Liability insurance is any insurance policy that protects an individual or business from the risk that they may be sued and held legally liable for something such as malpractice, injury or negligence.

Liability insurance policies cover both legal costs and any legal payouts for which the insured would be responsible if found legally liable. Intentional damage and contractual liabilities are typically not covered in these types of policies.

Freight Liability Insurance is an essential safeguard for the customers, who is business is involved in the overseas transportation and warehousing of goods. This includes third party logistics, freight forwarders and full supply chain management companies, and the policy covers their legal liability for loss or damage to goods carried or stored as defined by contract conditions or applicable International Conventions.

In the unfortunate situation that your shipment is lost or damaged, it’s important to know what is covered by liability and what is covered by freight insurance and what is the difference between the two.

Freight insurance does not provide protection against all losses a motor carrier may be liable for under the Carmack Amendment or common law. There is no single standard form of freight insurance that a carrier can go out and buy and be fully protected. Similarly, a certificate of insurance stating that a motor carrier has a specified amount of freight insurance does not mean that the shipper’s or broker’s valid claim will be covered by that freight insurance.

It therefore is extremely important that all motor carriers, shippers, brokers, consignees and others that have an interest in a shipment be aware of the extent of the motor carrier’s liability for freight loss under the applicable law and the extent that the motor carrier’s freight insurance provides protection for that liability. Unless the motor carrier is fairly large and financially strong, an uninsured judgment against it may be worthless.

A regulated motor carrier operating in interstate commerce is liable for freight loss, damage and delay pursuant to the Carmack Amendment, 49 USC 14706.  The Carmack Amendment was adopted in order to establish a uniform nationwide standard of liability for freight loss and damage, originally for rail and water carriers in 1906 and subsequently for motor carriers in 1935.  To establish a prima facie case, a shipper need only show the following three elements:

  1. delivery of the shipment  to the carrier in good condition;
  2. delivery of the shipment to the consignee short, in damaged condition, or unreasonably late; and
  3. the amount of damages incurred.

Once the shipper establishes a prima facie case, the burden is on the carrier to establish that-

  1. it was not negligent to any extent; and that
  2. the loss was due to one of the five recognized carrier defenses, to-wit:

(a)  an act of God,

(b)  an act of the public enemy,

(c)  an act of the shipper,

(d)  an act of the public authority, or

(e)  the inherent nature or vice of the goods themselves.

If the carrier fails to meet its burden, the shipper is entitled to recover the”actual loss or injury” to the shipment.

The Carmack Amendment constitutes the statutory enactment of the common law, which is the law that developed from the judgments and decrees of the courts recognizing, affirming and enforcing the usages and customs of society over the years, particularly the unwritten law of England. As a result,  the common law standard for a carrier’s liability for freight loss and damage generally is the same for exempt motor carriers and the carriage of exempt commodities.

The Carmack Amendment and the common law both impose a high standard of liability on a motor carrier. Indeed, although it is incorrect, it is often stated that a motor carrier is an insurer of the goods.

So How Do I know if I should Get Freight Insurance or Freight Liability? They are not the Same?

 

Every booked freight shipment comes with limited liability coverage. The amount of coverage is determined by the carrier and based upon the commodity type. It covers a certain dollar amount per pound of freight.  In some situations, the included liability coverage may be less than the value of the shipped goods.

To make a liability claim, the carrier must be at fault for the damaged or lost freight. However, if the damage is from inadequate packaging, loading errors or weather-related causes, the carrier is not at fault. Additionally, if the damage is not noted on the delivery receipt, many carriers will deny any liability.

In some cases, your freight shipment might have a higher value than what is covered under the included liability.

If so, this is where additional freight insurance may be purchased.

This extra freight insurance covers the shipped items and the cost of freight shipping. It is redeemable under all types of loss with no proof of fault required. Unlike the limited liability coverage, with added insurance, there are no exclusions for packaging errors or severe weather.

How do these two types of insurances differ in the claims process?

