What is Freight Insurance and When do You Need This Policy for Your Business?

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By Next Insurance Staff
Nov 11, 2019 min read

Business owners understand how important it is to have the right kinds of insurance. Having the coverage you need can help protect your business from unforeseen events that would otherwise cost a great deal of money to overcome or maybe even shut down the business. 

Freight insurance protects your customers and your business from financial losses resulting from freight that's damaged or lost while in transit. While the carrier provides a certain amount of freight insurance coverage automatically, it's rarely enough to cover losses for businesses that routinely ship goods to customers. 

There are many ways a shipper or receiver of goods can protect their financial investment. Understanding the different types of available business insurance and how each may help a business minimize the negative effects of lost or damaged goods will help determine which policies are a good fit. 

Freight Liability Insurance Doesn't Offer Enough Coverage for Most Business Needs

Carrier insurance or freight liability insurance may provide a certain amount of money per pound or per container of cargo. This type of cargo insurance restricts coverage to incidents where the freight was damaged as a result of the carrier's mistake or negligence. 

To make a claim on a carrier insurance policy, the shipper has to prove that the carrier is at fault for the damage to the package. The receiving party must note the damage at delivery or the carrier will likely be found not at fault. If the receiving party accepts the shipment and later discovers the damage, it can be impossible to succeed with a claim on a carrier insurance policy. 

If a shipper succeeds with their claim, they may be surprised to find that the carrier refuses to pay 100% of the value of the goods shipped. Many carriers specify that they'll only pay the cost of repairing the item or the amount of money it costs the shipper to manufacture the item. 

According to the Carmack Amendment of 1935, which is the national standard of liability for freight damage and loss, freight insurance coverage isn't valid if any of the following is true:

  1. The loss was an act of God
  2. The loss was an act of the public enemy
  3. The loss was an act of the shipper
  4. The loss was an act of the public authority
  5. The loss was due to the inherent nature or vice of the goods themselves

Commercial Auto Insurance May Not Cover Goods in Transit

For businesses that deliver goods to customers, commercial auto insurance may not offer coverage that extends to cargo or packages. In some areas, commercial auto insurance may be required, but it's important to understand exactly what is covered and what is excluded from each of your business insurance policies. 

With commercial auto insurance, you may get substitute vehicle coverage in case your car or truck is in the shop, employee coverage if someone who works for you is driving or riding in a company vehicle when it gets in an accident, and equipment coverage that extends to the worksite. It may even offer coverage for injuries sustained or accidents that happen while loading or unloading a covered vehicle. 

If you use a company vehicle to deliver goods and they are damaged during an accident, those losses may not be covered. Separate freight insurance coverage would pay damages in this case, though. 

Commercial Cargo Insurance isn't a Good Substitute for Freight Insurance

If you are an owner-operator truck driver who hauls and delivers goods for one or more companies, you may need commercial cargo insurance. This isn't the same as freight insurance, though. This type of policy covers you for losses due to a collision, fire, or other types of accidental damage to the things you haul for clients. 

Like many other types of insurance, cargo insurance has a deductible and coverage limits. It may not cover property owned by the insured company or individual, the property being stored for more than 72 hours, or certain types of goods. 

All risk cargo insurance coverage is one type of insurance that covers situations that other types of policies may not handle. These include cargo abandonment, infestation, damage as a result of inappropriate packaging by the shipper, customs rejection, and problems with shipping due to employee dishonesty. 

Maritime cargo insurance coverage covers perils such as sinking, bad weather, theft, fire, collision, earthquake, non-delivery, and derailment. Some maritime cargo insurance covers only part of losses that occur when goods are on the water vessel, however. 

Businesses that want to purchase insurance for cargo being delivered to them may consider warehouse to warehouse coverage. This bridges the gap in coverage that occurs between the time the shipment is unloaded and when it arrives at the destination. 

Freight Insurance Coverage Helps Protect a Business from Losses in Many Ways

business insurance package that includes freight insurance offers protection no matter who is at fault for the damage. While you must prove the value of the goods and the amount of the loss, there's no requirement to prove carrier negligence. This type of insurance also covers lost packages. 

In addition, a good freight insurance policy may offer coverage excluded by carrier limitations, including civil commotion, strikes, and "acts of God." The value of a package isn't limited to the carrier's bill of lading, nor do you have to bear the burden of proving that the damage or loss is the carrier's fault. 

Having a freight insurance policy also prevents the need to make a claim against the business's general liability insurance policy. This could help save money on applicable deductibles under both a legal liability policy for errors and omissions and a general liability policy. 

Next Insurance Has You Covered

Understanding your business insurance options and knowing how various scenarios involving lost or damaged goods may affect your business is an important part of being prepared. 

Contact Next Insurance today to talk about the limitations of each of your policies. Also, you can access your insurance policy information online 24/7 so you can manage this important part of your business when it's most convenient for you. 

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By Next Insurance Staff
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