July 26, 2019 | Industry Insights
Why Logistics Service Providers Need General Liability Insurance
As your customer’s primary resource in trade facilitation, your focus is to hone your expertise and provide the best information and service possible. Finding time to focus on general business concerns can sometimes take a back seat to business growth and client retention. Just as your goal is to simplify the complicated with your clients, you want the same assistance from your insurance provider. Liability is a multi-faceted risk category, and the insurance that protects your exposures will often have a multi-coverage solution. The foundation of most insurance programs, however, begins with General Liability (GL) coverage.
You may think the only reason you need a GL policy is to satisfy your landlord or vendor’s requirements, and you may have purchased coverage for this purpose. However, GL is so much more than a checked box. It is a policy designed to protect your business against claims from bodily injury or property damage sustained by a third party as a result of your business operation.
In addition to bodily injury and property damage your GL policy also provides coverage for:
Personal and Advertising Injury Liability – This responds to any lawsuit that is alleging that you are responsible for Personal Injury arising out of the advertising of your products or services. An example of covered offenses are libel, slander, invasion of privacy, copyright infringement and misappropriation of advertising ideas.
Medical Payments – Responds to non-litigious medical claims for bodily injury which occur in the normal course of business. In plain terms, this could act as the “please don’t sue me coverage”, where medical payments will be paid by the policy to avoid a lawsuit. GL, and specifically medical payments, do not extend to employee injury claims as this risk is covered under Worker’s Compensation.
Products and Completed Operations –Responds to lawsuits for bodily injury or property damage that is derived from your “products” or “completed operations.” Although transportation and logistics companies don’t typically sell tangible products, those providing packing, crating, assembly, and pick and pack services may have a risk. Both bodily injury and property damage claims can arise while employees are performing your services, or as a result of your professional service mistakes or failures
Products and completed operations coverage should not be confused with Errors & Omissions (E&O). An E&O policy addresses claims for financial losses suffered by your client resulting from your alleged or actual mistakes. E&O policies typically exclude bodily injury and property damage losses.
Damage to Rented Premises – This coverage responds to damages caused by your negligence to leased premises which you are legally liable to pay. Variations of this coverage are referred to as Tenant’s Legal Liability and Fire Legal Liability. Be aware that Fire Legal Liability may offer limited coverage. It is critical to review your lease to determine your legal liability for your premises and to ensure you have both the coverages and insurance limits you need.
Defense Costs – Your business may not be able to sustain the costs of legal fees to defend a GL claim made against you. A GL policy covers the cost of defense even if the lawsuit is groundless.
Important Coverage Distinctions
GL policies are not all the same. Many insurers use an Insurance Services Office (ISO) GL policy form. However, specialty policies are written on different forms and offer varying terms. Logistics service providers should be aware that the ISO GL policy excludes claims arising out of the care, custody, and control of third party property. This exclusion requires that if you do have care, custody, and control of cargo, you insure these risks under a different type of insurance policy such as cargo legal liability, warehouse legal, or Bailee liability.
Some GL policies may be restricted to scheduled locations leaving you uninsured for claims which occur away from your premises. Be certain to check your policy for this limitation, to avoid potential coverage gaps.
Most GL policies offer varying insurance limits that can be increased by an endorsement or by obtaining an Umbrella Liability or Excess Liability policy. It is good practice to review your options prior to accepting the standard insurance limits.
When asked about the types of claims GL policies will cover, most people recite the “trip and fall” scenario. Coverage indeed protects these types of incidents, but experience has shown in the world of transportation and logistics there are other ways your company can be drawn into a claim covered by GL insurance.
Claim Scenario 1 – Under a bill of lading you are listed as the shipper, and as the forwarder you arrange for the delivery of cargo. Cargo arrives at the consignee’s warehouse and is unloaded by a warehouse employee. During the course of unloading the truck, the employee is injured. The employee has worker’s compensation for his injury, but he decides to file a claim against the shipper of the cargo. Far-fetched? You might think so, but it has happened. As our society becomes even more litigious, those who are seeking compensation widen their net of potentially liable parties, and insurance companies may pay a claim rather than litigate because it is more financially expedient to settle.
Claim Scenario 2 – A trucker delivered cargo to a forwarder’s warehouse. Upon arrival he began to unload the truck and dropped the cargo, causing approximately $400k in damages. The trucker’s motor truck cargo insurance paid the claim, but then the insurance company subrogated against the freight forwarder. Their allegation? Failure to post adequate signage in the warehouse addressing safety issues. The forwarder’s GL policy paid $40,000 to the trucker’s insurance company. We recommend that our clients require a waiver of subrogation from the trucker’s insurance. In this case, the waiver may have averted the need to pay this claim.
Insurance, like all complicated issues, boils down to the details. Because your logistics company is unique, you understand the need to apply risk reduction and risk protection strategies that fit your business operations. As every risk mitigation “shoe” does not fit in logistics, neither does every insurance option. Partnering with an insurance professional who can determine the right fit, gives you the freedom to focus on your own business goals; after all isn’t that a full time job?
About Roanoke Trade
Roanoke Trade, a division of Roanoke Insurance Group Inc. and part of Munich Re Specialty Group Ltd., operates as a specialty insurance broker focused on surety and insurance solutions for logistics service providers, customs brokers and companies with supply chains. Years of service and industry focus have earned us the recognition as a trusted provider of customs bonds, marine cargo insurance and ATA Carnets for the industry.
Originally published in Air Forwarders Magazine – Spring Edition