AAIS Transportation Coverage Forms

AAIS TRANSPORTATION COVERAGE FORMS ANALYSIS

(February 2018)

 

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INTRODUCTION

The American Association of Insurance Services (AAIS) transportation coverage forms insure the named insured's property while it is being shipped. Coverage applies to shipments to the named insured as well as shipments from it. There are three common coverage forms.

Transportation policies are important even when the trucking companies that transport the property provide coverage because of several potential gaps in coverage. One gap occurs because of how items are shipped. Often they will go through several transportation firms whose bills of lading provide varying levels of protection. Another gap is the difference between the value of the property shipped and the declared value on the bill of lading. Yet another is because of a transportation company’s liability that is limited by the bill of lading. Even if none of these gaps in coverage exists, there remains the hassle factor. In many cases, it is easier for the named insured to negotiate claims with its own insurance company than with a transportation company's insurance company.

Because of the similarities of the three transportation coverage forms, the IM 7250–Transportation Coverage Form will be analyzed first followed by an analysis of the differences between it and the other two forms.

ELIGIBILITY

Any commercial operation that ships merchandise by any land or air-based mode of transportation is eligible. These coverages do not provide ocean cargo coverage.

POLICY CONSTRUCTION

AAIS Transportation coverage requires at least these four forms:

Related Article: CL 0100–AAIS Commercial Lines Common Policy Conditions

 

SCHEDULES OF COVERAGES

IM 7255–SCHEDULE OF COVERAGES–TRANSPORTATION COVERAGE (01 12 changes)

This Schedule of Coverages is used with IM 7250–Transportation Coverage. IM 7255 contains the following information:

Policy Number (01 12 addition)

The 01 12 edition added a space to enter the policy number.

Covered Property

A description of covered property is entered in the space provided.

Catastrophe Limit

This is the most the insurance company pays for loss in a single occurrence.

Transportation Limits

The 01 12 edition added quotation marks around the word Limit (“Limit”) because Limit is a defined word.

Limits for each mode of transportation are entered in the spaces provided.

This is the most paid for losses to covered property on one aircraft.

This is the most paid for losses to covered property on one owned vehicle.

This is the most paid for losses to covered property on one carrier for hire.

This is the most paid for losses to covered property on or in one rail car.

This is the most paid for losses to covered property on one train.

Terminal Limits

The 01 12 edition added quotation marks around the word Limits (“Limits”) because Limit is a defined word.

The terminal numbers, addresses, or descriptions, and limits of insurance are entered in the spaces provided.
IM 7266–Additional Terminals Schedule is used to list additional terminals.

Coverage Extensions

The 01 12 edition added the word “Limits” in quotation marks because Limit is a defined word.

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:

The limit is $5,000 unless a different limit is entered.

The number of days is 365 unless a different number of days is entered.

Supplemental Coverages

Each of these coverages provides additional limits of coverage or additional coverage. Required entries vary by type of coverage.

The limit is $10,000 unless a different limit is entered.

No entry is required. This supplemental coverage does not refer to limits. Instead of leaving this item blank, the word “covered” or “included” should be entered in order to prevent confusion. Entering a limit might be construed as limiting coverage.

No entry is required. This supplemental coverage does not refer to limits. Instead of leaving this item blank, the word “covered” or “included” should be entered in order to prevent confusion. Entering a limit might be construed as limiting coverage.

Deductible

A deductible amount must be entered in the space provided.

Additional Information (01 12 change)

This section of the schedule of coverages lists endorsements and forms included when the policy is issued.

The previous edition referred to this section as Optional Coverages and Endorsements.

IM 7250–TRANSPORTATION COVERAGE ANALYSIS

This analysis is of the 04 04 edition.

Agreement

This section states that the insurance company provides the coverage described in the coverage form and in the schedule of coverages in return for the named insured paying the premium. This is subject to all the coverage form's terms, conditions, endorsements, and definitions.

Definitions

Defined terms are used throughout the coverage form. Restricting their meaning to the definition in it is how all parties have a clearer understanding of the coverage intended. Sixteen terms are defined:

1. You and your

The party(ies) named on the declarations as the insured.

2. We, us and our

The insurance company that is providing the insurance coverage.

3. Aircraft

Any machine that is capable of flight. Airplanes, helicopters, or inflatable balloons are provided as examples but this would also include unmanned aerial vehicles.

4. Carrier for hire

A vehicle that is operated by a carrier for hire. That vehicle can be a single vehicle or a combination of multiple trucks, trailer, and/or semi-trailers that are pulled by a single power unit.

5. Limit

The amount available for an applicable coverage.

6. Owned vehicle

A vehicle that is leased or owned by the named insured and operated by the named insured. That vehicle can be a single vehicle or a combination of multiple trucks, trailer, and/or semi-trailers that are pulled by a single power unit.

7. Perishable stock

Property that must be stored or maintained under specific controlled conditions. If the controlled conditions are not maintained this property is subject to loss or damage.

Note: Common controlled conditions include heating, refrigeration, and humidity control but are not limited to just these.

8. Pollutant

This is a broad and expansive term. It is solids, liquids, thermal or radioactive contaminants, and irritants. It includes, but is not limited to, acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. Waste includes materials intended for recycling, reclamation, and reconditioning, as well as for disposal. Visible and invisible electrical or magnetic emissions and sound emissions are also considered pollutants.

9. Railroad car

Any type of railroad rolling stock. The railroad cars that transport property while it is in a truck, a trailer, and another type of container are also part of this definition.

10. Schedule of coverages

Any page that is labeled as such and that contains coverage information. This includes declarations and supplemental declarations.

