ISO MOTOR TRUCK CARGO OWNERS COVERAGE FORM ANALYSIS

The Insurance Services Office (ISO) Motor Truck Cargo Owners Coverage Form insures shipments the named insured transports on its own vehicles. Coverage differs from Motor Truck Cargo Carriers coverage in that it is direct damage coverage instead of legal liability coverage. This coverage form is usually written on a continuous basis subject to annual re-rating. Coverage applies from the time the vehicle leaves the point of origin until it arrives at the final destination.

POLICY CONSTRUCTION

Motor Truck Cargo Owners 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

IH DS 76–Motor Truck Cargo Owners Declarations
IH 00 76–Motor Truck Cargo Owners Coverage Form

IH DS 76–MOTOR TRUCK CARGO OWNERS DECLARATIONS

The advisory Motor Truck Cargo Owners 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 76 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 spaces to enter a general description of the covered property. It includes the words "consisting principally of" so coverage is not automatically declined because certain commodity or type of property is not specifically listed or described. However, if it is discovered that the principal type of property differs from what is stated in this area, the coverage could be revoked entirely based on misrepresentation.

Limits of Insurance

This section has spaces to enter limits of insurance for the following:

Per Automobile, Truck, or Any One Trailer
All Covered Property in Any One Occurrence

This is a catastrophic limit. It caps the most that will be paid in a single occurrence regardless of the number of trucks, automobiles, or trailers involved. This limit should be increased when the above limit is increased and when the named insured’s fleet is expanded.

Deductible

This section has a space to enter the amount of deductible that applies.

Rates and Premiums

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

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.

IH 00 76–MOTOR TRUCK CARGO OWNERS 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

Covered property is the named insured’s property but only that which is as described on the declarations.

Example: Carl’s Quality Construction transports its heavy construction equipment to various jobsites. The driver parks at a truck stop to have lunch. Thieves overpower him when he returns to the vehicle. They steal the tractor, trailer, and equipment, and disappear to points unknown. The equipment loss is covered because Carl described his covered property as construction equipment.

2. When Coverage Applies

Coverage applies to insured property only while in transit while in or on the named insured’s owned or operated land motor vehicles. Transit, as used in this item, begins when the vehicle leaves the premises with the shipment and ends when it arrives at its destination.

Note: Most transportation policies have coverage begin when the item is placed on the vehicle while this form has coverage begin when the transporting vehicle leaves the premises. This distinction is needed to prevent duplicate coverage because the named insured’s property coverage form provides coverage for business personal while on a vehicle that is on premises or within 100 feet of the premises.

3. 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 a mix of property that should be covered under commercial crime, accounts receivable, and valuable papers coverage forms.

ISO Accounts Receivable Coverage Form Analysis

ISO Valuable Papers Coverage Form Analysis

ISO Commercial Crime Coverage Forms and Policies Analysis

b. Gold, other precious metals, jewelry, watches, precious stones, and semi-precious stones

Note: Jewelers Block coverage forms and policies should be used to cover the transit exposures for these types of property.

ISO Jewelers Block Coverage Form

Jewelers Block Policy

AAIS Jewelry Dealers Coverage

ISO Jewelers Block Coverage Form

c. Furs or fur-trimmed garments

Note: Furriers Block and Furriers Customers coverage forms and policies should be used to cover the transit exposures for these types of property.

Furriers Block Policy

Furriers Customers Custody Policy

ISO Furriers Block Coverage Form

ISO Furriers Customers Coverage Form

d. Live animals

Note: Transporting live animals is a unique trucking exposure and therefore insured separately.

e. The transporting vehicle itself

Note: Motor vehicles are usually insured under commercial auto coverage forms and policies.

f. Tarpaulin covers and other property that is used in some way with the covered vehicles

Note: Scheduled Property or Miscellaneous Articles Coverage Forms and policies should be used to cover the transit exposures for these types of property.

AAIS Scheduled Property Floater

ISO Miscellaneous Articles Coverage Form

Editor’s Note: This coverage form appears to have an error. It uses the term “covered vehicle” but does not define this term. We believe the term should be “transporting vehicle” or “owned vehicle.”

g. Paintings and other works of art

Note: Fine arts coverage forms and policies should be used to cover the transit exposures for these types of property.

AAIS Fine Arts Coverage Forms

ISO Commercial Fine Arts Coverage Form

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

4. Covered Causes of Loss

Covered causes of loss are direct physical loss or damage to covered property with the exception of causes of loss that are listed in the exclusions section.

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 that result from any of these events.

a. 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.

b. Breakdown of refrigeration equipment

There is no coverage for loss or damage to covered property when refrigerating equipment breaks down. There is an exception. If fire, lightning, explosion, windstorm, vandalism, aircraft, rioters, strikers, theft, attempted theft, or an accident that involves the vehicle transporting the covered property causes direct loss or damage, then this loss or damage from the breakdown is covered. This exception applies only if this coverage form covers those listed causes of loss.

Note: This is similar to mechanical breakdown and malfunction or covered property failing to operate. This coverage is available under Equipment Breakdown (Boiler and Machinery) coverage forms and policies.

