Insurance for your High-Value Products

In the previous column, we took a look at the recent case of Treiber v. UPS and the lessons to be learned from the Court’s opinion. In that case, a jeweler shipped a $103,000 piece of jewelry and declared a value of $50,000. After the shipment did not arrive at its destination, the jeweler sued both UPS and UPS Capital Insurance Agency, Inc. to recover his loss.

As discussed in that column, the jeweler could not recover from UPS because UPS had a valid, enforceable tariff that limited its liability to ‘$0.00’ in the event that UPS inadvertently accepted a shipment with a value in excess of $50,000. That holding with regard to UPS begs the question of ‘Why didn’t the jeweler recover from UPS Capital, the entity from whom he purchased ‘Excess Value Insurance’’?

The Court described UPS Capital as ‘a wholly owned subsidiary of UPS that administers UPS’s excess value insurance program.’ The opinion does not go into a great amount of detail regarding the insurance; however, it would appear that the terms of the insurance policy paralleled the terms of the UPS Service Guide and had an exclusion ‘for packages having an actual value in excess of $50,000 even if a lesser amount is specified in the insured value field.’

What would Bill Augello say about this? I believe he would say that this underscores the vital importance of shippers educating themselves with regard to the difference between:
  1. declared value ‘insurance’
  2. cargo liability insurance and
  3. cargo insurance.
This is especially so in the era of deregulation where there is no uniformity with regard to the terms and conditions of liability from mode to mode or from carrier to carrier within a mode.

In general terms, the payment of an additional amount to a carrier when a shipper declares a value is not a payment for insurance at all. Rather, it is a payment of an additional freight charge in exchange for a higher limit of liability. However, shippers of high-value products must be aware of the fact that even when they have declared an accurate value, acceptable to the carrier and paid a higher freight charge, they still may not be able to recover from the carrier in the event of a loss.

This is because the carrier could still assert the defenses of act of God, act of public authority, act of the public enemy, inherent vice, fault of the shipper and perhaps others if in a valid tariff or service guide term. This means, for example, that if a bolt of lightning, out of the blue, destroyed the product, the carrier would not be liable to the shipper. Another more common example would be that the carrier would consider itself not to be liable if it determined that the product had been insufficiently packaged by the shipper.

With regard to actual insurance, shippers often ask a carrier if the carrier has ‘insurance’ with the carrier responding affirmatively. This leads the shipper to believe that he does indeed have his shipment insured. However, the insurance that a carrier holds is ‘cargo liability insurance’ which is very different than ‘cargo insurance.’

Cargo liability insurance is insurance whereby the carrier is the insured and the insurance company agrees to make payment to a third party, subject to certain exclusions and deductions, in the event that the carrier is found liable to the shipper for a loss and damage claim. This means that even though a carrier may have a $1 million cargo liability insurance policy in place, the shipper would not recover in the event that the carrier had a limit of liability in its tariff, e.g., .10’ per pound for ‘used equipment,’ which could include a very expensive used computer server. This would also be so if the loss was occasioned by one of the five defenses listed above.

This is to be contrasted with ‘cargo insurance,’ sometimes referred to as shippers’ interest policies. With these policies, the shipper is the insured. They are purchasing true property insurance, which provides coverage regardless of the liability of anyone. They come in various forms and names such as In-transit Policy, Manufacturer’s Output Policy, Jeweler’s Block Policy and so forth.

As with any insurance policy, they will have exclusions and deductions. However, they are true first party casualty insurance and would pay for a loss even though the carrier itself might not be liable because of a tariff limit of liability or one of the five defenses previously listed.

The main disadvantage for the shipper of these policies is that the shipper is paying the premiums. Moreover, the premium level is very loss-sensitive, with the amount or frequency of losses being largely outside the shipper’s control.

All of the this leads to the conclusion that a shipper of high-value products should thoroughly consider the costs and benefits of purchasing its own insurance from its own agent rather than relying on the carrier to protect the shipper.

All for now!

Brent Wm. Primus, J.D., has authored many articles and publications relating to transportation and litigation. Brent received the Transportation Lawyer of the Year Award from the Transportation Logistics Council. He is the co-author of the U.S. Domestic Terms of Sales and Incoterms 2000. He currently serves as the General Counsel for the Freight Transportation Consultants Association and is the CEO of transportlawtexts, inc. as well as the CEO of Primus Law Office, P.A. He can be reached at brent@primuslawoffice.com.