Court Issues Opinion on Second and Third Levels of Insurance

Kevin Anderson Cargo Liability, Transportation

Anyone involved in the trucking and transportation industry understands how complex the relationships used to move products can be. Many times there is a shipper, freight broker, motor carrier, at least one insurance company, assigned shipment receiver and more who are involved in a complex relationship to move goods across the country. And each one of those relationships is ruled (or should be) by a written contract that determines what should happen when the relationship goes south.

In most cases, what should happen after cargo is lost, damaged, destroyed, or stolen is clear. The Carmack Amendment is a federal policy which holds motor carriers one hundred percent liable, unless the liability is waived. This policy is one of the reasons why insurance companies are so heavily involved with most shipments.

Secondary and Tertiary Insurance Policies

A recent case out of the Northern District of Illinois illustrates how different insurance policies and companies are involved with the transportation industry. In that case, MGN Logistics, Inc. v. Travelers Property Casualty Company of America, a carrier was responsible for transporting over $150,000 of copper interstate. As it happened, the trucker left the shipment unattended for a night while he slept in a hotel, and the shipment was stolen.

The fallout of this lost shipment reached into a third level of insurance on this shipment. The freight broker first reimbursed the owner of the shipment for the entire loss, then moved to the first level of insurance to be reimbursed. But that insurance company would not reimburse because of a provision in the policy, which limited its liability in the case of copper to $5,000 when the shipment was unattended.

The freight broker then appealed to its own insurance company to be reimbursed, as they had a policy which made up the difference of any secondary policy which did not pay its limit. But that insurance company also balked at paying because their policy only insured the company to another insurance company’s limits. And the case went to court.

Court Sides With Insurance Company

In this case the court sided with the insurance company, and the freight broker was left paying the entire cost of the lost copper shipment. This case should serve as a warning and lesson to trucking companies, and freight brokers, involved in shipping things like precious metals, furs, jewels, or other expensive items that may not be covered by an insurance policy.

It is a good reason why every company should be aware of the actual language used in insurance contracts and other documents. These issues can become very complex, and at times require the measured advice of trusted professionals. Of course not every contract can be reviewed by an attorney, but overall practices and company policies should be. That is how major mistakes costing millions can best be avoided.

At Anderson and Yamada we have decades of experience in the trucking and transportation legal landscape. We advise companies on insurance policies, Carmack Amendment Cases, and more. Whether you are in need of legal counsel, in court representation, or more, we have the experience your situation needs. Contact us today.