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Carrier Liability vs Cargo Insurance Explained

If your business revolves around shipping freight, then you have to know about carrier liability vs cargo insurance.


Ask Truckload
February 12, 2020
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If your business revolves around shipping freight, then you have to know about carrier liability vs cargo insurance. Both of these things have some similarities and difference. They’re both to do with shipping freight and covering certain issues that may take place. However, you must understand the ins and outs of both to ensure your business uses the right one for your needs. Thankfully, you’re in the right place as we will explain all there is to know about both of these terms and what they mean. 

One of your biggest freight shipping concerns is what will happen if your shipment gets lost or damaged. How are your items protected? What will it mean for your business and customers if something goes wrong? You must have protection, and this is where carrier liability vs cargo insurance comes in. They both offer different types of coverage to help combat this worry. 

What is Carrier Liability?What is Carrier Liability

To understand this term, we need to split it up. Firstly, what is a carrier? Effectively, it refers to a company that transports your shipment from origin to destination. They’re in charge of getting everything in order and ensuring your goods arrive at their final destination. The definition of liability is that it’s the state of being legally responsible for something. 

Consequently, carrier liability refers to the level at which a freight carrier is responsible for damages, losses, or delays in a shipment.

However, carrier liability coverage usually only covers up to a certain point. Typically, a carrier’s liability coverage is less than the total value of goods being shipped. What’s more, there are some things that this type of coverage doesn’t cover against: 

  • An act of God: If your cargo gets damaged due to an act of God - such as a natural disaster like a hurricane or act of war - then the carrier isn’t liable.
  • Acts from the shipper: If the shipper incorrectly packages the cargo or doesn’t load it up properly and is damaged, the carrier won’t be liable.

Looking for a solution to move truckload freight? R+L Global Logistics handles truckload shipping. Let us know when and we'll handle the rest.

Carrier Liability For Damaged Goods

If goods are damaged while being shipped, then it could be the carrier’s fault. Having said that, there are specific parameters and conditions that must be met in order for a carrier to be legally and financially responsible for the damage. 

As we already mentioned, there are two instances where they absolutely will not take any responsibility for damages. So, what needs to happen for carriers to be in the wrong when goods get damaged?

For starters, a lot depends on what you do on your end. A lot of cargo damage gets caused by insufficient or poor-quality packaging. For example, you’re transporting fragile items but you don’t pack the boxes full of bubble wrap or protective packaging. So, when they move during transit, the fragile items break. In instances like this, you will be liable for the damages. 

Legally speaking, a carrier will be liable for loss or damage to cargo unless it’s clearly proven that the loss or damage was not due to fault or neglect. This comes from Section 275 of the Maritime Code. In essence, you have to prove that you did everything by the book on your end. You provided packaging that met the recommended standards, and you did all you could to ensure that your cargo was loaded up in perfect condition with no risk of getting damaged. If you can prove this, and your shipment gets damaged or lost, then the carrier will likely be responsible. 

As touched upon previously, there’s the issue of an act of God as well. Generally, carrier liability doesn’t cover issues caused by random acts. This includes things like: 

  • A hurricane
  • Storms
  • Heavy rain or hail
  • Huge waves 

When you’re looking to establish a long-term relationship with a carrier or 3PL, it’s important to understand what their liability coverage is. It’s better to know what to expect at the beginning instead of being surprised when something goes wrong.

Carrier Liability For Delayed ShipmentCarrier Liability For Delayed Shipment

Damaged goods aren’t the only issue to be worried about when shipping freight. There’s also the problem of delays. Your business runs on a tight schedule, and you expect things to arrive at certain times. A delay may not be an issue in most situations. However, in the case of manufacturing deadlines and order fulfillment, a delay can be extremely impactful.

With that in mind, does carrier liability cover delayed shipments? The short answer is yes, it does. But, as you can imagine, things are a bit more complicated than that. 

