How brokers can avoid cargo coverage ‘gotcha’ situations

A white commercial truck sits on its side after a crash with a police car parked behind it.

(Photo: Jim Allen/FreightWaves)

Insurance has been a hot topic across the trucking industry over the past several years. Most often, however, insurance talks revolve around motor carriers and truck drivers. Freight brokers have largely been left out of the conversation.

Broker liability is often a gray area. In fact, multiple related cases have recently caught the attention of the Supreme Court. While the question of liability is seldom cut and dried, brokers and 3PLs are often held responsible for lost or damaged cargo. In some cases, responsibility can also extend to more issues, like bodily injury and death. 

This ambiguous landscape makes it even more crucial for 3PLs to understand what their cargo insurance does — and does not — cover. All too often, brokers encounter unpleasant surprises in the form of coverage gaps and restrictions when filing insurance claims.

Some of the most common coverage restrictions involve reefer breakdown and theft. This can be problematic, as these are some of the same issues that tend to be very expensive for brokers and 3PLs to address.

To avoid those surprises, brokers should be sure to read their insurance quotes carefully, paying special attention to any endorsements. 

“People like to think of endorsements as only adding coverage, but endorsements can be used to restrict coverage as well,” Reliance Partners Executive Vice President of Sales Jessie Merritt said. “If those types of endorsements are on your quote or on your policy, ask your agent if you can buy the coverage back.”

It is also important for brokers to be aware of the type of insurance coverage they are purchasing in the first place.

While contingent coverage is one of the most common 3PL insurance products, it also tends to cause a lot of frustration. With this type of coverage, the broker’s policy does not come into play until the trucking company’s insurance provider denies the claim first. This creates bottlenecks and delays for all parties.

“Buy the coverage that will work best for your company. Contingent cargo isn’t going to respond until you get a denial from the motor carrier’s insurance company. Most brokers don’t want to make the shipper wait that long to be made whole,” Merritt said.

Primary cargo insurance is often a more attractive option for brokers and 3PLs hoping to protect themselves and offer shippers the quickest path to reimbursement.

Brokers can pick and choose among a variety of insurance products to add extra layers of security to their operations.

“Buying real cargo coverage rather than contingent coverage offers a lot more protection,” Merritt said. “Cargo legal liability will typically respond to claims in which the broker is legally liable for the cargo either contractually or by written agreement. Shippers interest is a great option and is designed to make the shipper whole for a broad range of cargo losses.”

No matter what type of coverage a broker chooses, Merritt advises against overlooking other areas of liability, including cybersecurity and directors and officers coverage.

Many brokers would benefit from updating their insurance products. Fortunately, Reliance is well equipped to help these companies better understand their coverage options. 

Click here to learn more about Reliance Partners

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