Freight Insurance Coverage Logo

Carrier Liability vs Cargo Insurance: Know What’s Covered

February 12, 2020
 By Natalie Kienzle
Carrier Liability vs Cargo Insurance: Know What’s Covered
Last Modified: June 2, 2023
If your business revolves around shipping freight, then you have to know the difference between carrier liability vs cargo insurance. Understanding these terms and what they mean to you as a shipper can greatly impact your business model.

Understanding carrier liability vs cargo insurance is crucial for anyone that has to move freight. While both have to do with shipping freight and covering issues that may take place, shippers should understand the ins and outs of both. This knowledge will ensure your business uses the right type for its needs. Take a look at both of these terms and what they mean for shippers and carriers. 

Carrier liability and cargo insurance are legal structures meant to protect the carrier and the shipper when cargo is damaged or lost during transit. Each offers compensation but may measure the value of a shipment differently. Coverage value may vary based on an item’s worth and potential profit loss faced by the shipper.

Learn the difference between carrier liability vs cargo insurance and how to best determine which is best for your shipment. 

A crushed up box of cargo that could have benefitted from cargo insurance

What is Carrier Liability?

To understand this term, we need to split it up. Firstly, what is a carrier? A carrier is a company that transports your shipment from origin to destination. They’re in charge of getting everything in order and ensuring your goods arrive at their final destination. Having liability means being legally responsible for something.

Consequently, carrier liability refers to the level at which a freight carrier is responsible for damages, losses, or delays in a shipment.

Some may refer to this as carrier liability insurance, but in reality, liability and insurance are not the same. This is because carrier liability usually only covers up to a certain point – usually much less than the total value of goods being shipped. 

What’s more, there are some things that liability coverage doesn’t protect against: 

  • An Act of God: Also known as a force majeure clause, it’s when cargo gets damaged due to a natural disaster like a hurricane or earthquake. It may also include events like war or government lockdowns.
  • Acts from the Shipper:  Damage caused by incorrectly packaged or misloaded cargo that might shift during transport.  

Depending on the carrier, other things that may not be covered by liability are concealed damages. If the box is fine, but the items inside are not, the shipper takes the loss. While some carrier policies indicate that items should be photographed before transport – opening every box to take a picture is a logistical impossibility. Most pictures will simply be of the boxes themselves. 

Carrier Liability For Damaged Goods

If goods are damaged while being shipped, then it could be the carrier’s fault. Having said that, some specific parameters and conditions must be met for a carrier to be legally and financially responsible for the damage. 

Legally speaking, a carrier is liable for loss or damage to cargo caused by fault or neglect on their end. This comes from Section 275 of the Maritime Code.

Most cargo damage gets caused by insufficient or poor-quality packaging. You, as a shipper, have to prove that faulty packaging isn’t a factor in the damage. If you’re transporting fragile items and don’t pack the boxes with bubble wrap or protective packaging, they may move during transit and break. In instances like this, you will be liable for the damages because you can’t prove that it was carrier neglect.

However, if you have evidence that fragile items were packaged correctly, perhaps with multiple protective measures, then you might qualify for compensation from the carrier. The key is to have evidence. If you packed everything right but never got a photo, you might still be on the hook for the damages. 

Of course, if a surveillance video or similar pops up that shows workers tossing your clearly marked fragile contents box in the truck with no regard for placement – that could get you a win too. 

In essence, you have to prove that you did everything by the book on your end. 

  • Provide packaging that met the recommended standards
  • Ensure that cargo was loaded up in perfect condition with no risk of getting damaged. 
  • Have photographic evidence of packing and loading of shipped items before damage occurs  

When you’re looking to establish a long-term relationship with a carrier or 3PL, it’s important to understand what their liability coverage is. It’s better to know what to expect at the beginning instead of being surprised when something goes wrong.

Working with a reputable carrier that has a history of safe and damage-free delivery is important. Your chosen 3PL should be properly vetting companies to ensure high-quality service. 

An overturned semi truck for of goods covered by cargo insurance

Carrier Liability For Delayed Shipment

Damaged goods aren’t the only issue to be worried about when shipping freight. There’s also the problem of delays. Your business runs on a tight schedule, and you expect things to arrive at certain times.  In the case of manufacturing deadlines and order fulfillment, a delay can be extremely impactful.