Effectively, the same rules apply here as with damaged goods. The carrier is responsible if it can be proven that the delay to your shipment occurred due to an act that happened during the period that the carrier held your goods. In simple terms, if you can prove the delay was down to them, then you’ll likely be covered. 

Again, there are a few things to bear in mind. Firstly, we have acts of God. If an act of God occurs that delays the shipment, then the carrier isn’t liable - unless this act could have been avoided. Carrier liability for delayed shipments also won’t cover things like piracy or wars. Also, if the carriers are stopped by law enforcement officers for a routine check - and this results in a delay - then it won’t be their fault. 

Looking for a solution to move truckload freight? R+L Global Logistics handles truckload shipping. Let us know when and we'll handle the rest.

Carrier Liability Limits

Carrier liability comes with certain limits. This means that your cargo is only protected up to a certain amount of money. So, the carrier is only liable up to this specific amount. As such, if you suffer losses that exceed this figure, then the carrier won’t have to pay the difference. Of course, shipping insurance is one way to cover the additional cost of your goods in case of loss or damage. 

Carrier liability limits come into play when you need to make a damage or loss claim. But what determines the carrier liability limits? When shipping within the U.S., each carrier dictates what their liability limit will be. This information can be obtained by asking the carrier directly or looking at the terms within their shipping contract. Some carriers will modify this limit based on specific shipping situations including where a shipment is going and what is being shipped. 

When it comes to international shipping, there are regulations in place that determine carrier liability: 

  • Carriage of Goods by Sea Act (COGSA) - this sets the limit at $500 per container. So, if your container is worth more than that, then it will only be covered up to $500. This is the carrier liability limit for any goods that are shipped overseas. 
  • Warsaw Convention - there’s a limit of $20 per kg for goods shipped internationally via the air, and a $1.10 per kg limit for domestic air shipments. 

In short, carrier liability has its limits depending on the content of your shipment and where it’s located. 

When Does Carrier Liability Begin?

Carrier liability is something you can put in place before your goods have even been shipped. But, it will only begin under certain conditions. 

Generally speaking, carrier liability begins as soon as goods are loaded onto a vehicle for shipment. Both you and the carrier have agreed on the terms of the contract, and they are effectively accepting liability for the goods. 

As noted above, the specific terms of the carrier’s liability will be included within the shipping contract. This contract is signed and agreed upon by all parties involved before a shipment takes place.

When Does Carrier Liability End?

Obviously, carrier liability has to end at some point and thankfully, it’s relatively straightforward. The responsibility the carrier has over your goods will end as soon as the shipment is delivered to its final destination. 

At that point, they’re no longer at fault for anything that happens to your goods. If goods are discovered to be damaged, a claim will need to be filed. The FOB shipping terms of the shipment will determine if the shipper or receiver is responsible for filing the claim. There are different variations of FOB shipping terms that determine who owns the goods at specific points of the shipping process. 

What is the Carmack Amendment?What is the Carmack Amendment

The Carmack Amendment is a crucial law regarding motor carriers. It was released in 1935 and laid out how to govern interstate shipments. All carriers are required to follow the Carmack Amendment. 

Primarily, it details relating to the duties, responsibilities, and rights of shippers and carriers when dealing with loss of cargo. Under this amendment, the carrier is deemed liable for damages to the goods it transported with no proof of negligence. For shipper to prove that the carrier was liable, they need to do the following: 

  1. Show that the goods were in excellent condition before handed over to the carrier
  2. Show that the goods were damaged upon delivery (or lost)
  3. Detail the amount of damages incurred

If all of this is done, then the carrier will be liable - unless any of these five exceptions are found to be present: 

  1. An act of God
  2. The public enemy
  3. Fault of shipper through packaging mistakes or other
  4. Public authority intervention; Goods are destroyed during a customs inspection
  5. A failure of the goods being shipped unrelated to the driver

The Carmack Amendment is in place to ensure that the right party is held responsible for any cargo loss or damages. If it's found that any of the five exceptions took place, then the carrier won’t be liable for damages to freight. 

