CHAPTER FIVE - INSURING THE TRANSPORTATION EXPOSURES
The exposures of transportation are discussed in the preceding chapter, and in this chapter various methods of insuring these exposures will be discussed. This type of insurance can be divided into two types:
- insuring the shipper’s interest in the property while it is being transported, and
- insuring the carrier’s liability for the loss to the property being transported.
The types of insurance discussed in this chapter will be (first) annual transit policies which cover all shipments during the policy period which is generally one year (hence the name). Trip Transit policies, by contrast, will only insure property for a specified trip only.
Motor Truck Cargo insurance is discussed, which covers a carrier’s liability for damage to the cargo while being transported by the carrier; to cover damage to cargo being transported on the owner’s trucks; or both in some cases. Similar policies can be written to cover losses while property is in transit by air, rail or water carriers.
Other coverages discussed will be the money and securities insurance that covers these items when being transported by a property owner, or even for an armored car that transports such property of other persons. In the same vein, mail insurance that covers items being sent by mail, will also be discussed.
ANNUAL TRANSIT INSURANCE
NEEDS FOR THE COVERAGE
Many times a shipper assumes that the risk of property loss has been fully transferred to the carrier when the carrier takes custody of the property. This may not always be effective in protecting the cargo from loss for several reasons. It takes time and money to collect from a carrier, even if the carrier is financially able to pay the claims (which may not be the case). There may be a limit on carrier liability as there may be a dollar limitation on the shipment. Besides, carriers are not liable for all causes of loss – acts of God and acts of the public enemy, for instance.
Therefore, a shipper may decide that it wise to transfer the exposure to an insurance company by buying annual transit insurance.
COVERAGES
Annual transit insurance is a nonfiled class of business and standard policy forms are not possible because of the wide variety of merchandise shipped and the many methods of shipping. Therefore, the rates and policy provisions are those agreed upon by all parties.
Annual Transit insurance may be written on an “All-Risks basis” or for “Named Perils.” If it is written on an All-Risks basis, there are certain perils that might be excluded, such as
- insects, vermin, inherent vice, or contamination;
- war or nuclear damage;
- rough handling, breakage, marring, scratching, chipping, denting, bending or chafing;
- leakage of liquids;
- shrinkage, evaporation or loss of weight.
If the All-Risks approach is not acceptable to the underwriter as being too broad, then a Named Perils transit policy might insure the property
- while the property is on land – fire, malicious mischief, lightning, cyclone, tornado, flood, strike, riot, vandalism; and collision, derailment or overturn of the transporting vehicle;
- while the property is waterborne – fire and perils of the seas, including liability for general averages salvage charges; or
- theft of an entire shipping cargo, excluding pilferage, whether the property is on land or on water.
PROPERTY EXCLUSIONS
As a general rule, property exclusions are usually for property that can be more appropriately insured in other types of policies. Some of the exclusions could be:
- accounts, bills, currency, deeds, money, notes, securities, fine arts, jewelry, and other similar valuables;
- property shipped by mail or parcel post;
- items covered by ocean Marine insurance, until the Marine insurance expires;
- property shipped under an “on-deck” bill of lading (which means the property is to be shipped on the deck of a vessel. Because of the high chances of damage to property on the deck of an ocean-going vehicle, underwriters generally are not interested).
COVERED LOCATIONS
The property is covered regardless of where the property is located while it is in transit, within the territorial limits of the policy (usually the U.S. and Canada). They may exclude shipment on the Mississippi or Ohio rivers, or the Great Lakes, or other waterways that are not acceptable to the underwriter. Many policies cover the property only while in the custody of a specified class of carriers – air, truck, rail, etc. Many transit policies also cover property on wharves, piers and bulkheads, in depots or stations, or on platforms if it is in the custody of the carrier and is incidental to transportation. This is just an extension and clarification of the “in transit” provision and is used to prevent lapse of coverage if property is placed temporarily in storage. If property is sent to be processed, or is delivered on consignment for sale or distribution, the policy can be extended to provide coverage.
