A solution to exclusions

Q I work for a broker. Our shipper customers expect us to procure service from carriers that have cargo insurance adequate to meet the statutory liability of common carriers. We request certificates of insurance but find that the insurers do not disclose the exclusions. What can we do to ensure that our customers are adequately protected?

A There is no easy solution for your problem. Cargo insurers are cutting coverage and raising premiums on motor carriers. They are not required to sell a true “all risk” policy, and carriers cannot easily procure cargo coverage that is coextensive with their liability under Carmack.

I have written before about the typical hidden exclusions for temperature damage, theft from an unguarded lot, employee dishonesty, damage for which there is no collision or wreck and so on. Now I’m seeing ever-expanding commodity exclusions including items such as electronics, which can take away coverage for everything from computers to radios to video games. It is hard for the carrier to tell what it is actually buying because even the insurance agent often does not know or understand the exclusions. And if he does, he won’t tell.

The problem is worse for the shipper or broker. When you are asked for a certificate of insurance, you receive an accord form. In the fine print, the certificate of insurance says that the coverage it warrants is subject to any limitation or exclusion in the policy, and the agent who issues the certificate is under no obligation to specify what the exclusions are.

Many shippers and brokers think they enhance their standing by being the “additional insured” but really they only make matters worse. Acquiring “additional insured” status does not broaden coverage or eliminate exclusions and can in fact only operate to exclude coverage to which the shipper or broker might otherwise be entitled.

Cargo insurers are finding any excuse to deny coverage. Some issue a certificate of insurance for cargo and don’t disclose that the policy is limited to specified units. Often, insurance companies or their adjustors write letters denying coverage when in reality they just don’t think the insured party is liable.

If the insurer denies coverage, the impatient shipper likely will demand payment from the broker, who is either faced with offsetting against the helpless carrier or with maintaining a lawsuit. And in most cases, neither the shipper nor the broker has a direct cause of action against the carrier’s insurance company.

That’s the problem. But you asked how to fix it. The simple answer is for the shipper, the broker and, yes, even the carrier, to insist on raising the minimum cargo insurance endorsement for motor carriers.

Every insurer that covers a for-hire motor carrier must post a Form BMC-91 warranting to the public that it will pay any judgment for bodily injury or physical damage up to at least $750,000. A similar cargo endorsement (Form BMC-32) is limited to $5,000 per occurrence, which is practically worthless.

Responsible shippers and carriers should agree that absent a need for excess coverage, there should be a reasonable limit of cargo liability on a per pound basis. They should also agree that every motor carrier should post an endorsement from its cargo insurer warranting that it will stand as surety for the carrier’s statutory liability up to that amount.

If the amount of the required endorsement were raised to, say, $100,000 per shipment, most of the shippers and brokers worry that cargo coverage would disappear, and the coverage issues would be largely eliminated. If endorsement limits ever increased, then the motor carrier industry should show the self-discipline to make the negotiation of cargo policies easy by insisting that the coverage conform to the endorsement.

Until the amount of BMC-32 endorsement is raised to a reasonable level, you can’t rely on a certificate of insurance or on being named as “additional insured.” Neither offers you any assurance that an insurer will honor a claim for which the carrier is legally liable.

Henry Seaton is a lawyer who represents carriers in contract disputes, collection matters, cargo claims and insurance questions. E-mail hseaton@etrucker.com.