11. Specified perils

The named perils of fire, lightning, windstorm, hail, collision, overturn, or derailment (upset) of the conveyance that transports the property, collapse of a bridge or culvert, and theft.

12. Spoilage

A negative change in the physical condition of perishable stock that results in it being damaged. Examples are frozen items thawing, cold items warming, and liquid items solidifying but spoilage is not limited to just these.

13. Terminal

A building or structure where covered property is transferred from one vehicle or mode of conveyance to another.

Transfer of covered property is limited to loading, unloading, and temporary storage during the transfer.

14. Terms

All policy provisions, limitations, exclusions, conditions, and definitions that apply to this coverage.

15. Train

One or more of various types of railroad rolling stock that are connected together and being pulled by one or more locomotives.

16. Transit

The shipment or transport of covered property.

Property Covered

Coverage applies to the property described below, subject to any exclusions or limitations.

1. Property in a Terminal

When a direct physical loss caused by a covered peril to covered property occurs at a terminal location or within 100 feet of it coverage applies. However, it applies only if the terminal is listed on the schedule of coverages and the property remains in transit. Property of others is also covered but only if the named insured is legally liable for the property and covered property on the schedule of coverage specifically states that it includes property of others.

 

Example: Paul’s Preferred Oversized Loads ships heavy construction equipment by truck across the country. The first driver drops the trailer at a terminal listed on the schedule of coverages and another driver is scheduled to take it further west. Unfortunately, thieves overpower the driver, remove the equipment, and disappear into points unknown. This loss is covered because Paul purchased terminal coverage.

 

2. Property in Transit

When direct physical loss by a covered peril to property that is described on the schedule of coverages occurs while that property is in transit or being loaded or unloaded, this coverage applies. However, it applies only if the transit is by aircraft, owned vehicle, carrier for hire, or railroad and there is a limit on the schedule of coverages for the mode of transportation on which the property was traveling at the time of the loss. Property of others in the named insured's possession is also covered but only for the extent of its legal liability. Loading and unloading is covered only when the described property is located in the area adjacent to the specified covered mode of transportation.

Property Not Covered

Eleven specific types of property are excluded:

1. Art, Antiques, and Fur

Objects of art, such as paintings and statuary are not covered along with fur garments and antiques.

Notes:

Mentioning furs usually has a statement that it includes garments trimmed with fur. Those additional words are not included. As a result, such property may be covered.

Antiques are objects that have value because they are over 100 years old and exhibit artisanship in a style or fashion from the past.

2. Carrier for Hire

Property of others for which the named insured is an arranger of transportation or a carrier for hire is not covered. Examples of arrangers of transportation are car loaders, brokers, consolidators, freight forwarders, and shipping associations.

3. Contraband

Property that is illegal to possess is not covered. Property that is legal to possess but that is being used as part of an illegal trade or that is being transported illegally is also not covered.

4. Exports and Imports

This property is covered. There are two exceptions. It is not covered while insured under ocean marine cargo insurance obtained by anyone to cover it. It is also not covered while on either an air or an ocean mode of transportation.

Related Article: Ocean Marine Cargo Coverage

5. Jewelry, Stones, and Metals

Jewelry of every type and description, precious and semi-precious stones, gold, silver, platinum, and other precious metals, and alloys are not covered.

6. Lease Agreement

When the named insured is contractually liable for property under a lease agreement into which it has entered with a transportation carrier there is no coverage for that property.

7. Live Animals

Live animals are not covered property.

There is an important exception. When a specified cause of loss causes the death of an animal or injures an animal so that it must be killed, coverage does apply.

Note: This is an unusual Property not Covered item because it does not except out a type of property. This exception might be better explained as a limitation because what does it mean that the death is made necessary and who makes that decision? Are any of the costs related to that decision covered?  

8. Mail

Shipments that are made through the United States Postal Service (USPS) are not covered.

9. Money and Securities

A number of types of property are not covered under this item. Accounts, bills, currency, food stamps, evidence of debt, and lottery tickets not held for sale, in addition to money, notes, or securities are all not covered.

 Note: This property is more correctly insured under commercial crime coverage forms.

Related Article: Commercial Crime Coverage Analysis

10. Samples

Representative samples of merchandise are not covered when they are in the custody of sales representatives.

Note: This should be covered under a Sales Representative Floater.

Related Article: AAIS Sales Representative Floater

11. Storage

This is a transit policy not a permanent location property policy so any property that is being stored is not covered.

Note: This is distinguished from temporary storage coverage in conjunction with terminal coverage.

Coverage Extensions

Provisions That Apply To Coverage Extensions

There are two coverage extensions. The limit for each is either the limit on the schedule of coverages or the default limit included in the coverage form. These limits are part of the applicable limit for covered property and not in addition to it unless otherwise indicated. They are not added to or combined with limits for any other coverage extension or supplemental coverage and are not subject to any coinsurance provisions that apply elsewhere in the coverage form.

1. Debris Removal

When a covered peril damages or destroys covered property, the cost to remove any created debris is covered under this extension.

Debris removal does not include any costs for removing, restoring, replacing polluted land or water or to extract pollutants.

There are two parts of the Limit section. The first is restricting any debris removal payment to no more than 25% of the amount paid for the actual direct physical loss. The second part is that when the debris removal and the physical damage loss are added together, no more than the limit of insurance is paid.

 An additional $5,000 (or a higher amount entered on the schedule of coverages) is available if the debris removal expense is more than 25% of the loss amount or if the combined cost of loss and debris removal is more than the limit of insurance for the covered property.

e. The named insured must report debris removal expenses to the insurance company within 180 days of the loss date in order for this coverage extension to apply.