The historic delays caused by bottlenecks in the global supply chain have proved to everyone just how impactful some delays can be. At the end of the day, time is money, and no products mean no profits.

With that in mind, does carrier liability cover delayed shipments? The short answer is yes but, as you can imagine, things are a bit more complicated than that. 

Essentially, the same rules apply here as with damaged goods. The carrier is responsible if it can be proven that the delay to your shipment was due to a preventable act during the period the carrier held your goods. In simple terms, if you can prove the delay was down to them, then you’ll likely be covered. 

Again, there are a few things to bear in mind. The Act of God clause still applies; a mudslide on a highway is not the carrier’s fault. Additionally, delays due to worker shortages and mandatory or company policy lockdowns are also excluded. These factors have become an unfortunate norm in many aspects of supply chain logistics.  

Carrier liability for delayed shipments also won’t cover things like piracy or wars. If trucks are stopped by law enforcement officers for a routine check – and this results in a delay – then it won’t be their fault either. 

In short, while there is a possibility that you can be compensated for delays – the various issues created by the Covid-19 pandemic have forever changed the timetable for such situations. 

Does Carrier Liability Have Value Limits?

Carrier liability is limited to a specific amount normally set by the carrier. The current industry standard for truckload carrier liability is $100,000. Any shipments exceeding that amount are considered high-value shipments. 

If you suffer losses that exceed this figure, referred to as the limit of liability, then the carrier won’t have to pay the difference. You do have the option of purchasing shipping insurance to cover the additional cost of your goods in case of loss or damage.  

Also, realize that the liability coverage payout is not based on the value of your cargo, but on its weight. Again, this is a standard practice among most truckload carriers in the United States. At the moment, the standard payout value is 50¢ per pound. 

This also means that a cargo’s legal liability limit is almost always going to be less than its actual value. This holds true whether you are shipping via rail, truck, vessel, or air. 

Consider this scenario. You are shipping $200,000 worth of perfume and beauty supplies. The entire shipment might weigh 5,000 pounds. Assuming that the carrier was proven to be at fault for a complete shipment loss, your compensation based on carrier liability would be $2,500,  only 1.2% of the total value of your original shipment.  

Estimate of Carrier Liability Payments*

Shipment ValueWeight of Damaged GoodsShipper Compensation
*based on the 50 cents per pound average payout

Even on a shipment of lower value, liability compensation is not going to recover a significant amount of your good’s value. This is because carrier liability is really only meant to compensate you for the shipping cost, not for the goods themselves. 

Note that this is specific to truckload carriers. For those who are transporting by vessel, air, or rail carriers, there are slightly different liability rules. 

These liabilities may be determined based on specific international laws. 

  • Carriage of Goods by Sea Act (COGSA): For ocean carriers, the limit of liability is $500 per container if lost at sea or damaged unless a shipper declares a higher excess value beforehand. 
  • Montreal Convention: For international air cargo, the value goes by kilograms and is calculated using averages of five different currencies, coming to about $30 per kilogram.  Domestic air cargo matches truckload carriers at 50¢ per pound. Depending on the airline, the limit of liability ranges from $1,000 to $2,500. 

In short, carrier liability has its limits depending on the content of your shipment and where it’s located. You should also remember that relying solely on carrier liability is not going to provide you with significant compensation when things go wrong. 

A carrier ship smoking in open water

When Does Carrier Liability Begin?

Generally speaking, carrier liability begins as soon as goods are loaded onto a vehicle for shipment. At that point, both you and the carrier have agreed on the terms of the contract, and they are effectively accepting liability for the goods.

Any further specific terms of the carrier’s liability will be included within the shipping contract. This contract is signed and agreed upon by all parties involved before a shipment takes place.

When Does Carrier Liability End?

Obviously, carrier liability has to end at some point and thankfully, it’s relatively straightforward. The responsibility the carrier has over your goods will end as soon as the shipment is delivered to its final destination.