VALUATION OF THE PROPERTY
There may be a clause in the policy that indicates how valuation is to be accomplished in case of loss or damage. If no such clause exists, then the insurance company would be liable for the actual amount of the loss at the time and place of the loss.
A policy may say that the value is the invoice cost at the time and place of shipment, but this type of statement could result in a difference between the liability of the insurance company to the insured, and the liability of the common carrier because the common carrier is liable for the actual loss and cannot specify a method of valuation.
The most common type of valuation clause says that property is to be valued at the amount of invoice, and to include prepaid or advanced freight, plus any charges or costs associated with the property in transit since the beginning of the shipment. If there is no invoice, the property is to be valued at its actual cash market value at destination, at the day of the loss.
CONSUMER APPLICATION
Prebuilt Rooms to Go, is a manufacturer of prefabricated office and storage buildings. When they transport outside of the immediate area, since the buildings are rather wide, neighboring states usually require a trailing vehicle with flashing lights to follow the vehicle carrying the pre-fabricated building.
Prebuilt is insured for loss or damage to their buildings while in transit. While moving a building to its final stop after traveling by freeway for 500 miles, the road leading to the site gave way under the weight of the truck and building, overturning the truck and building, and demolishing the building.
If, for some reason, there had been no invoice, per se, the valuation of the loss would have been the actual cash value (market value) at the destination. However, since there was an invoice, then the valuation would have included the amount of the invoice, plus the cost of the accompanying trailing vehicle plus the usual freight charges.
LIMITS OF INSURANCE
Annual Transit insurance policies specify separate limits of insurance depending upon type of transit, such as railroad, motor trucks, scheduled air carriers, and messengers. Another limit may be placed on property on the insured’s own vehicles. Another limit applies to any one disaster and this limit can be determined by total amount of property in transit within a particular geographical area over a particular time frame.
RECOVERIES FROM COMMON CARRIERS
There is always a provision which protects the subrogation rights of the insurance company, and is usually stated that the insurance “shall in no wise inure directly or indirectly to the benefit of any carrier or other bailee.”
Many policies also contain a “impairment of property rights” clause which state that “any act of the insured impairing the right of the insured to collect the full value of any loss or damage from a carrier or bailee shall invalidate the policy.” Obviously, this is another and stronger provision to protect the right of the insurer to subrogate. A situation could arise when the insured is permitted to accept the ordinary bill of lading issued by carriers for hire, as they frequently include released valuation conditions, and their acceptance could violate the “impairment of recovery rights.” These situations can usually be worked around, either at time of loss or at time of insurance.
PASSING OF TITLE
The sales contract between shipper and the consignee usually specifies that the goods are shipped F.O.B. It is important to determine whether the goods are shipped F.O.B. Point of Shipment, or F.O.B. at the Consignee’s Location, as this could determine who is responsible at time of loss. However, the shipper’s transit policy can be extended to include coverage of goods while in transit, regardless of what “type” of F.O.B. is used.
PREMIUM PAYMENTS
The premium is based upon the total value of all goods covered during the term of the policy. It is customary for annual transit insurance policies to be written on a reporting basis with an annual adjustment of premium. The insured estimates receipts and shipments as close as possible, and then pays the premium in advance based on these assumptions. At the end of the year, actual figures are used and the insured will pay the additional premium, or receive a refund of any overpayment.
Premiums may be paid monthly (or quarterly) in some situations where there is enough business to warrant the added expenses of handling. In many cases, the insurer may require a deposit premium that could be ¼ of the estimated annual premium, or more. The policy may also have a clause that requires the insured to report the actual values shipped that were covered by the policy, and the insured must keep an accurate record of all such shipments. Many underwriters consider at least three years of reports to be necessary for an estimate.