If your shipment is only covered by liability:

  • Your claim must be filed within 9 months of delivery, or within a reasonable time frame if lost
  • If the deliver receipt is not noted as damaged some carriers require immediate notification
  • You must provide proof of value and proof of loss
  • The carrier has 30 days to acknowledge a claim and must respond within 120 days
  • You must prove carrier negligence
  • This means the freight was picked up in good order, packaged properly but delivered in a damaged condition

If your shipment is covered by additional insurance:

  • You will be required to provide proof of value and proof of loss
  • Claims are typically paid within 30 days
  • You are not required to prove carrier negligence

The world of freight claims, freight insurance, and freight liability can be daunting and confusing. Dealing with freight claims is never a fun exercise for a shipper. Many companies employ software or hire a third party logistics company to handle freight claims for the shipper. Either way, knowing the difference between freight insurance and freight liability BEFORE you ship can save you from costly mistakes when it comes to freight claims.

COVERAGE

Logistics Liability Insurance provides indemnity for the economic loss suffered by a logistics operator in respect of its legal liability arising out of the logistics operation.

1.      Physical loss of or damage to cargo

2.      Consequential loss resulting from the above

3.      Cargo’s proportion of general average or salvage contribution

4.      The costs to dispose of cargo or other property after an incident

5.      The costs for quarantine, fumigation or disinfection after an incident

Exclusions

·         The Insured shall not be insured any increase in its liability arising out of contract terms with its client under which its liability in relation to cargo may be increased by declaration of value by its client

·         Limited coverage applied to specified items such as gold, silver, bank notes, jewellery, works of art, antiques and live animals

·         Excludes claims where the Insured has contracted to deliver cargo at an agreed date or time

·         The Insured shall not be insured for any increase in its liability arising out of contract terms with its client under which its limits of liability in relation to cargo is higher than that previously notified to and agreed by the Insurer

1.      Incorrect statement in or omission from a bill of lading, waybill or similar contract of carriage

2.      Delivery of cargo without production of an original bill of lading, waybill or similar contract of carriage or delivery of cargo to an unauthorized or unentitled person

3.      Delay in performing the Insured’s contractual obligations

4.      Misdirection of cargo to an incorrect location

5.      Any other financial loss incurred by the Insured’s client resulting form the Insured’s failure, partly or totally, to perform its contractual obligations

6.      Fines or penalties arising out of a breach of regulations relating to import or export of cargo, pollution, immigration, security or anti-terrorism, or safety of working conditions

Exclusions

·         Similar to the exclusion of [Cargo Liability] as mentioned above

·         Excludes claims in respect of any liability incurred by the Insured where the Insured has made an error in computing prices or costs or has applied the incorrect rate or tariff

·         Excludes claims arising out of negligent act, errors or omissions caused intentionally or recklessly by the Insured or its employee

·         Any costs or expenses that are incurred without the prior consent of the Insurer

1.      For physical loss of or damage to property of any third party including the resulting consequential loss

2.      For death, injury or illness of any third party including the resulting consequential loss

3.      To indemnify a subcontractor under a contract approved by the insurer for the subcontractor’s liability for:

i.            Physical loss of or damage to property of any third party including the resulting consequential loss

ii.            Death, injury or illness of any third party including the resulting consequential loss

 Exclusions

·         For death, injury or illness of the Insured’s employee which the Insured incur as an employer or which would normally be insured under an Employers Liability insurance

·         Resulting from or in connection with ownership, lease or operation by the Insured or the Insured’s employee of a road vehicle which is required to be licensed

·         In respect of the Insured’s owned or leased equipment leased to someone else or with the Insured’s consent used by someone else who is not the Insured’s employee or subcontractor

  1. Cost of mitigating a claim or of investigating an incident which may give rise to a claim under the insurance policy and protecting the Insured’s interests in relation to it (including survey and legal costs)
  2. Extra costs incurred solely by the failure of any party to collect or remove cargo
  3. Extra costs incurred to complete the Insured’s contractual obligation to transport the cargo to the place of delivery provided that such extra costs result solely from the failure of the Insured’s subcontractor (or person acting on its behalf) to pay its debts (or pay promptly)

Protection against all losses