At that point, they’re no longer at fault for anything that happens to your goods. If goods are discovered to be damaged when boxes are opened, a claim will need to be filed. The Free-on-Board (FOB) shipping terms will determine if the shipper or receiver is responsible for filing the claim. There are different variations of FOB shipping terms that determine who owns the goods at specific points of the shipping process. 

  • FOB Shipping: Ownership of product(s) is transferred to the buyer as soon as it leaves the seller’s location
  • FOB Destination: Ownership of product(s) isn’t officially transferred to the buyer until it arrives on location and delivery is completed

There are different variations of each agreement. In terms of carrier liability and insurance, these should be clarified before shipments take place. This is especially important when it comes to high-value cargo. 

What is the Carmack Amendment?

The Carmack Amendment is a crucial law regarding motor carriers and shippers, laying out how to govern interstate shipments according to a national standard. Carmack has gone through several revisions, but it continues to be upheld and supersedes any state or common law claims. 

Primarily, it details the duties, responsibilities, and rights of shippers and carriers when dealing with the loss of cargo. Under Carmack, the carrier is deemed liable for damages to the goods it transported, even if the shipper doesn’t have proof of neglect

However, the shipper does need to prove that the merchandise was in good condition before shipping.  This means ensuring the following: 

  1. Show that the goods were in excellent condition upon pickup 
  2. Show that the goods were damaged (or lost) upon delivery 
  3. Calculate the worth of damaged goods 

If all of this is done, then the carrier will be liable for damages. Of course, they also have the right to defend themselves and provide additional evidence to prove neglect was not a factor.

This could also include any of these five exceptions. 

  • Act of God: natural phenomena outside of human control
  • “Public Enemy” or “Act of War”: damage caused by enemy military action (does not cover organized crime/gang violence)
  • Act of Shipper:  packaging mistakes or other negligence
  • Public Authority: damage due to government interventions such as road closures 
  • Inherent Vice: damage due to the nature of the product (something prone to defects or spoilage) 

The Carmack Amendment is in place to ensure that the right party is held responsible for any cargo loss or damages. If it’s found that any of the five exceptions took place, then the carrier won’t be liable for damages to freight. 

Be aware, that although state and common law claims must submit to the greater authority of the Carmack Amendment, a legal contract can either extend or disregard any of the provisions. Be sure to read the fine print of any and all agreements made with your chosen carrier. 

A cargo box being shaded by an umbrella

What is Cargo Insurance?

Hopefully, you have realized that carrier liability has more to do with protecting the carrier than protecting your cargo. This is why the majority of carriers offer cargo insurance to their clients. They want to be able to protect your cargo in a way that benefits both parties. 

Cargo insurance will protect your investment if your goods are lost or damaged during transportation with less consideration for specific faults. 

With regards to carrier liability vs cargo insurance, the key difference is that all carriers are legally required to carry a minimum amount of insurance, but shippers are not required to have any minimum of cargo insurance by law. 

Using cargo insurance offers more comprehensive coverage against damages or losses. The cost of your insurance may depend on the value of your goods, desired level of coverage, and other factors.

Although not legally required, It’s almost always recommended to purchase cargo insurance for freight shipments. This is because carrier liability won’t cover the full cost of goods in case of loss or damage and exceptions to this rule are few and far between. 

In the case of high-value shipments, there may be some carriers who refuse to transport certain items unless cargo insurance is provided. 

What is the Difference Between Cargo and Freight Insurance?

It’s likely that in doing some research you’ve come across the term freight insurance. Is this any different from cargo insurance? If so, what are the differences?

Fundamentally, they’re the exact same thing. Both terms are used to describe a type of insurance that protects your goods from damage or loss during transportation. 

The only difference is in how these terms are used, and what they primarily describe: 

  • Cargo Insurance is mostly used to refer to goods transported by land and air
  • Freight Insurance is used for goods transported via trucks

Many freight companies and insurance providers will often use the terms interchangeably. In terms of legal proceedings, either term is acceptable.  

What Are the Different Types of Cargo Insurance?

Since cargo insurance technically refers to goods transported by more than just truckload, there are a few different method-specific types. Each method of transport counts as its own type – land, air, and ocean. 

There are slightly different dangers as well as different methods for each. If you looking into expanding your business and need to ship internationally, it’s handy to learn what makes each one unique.  