2. Emergency Removal

a. This covers direct physical loss to covered property that is moved or stored in order to avoid loss or damage from an impending covered peril. The loss can occur while in transit to the sanctuary location or while being stored there. This coverage is unique in that the property that is being moved is not subject to any exclusion while in transit or at a sanctuary location. However, the reason for moving the property must be due to a covered peril.

b. Coverage applies for up to 365 days after the property is first moved but does not extend past the policy’s expiration date.

Note: Coverage does not extend past the expiration date, which means that if the insured has property at a sanctuary location when coverage renews, the sanctuary location must be listed as a premises or coverage no longer applies.

Note: There would appear to be some conflict between there being no coverage for property in storage and this coverage for up to 365 days coverage at a sanctuary location.

Supplemental Coverages

Provisions That Apply To Supplemental Coverages

There are three supplemental coverages. Each has its own default limit that can be increased by entering a higher limit on the schedule of coverages. Limits for any supplemental coverage are separate from the applicable limit for the covered property, not part of it.

The limit available for coverage described under a supplemental coverage is the only limit available for it. It is not the total of the limit for a supplemental coverage and the limit for the covered property. The limits are not added to or combined with limits for any other supplemental coverage or coverage extension. They also are not subject to any coinsurance provisions that apply elsewhere in the coverage form.

1. Pollutant Cleanup and Removal

a. The insurance company pays the named insured's expenses to extract pollutants from land or water if a covered peril that occurred during the policy period caused the pollutants to be released or discharged.

b. This is immediate coverage so any expenses to extract pollutants are paid only when reported to the insurance company within 180 days of the date of loss.

c. Costs related to testing, evaluating, observing, or recording pollutants are excluded except for those costs, which are part of the extraction process.

d. The most paid at any one location is $10,000 for all such expenses that a covered peril that occurs at that location during each separate 12-month policy period causes. This limit can be increased.

 2. Property You Have Sold

This is coverage for property that the named insured had sold and shipped at the owner’s risk. It is covered for direct physical damage that is caused by a covered peril.

Coverage applies only if the property is damaged and because of that damage, the owner rejects the shipment and refuses to pay for the property.

Note: This coverage does not have a separate limit. The limit for the particular mode of transportation applies.

 

Example: Mabel purchases a lamp from Carrie who then ships it to Mabel at Mabel’s risk. When the lamp arrives, it is damaged and Mabel refuses to pay for it. This supplemental coverage provides Carrie coverage for the damage to the lamp.

 

3. Rejected Shipments

This is return shipment coverage. A direct physical loss by a covered peril to cover property that is transported to (but rejected by or undeliverable to) a consignee is covered. Coverage on these rejected shipments begins when the property is awaiting return shipment and continues until it returns to the named insured. This coverage ends ten days after the actual or attempted delivery unless the covered property is in the course of transit back to the named insured.

Note: This coverage does not have a separate limit. The limit for the specific mode of transportation applies.

 

Example: Vern's Vending ships five vending machines to a new customer in an adjacent state. The new customer is surprised by the delivery and denies ordering them. The carrier notifies Vern of this development because it is continuing its outbound trip and cannot return the machines. However, it has a truck going in Vern's direction the next day and arranges for the machines to be held and then returned to Vern on that truck. The vending machines are covered under rejected shipment coverage from the time they are rejected until Vern can arrange for them to be picked up, subject to the ten-day rule and during the transit back.

Perils Covered

Coverage applies to risks of direct physical loss unless the loss is limited or caused by an excluded peril.

Perils Excluded

1. Primary Exclusions

The first group of exclusions is essentially absolute. Subject to specific exceptions, loss or damage by each is totally excluded, regardless of any other cause or event that contributes to a loss, either concurrently or in any other sequence. The insurance company does not pay for any direct or indirect loss or damage caused by or that results from any of these events.

a. Civil Authority

There is no coverage for loss that results from an order any civil or government authority issues. These orders may include seizure, confiscation, destruction, or quarantine of property but this exclusion is not limited to only these. The only exception is when the loss or damage is caused by a civil authority destroying property as a means of controlling a fire. This exception applies only if the fire is the result of a covered peril.

 b. Nuclear Hazard

The insurance company does not cover loss or damage caused by or that results from any nuclear reaction, radiation, or contamination. This is absolute and applies whether the nuclear incident was controlled or not, and by whatever means caused. Any loss the nuclear hazard causes is not treated as a loss that fire, explosion, or smoke causes. The only exception is when a fire results from the nuclear fire, direct loss or damage from that fire is covered but the damage from the nuclear hazard remains excluded.

c. War and Military Action

The insurance company does not pay for loss or damage caused by any act of war. Undeclared and civil war or warlike actions by a military force are all considered war. All actions taken to hinder or defend against an actual or expected attack by any government or sovereign authority that uses military personnel or other agents are also considered war and excluded. In addition, acts of insurrection, rebellion, revolution, or unlawful seizure of power and any action any government authority takes to prevent or defend against any such acts are excluded. If any action within the terms of this exclusion involves nuclear reaction, radiation, or contamination, this exclusion applies in place of the nuclear hazard exclusion.

Note: This means that the exception for resulting fire under the nuclear hazard is not covered when it is the result of war.

2. Secondary Exclusions

The second group of exclusions applies to loss or damage caused by or that result from any of the following loss events. Some of these exclusions have exceptions, conditions, or limitations that should be noted and reviewed carefully. The insurance company does not pay for any loss or damage caused by or that results from any of these events.

a. Contamination or Deterioration

Loss or damage that is caused by contamination or deterioration is excluded. This applies to corrosion, decay, fungus, mildew, mold, rot, and rust. It also applies to any quality, fault, or weakness in covered property that causes it to damage or destroy itself. However, this exclusion is not limited to only these described causes.