UNDERWRITING
The principal underwriting considerations for a transit insurance policy, would certainly include
- The property being shipped and its susceptibility to loss or damage, including breakage, spoilage and other causes of loss.
- How the property is to be transported and the type of the carrier. Some good, for instance, have greater exposure to theft if shipped by truck, rather than by railroad.
- The type of bill of lading used, the extent of the released value, and terms of the sale (such as F.O.B. destination, etc.) must be considered. The terms of the sale will indicate during what part of the trip the carrier is liable.
- The loss experience of the shipper.
- The length of the trip during which property will be shipped.
- What type(s) of packing and/or containers will be used. Containerization can reduce losses by theft and even by handling.
- The limits of insurance and the type of valuation clause employed.
Note: When the policy will include coverage for owner’s property on the owner’s trucks, there obviously is no subrogation possible from a carrier. This would seem to justify a higher loss, however this can be balanced out because the insured would take more care in handling as it is “their” goods and they have direct supervision of the property while it is in transit.
MOTOR TRUCK CARGO INSURANCE
Annual Transit Insurance as described earlier, applies to the property of the shippers and protects the owners of such property from losses while in transit. The carrier that is transporting the property has a legal liability to the owner (hence, an insurable interest). This insurable interest is generally covered by a Motor Truck Cargo Insurance policy purchased by the carrier and which also covers the interest of the owner also because it pays direct property damage coverage.
There is a lot of business written under this coverage. It is a nonfiled class which provides considerable flexibility in coverages and rates charged. Since trucking companies vary greatly in what they haul, their methods of operation, and the area in which they operate, most policies are from a modified form of the insurer who generally has many such forms on hand.
The carriers form of Motor Truck Cargo Insurance indemnifies the insured (carrier) from loss or damage resulting from legal liability of the carrier. The policy does not insure against loss of the property, unless the insured is legally liable for the loss. It covers only the interest of the trucker, and not that of the shipper, owner or consignee.
CONSUMER APPLICATION
Metro Trucking hauls cargo from a large to several smaller cities within a 500 mile range. They have a Motor Truck Cargo insurance policy which covers flood damage.
During a trip between cities on a frequently-traveled two-lane highway, a severe thunderstorm caused a small creek that ran under the highway to overflow, washing the truck off the road and ruining the cargo. It was later determined that this damage was caused by an act of God, and therefore the carrier was not legally liable. Therefore the insurance company is under no obligation to pay the loss.
COVERAGES
Carrier forms require that loss must result from a covered cause in order for the insurance to pay. Coverages differ depending upon whether it is a Bill of Lading Form, or Named Perils Form.
Bill of Lading Form functions much like an All-Risks form, and is subject to certain exclusions. For example, some policies will exclude the following:
- governmental action, nuclear hazard, war and military action;
- delay, loss of use, loss of market, or other consequential loss;
- trick, or device and unauthorized instructions;
- dishonest acts of the insured, the insured’s employees, or anyone entrusted with the property;
- inherent vice;
- insects, rodents or vermin;
- breakage, breakdown or failure of any refrigeration unit, contamination, corrosion, rust, dampness or dryness, cold or heat, any change in appearance-smell-texture or taste.
In some policies, the above exclusions may be covered if caused by fire, lightning, windstorm, hail, smoke, explosion, rioters, strikers, civil commotion, vandalism, earthquake, flood, theft or attempted theft, or accident to the vehicle carrying the property.
Named Perils Form is nonfiled, so there can be some variation, but generally, the following are covered:
- Fire, lightning or explosion;
- Windstorm;
- Collision of the conveyance with any other vehicle or object (does not provide coverage for loss resulting from the cargo striking a vehicle or object);
- Overturn of the conveyance;
- Collapse of bridge, wharf, dock, platform or culvert;
- Stranding, sinking, burning, or collision of any regular ferry;
- Flood (defined as the rising of any natural body of water);
- Theft, but excluding pilferage.
Named Perils Forms are usually subject to the usual exclusions that appear in the Bill of Lading forms, as listed earlier.