Land Cargo Insurance

Sometimes referred to as Hauler Insurance, this gives you coverage for all transportation that takes place over land. This includes transportation via trucks and rail. 

Normally, this type of cargo insurance covers you in cases of theft, damages, and various other risks. Land cargo insurance usually only covers the boundaries of the country you’re from. If you are shipping freight from Kansas to California, your shipments are covered. The same goods may not be covered if you need to cross into Canada or Mexico. 

Speak with your carrier directly or your partner 3PL to make sure you have an insurance policy that covers international shipments if transporting outside of the U.S. 

Marine Cargo Insurance 

This insurance covers all instances of shipping by sea and it can include air freight shipping too. By definition, it covers goods transported over water. In this instance, you’re protected from damages that occur through loading/unloading of the cargo, weather issues, and even volcanic eruptions. 

Since there is a multitude of different risks, there are actually three common levels of marine cargo insurance simply designated as A, B, and C. Level A coverage will be the most comprehensive and even protect the value of your shipment in case of vandalism or piracy. 

Unlike land cargo insurance, marine cargo insurance is designed with international borders in mind. 

Cargo Insurance Policies

Not every insurance policy is created equal. There are different types of cargo insurance coverage relating to all types of transportation, and you can select certain policies depending on your needs. 

Most of the time, you’ll be met with the following two types: 

  • All Risk Insurance Policy: Diverse protection against most risks associated with loss or damage due to external forces. This includes damage caused by negligence, natural product defaults, customs rejection, cargo abandonment, and more. For companies shipping highly valuable and fragile items, this type of coverage will give the greatest peace of mind. 
  • Named Perils Policy: Choose selective coverage for things explicitly named in the policy. As such, it’s more limited but can also be tailored to your specific shipment needs. You can choose what’s included, and add as many things as you like. This is similar to an a la carte selection.

If you’re unsure what type of cargo insurance might be best for your shipment, it’s worthwhile to speak to your freight carrier or 3PL. Many freight companies offer insurance options and can advise on the best option based on the specific details of your shipping situation. 

Some companies provide All Risk Insurance Policies as part of their standard quote in an effort to offer your shipments the best protection possible. 

A forklift going through cargo in a warehouse

Do I Need Cargo Insurance?

Unlike carrier liability, cargo insurance isn’t automatically tacked onto your shipments. It’s optional, so you have to figure out whether or not you need it. Your main concern is money. Do you really need to spend extra money protecting your goods if there’s already a level of liability attached to the carrier?

Most carriers will say yes – they have transported enough cargo to know exactly how often things can go wrong. Your business relies on the goods that are transported. 

If goods don’t reach their destination in excellent condition, then it’s a problem for your company. It can lead to disgruntled customers, missed production deadlines, and more. Financially, you can take a significant hit when something like this happens and you don’t have insurance. 

Because the truth is that damage to cargo is always a when not an if. 

Carrier liability won’t cover you in every situation. Unless you can clearly prove that the carrier is at fault, then you won’t end up with any compensation. Even the best carriers and most experienced drivers and warehouse workers can have a bad day. 

Liability claims can often take quite a bit of time to be resolved, too. You may not be covered up to the value of your shipment even if a fault with the carrier is found; therefore, you stand to lose a lot of money. 

The fact is that anything can happen during the transportation of goods. Whether it’s by land, air, or sea, anything can happen that causes problems for your items. A freak storm can blow over a truck and destroy your cargo. 

If you don’t have cargo insurance, then you’re not protected in these events. You’ll end up with nothing, and your business will suffer. 

In short, if a partial or complete loss of your freight will result in a significant negative consequence for your business, cargo insurance is strongly recommended.  

Cargo Insurance Benefits

Clearly, there are some key benefits to having cargo insurance – especially from the carrier liability vs cargo insurance perspective. If you’re still wondering what you’ll gain from this type of insurance, let’s itemize a few key points. .