However, if a covered peril occurs as a result of any of these, coverage applies to the loss or damage that the covered peril causes.

b. Criminal, Fraudulent, Dishonest, or Illegal Acts

Coverage does not apply to loss caused by or that results from criminal, fraudulent, dishonest, or illegal acts that any of the following commit alone or in collusion with another:

Coverage applies if employees destroy property. It does not apply if employees steal.

This exclusion does not apply to covered property when it is in the custody of carriers for hire.

c. Loss of Use

There is no coverage for loss caused by or that results from delay, loss of use, or loss of market.

d. Missing Property

The unexplained or mysterious disappearance of covered property is excluded when there is no physical evidence to suggest what happened to it and the only proof that a loss occurred is based on an audit or physical inventory. This exclusion does not apply to covered property when it is in the custody of carriers for hire.

e. Pollutants

There is no coverage for loss caused by or that results from any release, discharge, seepage, migration, dispersal, or escape of pollutants. There are three exceptions:

f. Spoilage

Coverage does not apply when a perishable stock loss is caused by or that results from spoilage.

 

g. Temperature/Humidity

Any loss that that is caused by dryness, dampness, humidity, changes in, or extremes of temperature is excluded. The only exception is when a specified peril occurs as a result of any of these items, coverage applies to the loss or damage that the specified peril causes.

h. Voluntary Parting

There is no coverage for loss or damage to covered property when it is voluntarily given to others, even if the surrender was due to a fraudulent scheme, trick, or false pretense. There is an exception when the named insured accepts (in good faith) fraudulent bills of lading or other shipping documents.

i. Wear and Tear

Loss caused by wear, tear, marring, or scratching is excluded. The only exception is if a specified peril occurs as a result of any of these, coverage applies to the loss or damage that specified peril causes.

What Must Be Done In Case Of Loss

1. Notice

The named insured must give prompt notice of a loss to the insurance company or its agent. The notice must include a description of the property lost or damaged. If a criminal act caused the loss, the appropriate law enforcement agency must also be notified. The insurance company has the right to require that any notice to it be in writing.

2. You Must Protect Property

During and after a loss, the named insured must take all reasonable steps to protect covered property from further loss. The insurance company pays reasonable costs the named insured incurs but to do so the named insured must maintain accurate records to substantiate the costs. Paying these costs is not in addition to the policy limits. There is no coverage for any repairs or emergency measures performed on property not already damaged by a covered peril.

Note: It is important to realize that any such costs incurred will reduce the amount available to pay the actual loss.

3. Proof of Loss

The named insured must complete and return the insurance company's prescribed proof of loss forms within 60 days after the company requests it. The information provided must include the time, place, and circumstances involved with the loss and information on any other insurance coverage that may apply. It must also include the named insured’s interest and the interest of others with respect to the property involved, including lienholders, loss payees, and mortgagees. Any changes in the title to the property during the policy period must be disclosed, in addition to providing any other reasonable information the company may require to adjust and settle the loss.

4. Examination

Examination under oath may be required in matters that relate to the loss. The insurance company may request these examinations more than once but such requests must be reasonable. If multiple persons are examined, the company has the right to examine each individual separately.

5. Records

The named insured must produce any records related to the loss. The insurance company must be allowed to make copies and take extracts of them as often as it reasonably requests. Records include tax returns and bank microfilms of all related cancelled checks but records are not limited to just these.

6. Damaged Property

Both damaged and undamaged property must be made available for the insurance company's inspection as often as reasonably necessary. It must also be allowed to take samples of the property to the extent necessary to adjust and settle the loss.

7. Volunteer Payments

The named insured may not voluntarily make payments, assume obligations, pay or offer rewards, or incur other expenses without the insurance company's express approval. If it does, it does so at its own expense. The only exceptions are those costs incurred to protect property as item 2. above describes.

8. Abandonment

The named insured does not have the right to turn over ownership of the property to the insurance company unless that insurance company agrees to accept it. Any such agreement must be in writing.

9. Cooperation

The named insured must cooperate with the insurance company and perform all acts this coverage form requires.

Valuation

1. Value of Covered Property

The value of covered property is based on the following:

 

Example: Valley Meats ships meat to butcher shops in the city. Each butcher receives a separate invoice. The delivery truck overturns and all the meat is ruined. Because Valley Meats has invoices on the orders that were placed, it receives the invoice amount plus the shipping and handling cost in the claim adjustment.

 

 

Example: Carmen Dance Supply ships merchandise between its own facilities without an invoice. A shipment of ballet shoes is destroyed when a vehicle overturns and catches fire. This loss is settled based on the actual cash value of the shoes as determined by internal records.

 

2. Pair or Set

The value of a loss that involves damage to or loss of one part of a pair or set is based on a reasonable proportion of the value of the entire pair or set. However, the loss of one part of a pair or set is not considered a total loss.

Note: This recognizes that the value of the whole is greater than the value of individual parts but that the remaining parts still have value as separates.

3. Loss to Parts

The value of a lost or damaged part of property that consists of several parts is the cost to repair or replace only the lost or damaged part.

How Much We Pay

1. Insurable Interest

The insurance company does not pay more than the named insured's insurable interest in the covered property at the time of loss.

Note: Insurance is meant to restore a person’s pre-loss financial position, not to improve or enhance it.

2. Deductible

The insurance company pays only the amount of loss that exceeds the deductible amount on the schedule of coverages.