PROPERTY COVERED
The policy usually stipulates a description of the property transported. It can be as broad as “general merchandise” for a common carrier. The coverage also applies to goods for which the carrier is legally liable as carrier, bailee, or warehouseman, or bill of lading or shipping receipt issued by the insured.
The coverage only applies to lawful goods and merchandise (cannot insure unlawful goods). In addition, certain goods cannot be insured:
- accounts, bills, deeds, evidences of debt, money, notes, securities, jewelry, precious stones or other similar valuables;
- paintings, statuary, and other works or art;
- property carried gratuitously or as an accommodation.
LIMITATIONS
Some forms will limit the amount of insurance on loss resulting from theft of certain items that are particularly susceptible to theft, such as alcohol, wine, liquor, cigarettes/tobacco, or furs. Live animals are not covered for death by natural means. Art is usually limited by a dollar amount.
TIME PERIOD
Since Motor Truck Cargo insurance covers property in transit, it is necessary to determine when the transit starts and ends. This is a not a simple question in many cases, and there have been numerous lawsuits on this subject. Courts have usually held that transit time does not start for an owner hauling its own property the same as for those carriers carrying goods for others. For an owner with their own property, transit starts when the property has left the starting point on its way to the final destination. For a carrier, transit starts when the property has been placed in the care of the carrier and ready for delivery.
The transit does not end when movement of the property ceases. There are times when property may be stored temporarily for the convenience of the shipper or the owner, and during this time the property is still considered as being “moved.” Reloading of cargo, or sorting processes does not create a cessation of movement generally. However, it is stated in Handbook on Insurance Claims, that when “goods in transit reach some intermediate point where the movement is stopped for the purpose of having something done to the goods not related to the transportation, then the transportation has ceased, and a period of storage has begun.”
When property is being transported by the owner, it (transit) is not interrupted by any stops that are normal for the route, including overnight stops.
CONSUMER APPLICATION
High Point Furniture manufacturers chairs and uses Orange Transport to ship the chairs. Orange carries Motor Truck Cargo insurance. High Point uses their own trucks to transport the chairs from High Point to Raleigh, where Orange picks up the cargo. High Point carries Motor Truck Cargo insurance to cover the intrastate shipment. For that purposes, transit starts when High Point loads the furniture into its trucks.
Orange then has the responsibility for the cargo from Raleigh to Atlanta, where they have a warehouse used for distribution of cargo. At the warehouse, the furniture is loaded into smaller trucks for shipment to retail centers in Atlanta, Jacksonville, Birmingham and New Orleans. The truck driver going to New Orleans stops overnight, and the insurance still covers the cargo as it is considered still in transit and Orange is responsible.
When some of the furniture reaches Jacksonville, a furniture repair shop contracted with High Point sprays the chairs, particularly the wicker furniture, to help avoid swelling of the furniture and the joints in the high humidity in Jacksonville and South Florida. At the repair shop, the transit is considered as ceased when the furniture was treated by the repair shop. If Orange would transport the sprayed furniture to Miami, Orlando and Tampa, then a new invoice would have to be made, however an Extension of Coverage Endorsement can be obtained which would continue the coverage until it arrives at the final destination at the retail stores in South Florida (Discussed in “Extension of Coverage” section of this Chapter).
Transit ceases when the property has been delivered to its destination. While there has been and will continue to be, discussions as to what constitutes an effective delivery, generally delivery has not been completed if anything remains to be done to effectuate the delivery.
COVERED LOCATIONS
Most Motor Truck Cargo policies show a radius of operations. A “local” hauler is one considered to be one that operates within a radius of approximately 50 miles. An intermediate hauler may operate over a radius of 200 miles and usually they make a trip out and back in the same day. Long distance haulers are those that operate in a larger radius, with most of their trips being “overnight” or longer.
