Insure against ‘limitless liability’ when sub-brokering loads

Alan Cofman

Most truck carriers know they are generally required to have sufficient insurance to cover the value of cargo they haul. In practice, this can be difficult because carriers do not always know the value of their cargo — especially before pickup, when a commercial invoice may (or may not) be provided.

However, they will have some form of insurance policy to provide comprehensive coverage against legal liability for cargo loss or damage. Their policies may also provide coverage for consequential losses arising from such issues. Finally, the properly insured truck carrier will be entitled to a legal defence should one become necessary.

are you covered insurance sign
(Illustration: istock)

Other transportation intermediaries — such as freight forwarders and brokers, customs brokers, and warehousemen — will have different coverage. Unlike truck carriers, who are often entitled to limit liability for general freight, these players are potentially exposed to unlimited liability for negligence in their jobs, such as selecting inappropriate or under-insured carriers.

So, when cargo is damaged in transportation, there is a good chance that the cargo’s owner or insurers will point a finger at these other parties.

For example, if a $1 million shipment of computer chips is damaged and the carrier is entitled to limit its exposure to $50,000, the cargo owner may look to sue the forwarder who issued a house bill of lading for the $950,000 difference. The best protection against this is a robust “errors and omissions” insurance policy, which generally covers such negligence.

Truck carriers that sub-broker loads to downstream carriers can find themselves looking more like uninsured forwarders or brokers than they might like to acknowledge.

First, their truck carrier’s legal liability insurance may not protect them because that coverage usually only applies when the cargo is in their “care, custody, or control”. Second, if they are seen to be more than a “common carrier”, the truck carrier’s policy will not apply — and they might be exposed to limitless liability.

To fill the potential gap, the brokering carrier ought to have some form of “contingent cargo insurance” to cover the risk until the voyage is completed. It is called “contingent” because it is only activated when the primary truck carrier’s policy is unable to pay out. It may also be engaged if the primary coverage is insufficient for some reason, such as insufficient limits or exclusions.

Although many truck carriers do have contingent coverage embedded in their policies, the amount is often insufficient. It is not uncommon for carriers to have a limit of $25,000 per occurrence, even though they are generally insured for many times that amount when they carry the goods themselves. Although this may be legally allowed, the risk may be out of proportion to the protection required.

It is always a good idea to review the breadth and scope of coverage with your insurance broker. It is their duty to investigate your needs and provide you with all the options.

Alan Cofman

Alan S. Cofman is associate counsel at Miller Thomson LLP, and can be reached by calling 416-595-8578, or emailing

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