ISO ANNUAL TRANSIT COVERAGE FORM ANALYSIS

The Insurance Services Office (ISO) Annual Transit Coverage Form responds to the needs of businesses and individuals that own and ship goods from one location to another. The goods may be shipped by rail, contract carriers, common carriers, air carriers, messengers, vehicles of others, and even on the named insured's own vehicles. This coverage form insures most types of property shipped on any of these modes of conveyance and covers against direct physical loss or damage, except as limited or excluded. Certain types of property are excluded. Coverage can be written on an annual basis or for a continuous term subject to annual re-rating.

POLICY CONSTRUCTION

Annual Transit Coverage requires at least the following six forms:

IL DS 00–Common Policy Declarations
IL 00 17–Common Policy Conditions

CM DS 02–Commercial Inland Marine Declarations
CM 00 01–Commercial Inland Marine Conditions

Related Article: 140.3, CM 00 01–Commercial Inland Marine Conditions

IH DS 71–Annual Transit Declarations
IH 00 71–Annual Transit Coverage Form

IH DS 71–ANNUAL TRANSIT DECLARATIONS

The advisory Annual Transit 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 71 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 space to enter a general description of the property covered.

Limits of Insurance

This section has spaces to enter the limits of insurance. There are three sections.

The only modes of transportation covered are those for which a limit is entered:

By Contract Carrier
By Vehicles of Others
By Your Vehicles
By Messenger
By Railroad
By Air Carrier

Coverage can be provided while the property is at a premises only if either or both of the following have a limit entered:

Property at Named Premises

Note: The premises must be described if a limit is entered.

Property at Any One Unnamed Location

The All Covered Property in Any One Occurrence limit is the most paid in a single occurrence even if the sum of all of the limits above exceeds it.

Deductible

This section has a space to enter the amount of deductible. One deductible may apply to all losses, or there may be a separate deductible that applies to water damage and earthquake.

Rates and Premiums

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

Transit Rates per $100
Premium

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

Deposit Premium
Minimum Premium
Reporting Period
Premium Adjustment Period
Premium Base
Rates per $100

Special Provisions

Any special provisions are entered in the space provided. This could include endorsements attached at inception.

IH 00 71–ANNUAL TRANSIT COVERAGE FORM ANALYSIS

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

Introduction

This section encourages carefully reading 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 for direct physical loss or damage to covered property, but only when that loss is from a covered cause of loss.

1. Covered Property

a. Covered property is the following:

The named insured’s personal property
Personal property of others that is in the named insured's care, custody, or control

This property must be used in the named insured’s business and be in transit by a messenger or carrier for hire. The transit must be at the named insured’s risk.

b. Coverage applies to property that is shipped by either of the following:

By any type of carrier or vehicle
In or on any land vehicle the named insured owns or operates

There is a limitation. The coverage applies only when the property is in transit in the mode of transportation for which a limit of insurance has been entered.

2. Property Not Covered

The following described property is not covered

a. Accounts, bills, currency, deeds, evidence of debt, money, notes, or securities

Note: This property is primarily money or substitutes for money. It should be insured under commercial crime coverage forms.

Related Article: Commercial Crime Coverage Analysis

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

Note: Other than bullion, these types of property are common and usual to retail jewelry businesses, jewelry manufacturers, and wholesale jewelry operations. Jewelers Block coverage forms and policies usually cover this property while in transit.

ISO Jewelers Block Coverage Form

Jewelers Block Policy

AAIS Jewelry Dealers Coverage

ISO Jewelers Block Coverage Form

c. Furs or fur-trimmed garments

Note: This property is common and usual to retail fur businesses and high-end department stores. Furriers Block and Furriers Customers coverage forms and policies usually cover this property.

Furriers Block Policy

Furriers Custody Customers Policy

ISO Furriers Block Coverage Form

ISO Furriers Customers Coverage Form

d. Stamps or coins

e. Live animals

f. The vehicle or vehicles that are carrying the covered property

Note: This property is more correctly insured under commercial automobile coverage forms.

g. Property that is in a government postal service’s custody

h. Property the named insured accepts when it is acting in the capacity of either a common or contract carrier for hire

Note: Coverage on this property is available under motor truck cargo legal liability coverage forms and policies.