SCHEDULING
On smaller policies, it is usually the practice of the insurer to list the vehicles covered, with identification by motor and serial number. Therefore, cargo is only covered when being carried by one of the scheduled trucks. For larger operations, trucks are not identified, and trucks used temporarily can be used to haul cargo if necessary. If all of the insured’s trucks are scheduled, however, then normal practice allows substitute vehicles to be used when a scheduled vehicle is not able to operate.
LIMITS OF INSURANCE
If the trucks are scheduled, a limit for each truck is shown. Policies will show a limit of insurance per truck and a catastrophe limit of insurance when more than one truck is involved or when terminal coverage is applicable (see below).
EXTENSION OF COVERAGE
An extension of coverage can be added by endorsement, or just “built in” to a Motor Truck Cargo policy. One of the most common types of extension is “Terminal Coverage.”
Terminal Coverage is necessary on occasion, because the insuring clause usually covers the legal liability of the insured “for loss or damage to goods when loaded for shipment on and in transit in or on the vehicles owned, operated or hired for or by the named insured…” With the growth and sophistication of Motor Truck lines, companies have established terminals where the cargo can be sorted by routes and “transshipped.” The carrier’s liability during the time the cargo is in the terminal is the same as while the cargo is in actual transit and is moving. Therefore, an extension to cover the cargoes while in the terminal for a stated period of time (24-48-72 hours) is used.
The Motor Truck Cargo policies often also provide for amounts of coverage for freight charges that are earned but not collectable due to an insured loss. They also may provide for an extension to pay the expenses necessary to remove cargo debris following an insured loss.
OTHER PROVISIONS
Some other provisions common to the carrier’s forms are:
INDEMNITY AGREEMENT
The insured must reimburse the insurer for any amounts that the insured is required to pay because of the attachment to the policy of any federal or state endorsement.
FINES AND ASSESSMENTS
Excludes coverage for any penalties the insured is required to pay as the result of the violation of any law or regulation relating to the delay in the payment of, or denial or settlement of, any claim.
COINSURANCE
Coinsurance is seldom used as the carrier rarely knows the full value of the cargo, but when it is included; it pertains to limits on vehicles, and also to limits on terminals.
VALUATION
There are different ways to value property. One way is to use the value of the lesser of actual cash value, or the amount for which the insured is liable for under the shipping document. Another way is to value the property at the least of the amount of the invoice or actual cash value at time of loss, or the value that is shown on the bill of lading or shipping list, or the cost to repair or replace the property with other of like kind and quality.
SETTLEMENT OF LOSS WITH PROPERTY OWNERS
The insurer always reserves the right to adjust a claim directly with the owner of the property.
DEDUCTIBLE
(Not to be confused with Coinsurance). Deductibles are almost always used in Motor Truck Cargo policies, and will vary depending upon the rate charged and the exposures.
GROSS RECEIPT REPORTING CLAUSE
The gross receipts are often used to rate Motor Truck Cargo insurance. The determination of the gross receipts can vary. One definition is “the total amount to which the insured is entitled – collected or uncollected – for the transportation of property, regardless if the shipment originates with the insured or another carrier.” Many times the policy will require that the report of gross receipts be received no later than 30 days after the end of each reporting period.
FILINGS FOR FEDERAL AND STATE AUTHORITIES
Motor Truck carriers operating within federal jurisdiction are required to show that suitable cargo insurance is in effect. This provision is met by attaching an ICC form to the insurance policy, and the insurance company then files a similar form to the ICC. This endorsement states the amount of loss covered by insurance and is binding on the insurer regardless if the vehicles, terminals or warehouse(s) are specifically named in the policy.
In actual practice however, the carrier pays the shipper for any (valid) claims, which is not covered under the insurance policy. But, if the carrier does not pay the claim, the owner (shipper) has the right to approach the insurance company directly. If the insurer pays a claim or part of a claim to the shipper, then the insurer has the right to go after the carrier for reimbursement. Again, in actual practice, many times the reason that the carrier did not pay the claim anyway was because of financial reasons. Therefore in most of these situations the insurer just has to “eat” the claims.
