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Why Freight Brokers Need Contingent Cargo Insurance
It may seem like an unnecessary expense. Why would a freight broker need insurance coverage for cargo when that responsibility seems more aptly suited for the shipper who owns the cargo and the motor carrier who is tasked with transporting it safely? And don’t those parties often have some form of coverage anyway?
It’s true that contingent cargo is not a required insurance for freight brokers and the lack of standard forms and policies for this coverage make it one that’s more complicated to assess. But freight brokers are finding that, more than ever, contingent cargo insurance is one of the important coverages they need to stay competitive and avoid litigation risk.
While many freight brokers may think they are covered by the Carmack Amendment of the Interstate Commerce Act, which protects brokers from damage or losses incurred by motor carriers during the shipment of goods, the current trends in transportation litigation are suggesting otherwise. In the legal sense, there are ways in which freight brokers may give the appearance of being connected with the shipment (rather than just arranging for shipment), which opens up the freight broker to potential litigation exposure. This is known as allegations of vicarious liability.
Even if a freight broker is careful to avoid contract and marketing language that opens them up to allegations of vicarious liability, the 1994 expansion of the Interstate Commerce Act was changed to more loosely define a motor carrier as any individual “providing motor vehicle transportation for compensation”. 49 U.S.C. §13102(15). The new act also redefines transportation as “… including services relating to that movement, including arranging for, receipt, delivery, elevation, transfer.” 49 U.S.C. §13102(23)(B). The inclusion of the phrase “arranging for” is now being used to identify a freight broker as a potentially liable party.
What Exactly Is Contingent Cargo Insurance?
So what exactly is contingent cargo insurance and what does it protect? The “cargo insurance” piece is pretty self explanatory– it is coverage for the goods being transported by a motor carrier from one point to another. The term “contingent” refers to the fact that this is not the primary level of insurance coverage for those goods.
Contingent cargo insurance goes into effect when a motor carrier’s insurance policy either:
- Doesn’t pay out on a cargo claim.
- Isn’t sufficiently insured to cover the value of the cargo.
- The cargo in question is subject to an exclusion in the motor carrier’s insurance policy.
While freight brokers are often diligent during the motor carrier vetting process and check that a motor carrier is properly insured to cover the value of the cargo in the contract, there are occasions where details are overlooked.
Why Contingent Cargo Insurance Matters?
Freight brokers need to understand that the actions of a motor carrier’s insurance company are something out of the freight broker’s hands. If the motor carrier’s policy does not pay out for one of the reasons listed above, a freight broker needs to be prepared to face this potential liability.
Let’s reiterate that point: even if you’ve properly vetted a motor carrier and feel confident in their insurance coverage for the cargo being shipped, you cannot control the decisions or outcome when it comes to a motor carrier’s insurance company paying on a claim. This may mean that your business is on the hook, regardless of your actions. All freight brokers should carry contingent cargo insurance to protect them from this risk.
Meeting Your Shipping Clients’ Needs
There is another major benefit to carrying contingent cargo insurance that some freight brokers, especially newer or smaller companies, sometimes overlook. As shipping clients become aware of the new risks in the industry, more shippers are requiring their freight brokers to carry contingent cargo policies to ensure protection of their goods. Without this insurance coverage in your portfolio, you may be missing out on important clients to help grow your business and expand in the market.
Having contingent cargo insurance is a point that you can market to your potential shipping clients in sales meetings as a way to differentiate yourself from other freight brokers who may not carry it. It also demonstrates to shippers why it is important for them to use a freight broker to handle their shipping needs, rather than contracting directly with a motor carrier. A well-written contingent cargo policy can be used as a vehicle to help you grow your revenue, and should not be looked at as just another line item expense.
How Much Contingent Cargo Coverage Do You Need?
Curious what it will cost to add contingent cargo coverage to your business? The reality is that the cost of coverage can vary greatly and is calculated primarily based on perceived risk. There are several factors that are taken into consideration including:
- The types of products that you’re arranging shipment for, as some are more dangerous or valuable than others.
- The level of coverage that you (or your shipping clients) are requiring and the deductible amount you want to take on.
- Your estimated gross revenue, while is indicative of your volume of shipments arranged.
As we’ve mentioned, there is little standardization when it comes to contingent cargo policies in the market. We highly recommend working with an agent that you can trust and that understands the ins and outs of your industry. It’s important to take time to read the fine print and understand what the policy covers, rather than just price shopping for the lowest plan.
Finding the Right Insurance Policy for Your Business
The freight broker industry is always evolving, so it is important that your insurance coverage does too. LogistIQ has over 45 years of experience serving as the trusted advisors to freight brokers across the United States. Our goal is to support you in getting the right insurance coverage to leverage as a tool for growing your portfolio of clients. Contact us today to see how our Broker Shield program can meet your insurance needs and exceed your insurance expectations.
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