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Perishables and Refrigerated Cargo Coverage

September 21, 2022 Lisa Vranich

Don't be left out in the cold when it comes to a claim involving refrigerated cargo. If you ship, broker, or transport refrigerated loads, make sure you understand what needs to happen for your insurance policy to respond.

If you have "Reefer Coverage" or "Reefer Breakdown" is listed on an insurance certificate, you probably feel confident that the insurance policy will provide coverage for losses to your refrigerated loads, right? Unfortunately, the answer isn't simple, and as with most things "insurance," the devil is in the details. I would call this a "yes, but…" situation. Yes, a Reefer Breakdown endorsement may provide coverage for losses to fresh, refrigerated, and frozen goods, but there are certain warranties and exclusions that could preclude coverage. Understanding how the policy is structured helps to clarify the nuances of the coverage.

Most Motor Truck Cargo or Contingent Cargo policies exclude losses arising from deterioration due to delay, inherent vice, spoilage, and change in temperature unless the policyholder has purchased additional Reefer coverage (usually a separate coverage or endorsement). Reefer Breakdown coverage adds back coverage for spoilage - however, here is where the first "but" may come in. Coverage may only be added back if the spoilage was due to the sudden and accidental mechanical or electrical breakdown of the reefer unit (which is why it is called Reefer Breakdown coverage). That is a big detail.

Some Reefer Breakdown coverage will have the additional requirement that the reefer unit must have broken down for more than a certain period of time (i.e., 12 hours, 24 hours etc.). This means the reefer unit must have stopped operating for more than the time period referenced; otherwise, there is no coverage. That is also a big detail. Even the definition of the term "breakdown" may differ among policies. It could be defined as an actual breakdown of the equipment, meaning it has stopped operating. However, other policies may define a breakdown as a failure to maintain temperature levels as specified by the shipper. At first glance, that seems insignificant but (yes, another but) there is a significant difference here. The latter definition could broaden the coverage. Defining it as a failure to maintain temperature levels could potentially include the act of incorrectly setting the reefer unit (which then leads to a failure to maintain temperature)—another essential detail.

A few other devilish details that should be noted: some Reefer Breakdown clauses may contain additional exclusions that further restrict coverage from triggering, such as:

  • Failure to provide adequate fuel supply or refrigerant
  • Incorrect setting of the reefer unit
  • Escape of fuel from the equipment
  • Failure of the carrier to keep monthly maintenance records of the units

So, yet another "yes, but" situation here. Yes, your Reefer Unit may have met the policy’s definition of a breakdown, but, if any of the above have occurred, the policy will not respond to the claim.

I always say that there are no bad insurance policies out there – just a lot that are misunderstood. It is critical to read the fine print of your policies. If your Reefer-Breakdown clause is giving you the chills, talk to your insurance agent about crafting a coverage solution that specifically addresses your shipping needs, manages your exposure, and gives you peace of mind.

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