A Guide to Liability Insurance for Transport Operators

It is most unfortunate that when it comes to insurance we tend to find out the inadequacies of our cover only when we make a claim.

Professionally minded and prudent transport operators & logistics companies already appreciate the importance of purchasing liability insurance for their business. They are already aware of the financial strain they could face if they are liable for another party’s loss.  While that’s a good start, do companies always select the right cover? Sadly no and largely because they fail to fully analyse and understand their own operational risk exposures against a backdrop of a diversity of policy wordings the market has to offer. Would a simple bailee liability policy be relevant in today’s logistics world? Most certainly not, is the short answer.

So here are some tips to ensure your liability insurance will protect you when you need it:

  • A non-marine liability insurance e.g. a commercial general liability, does not provide sufficient cover for transport operators but is often purchased in the mistaken belief that it does, even if with a broad form property damage or custody, care and control extensions. Make sure you purchase a proper professional liability cover that is designed for logistics companies and which will insure you for contractual liability as well as civil liability.
  • If you have been given a quotation that looks too good to be true, you are probably right. In insurance, like most things including freight and cargo services, you do get what you pay for.
  • Ensure you have full liability protection to cover all of your forwarding operations. Some transport operators only request cover for their house bills of lading or house air waybills but if you also undertake other lines of business like customs clearance, warehousing and distribution, haulage, packing and labelling, then the liability exposures for these need to be covered as well. Those in 3rd party and 4th party logistics and beyond should take special care.
  • Check that your insurance covers you for Errors & Omissions. Not all claims are for physical loss or damage to cargo but financial loss as well, e.g. for giving wrongful advice or incurring costs for misdirecting cargo arising from an error. This is termed as the Professional Indemnity aspect of a comprehensive policy.
  • If you trade internationally, check that you have adequate limits of liability and that the legal jurisdiction stated is in your customer contracts is own country of domicile.
  • Defending an action brought against you, even if you were not at fault, can be time consuming and costly so ensure that your cover includes Defence Costs. Where the premium difference is not cost prohibitive, arrange this on a “ground-up” or “first dollar” basis so that you do not have to pay a deductible or excess.
  • Make sure that General Average and Salvage Charges are included as these types of claims can fall back onto transport operators.
  • Ensure that you incorporate your own or your National Forwarders Association’s standard trading terms & conditions (STCs) when undertaking any business to limit your company’s liability in your day-to-day business. The main method of incorporating your STCs is through reference clauses. Get your insurer to view and approve your STCs before the inception of your liability insurance contract, and if you make any changes to them, you must get submit the changes to your insurer in order to have these covered.
  • Never accept liability without first speaking to your insurer.
  • There are also ways to avoid losses through proper risk management and which is something which we encourage all transport operators & logistics companies to establish and incorporate when conducting their daily operations. For example, never agree to release containers or cargo without the production of the original Bill of Lading, no matter how well you know your customer or how long you have done business with them and, to minimise the chances of a customer seeking compensation from you for loss or damage to their cargo, always encourage them to purchase cargo insurance.

The best advice we can give to transport operators & logistics companies is to use the services of a specialist marine insurance intermediary.  They can make sure that the insuring conditions under your freight and logistics services liability insurance are wide enough to protect your company against the liabilities you face and that the insuring premium is competitive for that level of cover.

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