3. Loss Settlement Terms

a. Subject to the other items in this section, the insurance company pays the least of the following:

b. The catastrophe limit on the schedule of coverages is the most paid in a single catastrophe. The number of modes of transportation, terminals, or combination of these is not relevant.

c. The limit for railroad car applies when a railroad transports a truck, trailer, or semitrailer. That limit is not combined with the limit for owned vehicles or carrier for hire.

 

Example: Monotony Records ships CDs and other recordings nationwide by common carrier trucks. Some of the truck lines piggyback on trains for longer trips. One of those trains derails, all of the trucks on it are thrown off, and their cargoes are destroyed. Monotony's coverage has limits of $10,000 on any one vehicle and $10,000 on any one rail car. The value of the cargo on each truck is $15,000 and Monotony tries to get the full value of its loss by combining the rail car limit and the truck limit. That approach is denied and only the $10,000 limit on each truck is paid.

 

d. A vehicle that is inside a terminal building or within 100 feet of that terminal is subject to terminal limit and NOT the vehicle limit. This terminal limit is not combined with the vehicle limit.

 

Example: Basil's Brickworks ships its products by trucks throughout the Southwest. Basil purchases a $25,000 terminal limit and a $15,000 limit on any one truck. A fire at a covered terminal destroys one of its shipments and the loss is valued at $30,000. Because the loss occurred in the terminal, Basil made a claim for the entire $30,000 value of the claim but was told that only the $25,000 terminal limit applies because the goods were at the terminal.

4. Insurance under More Than One Coverage

Two or more coverages in the coverage form may apply to the same loss. In that case, the insurance company does not pay more than the value of the actual claim, loss, or damage sustained.

5. Insurance under More Than One Policy

a. Proportional Share

The named insured may have other coverage subject to the same terms as this coverage form. In that case, this coverage form pays only its share of the covered loss. That share is the proportion that its limit of insurance bears to the limits of insurance of all insurance that covers on the same basis.

b. Excess Amount

There may be other coverage available to pay for the loss other than as described in 7. a. above. In that case, this coverage form pays on an excess basis. It pays only the amount of covered loss that exceeds the amount due from the other coverage, whether collectible or not. Any payment is subject to the limit of insurance that applies.

Loss Payment

1. Loss Payment Options

a. Our Options

The insurance company has the following four loss payment options if a covered loss occurs.

b. Notice of Our Intent to Rebuild, Repair, or Replace

The insurance company has an obligation to notify the named insured of its intent to rebuild, repair, or replace no later than 30 days after it receives a properly completed proof of loss.

2. Your Losses

a. Adjustment and Payment of Loss

The insurance company adjusts all losses with and pays the named insured unless another loss payee named in the policy is involved.

b. Conditions for Payment of Loss

The insurance company pays a covered loss within 30 days after it receives a properly prepared proof of loss and the amount of loss is established. Either the amount of loss is determined by a written agreement between the company and the named insured or after an appraisal award is filed with the company.

3. Property of Others

a. Adjustment and Payment of Loss to Property of Others

The insurance company has the option to adjust and pay losses that involve property of others either to the named insured acting on the property owner’s behalf or to the property owner.

b. We Do Not Have to Pay You if We Pay the Owner

The insurance company is not obligated to pay the named insured when it pays the property owner. In addition, if the property owner sues the named insured, the company has the option to defend the named insured in that suit.

Other Conditions

1. Appraisal

The insurance company and the insured may not always agree on a covered claim’s value. This condition provides one method to resolve disputed claims.

Either party can request an appraisal to determine a disputed claim’s value. Once requested, the parties have 20 days to obtain their own independent and competent appraisers and give their appraiser's name to the other party. The two appraisers then have 15 days to select a competent impartial umpire. If they cannot agree on an umpire within that time period, either can request that a judge in the court of record in the state where the property is located appoint one.

The appraisers then determine the claim’s value. They submit any differences to the umpire. Once any two of the three parties agree, the amount of loss is set.

Each party pays its own appraiser. Both parties share the umpire’s cost and other expenses equally.

2. Benefit to Others

The insurance provided does not directly or indirectly benefit any party that has custody of the named insured's property.

3. Conformity with Statute

Any condition in this coverage form that conflicts with any applicable law is amended to conform to that law.

4. Estates

Note: This condition applies only if the named insured is an individual.

a. Your Death

If the named insured dies, the person who has custody of the named insured's property is an insured until a qualified legal representative is appointed. The named insured’s legal representative becomes an insured once he or she is appointed. Both are insureds but only with respect to the property this coverage form insures.

b. Policy Period is not Extended

This coverage does not extend past the policy’s expiration date.

5. Misrepresentation, Concealment, or Fraud

This coverage is void if any insured at any time willfully concealed or misrepresented a material fact that relates to the insurance provided, the property covered, or its interest in the property. It is also void if fraud or false swearing by any insured took place concerning the insurance provided or the property covered.

Note: The named insured must deal with the insurance company honestly. Its rights of recovery may be voided if it intentionally misrepresents or conceals a material fact or information. This means that the insurance is treated as simply having never existed versus denying a particular claim.

6. Policy Period

Only covered losses that occur during the policy period are paid.

Note: This can be problematic when vehicles and terminals are located across time zones because the policy period starts and ends at 12:01 am standard time at the mailing address NOT where the loss occurs.

 

Example: Worldwide, Inc. policy runs from July 1, 2017 – July 1, 2018 and the mailing address on the policy is in Maine. A loss occurs in Hawaii at 11:00 PM on June 30. Because it is 4:00 AM on July 1 in North Carolina, the policy does not cover this loss.

