What is Freight Insurance?

The freighting industry is a vast, complex, interwoven web that relies on a multitude of moving pieces. From freighters, freight forwarders, freight brokers, to third-party logistics companies, there is no shortage of liaisons and middlemen in the industry. Dependent on the type of shipping—as there are many—it’s safe to assume that your cargo, whatever it may be, is going to pass through multiple hands.

The further it travels, the final destination, and the number of transfers are all components that add to the risk of damage. It’s safe to assume that at one point in your life you received a package that was damaged during the shipping process. Hopefully, the company that shipped the package was able to cover the damage and refund you or at least replace the good or product.

But if you’re on the other end of it—which is what most likely landed you here—then you’re going to want to hedge yourself against that refund or replacement. As with most transport-based companies and all things related, freight insurance is commonly used to ensure that in the case of damage there’s a safety net put in place.

Freight Insurance, do I need it?

Every company is going to have specific cargo needs. From the destination, volume, and time of transit, the type of shipping utilized is going to be dependent on the products, goods, and MO of the shipper. However, there’s a general rule of thumb in the freight industry: if your cargo is not insured, you’re doing it wrong.

With that being said, legally speaking, you don’t actually need it. Liability coverage, however, must always be in place when it comes to shipping cargo. Nonetheless, people often blend liability insurance and freight insurance into one umbrella, unknowing that they’re not synonymous. Liability coverage does not typically cover damaged cargo but protects the company executing the physical transport (we’ll touch more on this later).

In which, when the question about having freight insurance surfaces, it’s the same thing as asking would you drive your car around knowing that you’re not protected in the case of an accident? While car insurance is a legal necessity, the principle does not change.

Note: with this being said, there are cases where liability coverage can cover the cost of the goods or products shipped and is a viable insurance option. With these policies—similar to medical insurance—it’s all in the details.

I want freight insurance, what do I need to know?

If you’re looking into insuring your cargo, then we’ll start by giving you a few preparation tips regarding policy and research. First and foremost, it is paramount that you understand the difference between liability coverage and freight insurance; as we mentioned, each has different parameters.

Freight Insurance Tips

  • Study your policy details in length: each policy is going to cover different types of damage, materials, claims, and deductibles. There are horror stories in which freight insurance is purchased, only for the company to submit a claim and realize that their policy doesn’t cover the ‘sensitive’ goods they threw on a truck.
  • There’s no one-stop-shop umbrella insurance: With car insurance, typically we can reach out to the myriad of established companies and find a policy that suits us—as cars have many similarities. Freight insurance is much more complicated. There isn’t one ‘standard’ policy you can employ to cover your freight. There’s no baseline for cargo insurance as there are too many factors and dynamics involved with shipping. Thus, extreme diligence, research, and professional help is a necessity.
  • It’s not automatic: in the same vein as the aforementioned tip, being that there’s no standard, often it’s not a standard to even offer freight insurance. As a novice to the industry, a company may hire a freight forwarder or freight broker in hopes to ensure their shipping is handled with dexterity. Unfortunately, these services and professionals usually offer insurance only if it’s requested. This means they won’t automatically add it to the bill of lading, nor will they include it in the original deal. Of course, there are exceptions to this rule, and it’s person-dependent, but it is by no means a requirement to have insurance.

Legally Speaking

The legal issues that arise when it comes to freight liability are a gray area often up for debate. Indeed, there was an amendment (the Carmack Amendment) that was adopted in the early 20th century to ensure that freighters at least have some semblance of liability when it comes to the safety of cargo. The amendment incorporates a host of different viable requirements that allows a shipper to establish a prima facie case.

The most basic being:

  • Proof that the original delivery of the products or goods to the freighter was sound, with the entire shipment being in ‘good’ condition
  • The delivery executed by the freighter was not in the timely manner negotiated or the freight was damaged
  • Lastly, the total amount of damages (or loss) that took place

With these three elements, the shipper does indeed have a legal case against the freighter. Today, however, when it comes to how these cases are handled in court, it’s not black and white. The fact still remains that shippers do not need to have insurance plans in effect and—when it comes to defense—there are a host of examples a freighter can use to remove their burden of liability.

Our point is this: this amendment is outdated, relying heavily on a law that has multiple missing pieces, which by no means guarantees that the shipper will receive compensation for late transit or damaged cargo. Respectively, this means that you cannot rely on the Carmack Amendment as your means of freight insurance. In addition, if every ‘insurance claim’ you’re issuing takes place in a courtroom, you’re certainly going to be spending a great deal on lawyers and will not have any guarantee of protection.

This further supports the necessity of freight insurance over relying on a freighter’s liability insurance or the old laws that once tried to up the standard of liability for freight carriers.

