Blog by Tommy Ruke, The King Pin – Leading Expert in Truck Insurance
MISUNDERSTOOD CARGO FORM
Agents have “Asked Tommy” questions concerning customers’ (brokers-shippers) requests for evidence/proof of coverage on cargo forms –
- “Additional Insured”
- “Loss Payee”
- “Waiver of Subrogation”
The cargo coverage form provides “bailee” coverage and agrees to indemnify/protect the person/entity that has the “property” of others in their possession. When providing services to the property owner (store, clean, repair, transport) and the property is damaged, the bailee could/will be liable for the damage if they did not take care of the property in their possession. For-hire interstate motor carriers that are transporting property in interstate commerce have an additional concern – The federal act (Carmack) which makes the motor carrier almost absolutely liable for property while being transported in interstate commerce.
The cargo and all bailee forms are a “hybrid” (1st and 3rd party coverage principles in one policy) having two requirements for coverage – The insured must be legally liable (3rd party coverage) and damage done by a covered cause of loss (property – 1st party coverage).
The need for a cargo policy is because all liability forms have a care, custody, control exclusion which does not provide coverage if property in insured’s care, custody or control gets damaged, the cargo form fills the gap.
Let’s look at requests:
“Additional Insured” – Anyone/entity that would have protection in a cargo policy would be the person/entity that has the property in their care, custody or control. A broker would never have the property in their care, custody or control and a shipper would not either. One other principle of liability coverage, an insured cannot be liable for the actions of an insured. Therefore, a shipper or broker would never be a bailee and not qualify for protection entity in a cargo policy and might even void coverage if additional insured.
“Loss Payee” – This is what an entity is when their property is damaged by the motor carrier. The insurance company addressing the loss must pay the owner of the property to get a release for the insured (motor carrier) damaging to the property, therefore, the owner is a loss payee. COI wording – “If you are the owner of the property that gets damaged, you will be the loss payee when settling “your claim.”
“Waiver of Subrogation” – This becomes a factor in a claim when the insurance carrier has to pay for damage caused by someone else. This typically happens in property coverage (1st party) when the insured (owner) has their covered property damaged by someone else’s negligence. The insurance carrier pays them for their damaged property based on the coverage and would retain the right after paying what is due under their policy to obtain payment from the one that caused the damage. A shipper or broker would never have a cargo claim paid when the shipper or broker caused the damage. The insured/motor carrier would not be liable so the cargo coverage form would not apply, because it only addresses when insured is legally liable. If the shipper or broker was the cause of the damage, then the insurance carrier would deny the claim and make no payment. Possible wording, “If we have to pay a claim for covered property damaged by you we will not seek subrogation.” In addition, most all cargo policies prohibit the insured from signing a waiver only after damaging other’s property. If the contract of service contains a waiver and is signed before the damage, the insurance carrier must honor the agreement.
“Primary/Non-Contributory” – Same basis as waiver. Cargo coverage is a legal liability contract of insurance. When the insured is legally liable for damage to other’s property their cargo insurance company will pay the damaged party (owner of property – primary) and settle the claim and then could not seek contributory because the broker/shipper would not be legally liable never having the property in their care, custody or control.
I do not know how we can explain this to the motor carrier/insured or the customer that is asking for their requests. The insurance provider might think about providing a COI reflecting these requirements as being met because they do change how the claim will be handled. It would allow their insured to do business with customers. Remember, a COI gets looked at first so the insured can do business with their customer and second when there is damage and no coverage. If there is coverage then the COI does not become a factor in handling the claim. All these requested provisions do not affect how the policy will respond and how the claim will be handled.