes them directly responsible; responsible only after the motor carrier denies or refuses the claim; or responsible only after they have processed the claim with the motor carrier and for a variety of reasons (i.e., deductions, exclusions, or limits) the claim is not fully indemnified to the satisfaction of the shipper.
This article is directed to such an assumption of indemnity responsibility, rather than the alternative of a broker taking a position with the customer that the broker has no responsibility for cargo loss and damage claims. Because of the variety of exposure to cargo claims, the insurance industry has recently produced various forms of policies that are marketed to the broker as primary, contingent (of which there are numerous versions), or a hybrid of Commercial General Liability (“CGL”) and Contingent Cargo of the sort that is now often called “Transportation Intermediary Coverage.” Unfortunately, the variations among insurance products predictably present many more conditions to the “Insuring Clause,” some of which can become much more problematic than a broker ever expects when first purchasing such insurance.
Along with the changes in the market and available alternatives for brokers, cargo insurance providers have become much more likely to refuse to pay cargo claims in the relatively routine manner in which brokers were once accustomed. Litigation over coverage and declinations of cargo claims is increasing as a function of some insurance underwriters not fully understanding third party logistics as they design and provide new products, and brokers not carefully understanding available alternatives. Given that space does not allow a full treatment of the many variations among insurance policies and the numerous reasons for declinations, the purpose of this article is to point out some contrasts between policies and to discuss briefly some of the technical arguments for declination of initial indemnity coverage and how they may be answered.
2012 December TTL https://tladocs.goamp.com/Shared%20Documents/The%20Transportation%20Lawyer/Articles/A%20Potential%20Insurance%20Dilemma.pdf