Looking for a solution to move truckload freight? R+L Global Logistics handles truckload shipping. Let us know when and we'll handle the rest.

What is Cargo Insurance?

Cargo insurance is an additional bit of protection for your shipments. You pay to add it on, and it will protect you if your goods are lost or damaged during transportation. With regards to carrier liability vs cargo insurance, the key difference is that all carriers are legally required to carry a minimum amount of insurance - this is carrier liability. The issue, as explained above, is that there are limitations involved. This is where cargo insurance differs as it offers more comprehensive insurance against damages or losses. Also, you’re not legally required to buy it, and the cost of your insurance depends on the value of your goods and other factors.

It’s almost always recommended to purchase cargo insurance for freight shipments. This is because carrier liability coverage typically won’t cover the full cost of goods in case of loss or damage. There are exceptions to this rule, but they are few and far between. 

Are you shipping electronics from California? Freight insurance can protect your products.

What is the Difference Between Cargo and Freight Insurance?

It’s likely that in doing some research you’ve come across the term freight insurance. Is this any different from cargo insurance? If so, what are the differences?

Fundamentally, they’re the exact same thing. Both terms are used to describe a type of insurance that protects your goods from damage or loss during transportation. The only difference is in how these terms are used, and what they primarily describe: 

  • Cargo Insurance is mostly used to refer to goods transported by land and air
  • Freight Insurance is used for goods transported via trucks

Many freight companies and insurance providers will often use the terms interchangeably. 

Types of Cargo InsuranceTypes of Cargo Insurance

Typically, there are two different types of cargo insurance: 

  • Land Cargo Insurance: This gives you coverage for all transportations that take place over land. This includes transportation via trucks. Normally, this type of cargo insurance covers you in cases of theft, damages, and various other risks. Land cargo insurance will also usually only cover the boundaries of the country you’re from. So, it doesn’t always cover international shipping claims. 
  • Marine Cargo Insurance: This insurance covers all instances of shipping by sea, along with air freight shipping too. In this instance, you’ve protected from damages that occur through loading/unloading of the cargo, weather issues, piracy, and much more. More often than not, this is used to protect you during international transit. 

Furthermore, there are different types of cargo insurance coverage to be wary of as well. This relates to all types of transportation, and you can select certain policies depending on your needs. Most of the time, you’ll be met with the following two types: 

  • All Risk: With this coverage, you get a very diverse type of protection. Effectively, you’re covered against pretty much all risks associated with loss or damages, due to external forces. This includes damages caused by negligence, natural product defaults, customs rejection, cargo abandonment, and more. For companies shipping highly valuable and fragile items, this type of coverage will give the greatest peace of mind. Of course, this coverage will come with a high price tag since the insurance company is taking on an increased risk. 
  • Named Perils Policy: Next, you have a policy that gives you more control over the protection you receive. Here, you’re only covered for things that are explicitly named in the policy. As such, it’s more limited but will usually cost less money. You can choose what’s included, and add as many things as you like. This is similar to an a la carte selection.

If you’re unsure what type of cargo insurance might be best for your shipment, it’s worthwhile to speak to your freight carrier or 3PL. Many freight companies offer insurance options and can advise on the best option based on the specific details of your shipping situation. 

Do I Need Cargo Insurance?

Unlike carrier liability, cargo insurance isn’t automatically tacked onto your shipments. It’s optional, so you have to figure out whether or not you need it. Instantly, your main concern is money. Do you really need to spend extra money protecting your goods if there’s already a level of liability attached to the carrier?

Well, think about it this way, your business relies on the goods that are transported. If they don’t reach their destination in excellent condition, then it’s a problem for your company. It can lead to disgruntled customers, missed production deadlines, and more. So, financially, you can take a significant hit when something like this happens. 

To make matters worse, carrier liability won’t always cover you in every situation. Unless you can clearly prove that the carrier is at fault then you won’t end up with any compensation. Not to mention the fact that these claims can often take quite a bit of time to be resolved. You may not even be covered up to the value of your shipment. Therefore, you stand to lose a lot of money. 