  • Be protected up to the value of your goods: Your assets are fully protected, preventing financial losses if your goods are damaged or missing. 
  • Gain more coverage: Cargo insurance also offers far more coverage than carrier liability. Shipments damaged due to an act of God (not covered by liability) can be covered with good cargo insurance. If your shipment gets damaged and it wasn’t your fault, then you can make a claim. 
  • Customizable policies that suit your needs: There are different insurance policies that offer different types of cargo insurance coverage. You get to select a type of protection that suits your business needs and demands. As such, you end up with a better value for money. 
  • Peace of mind: One of the greatest challenges facing the shipping industry is the loss or damage of goods during transit. As soon as you load your items onto a shipment, they’re out of your control, and you have to trust that everything will be okay. When you have cargo insurance, you get peace of mind during this process. There’s no need to worry as much because you know you have a policy in place that offers protection. 

With all that in mind, cargo insurance for your freight shipments is a no-brainer in nearly all shipping situations. 

Where to Buy Cargo Insurance

Cargo insurance can be bought online from a number of insurance brokers. It’s vital that you conduct research before choosing a plan. Most freight companies offer in-house cargo insurance. This is usually arranged through a direct partnership with a third-party insurance provider. 

In most cases, the cargo insurance offered by freight companies is suitable. The convenience offered by not having to make a separate contact and purchase is a benefit of buying insurance through a carrier. Of course, it’s still important to confirm the details of any cargo insurance before purchasing. 

When you speak to the insurance brokers about a quote, they’ll often ask you if you want single or open coverage. 

  • Single Coverage cargo insurance: Purchased per shipment, it’s only really a good idea for businesses that don’t ship things often. If you’re only making a handful of shipments per year, then this can be the cheaper option for you. 
  • Open Coverage cargo insurance: Covers all of your shipments across an agreed period, usually twelve months. You can move as many goods as you like during this time, So it’s ideal for companies that ship regularly.  

Whichever one you determine is best for your shipping needs, make sure you closely look at the terms and conditions of the policy. Cost and coverage will vary based on your commodities and shipping habits. Single coverage insurance may end up being more expensive if you are shipping something very valuable, versus someone who gets open coverage on a low-cost/low-risk item. 

Two dock workers looking a cargo container being litfed overhead

How Much Does Cargo Insurance Cost?

Once you decide that you need cargo insurance and have narrowed down which type of policy is best, price becomes a factor. 

The cost of cargo insurance will vary depending on a few factors

  • The provider you choose
  • The value of the items being shipped
  • The method of shipment
  • The level of coverage 

Consequently, it’s hard to give definitive figures that tell you how much it costs to buy cargo insurance. However, we can show you a few estimated figures that give an idea for how much you’ll have to pay. 

On average, it can cost between $180 and $2,000 for an annual cargo insurance policy. If you want to get a single cargo insurance policy, then you’re looking at around $30 – $150 per shipment. When we look at the different shipping methods, we can see a difference in the estimated costs: 

Annual Insurance Cost Estimate

Type of InsurancePrice Range Estimate
Air Cargo$300 – $520
Marine Cargo$180 – $300
Land Cargo$400 – $700

As the risk of damage goes up, so too does the cost. Truckload shipping over land may be the most common way of moving cargo, but it’s also the one most at risk. The chances of an accident on a highway are far greater than a plane crash landing or a container ship catching fire (as an example) 

You also have to take other things into account, mainly the value of your shipment. This will determine the limits of your policy. 

For example, if you’re shipping goods that are around $50K in value, then you only need a policy that covers up to that amount. For goods worth $200K, then you have to pay extra to increase your limit. This is usually the main factor that increases or decreases your quote.

More information on high value cargo transport is available for any shipments you have that exceed $100,000. 

Additionally, your level of risk and loss history come into play too. Some shipments present more risks than others – such as very fragile items – which may raise your insurance premium. If you have a history of making cargo insurance claims or suffering from cargo damages/losses, then expect a higher premium. 

Cargo Insurance Exclusions

Cargo insurance covers a lot of possibilities and risks, but it won’t cover everything. Unless you request a type of coverage specifically, many companies won’t provide it for very rare or very costly circumstances. 

The following are common exclusions you will face when using cargo insurance. 

