ISO Motor Truck Cargo Carriers Coverage Form

ISO MOTOR TRUCK CARGO CARRIERS COVERAGE FORM ANALYSIS

(April 2018)

 

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INTRODUCTION

The Insurance Services Office (ISO) Motor Truck Cargo Carriers Coverage Form is designed for common and contract carriers in the trucking business that transport property of others from one point to another. It covers the carriers’ legal liability for those goods. Coverage is usually written on a continuous basis subject to annual re-rating. Coverage begins when the carrier for hire takes possession of the property being shipped at the origination point and continues during needed stops incidental to the shipment, such as for meals and to rest. Coverage ends when the shipment arrives at the intended destination and the designated party (the consignee) accepts it.

POLICY CONSTRUCTION

Motor Truck Cargo Carriers Coverage requires at least the following six forms:

Related Article: IL 00 17–Common Policy Conditions Analysis

Related Article: CM 00 01–Commercial Inland Marine Conditions

IH DS 72–MOTOR TRUCK CARGO CARRIERS DECLARATIONS

The advisory Motor Truck Cargo Carriers Declarations does not have spaces for the named insured, its mailing address, other named insured information, the policy period, or the description of the insured business. That information is on the Common Policy Declarations. IH DS 72 contains the following information:

Insurance Company and Producer Name

The name of the insurance company that provides the coverage and the name of the agent or broker that produces the business are entered in the spaces provided.

Description of Covered Property

This section has spaces to enter a general description of the covered property. It includes the words "consisting principally of" so coverage is not automatically declined because certain commodity or type of property is not specifically listed or described. However, if it is discovered that the principal type of property differs from what is stated in this area, the coverage could be revoked entirely based on misrepresentation.

Limits of Insurance

This section has spaces to enter a limit of insurance for each of the following:

Coverage applies at only the terminals listed and described in the spaces provided.

This is a catastrophic limit. If any of the above limits are increased, this limit must also be increased to prevent unintended capping.

Deductible

This section has a space to enter the amount of deductible that applies.

Rates and Premiums

The following is entered when coverage is written on a non-reporting basis:

The following is entered when coverage is written on a reporting basis:

Special Provisions

Any special provisions are entered in the space provided.

IH 00 72–MOTOR TRUCK CARGO CARRIERS COVERAGE FORM ANALYSIS

This analysis is of the 12 13 edition. Changes from the previous edition are in bold print.

Introduction

This section encourages the careful reading of the entire coverage form to determine what is covered, what is not covered, rights, and duties. It defines we, us, and our as the insurance company that provides this insurance coverage. It also defines you and your as the named insured on the declarations. The reader is also pointed to the Definitions section because certain words or terms used in the form have a more broadened or restricted meaning.

A. Coverage

The insurance company pays the amounts for which the named insured is legally obligated to pay due to loss or damage to covered property that belongs to others but only when caused by a covered cause of loss.

1. Covered Property

Covered property must meet all of the following criteria:

This covered property described above is covered only under the following two circumstances:

a. The property must be in either the named insured’s custody or a connecting carrier’s custody until it is delivered to its final destination.

 

Example: Gordon’s Grain Hauling transports harvested grain from grain storage terminals where it is loaded onto Gordon’s vehicles to processing facilities where it is unloaded under a straight bill of lading. Gordon describes this type of property on his declarations. Based on the straight bill of lading’s terms, Gordon’s coverage applies from the time the grain loading on his vehicle is completed until it is discharged at the processing destination.

 

b. While at a terminal, warehouse, or other storage facility. This coverage is subject to only one of the following:

When property cannot be undelivered property remains covered in that terminal until it is returned to the named insured.

2. Property Not Covered

The following described property not covered:

a. Accounts, bills, currency, documents, records, deeds, money, notes, securities, or stamps

Note: This property is a mix of property that should be covered under commercial crime, accounts receivable, and valuable papers coverage forms.

Related Article:

ISO Accounts Receivable Coverage Form Analysis

ISO Valuable Papers Coverage Form Analysis

ISO Commercial Crime Coverage Forms and Policies Analysis

b. Bullion, gold, other precious metals, jewelry, watches, precious stones, and semi-precious stones

Note: These items require special handling by the carriers and special pricing by an insurance company.

c. Furs or fur-trimmed garments

Note: These items require special handling by the carriers and special pricing by an insurance company.

d. Coins or stamps

Note: These items require special handling by the carriers and special pricing by an insurance company.

e. Live animals

Note: Transporting live animals is a unique trucking exposure and therefore insured separately.

f. The transporting vehicle itself

Motor vehicles are usually insured under commercial auto coverage forms and policies.