The fact is that anything can happen during the transportation of goods. Whether it’s by land, air, or sea, anything can happen that causes problems for your items. What happens if there’s a freak storm that blows over a truck and destroys your cargo? If you don’t have cargo insurance, then you’re not protected in these events. You’ll end up with nothing, and your business will suffer. 

In short, if a partial or complete loss of your freight will result in a significant negative consequence for your business, cargo insurance is strongly recommended.  

Looking for a solution to move truckload freight? R+L Global Logistics handles truckload shipping. Let us know when and we'll handle the rest.

Cargo Insurance BenefitsCargo Insurance Benefits

Clearly, there are some key benefits to having cargo insurance - especially from the carrier liability vs cargo insurance perspective. So, if you’re still wondering what you’ll gain from this type of insurance, then this should hopefully clear a few things up. 

  • Be protected up to the value of your goods: This is a critical benefit as you need to ensure that your assets are fully protected. You don’t want to receive any losses if your goods are damaged or missing. With carrier liability, the coverage is limited. 
  • Gain more coverage: Cargo insurance also offers far more coverage than carrier liability. As an example, if your shipment is damaged due to an act of God, then the carrier isn’t responsible. Effectively, you’ll lose money. With cargo insurance, you’re covered against things like this. Basically, if your shipment gets damaged and it wasn’t your fault, then you can make a claim. 
  • Choose a policy that suits your needs: There are lots of different insurance policies out there that offer different types of cargo insurance coverage. We’ve spoken about the two main types, and this is a huge benefit. You get to select a type of protection that suits your business needs and demands. As such, you end up with better value for money. 
  • Peace of mind: One of the greatest challenges facing the shipping industry is the loss or damage of goods during transit. As soon as you load your items onto a shipment, they’re out of your control. You can’t do anything to protect them, and you have to trust that everything will be okay. When you have cargo insurance, you get peace of mind during this process. There’s no need to worry as much because you know you have a policy in place that offers protection. 

With all that in mind, cargo insurance for your freight shipments is a no-brainer in nearly all shipping situations. 

Where to Buy Cargo Insurance

Cargo insurance can be bought online from a number of insurance brokers. It’s vital that you conduct research before choosing a plan. With that being said, most freight companies offer in-house cargo insurance. This is usually arranged through a direct partnership with a third-party insurance provider. In most cases, the cargo insurance offered by freight companies is suitable. The convenience offered by not having to make a separate contact and purchase is a benefit of buying insurance through a carrier. Of course, it’s still important to confirm the details of any cargo insurance before purchasing. 

When you speak to the insurance brokers about a quote, they’ll often ask you if you want single or open coverage. Single Coverage cargo insurance is purchased per shipment. It’s only really a good idea for businesses that don’t ship things that often. If you’re only making a handful of shipments per year, then this can be the cheaper option for you. By comparison, Open Coverage cargo insurance will cover all of your shipments across an agreed period. This will most likely be twelve months, and you can move as many goods as you like during this time. So, it’s ideal for companies that ship very regularly. 

How Much Does Cargo Insurance Cost?How Much Does Cargo Insurance Cost

The cost of cargo insurance will vary depending on a few factors: 

  • The provider you choose
  • The value of the items being shipped
  • The method of shipment
  • The type of insurance you’ve bought

Consequently, it’s hard to give definitive figures that tell you how much it costs to buy cargo insurance. However, we can show you a few estimated figures that give an idea for how much you’ll have to pay. 

As a very general estimation, it can cost you anywhere between $180 and $2,000 for an annual cargo insurance policy. If you want to get a single cargo insurance policy, then you’re looking at around $30 - $150 per shipment. 

When we look at the different shipping methods, we can see a difference in the estimated costs: 

  • Air: between $300 - $520 per year
  • Water: between $180 and $300 per year
  • Truck: between $400 and $700 per year

Again, you have to take other things into account, mainly the value of your shipment. This will determine the limits of your policy. For example, if you’re shipping goods that are around $50k in value, then you only need a policy that covers up to that amount. But, if your goods are worth $200k, then you have to pay extra to increase your limit. This is usually the main factor that increases or decreases your quote. 

