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Nashville, Tennessee, United States
You can reach me at ben@gtu-ins.com. Comments are welcome.

Tuesday

What Contingent Cargo Insurance Really Means For Truck Brokers Today

We are often asked what Contingent Cargo insurance actually is. As an underwriter of this coverage, I feel you get a better definition by actually looking at the insuring agreement and the property covered by a specific policy.

Contingent Cargo is designed to cover direct physical loss of property in vehicles or damage to property of others for which the insured (truck broker) and their subcontractor (trucker) are legally liable. That is pretty simple. However, it is important to understand the coverage trigger. The coverage trigger is the failure of both the negligent trucker and the negligent trucker's insurance policy to pay a valid and substantiated claim.

The inability to collect from the subcontractor's (trucker's) insurer can be based on 5 reasons:
1) Coverage was non-existent owed to avoidance, termination or expiration.
2) Coverage was invalid.
3) Coverage was insufficient in amount (the need for more limits/excess).
4) Coverage was inapplicable because the carrier's Motor Truck Cargo policy did not cover or excluded the loss (difference in conditions).
5) Coverage is inapplicable due to the insolvency of the insurance company writing the Motor Truck Cargo policy.

That's pretty simple too.

It is typically a condition of coverage that the insured must obtain evidence of Motor Truck Cargo Legal Liability insurance (MTC) AND that those MTC limits are equal to or greater than the subcontractor's legal liability.

A flaw in Motor Truck Cargo coverage is that many policies have commodity exclusions or terms and conditions that invite agent error and omissions (ex: unattended vehicle warranty). Most insurance policies do not cover 3) and 4) above. These are known as “following form” policies and we are surprised that they are allowed to be sold. Fortunately, we offer preferred Contingent Cargo products that do not have these limitations (if the insured is willing to be a "best practices" operation).

To be deemed “best practices”, we start with a review of a potential insured’s broker carrier contract/agreement to make sure that it requires the following:

* adequate insurance limits for the load
* clearly defined coverage terms
* indemnification to the insured

Note recent marketplace trends have afforded Contingent Cargo coverage for items that are not covered by the trucker's Motor Truck Cargo policy in the first place. These coverages include:

a) Identity Theft
b) Carrier Acts of Dishonesty
c) Earned Freight of the Broker
d) Errors and Omissions resulting in loss of cargo (misdelivery).

The shipping world is trying to push more liability (beyond Carmack liability) onto the backs of the truck broker. While Contingent Cargo can cover difference-in-conditions, excess, identity theft, and dishonest acts, we now have the ability to write primary cargo coverage where some carriers are requiring same.

We hope this offers a matter-of-fact way of looking at this important coverage. If you have any questions or concerns, please feel free to comment below.


Thursday

Update 2017- The Differences Between Truck Broker Liability and Contingent Auto Liability



We are asked nearly every day to describe the differences between Truck Broker Liability coverage (TBL) and Contingent Auto Liability coverage (CAL). To understand the differences, it is important to look at the history of coverage for truck brokers.

History of Coverage

Heretofore, there was only Contingent Auto Liability with one exception, the AIG program of Primary Truck Broker Liability (TBL) - an unprofitable program that has now shut down. That program evolved out of the need to insure truck brokers on a primary basis- as many producing agents in the insurance marketplace felt the conventional CAL programs did not offer comprehensive coverage. The problem with the AIG program was that it was only designed for the largest truck brokers and the minimum premium was too expensive for the average sized truck broker to consider. Also, many shippers required additional insureds and waivers of subrogation, along with primary and non-contributory wording, which AIG was not willing to offer.

That changed with the Markel TBL program designed for all truck brokers. Now there is a Beazley program that offers TBL as well. These are the only two mainstream TBL programs in the marketplace. TBL coverage is more important today as shipper's demands on both truckers and truck brokers have changed. Shippers have gotten much more educated relative to coverages and they want a truck broker to have several things:

  • to have primary coverage
  • to add the shipper as an additional insured
  • to defend and indemnify the insured (and the shipper if named as an additional insured) irrespective if the trucker's coverage defended/indemnified or not
  • to waive subrogation

    Discussion

    Are CAL programs as worthless as the marketplace thinks they are? Absolutely not.

    Is CAL coverage as good as TBL coverage? Absolutely not.

    Let's look at some of the differences:

    • CAL - Covers damages resulting from auto liability that may arise on a contingent basis. That is, it will cover the broker if the carrier’s primary auto liability coverage fails to cover a claim.
    • TBL - Covers bodily injury or property damage resulting from the ownership maintenance and use of a carrier's auto arising out of and emanating from the insured’s operations as a transportation broker.

    Note the TBL does not mention being contingent and is therefore primary coverage (a very big deal). The coverage form is a hybrid policy (GL & Auto) covering a truck broker’s liability arising out of an auto claim on behalf of a trucker to whom the insured brokers. The TBL's wording comes straight out of an ISO commercial auto policy.

    The major differences are the specific conditions that could negate coverage for an insured under the CAL policy that are not present in the TBL policy:

    • Defense/Duty to Defend- Both programs have a duty to defend, but the CAL will not defend if there is other valid insurance. So a truck broker could be sued and not defended if the trucker’s coverage is providing defense. A big deal.
    • Punitive and Exemplary Damages- Excluded under the CAL and not under the TBL (some smaller accounts are endorsed to have an exclusion for same).
    • Annual Aggregate- CAL has an annual aggregate (which is the most the insurer will pay during a policy period). The TBL is like an auto policy and has no annual aggregate (some smaller accounts are endorsed to add aggregate limits).

    Agent’s Duty

    We are all in the business of trying to sell the best coverage to protect the insured. In the past, when there was only CAL, there was no other choice in coverage. It now makes sense to offer TBL coverage if a prospective insured meets risk acceptability and best practices standards. Note as more and more shippers become aware that this coverage is now available, TBL coverage will help truck brokers meet risk acceptability standards with new shippers.