ICC filings are in effect until cancelled, with a 30-day notice provision.
Most states require similar filings with their Public Utility Commission or Public Service Commission.
OWNERS FORMS
Owners forms are quite similar to carrier forms in format and in the coverages and terminology, however there are some differences, such as (but not limited to)
- The owners policy covers only the owner’s interest in its own goods.
- The owners form does not contain a schedule for terminals.
- Covering of cargo by tarpaulins and other similar coverings are not present in the owners form.
- Owners forms almost always contain a coinsurance clause (usually 100% coinsurance).
- In owners policies, the valuation of property is used based upon the amount of invoice, including prepaid or advanced freight. If there is no invoice, then the valuation is usually cash market value at the destination at day of loss.
- Frequently there will be an extension of coverage for property located on the owner’s premises prior to transport or at a stopover while the transit and is interrupted, limited to a specific number of days or hours.
It should be pointed out that when owners carry their own goods, they are considered as private carriers. The insurance covering private carriers covers direct damage and not the insured’s legal liability. Therefore, the insurer will be responsible for most of the losses, including acts of God. It might be assumed that because of the nearly limitless liability of the insurance company in case of loss, the experience of private carriers would be terrible. But actually the experience of private carriers is better than with common and contract carriers, probably because they have a tendency to operate only on short hauls, and most importantly, the goods actually belongs to the transporter, so they will take much better care of the property. Also, there are no terminal fires charged against the private carriers as the insurers do not cover owner’s good on owner’s premises. One other thing, private carriers have a tendency to keep their trucks in better condition as they are not under the pressure to make frequent runs in order to keep customers.
SPECIALIZED MOTOR TRUCK CARGO POLICIES
In addition to the forms listed above, there are also specialized forms which include the Household Goods Carriers, and the Carloading Companies and Freight Consolidators.
HOUSEHOLD GOODS CARRIERS
If a carrier is a small carrier and is not involved with warehousing household goods, then they can be insured on the usual Motor Truck Cargo form. For the large household goods carriers, a specialized form is used. Some of the coverages as listed below will appear on most Household Goods Carriers forms.
CARRIERS LIABILITY
Coverage is provided for liability for loss to property in transit, including temporary storage in transit. Household Goods carriers charges include a specified number of days for storage in transit. Premiums are collected on gross receipts reporting basis.
WAREHOUSE LEGAL LIABILITY
Once the above mentioned “storage in transit” period has expired, the carrier then becomes liable as a warehouseman. A warehouseman is only responsible for losses caused by its negligence, and this section of the policy provides such coverage. Premiums are usually a flat annual premium.
CUSTOMERS HOUSEHOLD GOODS
At the request of the shipper, the company may issue a policy of insurance (certificate) that provides insurance for property in transit or in transit and in storage. The policy provides rates for each of these certificates. This is a method whereby each customer receives a certificate of insurance covering their own personal shipment. Cancellation of the master policy does not cancel the certificates. Another section insures the accrued charges that are uncollectable under this section of the policy.
MOVING EQUIPMENT
The dollies, burlap, blankets, skids, etc. are insured under this section.
GOVERNMENT AGENCY CONTRACTS – MILITARY TRAFFIC MANAGEMENT AGENCY ENDORSEMENT.
These sections cover the insured’s liability for property accepted under contract with a government agency. For military personnel the policy is amended to comply with the requirements of the Department of Defense regarding transportation of household goods (also for civilian employees affected by these military requirements).
CARLOADING COMPANIES OR FREIGHT CONSOLIDATORS
Some of the functions of freight brokers and consolidators operate similarly to common carriers (as discussed previously under “Indirect Carriers”), and their legal liability can be covered in the same way. Each insured is rated individually. The policy is designed to fit the terminal hazards of the operation, the insured’s trucking operation (if any) and the contracts with other truckers.