AAIS Motor Truck Cargo Legal Liability Coverage Forms

ISO Motor Truck Cargo Carriers Coverage Form

i. Waterborne property. There is an exception. When the reason the property is on board a vessel is incidental to the land transportation and the water travel is on inland waterways, the waterborne property is covered.

j. Import shipments but only until the later date of when they are unloaded from the import mode of transportation or until ocean marine insurance coverage ends

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.

k. Export shipments at the earlier of when they are placed on the outgoing mode of transportation or when ocean marine insurance coverage on the shipment begins

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

l. Works of art unless stated on the declarations as covered

Note: Coverage on this property is available under fine arts coverage forms and policies.

AAIS Fine Arts Coverage Forms

ISO Commercial Fine Arts Coverage Form

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

3. When Coverage Applies

The insurance company covers the property only under the following circumstances:

a. Property with a messenger or carrier for hire’s custody is covered until it is delivered to its destination. It is also covered when it is being returned to the named insured because it was not delivered or the delivery is refused. Property held in temporary storage either before it is delivered to its destination or before it is returned to the named insured is also covered.

b. Property in or on any land vehicle the named insured owns or operates and is in transit is covered. Transit begins when the vehicle leaves the point of origin and ends when it arrives at the final destination.

4. Covered Causes of Loss

Covered causes of loss is direct physical loss or damage to covered property, except as limited or excluded.

5. Coverage Extensions

There are three Coverage Extensions. They do not provide additional amounts of insurance.

a. Packing or Consolidating Companies

The insurance company pays for loss of covered property while it is in the hands of packing or consolidating companies that have been employed by the named insured or its consignee. There is an exception. If such companies are representatives of the named insured or the consignee with respect to this insurance there is no coverage.

Example: Fred's Finer Fashions ships the merchandise it manufactures to retail clothing stores in small quantities. It employs a freight-consolidating firm to include these shipments with other commodities going to the same customer or general locale. Several shipping boxes of clothing are inadvertently left on the consolidator's loading dock overnight and are stolen. This loss is covered.

b. Fraud or Deceit

The insurance company pays for loss of covered property that the named insured, its agents, messengers, customers, or consignees give to persons who falsely represent themselves as the proper person to either receive goods for shipment or accept goods for delivery.

Example: The Last Word In Fashion is a large retail store that sells merchandise it receives from Fred's Finer Fashions. Last Word prefers picking up the merchandise when it arrives rather than paying extra costs to have it delivered to the store. An individual arrives at the shipment destination, identifies himself to the warehouse manager as the traffic manager for Last Word, and states that he has been instructed to pick up the shipment. The warehouse manager gives him the shipment after he signs the bill of lading, acknowledging that he received it. A short time later, the real representative from Last Word arrives, and the deception is discovered. The misrepresentation loss caused by the man who identified himself as the one to receive the shipment is covered.

c. Free On Board (F.O.B.)

The insurance company covers the named insured’s interest in covered property it sold Free On Board. (F.O.B.)

Note: This term and concept has special meaning in marine insurance because it clarifies the point where the title passes from the seller to the buyer. If merchandise is shipped F.O.B. point of destination, the seller is responsible for damage caused in the course of transportation. On the other hand, if merchandise is shipped F.O.B. point of departure (or at the origination point), the buyer is liable for any damage caused during transportation of the merchandise.

6. Optional Coverages–Premises

The following optional coverages apply only if there is coverage for property at named premises.

Note: The lead language above is not part of the coverage form, but it can be inferred. It would be helpful if such language were added to clarify the intent.

a. Coverage

Coverage applies only when there is a limit for property at premises that are named on the declarations. Business personal property is covered while at the named premises if the named insured does not own, operate, or control the specified location. This coverage is subject to the provision in 3. When Coverage Applies.

Example: Fred's Finer Fashions manufactures seasonal clothing months before it is actually shipped and put out for sale. Fred's arranges for the clothing to be temporarily stored at the warehouse located next to the production plant. Coverage is available because Fred’s does not own the warehouse. Clothing is stored temporarily prior to transit at the premises described on declarations for the limit entered.

b. Debris Removal

The insurance company pays to remove the debris of covered property from a covered loss at a described premises. The expenses must be reported to the insurance company in writing within 180 days of the date of loss. The most paid is 25% of the sum of the following:

The amount paid for direct physical loss or damage to covered property
The deductible that applies to such direct physical loss or damage

This coverage does not apply to costs to extract pollutants from land or water or to remove, restore, or replace polluted land or water.

Note: As written, it does not appear that this applies to only the premises named on the declarations but that can be inferred. This point should be clarified.

c. Pollution Clean Up and Removal

The insurance company pays to clean up pollutants because of an event caused by or resulting from a covered cause of loss occurring during the policy period. The most paid is $10,000 as an aggregate amount during each separate 12-month policy period. The expenses are paid only if they are reported to the insurance company in writing within 180 days of the date of loss.