 

7. Recoveries

Paying the loss does not end the obligations of the named insured and the insurance company toward one another. Additional provisions apply if the insurance company pays a loss and the lost or damaged property is subsequently recovered or the parties responsible for the loss pay for it.

Either party that recovers property or payment must inform the other. Recovery expenses that either party incurred are reimbursed first. If the named insured keeps the recovered property, it must refund the amount of the claim the insurance company paid, unless the company agrees to a different amount. If the claim paid is less than the agreed loss due to applying a deductible or another limitation, any recovery is prorated between the named insured and the insurance company based on the company's respective interest in the loss.

8. Restoration of Limits

Payment of a claim does not reduce the limit available for future claims.

9. Subrogation

The insurance company acquires the named insured's rights of recovery from third parties after it pays a loss. The named insured must help the insurance company secure those rights. The company is not obligated to pay a loss if the named insured hinders or impairs the company's rights of subrogation. However, the named insured can agree in writing to waive recovery rights from others before a loss occurs.

10. Suit against Us

The insurance company cannot be sued by anyone for any coverage until all the terms of the coverage form are met. Suits must be brought within two years after the named insured first knew about a loss. If a state law invalidates this condition, any suit brought must comply with the provisions of that law and begin within the shortest period of time allowed by law.

Note: It is normal for a basic coverage form to be modified by mandatory state-specific endorsements that address issues that relate to that specific state.

11. Territorial Limits

Covered property must be at a location within or in transit between or within the United States, its territories, and possessions, Canada, or Puerto Rico in order for coverage to apply.

Note: This is a slightly different definition of territorial limits. This broadening is very helpful for property transported by air because the flight path may pass outside the standard territorial limits while in transit.

12. Carriers for Hire

The named insured is granted permission to accept shipping documents from transportation companies that limit their liability to amounts less than the covered property's replacement cost or actual cash value.

IM 7256–SCHEDULE OF COVERAGES–OWNER'S CARGO COVERAGE (01 12 changes)

This Schedule of Coverages is used with IM 7251–Owner's Cargo Coverage. IM 7256 contains the following information:

Policy Number (01 12 addition)

The 01 12 edition added a space to enter the policy number.

Covered Property

A description of covered property is entered in the space provided.

Limits

The 01 12 edition added the word “Limits” in quotation marks in this section because Limit is a defined word.

This is the most the insurance company pays for loss to covered property in any one occurrence.

This is the most the insurance company pays for loss to covered property in or on any one owned vehicle.

Terminal Limits

The 01 12 edition added quotation marks around the word Limit (“Limit”) because Limit is a defined word.

The terminal numbers, addresses or descriptions and limits of insurance are entered in the spaces provided.
IM 7266–Additional Terminals Schedule is used to list additional terminals.

Coverage Extensions

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:

The limit is $5,000 unless a different limit is entered.

The number of days is 365 unless a different number of days is entered.

Supplemental Coverages

Each of these coverages provides additional limits of coverage or additional coverage. Required entries vary by type of coverage.

The limit is $10,000 unless a different limit is entered.

No entry is required. This supplemental coverage does not refer to limits. Instead of leaving this item blank, the word “covered” or “included” should be entered in order to prevent confusion. Entering a limit might be construed as limiting coverage.

No entry is required. This supplemental coverage does not refer to limits. Instead of leaving this item blank, the word “covered” or “included” should be entered in order to prevent confusion. Entering a limit might be construed as limiting coverage.

Deductible

A deductible amount must be entered in the space provided.

Additional Information (01 12 change)

This section of the schedule of coverages lists endorsements and forms included when the policy is issued.

The previous edition referred to this section as Optional Coverages and Endorsements.

IM 7251–OWNER’S CARGO COVERAGE ANALYSIS

This analysis is of the 06 04 edition.

This coverage form is similar to IM 7250–Transportation Coverage analyzed above. This analysis addresses only the differences that exist between the IM 7251 and the IM 7250.

Definitions

The following definitions in IM 7250 are not in IM 7251 because they are not relevant to this coverage form:

Property Covered

Property in Transit is changed to apply to only property in transit on the named insured's owned vehicles. As a result, there is no coverage for property on any other mode of transportation such as aircraft, carriers for hire, or railroads.

 

Perils Excluded

Two exclusions are changed to eliminate the exceptions to them that provide coverage for property in the custody of a carrier for hire.

 

The Voluntary Parting exclusion is changed to eliminate the exception for the named insured accepting false bills of lading.

Valuation

Invoice value is eliminated.

How Much We Pay

The Loss Settlement Terms are changed in three ways:

Other Conditions

This condition is changed to apply to only covered property in the United States of America, its territories, and possessions, Canada, or Puerto Rico. It eliminates the reference to locations and to property that is in transit between or within that was needed for aircraft transit.

This section is eliminated because it is not needed for this coverage form.

IM 7257–SCHEDULE OF COVERAGES–TRIP TRANSIT COVERAGE (01 12 changes)

This Schedule of Coverages is used with IM 7252–Trip Transit Coverage. IM 7257 contains the following information:

Policy Number (01 12 addition)

The 01 12 edition added a space to enter the policy number.

Covered Property

The details of the individual shipment and a description of covered property are entered in the spaces provided.

Note: These dates are very important because there is no grace period. There is no coverage if the property is still in transit after the date that coverage ends. Similarly, there is no coverage if transit begins prior to the start date.

 

Example: Monica was shipping product to a customer in Alaska. She purchased a trip transit policy for the time period 02/01/18 to 02/10/18.

