Is Your Cargo Limit Sufficient?

Author  |   Aaron Setchell, Sales Executive

According to a second quarter 2013 report done by Saferwatch, the average stolen load of cargo was worth$156,408.  Sure, not every motor carrier hauls loads that meet, or exceed, values of $100,000 on a daily basis, but more often than not there are loads that require additional limits.  Do you constantly find your customers asking you for higher shipping limits, or to haul a load that is valued at a price higher than the cargo limit you currently carry?  If so, you need to be aware of the perils associated with underinsured cargo.

Underinsured

Simply put, underinsured is defined as not having enough insurance to cover a loss.  For example, let’s say a motor carrier has a $100,000 per occurrence limit on their cargo policy, and this particular motor carrier routinely hauls loads of fresh produce which average $50,000 per load.  In the event that a refrigerated load of carrots, valued at $50,000, is overturned and the loss is deemed a complete loss, the insurance company will pay the full amount of that loss minus any deductible.

In another example, let’s say that the same motor carrier receives a new shipping contract to haul refrigerated meat products where the average load can exceed $100,000.  Without giving the new shipping order much consideration, the motor carrier begins hauling fresh poultry across the country with an average load value of $125,000.  There is a major accident and the load of poultry is a total loss of $125,000.  In this scenario the insurance company would pay the policy limit of $100,000 minus any deductible and the motor carrier would be responsible for the remaining amount or $25,000.

Claims are not always as cut and dry as the above scenarios when it comes to properly insuring your cargo.  Some cargo policies contain co-insurance clauses.

Co-Insurance

Co-insurance divides the risk of loss according to the amount of insurance purchased by the motor carrier through the payment of premiums. The size of insurance premiums is based primarily upon the value of the property or “cargo” covered by the policy. If a motor carrier fails to insure its cargo for an amount close to its actual cash value or replacement cost, then the motor carrier must accept a greater share of the risk in the event of a loss.  In many cases cargo policies can carry a 90% co-insurance clause, meaning each load must be insured for at least 90% of the stated value for that load.

For example, a motor carrier is hauling machinery valued at $150,000.  The carrier’s cargo coverage contains a $100,000 limit as well as a 90% coinsurance clause.  The machinery loaded onto a flatbed trailer shifts causing the driver to loose control.  The trailer jackknifes and the machine is totaled.  In this loss example the insured value ($100,000) is less than 90% of its actual value ($150,000).  The 90% co-insurance penalty for underinsuring the load will be applied to the sum the insurance company actually pays for the loss.  The shipper would recover the Amount of Insurance Carried ($100,000) divided by the Value of the load ($150,000) at 90% of its value ($135,000) multiplied by the Actual loss ($150,000) , which equals $111,111.  Unfortunately, the motor carrier would be solely responsible for the payment of the remainder of the loss or $38,889. 

                     $100,000 / (.90 x $150,000) x $150,000 = $111,111 minus any deductible

This is a perfect illustration of how important it is to be aware of the stated values for the commodities you haul, as well as the limits and clauses that exist in your cargo insurance policy.

Action Steps

There are a few actions we suggest you routinely take to properly insure your cargo.

1. Check all new shipping contracts to make sure your cargo policy carries adequate limits.
2. Know stated values of all shipments carried.
3. Review your cargo insurance policy for restrictions and endorsements as well as co-insurance clauses.

Contact your agent on any shipments you know will have a higher value than your current policy limit holds.  The agent should be able to contact your insurance carrier and inform them of the situation, and/or quote trip specific limits ensuring each load is properly covered.

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