This coverage does not apply to costs to evaluate the presence or effects of pollutants. However, it does pay for testing done as part of the covered extraction process from either land or water.

Note: As written, it does not appear that this applies to only the premises named on the declarations, but that can be inferred. This point should be clarified.

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 contributing to a loss, 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.

War. This can be a declared war, an undeclared war, or a civil war.
Military force of a warlike nature. These activities must utilize military personnel or agents of a government or other type of authority. Actions taken to prevent any of these activities are also considered war.
Insurrection, rebellion, revolution, and attempts to usurp power. Any action a government takes to respond to such actions is also considered war.

2. Secondary Exclusions

The second group of exclusions applies to loss or damage caused by or resulting 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 resulting from any of these events.

a. Improper packing, stowage, or rough handling

This is any loss or damage to covered property due to any of these controllable acts in the handling of shipped merchandise.

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

When refrigeration equipment breaks down and covered property sustains direct loss or damage as a result of the breakdown. This exclusion does not apply to covered property in a carrier for hire’s care, custody, or control.

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. Neglect

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

f. 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. There are two exceptions:

Covered property that is in a carrier for hire’s care, custody, or control
The coverage provided in A. Coverage 5. Coverage Extensions b. Fraud or Deceit.

This exclusion also applies whether or not the acts take place during regular working hours.

3. Other Exclusions

This group of exclusions applies to loss or damage caused by or resulting 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 loss or damage caused by hidden or latent defects in the property.

b. Gradual deterioration, corrosion, or rust

Deterioration, corrosion, and rust that take place gradually over time and cause 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

Humidity or extreme fluctuations in temperature that cause loss or damage to covered property.

Notes:

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

Loss or damage to covered property when it is 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. Payments under 5. Coverage Extensions do not increase the limit of insurance.

D. Deductible

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

Separate deductibles may apply to Earthquake or Water Damage. A single earthquake occurrence includes all earthquake shocks that occur within 168 consecutive hours after an earthquake event.

E. Additional Conditions

1. Valuation

This condition replaces the Valuation General Condition in the Commercial Inland Marine Conditions. The value of covered property is determined as follows:

a. The value of the property that the shipper and consignee agreed to in writing before any loss or damage occurred

b. If the above condition does not apply, the value is established as follows:

Covered property the named insured ships to customers is based on its actual net invoice price.
Covered property the named insured purchases from others is based on its actual net invoice cost.
All other covered property’s value is the least of its actual net cost, the cost to restore it to the condition that existed before the loss occurred, or the cost to replace it. When that value is established, the named insured's prepaid freight and other charges incurred during transit are added to it to develop the final valuation.

2. Other Conditions

These conditions apply in addition to the Commercial Inland Marine Conditions and the Common Policy Conditions.

IL 00 17–Common Policy Conditions Analysis

CM 00 01–Commercial Inland Marine Conditions

a. 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.

b. Released Bills of Lading

The named insured is permitted to accept shipping receipts and/or bills of lading when issued by carriers for hire limiting the amount of their liability.

Note: A bill of lading is both a shipping contract and a receipt for the goods shipped. It shows the date the merchandise was shipped, the names of the shipping party and the recipient, the carrier for hire used, and the points of origination and destination. It also specifies the carrier for hire’s liability. Released bills of lading usually provide for a dollar limitation on the value of the shipment or specify a limit of liability. This is usually done according to some unit of measurement of the property shipped, such as a specified dollar value per pound. This usually results in the carrier charging the owner of the goods a lower freight rate. These are customarily referred to as released rates.

F. Definitions

There are two definitions.

1. Pollutants

These are irritants and contaminants such as smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste of a solid, liquid, gaseous, or thermal nature. Waste includes property to be disposed of, as well as property to be recycled, reconditioned, or reclaimed.

2. Water Damage

Water damage is any of the following:

a. Flood, surface water, tides, and overflow of any body of water. Tidal waters, storm surge, waves, tidal waves, and tsunamis and or spray from any of these are also water damage. This definition applies whether the water is driven by wind or not and includes storm surge.

b. Mudflow or mudslide

c. Water when it backs up from a sewer, drain, or sump. It is water damage if it overflows or is discharged from a sump pump or related equipment.

d. Damage that results from underground water that exerts pressure against, or flows or seeps into, foundations, walls, floors, paved surfaces, basements, doors, windows and other openings

e. Damage that is caused by waterborne material being carried by waters described in a., c., and d. above or damage caused by any material that mudflow or mudslide described in b. above moves or carries.

