This article was created in partnership with SUM Insurance
Navigating clients through the broad array of often archaic transportation coverages is challenging, to say the least. A misstep in advice could lead to disappointment and confusion in the event of a loss. Coverages along the supply and logistics value chain do not necessarily dovetail with one another, making a competent underwriter’s guidance essential in this line of cover.
SUM’s products are underwritten in-house by seasoned marine insurance veterans, including David St. Martin (pictured left), vice president and marine and logistics practice leader at SUM, who boasts 30 years in the sector. When St. Martin was starting his career, he heard a colleague reply to a question of what the role entails day-to-day. He said: “This morning I was in Egypt checking on the port tonnage and then in the afternoon, I was looking at a shipment in Singapore,” alluding to how, in those days, they’d have to open massive manuals to see what the port requirements were in various places.
“He painted this great picture of being all over the world in one day and it’s always stuck with me,” St. Martin recalled. “We’re the lynchpin to so many things — everything in the room you’re in now probably came from somewhere else, and we’ve likely insured a lot of it.”
The world may be a smaller place now, and those books may have been replaced by technology, but the depth and breadth of expertise that SUM’s team brings to their work is timeless. They are dedicated to creating a competitive advantage for brokers and their clients in this often-undersold product line.
SUM offers real-time service, expert advice, first class security, and a product suite that’s among the broadest in Canada. Though not an exhaustive list, St. Martin and Jessica Smith (pictured right), underwriter in marine and logistics practice, shared more details on SUM’s offerings.
Carriers Legal Liability
When possession of personal property is given over to the care of another, the common law legal relationship of “bailment” is created. The property of one person (the “bailor”) is transferred to another (the “bailee”) with the intent of it being returned to the bailor or delivered to a new owner. Although the ownership of the property is unchanged, it enters the control of the party to whom it is entrusted. With this the bailee assumes certain legal liabilities for the property in question. This liability is excluded in other liability insurance forms, creating the need for bailee legal liability covers.
Common carriers and warehousemen not only have common law obligations but also statutory duties as bailees. Unless otherwise provided by statute or their bill of lading, $4.41 per kilogram unless otherwise declared in most provinces and many states.
“This is cargo insurance for truckers,” St. Martin summed up. “We pay for physical loss or damage to the goods while they’re being carried by whomever we’re insuring.”
The purpose of the carriers legal liability form is to indemnify the insured (the trucker) for loss or damage resulting from their legal liability as a carrier. It is important to note that the policy does not insure against loss of carried property unless the insured is legally liable for the loss arising from an insured peril. Coverage exclusions include acts of God, acts of public enemy, exercise of public authority, fault or neglect on the part of the shipper, and inherent vice or the nature of the property. The motor truck cargo carrier’s policy is issued to cover the single interest of the legal liability of the insured. It does not cover the interest of the cargo owners or consignees. It is customary to describe the goods hauled on the policy. For common carriers hauling all kinds of goods, the description should be broad enough to include circumstances where the trucker is bailee or warehouseman. A phrase such as “general merchandise" is preferable.
There are various recovery options and valuations for these policies, with payment varying from the standardized limitation of liability, which is $4.41 per kilo, to the full value of the goods. The premium will be impacted depending on the coverage amount chosen and St. Martin says SUM caters to small- and medium-sized trucking companies looking for a range of coverage options.
Freight/Load Broker Legal Liability
SUM provides the most comprehensive cover in the industry to freight and load brokers (or “Forwarders”). The policy insures a clients’ legal liability and errors and omissions exposure for loss or damage to cargo during transit they have brokered. It covers a gap, St. Martin explained.
For example, grapes going from California to Toronto will need to be kept at a steady temperature and the freight forwarder would be responsible for telling the trucker to keep the goods climate controlled. But if the freight forwarder gives the wrong temperature, SUM would cover the loss of the grapes because it falls under improper instruction. If cargo needs to go to Peterborough but ends up in Petawawa, that misdirection is another instance where SUM would pay the difference to get the goods to the proper place.
SUM’s policy includes a contingent cargo section, extending cover to the liability of the forwarder should its carrier’s insurance be defective for reasons not attributable to the forwarder. When triggered, SUM’s policy will indemnify the cargo owner (bailor) for the loss or damage to the cargo.
“One common example involves fraudulent carriers, where the insured hires a carrier that seems legitimate but ends up stealing the goods,” Smith said. “That is where our contingent cargo coverage would respond.”
Beyond this, this form offers a direct damage cargo insurance extension. This covers the bailor (owner of the cargo) for loss or damage to their property during transit. The insurance is administered through the insured load broker, offering them an effective sales tool to help obtain and keep shipping clients. Premiums are affordable and coverage is extended to most causes of physical loss to the insured cargo while in transit.