Freight Insurance in Depth

Freight insurance is third-party coverage of a shipper’s goods or products that exist outside of both the Carmack Amendment and liability coverage. Dependent on the policy, there are going to be parameters set forth and these will be exclusive to the type purchased. When it comes to freight insurance jargon, by doing a quick search you’ll soon realize that there are ‘key terms’ which surface across the landscape. We’ve compiled a few we’ve seen arise with regularity:

  • Every risk
  • All risks
  • All legal liability
  • Legal Liability
  • Broad Form
  • Motor Truck Freight
  • Freighting Insurance
  • Cargo Insurance

As we mentioned in our first tip, none of these policies are a standard, meaning none cover every facet of cargo damage. Policies willy deny coverage for a host of different reasons and these are often stated exclusively within the contracts themselves. Sadly, the details and language used can be intelligently-placed and hard to catch (to the untrained eye) which will then exclude a shipper from processing and benefitting from a claim.

Some of the reasons a claim fails are listed below:

  • The shipper failed to submit a claim in a timely manner, not adhering to the claim-response-time set forth by the policy
  • The freight carrier was not listed as a terminal in the policy, excluding them from being responsible
  • The commodity was not maintained properly before shipping—or if it was, no records of such pursuits exist—in which case evidence of spoilage is void and the claim is denied
  • The carrier itself took the place of a broker although there was a liaison that drafted the contract
  • The type of freight shipped was not covered by the policy (this is particularly important when it comes to specialty or ‘sensitive’ shipments)

Fortunately, if you’re currently looking into freight insurance for your cargo, then many of these denials above can be mitigated by simply being thorough and meticulous about the policy, but particularly the contract drafted. This is why hiring a professional to handle freighting insurance is widely recommended.

What are Freight Insurance claims like?

Again, every freighter contract given is going to come with liability coverage. If the freighter is at fault for damaged or lost cargo, then this fault will need to be proven, and the compensation will be dependent on the value of coverage at hand. Sometimes, this value will equate to the value of your goods or products. Most times, it won’t.

Thus, similar to car insurance, freight insurance exists outside of an opposing party’s fault. You’re not required to prove that the freighter ruined your cargo, you simply must submit a claim that states said shipment was damaged. Furthermore, what you’ll need to provide is proof of value and proof of loss, as no policy is going to take a shipper’s word verbatim without first investigating the claim.

Lastly—and this is a big one—the claim must be issued in the window of time established by the contract. When it comes to freight insurance, this is a massive detail that often results in the denial of a given claim. There are two important facts to consider here. Liability coverage claims typically need to be filed within 9 months (after the incident). On the other hand, freight insurance claims typically need to be filed within 30 days.

With that being said, if a shipper is accustomed to using liability coverage but employs freight insurance for the first time, this dramatic difference can harpoon any chance at compensation they might have had, rendering the money spent on insurance useless.

How do I choose the right freight insurance?

You let a professional do it for you. Unless you’re well-versed in law and insurance as a whole, the intricacies and complexities of freight insurance contracts are hard to process without experience. There’s a reason insurance agents exist, across all boards, and freighting is an industry where they’re a massive asset.

Handling the execution of freight insurance as a shipper is not often recommended, being that there are too many dynamics involved to obtain the efficacy desired. However, doing it yourself is by no means out of the question, it’s simply paramount that it’s done correctly (this often means dedicating a large amount of time to due diligence).

Freight Forwarders and Freight Brokers

If you’re a shipper, or if you’re looking to become one, then freight brokers and freight forwarders should not be unknown to you. These are the two most commonly utilized middlemen in the industry, fostering relationships between carriers and shippers, overseeing logistics, and ultimately ensuring that the proper contracts, necessities, and expectations are in place.

Today, relationships are hardly formed exclusively by a freight carrier and the entity intending to utilize their services. There’s always someone or a host of people between the deal. When choosing your freight forwarder or broker, if you haven’t already, be sure that they work closely with a renowned insurance agent. This will only support the notion that your freight insurance is going to be executed properly.

Lastly, the process of submitting a claim can be both difficult and a nuisance. A dexterous broker should be the one handling the filing process, as they’ll know the ins and outs of the policy obtained and how to protect your claim against denial. You’re not simply insuring an asset you own here; in many ways, being that you require a freight carrier, you’re insuring the future and potential for your company.

Conclusion

While liability coverage can certainly provide a safety net for failed or damaged shipments, rarely is it the case that they’re the best option. It’s commonly agreed within the industry that freight insurance is a necessity. Be sure to purchase the best policy that complements your specific needs and employ professionals to make sure there are no mistakes made along the way!

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