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Cargo Insurance

April 28, 2017

Cargo Insurance

A very important and often overlooked piece of the transportation puzzle is cargo insurance.  While its definition is fairly straightforward and its function is relatively simple, its importance and enough different kinds exist that a closer look is warranted.  Making sure your cargo is correctly protected is a crucial step in protecting your customer, yourself and your company.

Cargo Insurance
The term “cargo insurance” can be defined as an insurance policy that covers loss or physical damage to goods being transported.  Much like homeowners or automobile insurance, it is a form of risk management put into place to hedge against unexpected theft, damage or total loss. While cargo insurance is not required in order to ship a commodity, the vast majority of carriers provide a certain amount of insurance coverage with their shipping rate and overall transportation service.

Primary Insurance
In the trucking world, the primary insurance is the actual layer of protection enacted when a loss event occurs.  Typically the primary insurance holder is the trucking company that was contracted to perform the move, and the reimbursement would generally come directly from that carrier’s insurance company.  Food that spoils in transit, freight damaged during transport and theft are examples of situations where primary insurance would cover the financial value of the damaged goods if the claim is deemed valid.

Contingency Insurance
Contingency insurance is a type of coverage that exists whenever a freight broker is involved.  A freight broker works for a third party logistics company (3PL) that does not own their own assets such as trucks and trailers.  When a broker at a 3PL selects a trucking company to transport your commodity, the insurance provided by that 3PL is contingency insurance because since they do not have their own assets they are unable to provide primary insurance.  In this example, your cargo would be covered by both the trucking company’s primary insurance as well as the 3PL’s contingency insurance.

While contingency insurance provides an additional layer of coverage for the cargo being shipped by a 3PL, an inherent danger is that the contingency insurance may fail to provide the very protection it promises.  Contingency insurance covers a very limited window of time and events, and as a result, it is possible for that coverage to prove worthless in certain specific situations.

Suppose that during transportation the carrier’s primary insurance coverage lapses.  Whether it’s because the insurance company goes bankrupt or because the carrier forgot to pay its premiums, the cargo in this example is now uninsured.  If a loss event occurs at this point the contingency insurance would kick in, as the primary insurance no longer exists in order to cover the loss.  In examples such as this, the contingency insurance coverage will pay a valid claim when the primary insurance is unable.

However, if a loss event occurs during transportation and the primary insurance determines that it’s not a valid claim, the chances are great that the contingency insurance will make a similar claim decision.  Contingency policies typically mirror the primary policy, and if the primary insurer finds evidence that a claim is not valid, the contingency insurer will, more often than not, side with the primary insurer.

Supplemental Insurance
Simply put, supplemental insurance is an additional layer of protective insurance that can be purchased by the owner of the cargo being shipped.  Whether the value of the cargo exceeds the transporter’s insurance limits, or the cost of optional insurance offered by the transporter is not reasonable, supplemental insurance can serve to bridge the gap between available or existing insurance coverage and the commodity’s declared value.

While many different types of insurance exists, be sure to select a carrier with sufficient cargo insurance from a solid primary insurer.  When you work with your freight will have primary cargo insurance of up to $1,000,000.  If the value of your goods exceeds $1 million, we will work with you to make available whatever amount of cargo insurance you need. Reliance Partners routinely transports exceedingly valuable commodities, and without a doubt has the appropriate levels of experience – and insurance – to safely and securely complete your move.


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