Smith finds the biggest misconception with these policies is that they’re a top-up to or backup of direct damage cargo coverage. In reality, “we’re just ensuring their legal liability to arrange the transit,” she said.
“That’s probably our biggest question from brokers, that if the carrier doesn’t have the proper insurance will our policy cover that difference, and it doesn’t.”
Direct Damage Cargo Insurance
Cargo insurance protects the insured’s property while in transit against physical loss or damage by an insured peril. SUM believes this insurance should be a mandatory recommendation whether the client ships goods domestically or internationally as it transfers the difficulty of recovering a loss from the responsible carrier — always a risky business and in most cases disappointing as the indemnity paid by carriers will be reduced to their legal liability set out in their bill of lading (usually amounting to a small percentage of the actual cost of the goods carried).
The policy includes coverage for all modes of transportation including: ocean transit, air transit, and inland transit. Ocean and air transit insurance is extended in most cases to include inland transit from the seller’s warehouse to the port or airport, and from the port or airport of destination to final delivery at the location of the buyer and should be tailored to each specific client. SUM provides extensive geographical limits allowing it to insure goods in transit from and to almost any location (from the warehouse of the cargo owner to the warehouse of the buyer). SUM can also provide sales cost valuation where, in the event of loss or damage, the policy will pay at the selling cost of the goods (thus covering any financial loss the owner of the goods may have otherwise incurred).
This can also be sold as a companion policy, for example along with a freight forwarder legal liability policy, which is “the perfect way for the forwarder to protect their legal liability entirely,” St. Martin noted, outside of the aforementioned exclusions.
Stock Through Put
This takes coverage one step further, covering the insured’s goods from cradle to grave, including while in transit, storage, and distribution, all under one policy. This eliminates the risk of gaps in insurance during the logistics chain (where traditionally goods are insured by bailee’s policy to the next until they reach their final destination).
“A direct damage cargo offers the widest coverage you can get on the goods themselves and the freight forwarder policy covers their actions, rightly or wrongly,” St. Martin said. “If we pay for the loss or damage to the cargo, we alleviate their liability towards that and pay it on the cargo policy.”
This works on a reporting basis, Smith added, which they can do monthly or annually depending on volume. It’s done via SUM’s cargo reporting system QuickAssure and forwarders can insure any shipments they want for their clients online.
Marine Liability Insurance
The insuring agreements here are for clients engaged in marine related activities, including but not limited to: ship repairers legal liability, terminal operator’s legal liability, Stevedores or Wharfinger’s legal liability, charterer’s legal liability, marina operator’s legal liability, builder’s risk legal liability, and follow form excess legal liability.
“Terminal operator’s cover is one of the bigger liability policies you can do,” St. Martin said. “We’ll insure that operation, so a port, for all the liability surrounding that.”
Digging into the nuances, Wharfinger’s or Stevedores coverage is inside of a terminal operator policy, with the former covering damage to other vessels if the wharf isn’t kept clear and the latter doing the same thing under the terminal side. The balance of the policy types listed are marine-related businesses that are specifically built insurance coverages, given the common watercraft inclusions on the general legal liability side for commercial casualty business.
In what is surely a marine “claim to fame” and a show of professional longevity, St. Martin not only insured the towing of the famous Captain John’s floating restaurant from Toronto Harbour to Welland for wrecking (with all the perils associated with its last voyage) here with SUM, but had covered a collision claim on it as well in the 1980s when with another insurer.
“We’ve done some wild and wacky stuff over the years,” St. Martin said, and Smith agreed: “that one project presented us with a spectrum of risks, from environmental hazards to the Wreck Act laying out responsibility for salvage and raising.”
“Every risk is so different and how things get from point A to point B is always interesting,” she noted.
Hull & Machinery Insurance
Insuring loss or damage to equipment, machinery, engines, and the hull of vessels of all shapes and sizes, “this is basically house insurance for boats,” St. Martin said, adding there are two components to the hull side: direct damage for physical loss or damage to any vessel and a separate liability called protection & indemnity insurance.
“Those two coverages are essentially mandatory now if you want to operate a commercial vessel in Lake Ontario — to go anywhere near the Port of Toronto, you need $5 million in P&I,” St. Martin said.
Traditionally, the bigger vessels in Canada that are on hull insurance are done on a participation basis, with the marine market as a whole insuring the big grain haulers, for example, to syndicate the risk.
This niche, specialty segment — especially the legal liability side — has tremendous utility but brokers don’t handle clients with these exposures every day. SUM lives and breathes these exposures and can provide competent advice, with the appetite and capability to place a wide array of risk.
“SUM is accessible to every broker in Canada,” St. Martin said. “Give us a call and we’ll bridge those technical details — we’re here to help.”
