When you provide cargo transportation services, you could be held liable if the property you carry is damaged or destroyed. There are many common risks that could destroy your cargo on the way to its destination, from vehicle collisions or overturns to fire and theft. In addition to the costs of the accident itself, a damaged or destroyed shipment can have a highly negative impact on your relationship with clients. This is why it’s important to purchase adequate coverage for the goods you carry. If your insurance is not sufficient to cover a claim, your company could be required to pay for damages, especially if the cargo is valuable.

What is Motor Truck Cargo Coverage?

Motor Truck Cargo Coverage is a type of inland marine insurance that insures goods and property while they are being transported by motor carrier. It protects the value of the client’s property while it is in the possession of the freight carrier. Vehicles involved in household goods transportation (e.g., moving companies) are required to carry Motor Truck Cargo Coverage by the Federal Motor Carrier Safety Administration (FMCSA), and companies that ship goods with your company will often require you to have it. Premium costs and limits for this coverage can vary widely depending on the type and amount of cargo being transported, as well as the distance traveled and time taken during transport. It’s important to consult with your insurer to make sure that you have the correct coverage for your business.

Example:

• Your logistics company is transporting a shipment of frozen foods in a refrigerated truck. During transit, the truck is involved in a collision that causes the refrigeration to malfunction, causing the frozen food to spoil. Your Motor Truck Cargo Insurance would pay for damages.

It’s necessary to understand the difference between Motor Truck Cargo Coverage and motor carrier liability coverage, which is a form of auto liability coverage. Cargo transporters are legally required to purchase a minimum amount of auto liability insurance, and this insurance will cover physical damage to the property of others and third-party bodily injury. While motor carrier liability insurance covers damaged property, like another vehicle you hit or a building or fence you crash into, it does not cover the cargo your vehicle is transporting.

What property is covered by Motor Truck Cargo Coverage?

Motor Truck Cargo Coverage protects the cargo you transport for clients while it is in your custody. If cargo is damaged by a covered peril, and your company could be held liable, your insurer will provide funds to cover the loss. Commonly covered perils include fire, collisions, water damage, refrigeration failure, and theft. It’s important to note, however, that any damage to your own vehicle, other vehicles, or any other property except for cargo in transport, even by a covered peril, is not covered.

Cargo is also generally covered while it is in the custody of connecting carriers and for up to 72 hours when held at a warehouse. Some insurance policies will also pay for additional costs that may be incurred as part of the loss. This could include charges for removing debris or pollutants released by a crash, costs for taking action to prevent further damage to cargo, and legal defense costs.

Example:

• While carrying a load of retail goods, your company’s truck is involved in a collision that causes an engine fire. The cargo is destroyed by fire and smoke damage. Your insurer would pay for the loss.

What risks are covered by Motor Truck Cargo Coverage?

Motor Truck Cargo Coverage can be offered on either an all-risks or named perils basis. All-risks or open perils policies will cover all causes of loss except those that are specifically excluded. Named perils policies only cover the risks that are explicitly named in the policy. Premiums for all-risks policies are typically more expensive than named perils policies because they provide more comprehensive coverage.

Common named perils include:

• Fire
• Lightning
• Explosion
• Windstorm
• Collision or overturned auto
• Theft or attempted theft
• Vandalism
• Damage from aircraft
• Riot or civil commotion

Example:

• Heavy winds overturn a truck carrying decorative garden items. The shipment is destroyed. Your insurer would cover the damages.

What is excluded from Motor Truck Cargo Coverage?

Motor Truck Cargo Coverage typically does not cover the following situations:

• Property that is seized or destroyed by order of governmental authorities. However, if the destruction of the property is ordered by a governmental authority to prevent the spread of a fire, your insurer will cover the loss if fire is a covered peril.
• Nuclear hazard. In cases where a nuclear hazard causes a fire, loss or damage directly caused by the fire would be covered if fire is a covered peril.
• War and military action.
• Loss or damage caused by improper packing or rough handling.
• Loss or damage caused by indirect losses. If losses occur because of delays, unfavorable economic conditions, loss of use, or other indirect means, these would not be covered.
• Breakdown of refrigeration equipment. However, if refrigeration equipment breaks down due to a cause of loss that would be covered by your insurer, such as fire, explosion, vandalism, or a vehicle accident, it would be covered.
• Dishonest, criminal, or negligent acts.
• Damage caused by defects in the property or deterioration. Damage caused by corrosion, rust, or other causes of natural deterioration would not be covered.
• Damage caused by extreme temperatures or dampness.
• Damage caused by insects or vermin.
• Loss of property if it was given up voluntarily due to fraud.

What property is not covered by Motor Truck Cargo Coverage?

Motor Truck Cargo Coverage may exclude coverage for certain types of property. Some property is considered to be at higher risk of theft, would be especially costly to replace, or is particularly dangerous, and coverage is typically not provided for these types of property. Carriers that transport highly valuable or dangerous cargo will need to add coverage by endorsement or purchase an insurance policy designed to cover those risks.

Types of property that are typically not covered include:

• Money, coins, or stamps
• Jewelry, gold, precious metals, or precious stones
• Furs
• Live animals
• Works of art
• Contraband

In some cases, Motor Truck Cargo Coverage will offer lower sublimits and a higher deductible than the insurance’s overall maximum for certain types of cargo or causes of loss. For example, your policy could have an overall limit of $300,000 and a deductible of $5,000, but have a sublimit of $50,000 and a deductible of $8,000 for claims of theft. This is because unlike most other perils, theft is considered to be preventable by the carrier. Some insurers may also have additional sublimits restricting how much coverage is offered for particular types of cargo. For example, a policy could have an overall limit of insurance of $1 million, but limit its coverage for claims involving electronics to $50,000.

Does Motor Truck Cargo Coverage have a deductible?

Like many types of insurance, Motor Truck Cargo Coverage typically includes a deductible that your company must pay before your insurer will begin covering any loss or damage. Lower deductibles result in higher premiums because the amount the insurer would pay for an incident is higher.

Is there a coinsurance requirement for Motor Truck Cargo Coverage?

When you purchase Motor Truck Cargo Coverage, policyholders are typically required to insure a minimum percentage of the cargo’s value in order to receive full coverage for claims. This is called coinsurance and is intended to discourage companies from underinsuring their cargo. If property is underinsured, the insurer will reduce coverage proportionately. For freight carriers, the value of cargo is usually stated on the bill of lading when the carrier takes possession of the property. It’s important to make sure that the valuation is accurate and the true value of the load is covered.

Example:

• A cargo company’s insurer requires a coinsurance minimum of 80%. The policyholder insures its cargo for $500,000, which is 50% of the value of the property. The policyholder suffers a loss of $400,000. Even though this is less than the insured amount, the insurer will only pay for 50% of the loss, or $200,000.

Final Word

Motor Truck Cargo Coverage is an important type of insurance for trucking companies to consider. There’s always a chance that cargo could be damaged or lost during transportation. If your company could be held liable for the loss, Motor Truck Cargo Coverage can step in to provide financial protection. This type of coverage is often required by clients who contract with you to ship their goods, and it is also required by the FMCSA for vehicles involved in household goods transportation. Investing in Motor Truck Cargo Coverage will give you and your clients confidence that any losses in transit will be fully covered.