ENDORSEMENTS

ISO has not developed any specific endorsements for exclusive use with the Annual Transit Coverage Form. However, there are two general-purpose inland marine endorsements that may be used.

IH 99 06–Schedule

Additional items can be listed on this schedule when they do not fit on the Declarations.

IH 99 19–Additional Covered Property

This endorsement is used to amend the property not covered section. Property described on this endorsement becomes covered property. It is very important that the listing be specific so that there is no confusion as to what is meant to be covered.

IH 99 20–Additional Property Not Covered

This endorsement is the opposite of IH 99 20 because it moves property from being covered to being not covered. It is very important that the wording be precise to prevent confusion.

IH 99 23–Theft from Unattended Vehicle Exclusion

This restrictive endorsement eliminates theft coverage from unattended vehicles. The only exception is if the vehicle is locked, compartments closed and windows up, AND there is evidence that a forcible entry had occurred.

UNDERWRITING CONSIDERATIONS

Underwriting transportation coverage means answering three very important questions.

1. What is being transported?

2. Where is it going?

3. Who provides the transportation?

What is being transported?

The type of cargo and its susceptibility to damage is key. Some goods are very attractive to thieves but highly resistant to damage. On the other hand, other items are easily damaged but rarely stolen. The most difficult property to underwrite and insure is the kind that is both easily damaged and attractive to thieves.

When items are easily damaged, the packaging must be evaluated carefully. The shipper's experience should match and fit the exposure the goods present.

Cargo that is very attractive to thieves usually requires vehicle security and burglar alarm systems, secure locks, and entry systems. Armed drivers and unmarked vehicles may also be required.

Where is it going?

The farther an item travels from the operation, the farther it is from the insured's control. Longer distances add time to the exposure equation and increase the chance for a loss to occur. Long trips frequently involve more than one shipper. As a result, control becomes diluted, and terminal operations and vehicle changes become additional factors to consider.

Who provides the transportation?

There is no third party to subrogate against if the owner provides the transportation and there is a loss. The owner's experience, the quality of the drivers, and the vehicle maintenance programs are all very important items to evaluate.

If a carrier for hire is used, the bill of lading is a key for coverage. Bills of Lading are contracts the carrier for hire issues as a receipt for the merchandise being shipped. They are the contract for carriage of the merchandise between the carrier for hire and the owner or shipper. There are four common types:

Released Bills of Lading release the carrier from liability above a specified amount or value. This bill of lading has the effect of decreasing the shipper's chances of subrogation against the carrier.
Straight Bills of Lading do not place any limitation on the value of a shipment by the carrier. These are sometimes referred to as Full Value Bills of Lading.
Order Bills of Lading are used extensively in ocean commerce. They may place a limitation on the value of the goods and serve as a means of shipping goods Cash on Delivery (COD).
Through Bills of Lading are used in cases where the Bill of Lading includes two or more carriers.

Air shipments are considered the safest, if it is appropriate for the merchandise involved. Railroads are the next safest form, followed by trucks and other motorized vehicles.

Owner's cargo shipments may result in other exposures and create the need for other coverages. If merchandise is shipped to an exhibition site, the insured might request that the policy be endorsed to cover the property while at the exhibition. The insured might request coverage for loss of business income because physical loss or damage to goods shipped might cause a bottleneck or backup in operations that triggers a large consequential loss. The insured might request that the exclusion for breakdown of refrigeration equipment be deleted when coverage is needed on refrigerated goods shipped.

Owner's Coverage Additional Considerations

Owner's cargo coverage underwriting begins by evaluating the insured shipping the goods and reviewing its loss experience. This evaluation also determines the rating and premium charge required to write the business profitably. The evaluation of the insured must address its financial condition, its length of time in business and in transporting the types of goods involved, the type and condition of the vehicles, and the drivers' experience and qualifications.

Drivers must be experienced, and the extent of their experience must be measurable. Motor vehicle reports should be obtained regularly as well as on a random basis. Drivers should be hired to be only drivers and not to also perform other jobs. Regular driver training should be conducted on site or outside locations that offer such programs. Pre-hire, periodic, and random drug testing should be conducted. Vehicle maintenance should be scheduled and done routinely for maintenance reasons and as needed if there is an accident or mechanical malfunction. If the insured backhauls for additional revenue, it becomes a carrier for hire and is subject to underwriting as one.