Shippers and freight forwarders have an interesting relationship. Shippers hire freight brokers who negotiate transportation contracts on behalf of the shipper. However, should their cargo become lost, stolen, or damaged in transit, the shipper will then hold the broker liable. In order to protect themselves against any potential claim, freight brokers carry contingent cargo liability insurance that helps to ensure retribution to the shipper when a claim is made.
Cargo insurance is only necessary in times when the carrier refuses to honor a claim. For example, if you were to ship a container of car parts to Germany, and the ship’s captain makes the decision to throw a portion of those parts overboard in order to save the ship, the carrier may decide that they won’t take responsibility for another person’s actions. In this instance, he or she may refuse to pay off the loss, and this is the type of situation where contingent cargo liability insurance pays the claim.
Cargo insurance covers many areas of risk
Cargo insurance, underwritten by groups called managed risk clubs, generally covers any possible risk. In those times when the managed risk club declines to make payment on a claim for the loss or damage of a shipper’s cargo, the shipper will turn to the freight forwarder to make good on their loss. This is an example of when freight brokers, while not legally required to, will carry contingent cargo liability insurance.
Another reason that freight brokers carry cargo insurance is because most carriers are reluctant to work with those who don’t obtain this policy. Although not strictly liable, the forwarder’s reputation will suffer if he does make good on claims.
Contingent cargo liability insurance coverage includes loss due to damage and theft in transit, the loss of the cargo on any type of common carrier, including truck, rail or ship, as well as some of the losses familiar to rail or ocean shipping, such as the ship sinking with the cargo aboard, or in the event of a train wreck.
One type of loss in ocean shipping where contingent cargo insurance is essential is called “general average.” In the aforementioned scenario, when the captain or the crew jettisons cargo to save the ship, the insurance company charges the loss of all or part of any one shipper’s cargo back to all the shippers. Contingent cargo insurance then pays this claim.