Scenario 1: An unexpected snowstorm stranded the truck in Montana for two days and the carrier missed the ferry crossing in Seattle, resulting in another three-day delay. The product was still on the truck on 02/12/18 when the truck overturned and the product was destroyed. This loss is not covered because coverage ended on 02/10/18.

Scenario 2: Monica’s shipper called and offered her a discounted rate to ship the product on 01/28/18 because he had a partial load going to the same location. She jumped at the chance but forgot to contact her agent. The truck overturned on 01/30/18 and the product was destroyed. This loss was not covered because coverage had not yet started.

Transportation Limits

Catastrophe Limit is the most paid for loss in one occurrence.

Limits for each mode of transportation are entered in the spaces provided.

This is the most paid for losses to covered property on one aircraft.

This is the most paid for losses to covered property on or in any one owned vehicle.

This is the most paid for losses to covered property with any one carrier for hire.

This is the most paid for losses to covered property on or in any one rail car.

This is the most paid for losses to covered property on any one train.

Coverage Extensions

The 01 12 edition added the word “Limit” in quotation marks because Limit is a defined word.

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:

The limit is $5,000 unless a different limit is entered.

The number of days is 365 unless a different number of days is entered.

Supplemental Coverages

This coverage provides additional limits of coverage and additional coverage.

The limit is $10,000 unless a different limit is entered.

Deductible

A deductible amount must be entered in the space provided.

Additional Information

This section of the schedule of coverages lists endorsements and forms included when the policy is issued.

IM 7252–TRIP TRANSIT COVERAGE ANALYSIS

This coverage form is similar to IM 7250–Transportation Coverage analyzed above. This analysis addresses only the differences that exist between the IM 7252and the IM 7250.  

Definitions

The definition of Terminal in IM 7250 is not in IM 7252 because terminal coverage is not provided in the IM 7252.

Property Covered

Coverage Extensions

Consolidation and Packing is added as a Coverage Extension. It extends coverage for loss or damage that is caused by a covered peril to covered property that occurs while the property is at the premises of others but only when the reason for it being at that location is for consolidation, packing, or packaging.

 

Example: Harvey’s Hardware shipped some goods to an out-of-state customer. This was highly unusual for Harvey because he rarely shipped property. For this reason, he used trip transit coverage and employed a freight-forwarder to arrange the shipment. The freight forwarder picked up the goods on 05/01 and combined them with other merchandise on the same shipment. The goods were to be delivered on 05/08. Harvey's insurance agent suggested a coverage period from 04/30 through 05/10 to allow for schedule changes or delays. Harvey did as his agent suggested, the goods were picked up by the freight forwarder on 05/01, were combined with other merchandise, and prepared for shipment. While at the freight forwarder's location, a fire occurred and Harvey's goods were destroyed. The loss was covered because of this coverage extension.

Supplemental Coverages

The following two supplemental coverages that are part of the IM 7250 are not in the IM 7252 because they do not apply to this manner of shipping:

How Much We Pay

Loss Settlement Terms references to terminal locations in IM 7250 is not in IM 7252 because there is no terminal coverage in the IM 7252

ENDORSEMENTS AND SCHEDULES

AAIS has developed the following endorsements and schedules for use with the various Transportation Coverage Forms.

IM 7261–Refrigeration Breakdown Endorsement

(Use with IM 7251)

This endorsement covers spoilage caused by the mechanical breakdown of refrigerating or heating equipment. The conveyance and catastrophe limits and the deductible must be entered on the endorsement schedule in the spaces provided. It also has separate supplemental coverages, limitations, and conditions.

IM 7263–Named Perils Endorsement

This endorsement changes the perils covered provision to risks of direct physical loss or damage caused by one of the listed specified perils in the coverage form.

IM 7264–Scheduled Vehicle Endorsement (Use with IM 7251)

This endorsement restricts coverage to only the vehicles specifically listed and then for only the limit entered on the endorsement schedule for them.

IM 7265–Backhaul Coverage

(Use with IM 7251)

This endorsement is used when the named insured primarily uses it vehicles to carry its own property but acts as a carrier for hire on return trips. It covers the named insured’s legal liability based on bills of lading or other shipping documents.

IM 7266–Additional Terminals Schedule

This schedule is used with IM 7256–Schedule of Coverages–Owner's Cargo Coverage to list additional terminal locations and their limits.

IM 7267–Unattended Vehicle Exclusion–Transportation Coverage

(Use with IM 7250)

This endorsement restricts coverage. It is used to limit coverage for loss due to theft from an unattended vehicle. The named insured or carrier for hire must assign an employee or other party to guard or watch over the vehicle while unattended if theft coverage is to apply.

IM 7268–Theft Limitation–Transportation Coverage

(Use with IM 7250)

This endorsement restricts coverage. It eliminates theft coverage for all property except property listed and described on the endorsement schedule.

IM 7269–Unattended Vehicle Exclusion–Owner's Cargo Coverage

(Use with IM 7251)

This endorsement restricts coverage. It is used to limit coverage for loss due to theft from an unattended vehicle. The named insured must assign an employee or other party to guard or watch over the vehicle while it is unattended if theft coverage is to apply.

IM 7270–Theft Limitation–Owner's Cargo Coverage

(Use with IM 7251)

This endorsement restricts coverage. It eliminates theft coverage for all property except property listed and described in the endorsement schedule.

IM 7271–Vehicle Alarm Endorsement

This endorsement restricts coverage. It excludes theft coverage unless an operating alarm on owned vehicles is activated at all times when in transit, subject to certain exceptions.

IM 7273–Transit Reporting Conditions

This endorsement adds reporting conditions. IM 7274–Transit Reporting Schedule must be attached.

