The Importance of Using Correct Terminology in Your Insurance Contracts and Shipper’s Agreements
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The problems shippers have are that:
• There may be one shipper agreement for all parties and this does not account for the differences in each party.
• Insurances that are provided to carriers are different from those that are provided to intermediaries.
• There may be an assumption that the shipper’s indemnification is fully collateralized by being named as additional insured.
Insurance coverages that are usually sold to carriers include:
• Commercial Auto Liability- covers a trucker’s legal liability to the general public for bodily injury or property damage from a covered auto.
• Motor Truck Cargo Legal liability- covers a trucker’s legal liability to the public for the loss of cargo. That legal liability is typically Carmack liability.
• General Liability- covers a trucker’s legal liability for bodily injury or property damage with such bells and whistles as medical payments and advertising injury.
• Workers Compensation- Statutory coverage covering the trucker’s employee. This can be a big deal if the shipper is responsible for the injury of the driver.
While there are other coverages available to a carrier like physical damage coverage, the four coverages listed above are those available to the carrier that has an impact on the shipper.
Now let’s look at coverages provided to the intermediary:
• Contingent Auto Liability or Truck Broker Liability (preferred)- covers a truck broker’s legal liability to the general public for bodily injury or property damage from an auto hired to transport the shipper’s goods.
• Contingent Motor Truck Cargo Legal liability or Primary Cargo Liability (preferred) - covers a truck broker’s legal liability to the shipper/consignee for loss of cargo. Note that Carmack liability is not applicable to a broker.
• General Liability- covers a truck broker’s legal liability for bodily injury or property damage. Note that this is the only insurance coverage that is similar and/or comparable to the carrier’s insurance.
• Professional Liability- covers a truck broker for their legal liability as a result of errors and omissions that are over and above bodily injury or property damage and the loss of cargo. Frequently there is an additional financial loss the shipper has suffered as a result of the truck broker’s errors.
While there are other coverages available to the intermediary such as the truck broker bond, the four coverages listed above are those that are significant to the shipper.
One agreement for all parties may have the wrong set of insurance coverages requested and this is incredibly problematic for shippers and their counsel.
Furthermore, there is another important issue that shippers need to understand. Many shippers’ contracts are non-negotiable. “You must sign my shipper agreement in order to haul my loads.” My understanding is that MAP-21 (Moving America Toward Progress in the 21st Century, a transportation bill signed by Obama), states that a carrier shall represent themselves as a carrier to the general public and that a truck broker shall represent themselves as a truck broker. This means a carrier may not represent themselves as a broker and vice versa.
If the shipper has only one agreement and it has forced the truck broker to sign the contract as a carrier, it would logically follow that the shipper may have forced an illicit agreement and this is not good for any of the parties.
It is vital to make your agreements and nomenclature correct with the appropriate parties and to have separate shipper agreements with both carriers and intermediaries.
Typically, it is shipper’s intention in the shipper contract to have insurance fully cover any loss; however, as the insurance coverages are very different depending on the type of party involved, there is a high potential for gaps in compliance.
