December 05, 2017
Sub-limits Can Cost You
Contingent Cargo Insurance provides coverage when a motor carrier's primary insurance does not pay a claim and the motor carrier is unable to pay. Brokers use this policy to safeguard against claims made by shippers, but they can mistakenly rely on it to provide all encompassing coverage. Stipulations and sub-limits may apply, and circumstances aren't always clear-cut. The case of MGN Logistics, Inc. v Travelers Property Casualty Company below illustrates the importance of knowing what is in your carrier's policy and your contingent cargo policy, including all terms, conditions, and sub-limits.
MGN Logistics, Inc. (MGN) is a freight broker who connects shippers and their cargo with motor carriers who move the cargo. As an intermediary, it arranged for Trans Logistics, a freight carrier, to deliver a shipment of copper coils from Wheeling, Illinois to Rochester, New Hampshire. The shipment was worth more than $130,000 and never made it to its intended destination. Unfortunately, the cargo was stolen when it was left unattended in a parking lot overnight.
Trans Logistics was insured by Essex with a general cargo limit of $250,000. The policy contained several warranties and endorsements one of which was a Special Theft Warranty Endorsement. This endorsement limited coverage of cargo loss to $5,000 for certain valuable cargo, including copper, if adequate steps were not taken to protect the cargo. Thus, when MGN made a claim against Trans Logistics for the full amount of the stolen load they were informed by Essex that their insurance policy only offered up to $5,000 in coverage for this type of commodity due to the Special Theft Warranty Endorsement attached to the policy.
MGN rejected the offer and pursued the claim with its own insurer, Travelers Property Casualty Company (Travelers). Travelers denied the claim, citing that its contingent insurance policy provides coverage only when the primary insurer declines to or is unable to cover a loss. Moreover, the Travelers policy will not pay more than the "actual limits" of the primary policy. Given that Essex was willing to settle, albeit for a much lower amount than MGN’s demand, Travelers reasoned that the primary insurance is able to pay, and therefore, the contingent policy cannot be triggered. Additionally, even if the contingent policy is triggered, Travelers' liability would be limited to $5,000 which is equal to Essex’s primary limits.
MGN argued that Essex’s offer to settle doesn’t release Travelers from liability and that the $250,000 general limit applies. They further argued that the certificate of insurance states the $250,000 limit of liability for cargo and there is no evidence that MGN saw the Essex policy and endorsement. However, the Court held that MGN could have done due diligence and examined all the documents and insisted on broader coverage. The Court also ruled that even if Travelers were liable, it will only be up to $5,000, the amount equal to the primary insurer’s limits.
As seen in this case, which coverage limit applies in specific claim circumstances can be debatable. Thus, it is imperative that brokers know the details of their freight carrier's insurance coverage and their own contingent cargo policy. Not knowing can mean financial loss when ultimate coverage is considerably less than what the brokers expected and relied upon. Motor carriers at times have subpar policies with restrictions, warranties and sub-limits for specified items such as seafood, consumer electronics, and valuable goods. After a review of the MGN case, how would your company be impacted if you only received a $5,000 settlement on a $130,000 claim? Avalon's Combined Transit Liability policy offers a Contingent Cargo Insurance endorsement that is NOT a following form to the motor carriers policy. The coverage provided under the endorsement has its own set of terms, conditions, warranties and exclusions, the coverage is not based upon what the actual carrier insurance terms are, our coverage stands alone for the benefit of our insured and their protection. For more information, visit Avalon's website or contact your Avalon representative.