Can The Road Carrier’s Liability Insurance substitute cargo insurance?
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I often come across questions about how to insure freight during transportation. There are very different opinions on this subject, even regarding whether the Carrier’s Liability Insurance is better than cargo, because the carrier pays it for. Is the carrier’s insurance enough to effectively protect fright? Not to worry, it is not rocket science! If you are a freight forwarder or shipper this article is just for you!
It’s good to know that both insurances have been designed for two completely different supply chain participants and are strictly tailored to their needs:
- when it comes to the Carrier’s Liability Insurance the subject of insurance protection is only the road carrier’s civil liability – it applies only if the carrier is responsible for the damage caused, no more, no less,
- when it comes to cargo insurance, the subject of insurance protection is only the freight in transport. The carrier’s liability has nothing to do with it, this is why one called it ‘the shipper’s interest’.
Can the shipper or freight forwarder rely 100% on The Carrier’s Liability Insurance?
To find out, I am going to quote only the two most important facts about road carrier liability insurance.
First of all, according to art. 17.2 CMR: the carrier shall, however, be relieved of liability if the loss, damage or delay was caused by:
- wrongful act or neglect of the claimant,
- instructions of the claimant given other than as the result of a wrongful act or neglect on the part of the carrier,
- the inherent vice of the goods or
- through circumstances which the carrier could not avoid and the consequences of which he was unable to prevent.
This means that the road carrier’s liability insurance does not protect the cargo by 100%. From the whole set of risks, threatening the transported shipment, only some parts will be covered by this insurance. In other words, unfortunately, not every loss will be compensated.
The question is, which particular losses will not be covered? There is no simple answer. Everything depends on the circumstances and you will never know these in advance.
Special attention should be paid to the part of the CMR convention, that the carrier shall be relieved of liability if the loss, damage or delay was caused by circumstances which carrier could not avoid and the consequences of which he was unable to prevent.
How to take that? These are cases in which the road carrier objectively and with the utmost diligence could not avoid the damage. And I’m very sorry to say that there are no other rules and each case has to be assessed individually. Take, let’s say, damage caused by the forces of nature (hurricane, hail, etc.). If the carrier knew or – what’s crucial – he should know about bad weather conditions and he still decided to continue transport, he will be responsible for the damage (probably), so there is a chance for compensation. If these circumstances were unpredictable then the carrier would most likely be free from liability and therefore, probably no compensation will be paid. I pay attention to the word “probably”. The assessment of the circumstances of the damage and its causes is always subjective and this will not change. Firstly, such assessment is being run by the insurer, because he provides the claims handling and makes a decisioneventually, possibly by the court, if the matter is disputed (not necessarily a domestic court). We are dealing with a situation where the compensation may be paid, maybe not – it will always depend on the circumstances of the damage and the assessment made by the insurer and then on the court’s findings. The only certain issue is … uncertainty. Based only on The Carrier’s Liability Insurance, the shipper or forwarder can never be sure about insurance coverage. In case of cargo insurance, there are also exclusions of insurance protection but they are listed in general terms of insurance – everything is zero-fault.
And the second thing. Even if compensation is paid, it will be limited to 8,33 SDRs for each missing kilogram of weight (you should check the SDR rate in relation to your currency). The idea of compensation limits was established by the CMR convention and may not occur in domestic transport.
These are not all “surprises” waiting on the shipper or forwarder but it is enough to tell you clearly, that The Carrier’s Liability Insurance is not substituting for cargo insurance:
- It has a much narrower scope of protection than cargo insurance,
- the inherent uncertainty of the existence of insurance protection,
- if that was not enough, in international transport the compensation is quite limited.
So, as you can see, that is a bit like herding cats.
And one more thing. This is all provided when the carrier has a sufficiently good third party liability insurance. Because we assume that he has it…
Insuring shipment only with the help of road carrier liability insurance is quite risky from the point of view of the shipper or freight forwarder. It must be included in the costs, that one day there will be damage that will not be covered by this insurance.