Additionally, your level of risk and loss history come into play too. Some shipments present more risks than others - such as very fragile items - which may raise your insurance premium. Also, if you have a history of making cargo insurance claims or suffering from cargo damages/losses, then expect a higher premium. 

Cargo Insurance ExclusionsCargo Insurance Exclusions

Cargo insurance covers a lot of possibilities and risks, but it won’t cover everything. In fact, there are a few things that are excluded from most policies: 

  • Any damage caused by improper packaging - if your goods are damaged because your packaging wasn’t good enough, then your insurance won’t cover it. That’s your fault, and you need to ensure that all of your cargo is securely packaged before it’s shipped. 
  • Any damage caused by a fault - sometimes, your goods can be damaged due to a fault with them. This could be down to how they’re manufactured, but the cargo insurance won’t cover this. 
  • High-risk cargo - you will struggle to find cargo insurance that covers high-risk items - like chemicals, dangerous electronics, and so on. Make sure you speak to your provider and be clear what goods you’re shipping to ensure they’re covered. 

These are pretty much the main three exclusions that you should be aware of. It’s also worth noting that some modes of transport can be excluded from your policy. For instance, your insurance may only cover trucks or air travel, but not water. Again, double-check with your provider to make sure that your desired modes of transport are covered. This is crucial for any businesses that may use multiple shipping methods. 

Looking for a solution to move truckload freight? R+L Global Logistics handles truckload shipping. Let us know when and we'll handle the rest.

How to File a ClaimHow to File a Claim

If you have cargo insurance, and something goes wrong leading to damaged goods or losses, then you need to file a claim. Filing a claim starts the process to help regain your losses and receive compensation through your insurance provider. 

Here’s what you should do:

  • Identify the goods: Firstly, you have to identify all of the goods that made it to the final destination. Note the quality of them, and include photos of how they looked prior to the shipment. You also need to detail the value of the goods, the packaging you used, and any other information to support your claim. 
  • Details of your losses: Next, you have to include details of what you’ve lost. This may include any items that didn’t arrive, and how much that cost you. But, it can also include items that arrived but in a poor condition. Tally up how much money you stand to lose because of the bad condition. This will leave you with a total value for your cargo insurance claim. 
  • Provide supporting documentation: You need to provide as many documents as possible to support your claim. This includes the original bill of lading, proof of any damages or losses, inspection reports, photographs, quality control receipts, package certifications - basically everything you can possibly think of. The more there is, the stronger the evidence to support your claim. 
  • Submit the claim: Now, you’re ready to submit your claim to your insurance provider. Do this as soon as possible. If you wait too long, then it may be too late to submit a claim. Policies will differ on the length of time you have after a shipment to submit a claim.  Everything is in their hands as they weigh up if your claim has any potential or not. 

If your claim meets all the requirements, then you will recover your losses up to the value of your policy limit. 

Need Help Shipping Freight?

Businesses that ship freight will need to be aware of carrier liability and cargo insurance. Both offer a level of protection for your cargo. The difference is that carrier liability has lots of restrictions and limitations, meaning you’re not truly covered. Cargo insurance offers more coverage and extra protection. When it comes to carrier liability vs cargo insurance, you need a combination of the two to achieve total peace of mind. 

Here at R+L Global Logistics, we can help with all your freight shipping needs. We offer various shipping methods , such as refrigerated shipping and expedited freight, to help your goods where they need to go. Our shipment tracking software lets you stay in control of your items and track it all the way through transit. Additionally, our comprehensive 3PL services make us your one-stop shop for all of your transportation and logistics needs

To learn more about our truckload shipping services or to request a freight shipping quote, give us a call at (866)353-7178 or click “freight quote” below. 

Looking for a solution to move truckload freight? R+L Global Logistics handles truckload shipping. Let us know when and we'll handle the rest.

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