Logistics – Troublesome insurance exclusions!!!

By: | at 08:00 PM | Channel(s): Logistics  

By Thomas Laffey, AJOTIt is obvious to all of us who specialize in providing logistics / transportation insurance, with the possible exception of the insurance industry itself, that many current insurance policies continue to contain wording that requires significant revision if loss adjustment controversies are to be avoided.
Let’s face it. The logistics industry today bears little or no resemblance to the transportation industry of yesteryear. Exposures have changed dramatically in the last 25 years. The wording in many transportation coverages has not. This requires an extreme vigilance by shipper’s / warehouseman and motor carriers who will remain vulnerable to uncovered losses without a careful thorough negotiation process with insurers. The time to do this is certainly before a loss occurs. We’ll try to identify some of the exclusions and limitations that will result in litigation if amendment to policy terms isn’t recorded with the insurers involved.
Many motor cargo insurance policies contain an exclusion for loss or damage to customers’ goods caused by employee dishonesty. And many more have broadened the exclusion to exclude loss or damage to customers’ property by others to whom the goods habe been entrusted. Obviously an owner-operator, while not technically an employee, is an individual or entity to whom we routinely entrust goods for ultimate delivery. If this exclusion is not removed from the motor cargo policy, virtually all loss or damage to goods will mot be covered by the motor cargo insuror. Reliance upon the owner-operator’s cargo insurance, if they have any, is of very little value, particularly since most leases clearly identify the responsibility for loss to the lessors, not the lessee.
Remember it is the broker’s responsibility to identify the exposure and eliminate exclusions that are critical to his client. Fifty percent of the policies we review still have this exclusion in effect. The additional premium to delete the exclusion, if any, is minimal.
Many of the motor cargo policies we review agree to “pay in behalf” of the motor carrier, but do not specifically agree to provide defense for the claim that is being filed. The costs to defend, essentially adjusting and legal expense can be substantial. Sometimes it exceeds the costs of the claim itself. The costs of defense should always be included.
Are goods being stored by others, typically consolidators and warehousemen, still in the “due course of transportation”? Probably not without a specific endorsement which extends the policy to cover goods temporarily stored while awaiting shipping instructions from others. We routinely review extensions of coverages limited to 60 or 90 days, which provides a measure of coverage, but we want to seek extensions of coverage without any limitation of time, and without specific identification of the location at which the goods are stored. An adequate limit should be provided at all unnamed locations.
There are hundreds of decisions in case law that challenge the “chain of transportation”. Goods that are being worked upon by subcontractors, or stored by others under a variety of storage receipts create an enormous exposure that needs to be identified and insured. These good can be covered as part of either ocean cargo, transportation, or property coverages. The premium will be based upon typical premises construction, values at risk AND THE released value provisions of applicable storage receipts. Premium credits can be obtained if valuations fluctuate; your broker should be able to leverage these premium charges with the insuror involved. Almost certainly, goods being worked upon by others, and then stored indefinitely while awaiting shipping instructions are not “in transit” unless the activity can be maximized to a specific time limit, and the insurer confirms the extensions of coverage in writing.
Newer logistics / distributors coverage forms, particularly those being introduced within the last year, will do much to minimize these exposures

American Journal of Transportation