UNDERWRITING
As with all Inland Marine policies, there are a variety of factors to be considered with underwriting Motor Truck Cargo insurance. Some of these are:
- type of carrier (common, contract, private, etc.)
- number of vehicles
- routes over which the insured operates
- commodities carried
- average value per truck load
- amounts of insurance required
- terminal locations and security arrangements
- protective devices on trucks
- filing requirement (ICC &/or State)
- annual gross receipts.
Past loss history is very important, as is the insured’s financial condition. If a carrier is not in a strong financial position, then escrow deposits and irrevocable letters of credit can be used
The types of commodities hauled can be important, especially if they are of a type that is particularly susceptible to theft. Some commodities can be limited by percentage, e.g., no more than 20% of the limit on liability will apply on the special commodities – or it can be expressed as a dollar amount. In order to offer insurance on those commodities, underwriters may require an extra measure of protection, such as an alarm system installed, a requirement that a person must be with the cargo at all times, the theft must be the results of forced entry, and in some cases, the vehicle must be part of a convoy (or perhaps followed by another vehicle).
Many carrier forms exclude loss or damage caused by or resulting from breakdown of refrigeration equipment. This can be overcome if there are other refrigeration units available along the route &/or the availability of quick access to another refrigerated unit.
The extension of coverage to terminals creates a serious additional hazard as the largest insured motor truck cargo losses have been because of terminal fires. Besides, cargo in one truck may only be a fraction of the total exposure as cargo from several vehicles can be stored in a terminal at one time. When terminals are covered, they are listed (scheduled) and there is a catastrophe limit for vehicles and terminals.
RATING
The rate for a policy is multiplied by the policy amount to compute the premium – which is usually paid annually in advance. The amount of premium is the total of all the amounts applying to the different trucks.
Factors that affect the rates are the limits of insurance, the coverages, radius of operation, terminals, deductible amount, property carried and whether there is an operating alarm system.
If the premiums are based upon the gross receipts, it is usually used to cover all of the operations of the insured as a trucker, and the individual trucks are not listed. This is often used for large fleets of trucks, as it would be tedious and not cost-effective to list new trucks every time one is added to the fleet, or to subtract those that are not used any longer. Underwriting is different also, as the underwriter considers the previous loss experience, limits of insurance, commodities hauled, terminal exposures (if any), radius of operation, and other such factors – even including the how much the individual cooperates with the underwriting requirements.
For owner/operators (drivers who own their own truck or tractor), they work under the operating authority of the carrier who issues the bill of lading and who hired the owner/operator and who, therefore, is liable to the shipper for the goods while in the custody of the owner/operator. Owner/operators may or may not, have insurance to make payment to the insurer in those cases where the owner/operator is responsible for a loss and for which the carrier had to make payment to the shipper. Therefore, reputation of the owner/operator is highly prized by carriers who use owner/operators.
Problems can arise with the owner/operator, as illustrated by the following Consumer Application.
CONSUMER APPLICATION
Bill owns his own truck and is under contract to Tomson Trucking as an owner/operator. Under the carrier policy carried by Tomson, the owner/operator’s truck is not scheduled and the premium is collected on a gross receipts basis. Since the truck was not scheduled, the carrier still has to report the full amount collected for the shipment. Under the contract with Bill, Tomson gives 75% of the shipping charge to Bill, and Tomson keeps 25%. (Continued on next page)
While carrying a load of perishable items through Tennessee, Bill’s truck’s brakes failed coming down a mountain and Bill had to turn onto a speed ramp. However, the ramp was not adequate to keep the truck from turning over, with the result that the load was a total loss.
Even though Bill got 75% of the shipping fee, Tomson was responsible for 100% of the cargo during the entire trip. If Bill had insurance as is usually required, then his insurance would pay Tomson for the loss. If Bill did not have the insurance, then Tomson would have to sue Bill to get reimbursed.
STUDY QUESTIONS
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