  • Inherent Vice: Product damage that results because of the product itself (fresh fruit that spoils or unstable chemicals, as an example)
  • Willful Neglect:  Damaged from poor packaging is considered your fault. Shippers need to ensure that all cargo is securely packaged before it’s shipped. 
  • WSRCC: This exclusion stands for “War, strikes, riots, and civil commotions” that may interrupt a shipment. 
  • Loss of Use/Market: The insurance will cover the value of damaged goods but not the potential profit that selling them may have brought in.
  • Loss Over Policy Limit: Nothing over the specific limit of your policy will be covered. If you secured a $100K insurance policy, but there is $150K worth of damage – you won’t be compensated the additional $50K.  
  • Abandonment: Cargo is considered abandoned when arrangements to move it to the next location aren’t secured. For example, your marine insurance won’t cover the loss of a shipment that isn’t collected from the port of entry so long as there is documentation that it arrived as requested. 
  • Customs Rejection: Imported cargo doesn’t pass Customs inspection and needs to be exported back out or destroyed. 
  • High Risk Cargo Exclusion: High-risk items – like chemicals, electronics, seafood, or pharmaceuticals – are either more prone to inherent vice or to being stolen. Electronics are by far the most commonly excluded goods in cargo insurance policies. 

It’s worth noting that some modes of transport can be excluded from your policy. For instance, your insurance may cover trucks or air travel, but not water. These exclusions are common but not set in stone. You can get insurance coverage for nearly everything, including items from the list above, but it will raise your insurance premiums. 

Again, double-check with your provider to make sure that your desired modes of transport are covered. This is crucial for any businesses that may use multiple shipping methods. 

Make sure you are informing your carrier of the nature of the cargo as well. This way, if there is an exclusion specific to your goods, you can find out beforehand and take the necessary steps to either secure the load or purchase additional coverage. 

a person looking over a form detailing carrier liability vs cargo insurance

How to File a Claim

If you have cargo insurance, and something goes wrong – leading to damaged goods or losses – then you need to file a claim. Filing a claim starts the process to help regain your losses and receive compensation through your insurance provider.

The claims process gets confusing for those who have never filed. Be patient and take it step by step to avoid mistakes that create delays.

  1. Identify the goods:  Identify all of the goods that made it to the final destination. Note the quality and include photos of how they looked prior to the shipment. Detail the value of the goods, the packaging used, and any other information to support your claim. Itemize everything for clarity. 
  2. Detail your losses: Include any items that didn’t arrive or arrived in poor condition. Note how much that costs you between the value of the product and any potential profit. This will leave you with a total value for your cargo insurance claim. When you can’t come up with an exact number right away, highball it by providing a notice of full potential cost. It’s much easier for a claim to be argued down rather than up if you discover later on that the damage was worse than you thought.
  3. Provide supporting documentation: This includes the original bill of lading, proof of any damages or losses, inspection reports, photographs, quality control receipts, package certifications – basically everything you can possibly think of. The more there is, the stronger the evidence to support your claim. 
  4. Submit the claim: File as soon as possible once you’ve got the necessary information. Policies will differ on the length of time you have after a shipment to submit a claim, but the common standard is nine months from the date of delivery.  Miss the deadline and your claim may be worthless. 

If your claim meets all the requirements, then you may recover your losses up to the value of your policy limit. Most cargo claims are resolved within 120 days, though there is no specific law that states it. 

Should a claim get resolved in that time frame, the carrier is required to regularly notify you of the status until it has been. 

Choose Freight Insurance Coverage for All of You Cargo Shipping Needs

At Freight Insurance Coverage, we can automatically have cargo insurance applied to any shipment transported through our carriers and factored into your quote for easy viewing. While many carriers do their best to load and unload freight carefully, accidents can happen at any time.

Cargo insurance will ensure you have the protection you need for your freight. In addition to our insurance coverage, you’ll also have access to a variety of carriers that can ship your freight when you choose us as your 3PL. 

Some of the shipping carriers we partner with provide services for:

  • Hazmat
  • Oversize load
  • Reefer
  • Standard truckload

Need more information? Fill out our contact form or give us a call at (866) 975-0749 to speak to an agent directly.

Leave a Reply

Your email address will not be published. Required fields are marked *

Freight Insurance Coverage
315 NE 14th Street #4122
Ocala, FL 34470

(866) 975-0749
Copyright © 2024 AFC International, LLC. All Rights Reserved