Owner operators and small fleet owners rarely take advantage of their right to limit cargo liability. Many participants in interstate trucking don’t realize that an insurance policy is not the only way they can protect themselves from the financial loss associated with a cargo claim.
Many owner operators and small fleet owners purchase their cargo policy, feel a $100 thousand policy is adequate, and move on to the next of the innumerable requirements for getting their company legal to operate as an authorized interstate carrier.
Cargo loss is an inherent risk of trucking. Given time an accident, rollover, securing error, theft, miscount, or one of many other possible incidents will eventually result in a cargo claim. Carriers are left with the burden of liability in most cargo loss situations.
Insurance is a tool available to carriers and owner operators to assist in the minimization of financial exposure from cargo loss. An insurance company is not liable beyond the agreement as established within the written cargo insurance policy.
What if your trailer is stolen from a truck stop where you parked it over night? What if your driver doesn’t set his refer unit to the proper temperature and a load spoils? Most cargo insurance policies have a hefty amount of fine print listing exclusions that nullify the payout of the policy. Do you know your policy’s exemptions?
More importantly, if a claim occurs and your policy doesn’t cover it, are you prepared to dole the money out from your own pocket if you are legally liable under the law? One cargo claim that is not covered by your policy can drive most small carriers or owner operators into bankruptcy.
Carriers too frequently haul high value cargo not even knowing the value of the goods they are loading. If a shipper does not declare the value and there is a loss exceeding the policy coverage the carrier will be ultimately liable for the difference of the loss, and in some instances the mere fact that the carrier is hauling goods in excess of their policy limits will null and void the policy before the insurer pays a dime.
Because of the intrinsic risks that come with trucking the U.S. Government has given carriers another tool for carriers to reduce risk with the hope that more carriers will participate in the industry, thereby increasing the competitive nature of health of trucking commerce. That tool is contained within the Carmack Amendment (U.S. Code: Title 49, 14706) which regulates liability for all modes of interstate transportation.
Through court opinions and legal precedents the judicial system has established a list of requirements, which when prescribed to, allow the carrier to legally limit liability. In general the Carmack amendment establishes that the carrier will be liable for the full actual loss incurred by the claimant.
There are no limits to the amount for which the law will hold the carrier liable. However it is possible to set liability limits. To limit their liability the carrier must: 1. maintain and make available a rules tariff specifically outlining their standard liability limits; 2. obtain shipper agreement to the limits: this may be done in the form of a formal contract, incorporated into the bill of lading, or conveyed through use of bill of lading stickers telling the shipper about the limits, and how to access the specifics within the rules tariff; 3. provide the shipper reasonable opportunity to choose variable and increased liability levels; and 4. obtain or provide a receipt or bill of lading prior to hauling the shipment.
Although the 1994 Trucking Industry Regulatory Reform Act eliminated the requirement for non-household good carriers to maintain a publicly filed rules tariff it is beneficial for small fleets and owner operators to write and maintain an easily accessible rules tariff. It common practice to make the rules tariff on-line and input the web address on most or all shipping documents, insurance certificates, and contracts.
The tariff can be used to establish different liability levels. For instance, if a carrier wanted to limit coverage on used machinery to $1.00/lb that could be written into the tariff, and so long as the other requirements required by the law were followed the carrier’s liability on that commodity would be limited. The maximum exposure on a forty thousand pound used machine would be $40 thousand even if the machinery damaged was valued at $500 thousand and resulted in a total loss.
Carriers often use the tariff to limit the types of commodities they haul or the liability they are willing to incur on certain commodities. It may not be in the business interest of carriers to handle certain commodities that are highly breakable, targets for pilferage, or are innately perishable. The carrier can list the cargo they wish to avoid as “exempt commodities” and limit the maximum financial exposure.
In essence a carrier can limit liability on any shipment, but if they do not explicitly do so the liability established by the Carmack amendment will always take precedence. The best way to explicitly communicate the existence and contents of a tariff are with a written contract. There should be a statement that notifies of limits, how to review those limits, and whom they may contact to increase standard limits.
It is also recommended that a sticker or stamp be provided to dispatchers and drivers so that a statement making customers aware of the tariff and liability limits may be added to any document. The statement should go on each shipping document, rate confirmations, insurance certificates, credit request forms, or any other document that is exchanged between the carrier and the customer.
Proof that the customer was made aware of limits by producing multiple documents with the disclaimer will give the carrier leverage if a claim is resolved in the courts. A carrier may obtain a skeleton tariff and adapt it to the carrier’s specific needs, write a tariff from scratch, borrow an existing template, or hire an outside entity to write the tariff.
The important thing for small fleet owners and owner operators to understand is that just because they have a cargo insurance policy does not mean they are covered in every instance. Insurance coverage and liability are two entirely different issues.
The Carmack amendment can be used to reduce exposure if a carrier wishes to take the necessary steps to protect itself by establishing and communicating liability limits.
In the fast-paced, unpredictable world of trucking, where small companies are in a highly competitive business environment operating with tight cash flows there is no reason not to be proactive and take advantage of the tools made available under the law. Every trucking company and owner operator should get a tariff in place and use the law to their advantage. The law is there for the owner operator as much as it is for Landstar.