How much cargo insurance is ‘sufficient’?

How much cargo liability insurance does a carrier in Ontario really need? It seems fairly straightforward, but like many issues in the trucking industry the question is actually not so easy to answer.

The province’s Carriage of Goods Regulation requires carriers to maintain “sufficient” insurance to cover lost or damaged goods.

To quote Section 3 of the regulations under the Highway Traffic Act: “For each motor vehicle operated by a carrier for the carriage of goods for compensation, the carrier shall provide or effect and carry with an insurer licensed under the Insurance Act liability insurance for loss or damage to goods in an amount sufficient to cover the loss or damage of the goods carried.”

But what exactly does “sufficient” mean?

Consider this hypothetical scenario: A carrier purchases $250,000 in cargo insurance since the business usually ships loads that would never reasonably exceed that value. From the carrier’s point of view, all is well and they’re complying with the regulation.

However, what if a new shipper approaches them with a load of unfamiliar goods and does not disclose the value?

How is the carrier to know whether the existing insurance is “sufficient”? If the new load’s value turns out to be much higher than the insurance policy, then the carrier has arguably violated the regulation. But how could the carrier have known to take out more insurance for that particular load?

The above dilemma then leads to another question — what happens to a carrier that breaches the regulation? Again, it’s not entirely clear.

The Highway Traffic Act contains a “general penalty” clause providing that everyone who breaches the regulations is liable to pay a fine of between $60 and $1,000. So, if a carrier does not have “sufficient” insurance, there could be just a minor fine to pay and nothing more.

On the other hand, if a carrier breaches the regulations by failing to maintain “sufficient” insurance, can it still rely on the $2-per-pound limitation of liability provisions found in the same set of regulations? It’s not entirely clear, and this precise issue does not appear to have come before the courts yet. But it’s a real question.

In some other jurisdictions, notably British Columbia, courts have held that failing to properly issue a compliant bill of lading can sacrifice a carrier’s ability to limit liability for lost or damaged cargo to the usual $2 per pound. In British Columbia, a non-compliant carrier can be out of luck.

But what about the failure to carry “sufficient” insurance? Would that regulatory breach also be enough for a court to find that a carrier should not be entitled to the protection of the limitation of liability?

Unfortunately, it’s not clear. Unless and until the courts provide guidance on this issue, a prudent carrier should make sure that the shipper is aware of the amount of the carrier’s available insurance coverage, and try to confirm with the shipper that that amount of coverage is sufficient. If the shipper refuses to confirm, then the carrier can argue later in court that it tried to comply with the regulations, but that the shipper did not co-operate. In those circumstances, it would be hard for a court to blame the carrier and take away its ability to limit liability.

As always, carriers finding themselves facing these types of issues should always be sure to speak with a competent transportation lawyer.