Related Article: CA 00 01–Business Auto Coverage Form Analysis

g. Intermodal containers but only when they are not considered part of the shipment’s value

Note: Intermodal containers are reusable, transportable cargo containers or enclosures of rigid construction and usually rectangular. They are fitted with devices to secure them to a container chassis vehicle and other devices that facilitate handling, especially when they transfer from one mode of transportation to another. They are designed for easy filling and emptying and are intended to contain one or more articles of cargo or bulk commodities for transportation by rail, highway, water, or air.

 

h. Property while being transported on water.

There is an exception. Coverage applies if both of the following conditions are met:

Note: Property on board vessels on bodies of water other than inland waterways where the water transportation is significant and not incidental to the land transportation should be covered under ocean marine coverage forms or policies.

i. Import shipments are not covered UNTIL they have been unloaded from the import conveyance or when ocean marine insurance coverage ends, whichever occurs last

Note: This coverage form insures only domestic shipments. Coverage does not begin until the covered property changes from an import shipment to a domestic shipment.

j. Export shipments are not covered AFTER they have been placed on the outbound conveyance or when ocean marine insurance coverage takes effect, whichever occurs first

Note: This coverage form insures only domestic shipments. Coverage ends when the covered property changes from a domestic shipment to an export shipment.

k. Art and works of art. The exception is that coverage does apply if listed and described on the declarations

l. Contraband. Any property that is illegal for the named insured to own or that is in illegal trade or transportation is not covered.

Note: This is a particular issue currently with marijuana. If it is legal in a state but illegal under federal law, is it contraband?

3. Covered Causes of Loss

Covered causes of loss are direct physical loss or damage to covered property with the exception of causes of loss that are listed in the exclusions section.

4. Coverage Extension–Earned Freight Charges

The only extension of coverage in this coverage form is the payment to the named insured for freight charges it has earned but that are considered uncollectible because of a covered loss. The most paid in any one occurrence is $2,500.

This limit is an additional amount of insurance.

 

Example: Gordon’s Grain Hauling vehicle skids on a wet road during heavy spring rains and overturns. The grain is scattered over the pavement and is ruined by the rain. The loss that involves the grain is covered which is good but the customer is refusing to pay Gordon for his costs because the grain was not successfully delivered. The bill of lading states that the shipper does not pay transportation fees if the delivery is due to Gordon’s negligence. This Earned Freight Charges Coverage Extension pays Gordon’s actual earned freight fees but no more than $2,500 limit.

B. Exclusions

1. Primary Exclusions

The first group of exclusions applies whether or not the loss event results in widespread damage or affects a significant geographical area and is essentially absolute. Subject to specific exceptions, 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. Governmental Action

This exclusion applies to the legal and authorized seizure or destruction of property by a government entity’s order. There is one exception. Loss or damage that is caused when the governmental entity orders property to be destroyed is covered if used as a method to prevent a fire from spreading is covered. However, this exception applies only if the fire being contained would have been a covered fire under this coverage form.

b. Nuclear Hazard

Nuclear reaction, radiation, or radioactive contamination is not covered. There is an exception. If a fire results from the nuclear reaction, radiation or radioactive contamination there is coverage for the direct loss or damage caused by that fire.

c. War and Military Action

This exclusion lists three specific warlike activities.

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 result from any of these events.

a. Improper packing, stowage, or rough handling

Note: This could be considered a type of intentional acts exclusion. The named insured’s employees decide how to handle or stow property or help pack it in many cases. The named insured controls these situations. As a result, losses caused when any of these activities is done improperly would mean paying for a cost of doing business.

 

Example: Gordon’s Grain Hauling usually transports grain in grain trailers that have bulkheads (vertical partitions that separate compartments in a trailer). Gordon gets a phone call with an urgent request to immediately haul a short load of grain. He has a bad feeling about this and has reservations because the only trailer he has available is one that does not have bulkheads. As he feared, the grain does not completely fill the trailer, shifts when the tractor makes an emergency maneuver to avoid an obstruction on the road, and the trailer overturns, discharging the grain into a field. This loss is excluded due to improper stowage because a trailer with bulkheads should have been used to transport even this short load of grain.

 

b. Delay, loss of use, and loss of market

These are consequential or indirect losses that develop as a result of a direct loss or damage.

c. Breakdown of refrigeration equipment

There is no coverage for loss or damage to covered property when refrigerating equipment breaks down. There is an exception. If fire, lightning, explosion, windstorm, vandalism, aircraft, rioters, strikers, theft, attempted theft, or an accident that involves the vehicle transporting the covered property causes loss or damage, then direct loss or damage from the breakdown is covered. This exception applies only if this coverage form covers those listed causes of loss.

