Cargo insurance is comparable to other types of property coverage such as car and homeowner’s insurance which are purchased to protect the financial interests of the owner of the vehicle or house.Cargo insurance covers against physical loss or damage from an external cause that occurs while goods are in route to their final destination.Coverage extends to an enormous number of causes of loss from theft from a parked truck enroute to the port, water damage caused by humidity inside a container, rogue waves knocking a container clean off the deck of the ship, fires caused by combustion of neighboring cargo – such as fireworks or batteries, or pallets falling off of forklifts while the goods are being loaded.
For cargo owners involved in international and domestic trade, cargo insurance is an essential means to preserve their financial interests.
A cargo owner might reasonably expect that a carrier or warehouse operator who has custody of cargo would reimburse the cargo owner for losses to their property, but this is not always the case. Carriers such as steamship lines or airlines are not usually responsible for losses that are unforeseeable and beyond their control. For example, carriers are not commonly responsible for the following causes of loss because they are beyond their control:
In order to be compensated by a carrier for the financial impact of a loss to cargo, you must be able to prove that they are negligent. As all the television law dramas tell us, we are innocent until proven guilty, and so in a claim like this, the burden of proof falls on the cargo owner. Unless the cargo owner has insurance. An insurance claim does not require proof of negligence and has many other benefits over a claim against a cargo carrier.
Additionally, if they are in fact responsible for loss, a carrier’s or warehouse operator’s liability for lost or damaged cargo may be limited based on the documentation they’ve issued. The amount recoverable is usually much less than the actual claim amount. Here’s a real-life example of limits of liability impacting recovery:
An air shipment of 8 pallets of pharmaceuticals valued at $1.39M suffered a total loss due to an unforeseen temperature increase. The cargo owner sued the air carrier and won, but they were only awarded $60,000. This is the legal liability of the air carrier based on the contract of carriage terms. The terms were the standard recovery amount of 22 SDUs or $29.00 per kg based on the Montreal Convention air carrier limitation valuation. If the cargo owner had obtained cargo insurance on the shipment, it would have paid at the full value of the goods.
There are many insurance agencies offering cargo insurance, but few specializing in logistics and supply chain. Clients should partner with a specialty insurance broker who ensures the right coverage for their cargo.