IM 7274–Transit Reporting Schedule

This schedule must be used when IM 7273–Transit Reporting Conditions is attached. It provides the reporting period, adjustment period, report basis, reporting rate, deposit premium, and minimum premium.

IM 7275–Refrigeration Breakdown Endorsement

(Use with IM 7250 and IM 7252)

This endorsement covers spoilage caused by the mechanical breakdown of refrigerating or heating equipment. The conveyance and catastrophe limits and the deductible must be entered on the endorsement schedule in the spaces provided. It also has separate supplemental coverages, limitations, and conditions.

IM 7276–Concealed Damage Exclusion

(Use with IM 7250 and IM 7252)

This endorsement restricts coverage. It excludes loss or damage to covered property unless the shipping container or packing materials are visibly damaged.

IM 7277–Concealed Damage Exclusion–Owner's Cargo Coverage

(Use with IM 7251)

This endorsement restricts coverage. It excludes loss or damage to covered property unless the shipping container or packing materials are visibly damaged.

 

Note: Additional company specific endorsements may be available and used. Each should be examined to determine its effect on policy coverage. Safeguards such as theft security and alarms and climate controls may be required as a condition of an insurance company to provide coverage or to accept a particular exposure.

UNDERWRITING CONSIDERATIONS

All Transportation Coverage

Underwriting transportation coverage means answering three very important questions.

1. What is being transported?

2. Where is it going?

3. Who provides the transportation?

 

What is being transported?

The type of cargo and its susceptibility to damage is key. Some goods are very attractive to thieves but highly resistant to damage. On the other hand, other items are easily damaged but rarely stolen. The most difficult property to underwrite and insure is the kind that is both easily damaged and attractive to thieves.

When items are easily damaged, the packaging must be evaluated carefully. The shipper's experience should match and fit the exposure the goods present.

Cargo that is very attractive to thieves usually requires vehicle security and burglar alarm systems, secure locks, and entry systems. Armed drivers and unmarked vehicles may also be required.

Where is it going?

The farther an item travels from the operation, the farther it is from the insured's control. Longer distances add time to the exposure equation and increase the chance for a loss to occur. Long trips frequently involve more than one shipper. As a result, control becomes diluted and terminal operations and vehicle changes become additional factors to consider.

Who provides the transportation?

There is no third party to subrogate against if the owner provides the transportation and there is a loss. The owner's experience, the quality of the drivers, and the vehicle maintenance programs are all very important items to evaluate.

If a carrier for hire is used, the bill of lading is a key for coverage. Bills of Lading are contracts the carrier for hire issues as a receipt for the merchandise being shipped. They are the contract for carriage of the merchandise between the carrier for hire and the owner or shipper. There are four common types:

Air shipments are considered the safest if it is appropriate for the merchandise involved. Railroads are the next safest form, followed by trucks and other motorized vehicles.

Owner's cargo shipments may result in other exposures and create the need for other coverages. If merchandise is shipped to an exhibition site, the insured might request that the policy is endorsed to cover the property while at the exhibition. The insured might request coverage for loss of business income because physical loss or damage to goods shipped might cause a bottleneck or backup in operations that triggers a large consequential loss. The insured might request that the exclusion for breakdown of refrigeration equipment be deleted when coverage is needed on refrigerated goods shipped.

Owner's Coverage Additional Considerations

Owner's cargo coverage underwriting begins by evaluating the insured that is shipping the goods and reviewing its loss experience. This evaluation also determines the rating and premium charge required to write the business profitably. The evaluation of the insured must address its financial condition, its length of time in business and of transporting the types of goods involved, the type and condition of the vehicles, and the drivers' experience and qualifications.

Drivers must be experienced and the extent of their experience must be measurable. Motor vehicle reports should be obtained regularly as well as on a random basis. Drivers should be hired to be only drivers and not to perform other jobs. Regular driver training should be conducted on site or at outside locations that offer such programs. Pre-hire, periodic, and random drug testing should be conducted. Vehicle maintenance should be scheduled and done routinely for maintenance reasons and as needed if there is an accident or mechanical malfunction. If the insured backhauls for additional revenue, it becomes a carrier for hire and is subject to underwriting as one.

Trip Transit Coverage Additional Considerations

Trip transit coverage applies to a specific transportation event. The details must be very precise. Coverage begins and ends on the dates stated and there is no grace period. The cargo covered is only that described and it is covered only when being transported by the described carriers. Coverage ends when the cargo is delivered even if it is before the policy expires.

The loss potential for trip transit exposures is reduced if the insured takes certain steps before the trip even begins. Reliable employees should do the packing, loading, and unloading of any property that is delicate, sensitive, or susceptible to damage from rough handling. Only reputable and financially solvent carriers for hire that have the experience and ability to handle the shipment should be used. The insured's legal representative should review shipping documents to ensure that they are proper and in order. If the insured controls the destination location, it should arrange to have its employees present to unload and receive the shipment.

The dates when the shipment (and the coverage) begins and ends should be stated clearly. If the property shipped is being sold, the sales contract must be reviewed to determine when title passes and the purchaser becomes the owner. The two most common uniform sales contracts are Free on Board (FOB) Point of Shipment and Free on Board (FOB) Point of Destination. In the first, title passes when the merchandise is in the care, custody, or control of the carrier for hire and a clean bill of lading has been issued. In the other, title passes when the carrier for hire delivers the merchandise at the final destination.

Other exposures and coverage opportunities may develop as a result of a one-time shipment. If a shipment is made to an exhibition, a request may follow for coverage at the exhibition site. If a shipment is lost, coverage may be needed for consequential loss or loss of use. Other insurance may also apply to the goods shipped and it must be determined if this coverage is primary or excess.