Note: This is similar to mechanical breakdown and malfunction or covered property failing to operate. This coverage is available under Equipment Breakdown (Boiler and Machinery) coverage forms and policies.

Related Article: ISO Equipment Breakdown Protection Coverage Form Analysis

 

Example: Perfection Poultry Transportation uses its fleet of refrigerated box trucks to transport its customers’ chicken and turkey products from their warehouses to various retail stores. One of the trucks experiences a long delay in a traffic jam on the expressway. The refrigeration unit on that truck malfunctions and the indicator on the driver’s console also fails to register the malfunction. As a result, the driver is not aware of the refrigeration unit malfunction and the chicken and turkey spoils. This loss is not covered.

 

d. Dishonest or criminal acts (12 13 changes)

These are any dishonest or criminal acts that the named insured, its partners, employees, temporary employees, leased workers, officers, directors, trustees, authorized representatives, or members and managers of a limited liability company commit. This also includes theft.

Such acts committed by anyone with an interest in the property, their employees, temporary employees, leased workers, or authorized representatives who act alone or who act in collusion with other parties or with each other are also excluded. It also applies whether or not the acts take place during regular working hours.

This exclusion does not apply to acts of destruction by the named insured’s employees, temporary employees, leased workers, or authorized representatives. However, there is no coverage for theft by the named insured’s employees, temporary employees, leased workers, or authorized representatives.

The 12 13 edition removed the part of the exclusion in the previous edition that applied to dishonest or criminal acts committed by anyone entrusted with the property for any reason. It also deleted the exception to the exclusion in the previous edition for covered property entrusted to carriers for hire.

e. Voluntary parting

The named insured or anyone else entrusted with the property being tricked or deceived into giving that property away.

f. Unauthorized instructions

When covered property is transferred to another person or place because unauthorized instructions were received to do so.

g. Neglect

Neglect on an insured’s part to do take reasonable measures to preserve and protect covered property from subsequent damage during and after the time of loss.

h. Theft (12 13 addition)

Theft by any person the named insured entrusts covered property to for any reason, whether they act alone or act in collusion with any other party. This exclusion applies 24 hours a day/7 days a week. There is one exception. Covered property that is in a carrier for hire’s care, custody, or control is not subject to this exclusion.

3. Other Exclusions

This group of exclusions applies to loss or damage caused by or that result from any of the following loss events. In every case, if loss or damage by a covered cause of loss occurs as a result of one of these excluded events, coverage applies to the loss or damage the resulting covered cause of loss causes. The insurance company does not pay for any loss or damage caused by or that results from any of these events.

a. Any quality in the property

These are any qualities in the property that cause it to destroy or damage itself.

Note: An example is a loss or damage caused by hidden or latent defects in the property.

b. Gradual deterioration, corrosion, or rust

This is deterioration, corrosion, and rust that take place gradually over time that causes or result in loss or damage to covered property.

Notes:

Deterioration means to grow worse or to diminish in quality or value over time.

Corrosion and rust are low-temperature oxidation processes that result in deterioration over time due to inactivity or neglect.

c. Dampness or extremes of temperature

This is high levels of humidity or extreme fluctuations in temperature that cause loss or damage to covered property.

Notes:

High humidity or extreme temperature fluctuation can affect the oxidation process that, in turn, affects different forms of property and can also have other effects on the same (and other forms of) property.

Property that spoils after refrigeration units fail is one example. Explosion of items that expand rapidly in high temperatures is another.

d. Insects, vermin, or rodents

This is loss or damage to covered property caused by or that results from insects, vermin, or rodents.

Note: Some examples are damage from mice, rats, cockroaches, squirrels, beavers, spiders, ants, centipedes, and ticks. Each is characterized by destructive habits that cause damage, such as gnawing and nibbling.

C. Limits of Insurance

The most the insurance company pays for loss or damage in a single occurrence is the limit of insurance on the declarations for the applicable coverage.

D. Deductible

The insurance company does not pay for loss or damage until the amount of the adjusted loss or damage (before capping with the limit of insurance that applies) exceeds the deductible on the declarations. It then pays the amount of the adjusted loss or damage that exceeds the deductible up to the limit of insurance that applies.

E. Additional Conditions

1. Valuation

This condition replaces the valuation condition in the Commercial Inland Marine Conditions.

The value of covered property is determined at the time of loss or damage and is the least of the following amounts:

a. The reasonable costs to restore the property to the condition it was in just before the loss

b. The cost to replace that property with property that is virtually identical to the damaged property

c. The declared value on the bill of lading or the shipping receipt (if any)

d. The tariff’s declared limitation

 

Example: Kimbage was shipping purses across the country. Part of the cost to ship was based on the value so Kimbage decided to accept a tariff limitation of $25,000. When the truck overturned and all of the property was lost Kimbage demanded the full value of $150,000 for the purses. The insurance company presented the tariff and Kimbage realized that it had made a poor choice and reluctantly accepted the $25,000.

