Heartbreak of phantom coverage

QMy trucking company recently had a loaded trailer stolen from a truck stop in California. Our insurer now points to a supplemental provision’s endorsement in our policy that I never saw. It provides there is no coverage for “theft from a vehicle unless, at the time of the loss, there is actually in or upon the vehicle a permanent employee whose duty it is to attend to the vehicle.” Are policy terms like this really used in the industry?

AYes, unfortunately they are. Your policy is a typical inland marine policy issued by a major insurer. Insurers have a duty to express coverage in plain English. The language is pretty clear, but I agree the exclusion is hard to find.

The “limits of insurance” section contains no theft exclusion. The coverage form states that the company “will pay for your legal liability as a carrier under bills of lading.” So far so good. The “property not covered” provision makes no mention of theft. The “causes not covered” section excludes employee theft – and spoilage caused by theft – together with a number of other wicked exclusions, but there’s still no exclusion for loss resulting from a stolen trailer.

You must read down to the so-called “supplemental provisions endorsement,” which was not even incorporated into the policy text by reference for that. This endorsement offers the insurer a check-the-block form for a number of items. Those include a theft limitation of $5,000 on high-risk items and an “attended vehicle” restriction, which, as your insurer interprets it, takes away coverage for theft unless thieves knock your driver in the head when the load is stolen.

While there is case law that suggests that theft “from a trailer” language applies to pilferage and not the stolen trailer scenario, you may have to sue your own insurance company to obtain coverage while you have to fight the cargo claim with your shipper alone.

Theft is the largest single cause of catastrophic loss facing truckload carriers. Insurers understand this. Policy exclusions that take away coverage for theft are becoming the rule, not the exception.

Remember, the policy language can be tricky, so you must exercise extreme caution. I reviewed the standard cargo policies of five major insurers. All were complex, and no two were the same. One client recently purchased a policy and paid extra for coverage for “theft from an unguarded truck” only to discover when a load of tires was stolen that the policy language did not cover the stolen trailer load because the trailer was not attached to a tractor at the time of the theft. Another carrier reports that although he purchased coverage for theft, the policy does not apply to high-crime areas defined as points in California, New Jersey and Florida.

Given the tight insurance market, carriers will continue to face difficulty buying the theft coverage they truly need. Here are some suggestions that may help:

  • During policy negotiations, require your agent to obtain a written statement concerning policy coverage for theft.
  • Carefully analyze any exclusions and consider embargoing any high-value commodities for which you have no theft coverage.
  • Understand whether loss from theft is included in the policy or must be purchased as an option.
  • Issue strict policy guidelines concerning use of guarded lots and unattended trailers.
  • If you lack theft coverage, consider negotiating lower released rates in return for shipper-provided coverage. Often shippers can procure coverage more cheaply than carriers. Be careful, however, that you properly limit your liability if you follow this option.
  • Read and understand your cargo policy thoroughly before mishaps occur.
  • Finally, if you receive a reservation of rights letter from your insurer, analyze your policy carefully and do not accept the insurer’s analysis of its responsibilities without challenging it.

Even taking these steps don’t deliver an ironclad guarantee of coverage, but you must take every precaution. Especially for small carriers, one uninsured cargo theft could put you out of business.