2. Coverage Territory

The coverage territory is the United States of America, its territories and possessions, Puerto Rico and Canada. This includes property that is shipped by air within and between these points.

F. Definitions

There is one definition.

Accident

The upset or the overturn of any type of conveyance or transporting vehicle. Accident is also the forceful and accidental contact of a conveyance with another vehicle or object. It does not include any contact with the road itself or with curbs, railroad rails, or railroad ties. Contact the transporting vehicles make with any stationary object the while backing in to load or unload is also not considered an accident.

ENDORSEMENTS

ISO has not developed any specific endorsements for exclusive use with the Motor Truck Cargo Carriers Coverage Form. ISO has developed four other endorsements that can be used to respond to specific situations.

IH 99 08–Value Reporting Form

This endorsement converts coverage from a non-reporting to a reporting basis. Reports of value can be provided on a daily, weekly, monthly, quarterly, or policy year basis, depending on the terms of each form.

IH 99 11–Gross Receipts Reporting Form

This endorsement is used to convert the Motor Truck Cargo Carriers Coverage Form to a reporting basis for goods shipped. This treatment does not apply to terminal coverage.

Note: Gross receipts are cumulative values instead of an average of periodic values. As a result, the rates used for this reporting arrangement are the annual rates instead of a percentage of the annual rates.

IH 99 19–Additional Covered Property

This endorsement is used to include coverage for types of property ordinarily excluded.

IH 99 20–Additional Property Not Covered

This endorsement is used to exclude certain types of property the coverage form insures.

UNDERWRITING CONSIDERATIONS

Motor Truck Cargo Carriers coverage insures the legal liability of common and contract motor carriers for the lawful covered property of others they accept for transportation between certain points under tariffs and bills of lading or contracts and shipping receipts. Coverage applies from the time the carrier takes possession of the cargo to be carried at the point of origin to the time the goods arrive at their intended destination and the consignee accepts them. Some general points to consider are the motor carrier’s experience, financial strength, loss history, and the quality of the motor vehicles that make up the fleet. The types of merchandise hauled, their value, and susceptibility to loss, damage, or theft affect the underwriting and pricing decisions. Location-oriented underwriting must be applied if terminal coverage is provided because having significant values in a terminal at any one time may create the potential for a catastrophic loss.

Common carriers have a higher degree of responsibility for the property they haul than do contract carriers. Contract carriers are responsible only to the extent of their liability as spelled out in the shipping contract, and only if their negligence contributes to the loss. Common carriers are liable for all loss or damage to the goods with only five exceptions. Common carriers are not liable for loss or damage due to acts of God, acts of the public enemy, the exercise of a public authority, fault, or neglect on the part of the shipper, or inherent vice or the nature of the property.

Key elements in underwriting motor carriers include evaluating and determining their financial condition and experience. The carrier’s financial condition should be sufficiently healthy so it can afford to hire a suitable number of qualified drivers and purchase and maintain a safe and adequate fleet of vehicles for its operations.

A carrier’s experience is measured in part by determining the length of time in business, the type of property hauled over that time, and evaluating the reasons for any changes in the types of property hauled. Consistency and stability in operations enable a carrier to have a greater level of competency in the work it does. It also eliminates guesswork and learning new tasks, and permits the carrier to focus on safely and efficiently performing the work it is best qualified, prepared, and experienced to do.

Drivers must be evaluated carefully. More control can be exercised over drivers who are employees than over independents or owner-operators. Drivers other than employee drivers must be carefully screened and it is best if the same ones are consistently used. The experience level of all drivers and periodic scheduled training and education are essential to keeping bad habits from occurring or developing. Periodic and unscheduled drug testing and securing motor vehicle reports are essential activities to maintain control over drivers and to keep up with their current status.

The radius of operations is important. The greater the distance from the base of operations, the greater the number of problems and issues that can develop through the natural loss of control as distances increase. Depending on the radius of operations, the degree and methods of control are affected and must change to respond to individual circumstances.

Terminal operations introduce fixed location underwriting issues and greater concern over fire and other property-based causes of loss. The elements of construction detail, the type of goods stored, public and private fire protection, and the influence of surrounding exposures must be addressed, understood, and problems or shortcomings resolved. The catastrophe limit becomes a more significant factor when terminals are involved and there are a number of vehicles with loads. The services they provide vary and facilities with truck washes, repairs with welding and painting, and substantial storage operations can change the complexion of the facility and the motor carrier as a whole.