Example: Mile’s Meat Market transports its meat products from its main warehouse to its chain of retail stores on its fleet of refrigerated box trucks. One of its vehicles is delayed in a traffic jam on the expressway for nearly nine hours on a very hot day because of a serious accident caused when a gasoline tanker overturned and discharged 7,500 gallons of gasoline. The fire department and the HAZMAT team are called in. The refrigeration unit on Mile’s box truck malfunctions and the indicator on the driver’s console also fails to register the malfunction. As a result, the driver does not know about the refrigeration unit malfunction and the meat spoils. This loss is not covered.

c. 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.

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.

d. Voluntary parting

The named insured or anyone else entrusted with the property being tricked or deceived into giving that property away.

e. Unauthorized instructions

When covered property is transferred to another person or place because unauthorized instructions were received to do so.

f. Neglect

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

Example: The driver of the Mile’s Meat Market truck is involved in an accident that dislodges and opens the rear doors. He does not think the meat will spoil while he exchanges information with the other driver and waits for the police to arrive, so he does not call in and ask for another truck to come out and remove the meat. Everything takes much longer than he thought, and the meat spoils. This loss is not covered because the driver did not take the necessary steps to preserve and protect the meat after the loss.

g. Theft (12 13 addition)

Theft by any person the named insured entrusts covered property to for any reason, whether they act alone or in collusion with any other party. This exclusion applies 24 hours a day/7 days a week. There is one exception. Covered property in a carrier for hire’s care, custody, or control is not subject to this exclusion.

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. Wear and tear, depreciation

This is loss or damage due to wear, tear, and depreciation.

Notes:

Wear and tear is damage that occurs naturally as a result of aging or normal wear.

Depreciation is loss of value due to wear.

b. Any quality in the property

These are any qualities in the property that cause it to destroy or damage itself.

Note: An example is a loss or damage caused by hidden or latent defects in the property.

c. Mechanical breakdown

This is loss or damage caused by or that results from machines, tools, or mechanisms failing to operate or function properly.

d. Insects, vermin, or rodents

This is loss or damage to covered property 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.

e. Corrosion, rust, dampness, or extremes of temperature

This is corrosion or rust, dampness, or extremes of temperature that cause loss or damage to covered property.

Notes:

Rust and corrosion are low-temperature oxidation processes that deteriorate over time due to inactivity or neglect.

Dampness and temperature extremes can affect the oxidation process that affects different forms of property and can have other effects on the same and other forms of property.

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.

Note: While the per truck limit is very important, the catastrophe limit can be even more important. When multiple vehicles are transporting items there is the potential of all of those vehicles being involved in a single catastrophic event such as a flood, earthquake, or windstorm. Reviewing evacuation plans to anticipate the worst-case scenario is important when setting the limit.

Example: Jeremy’s Furniture sells and delivers furniture within a three-county radius. He has a fleet of 10 vehicles. He is following the wildfires and when evacuation is encouraged, but not mandatory, he loads up as much furniture as possible into the 10 vehicles with the goal to store them at an available open warehouse out of harm’s way. Unfortunately, his plans are thwarted when the wildfires expectantly turn and his drivers must abandon the vehicles to save their lives. The limit of insurance per vehicle is $50,000, but the per occurrence limit was only $150,000. He will receive no more than $150,000 for his loss.

D. Deductible

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

Note: This is a per occurrence deductible, which means that if multiple vehicles are involved in the same occurrence, only one deductible applies.

E. Additional Conditions

1. Valuation

This condition is added to the Valuation General Conditions in the Commercial Inland Marine Conditions. This does not replace the valuation conditions.

The value of the property that has been sold under invoice is the actual net invoice price. The price includes freight charges only if those charges were prepaid or advance charges.

Examples:

· Valley Meats ships meat to butcher shops in the city. Each butcher receives a separate invoice. The delivery truck overturns, and all the meat is ruined. Because Valley Meats has invoices on the orders that were placed, it receives the invoice amount plus the prepaid shipping and handling costs when the claim is adjusted.

· Carmen Dance Supplies ships its own merchandise between its locations but does not invoice the property. A shipment of ballet shoes is destroyed when a vehicle overturns and catches fire. In this case, the loss is settled based on the actual cash value of the shoes as determined by the insured's internal records.

2. Other Conditions

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

a. Coinsurance

The insurance company does not pay the full amount of any covered loss or damage to covered property if its value is more than the limit that applies to the shipment. In that case, payment is based on the following formula:

Step 1. Divide the limit of insurance for the covered property shipped by its actual value

Step 2. Multiply the total amount of loss or damage by Step 1. This is done before applying any deductible amount.

Step 3. Subtract the amount of deductible from Step 2.

The insurance company pays the lesser of the amount determined in Step 3. or the limit of insurance. Any amount that remains must be paid by other insurance, or the named insured must pay it from its own funds.

Note: This coverage form’s coinsurance additional condition is different from the corresponding condition in most other non-filed ISO Inland Marine coverage forms because it basically requires 100% coinsurance. However, the process and intent are similar.

2. 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.

F. Definitions

There is one definition.

Accident

The upset or the overturn of any type of conveyance or transporting vehicle. Accident is also the forceful and accidental contact of a conveyance with another vehicle or object. It does not include any contact with the road itself or with curbs, railroad rails, or railroad ties. Contact the transporting vehicle makes with any stationary object while backing in to load or unload is also not considered an accident.

ENDORSEMENTS

ISO has not developed any specific endorsements for exclusive use with the Motor Truck Cargo Owners Coverage Form. ISO has developed four other endorsements that can be used to respond to specific situations.

IH 99 09–Values Shipped Reporting Form

This endorsement is used to convert the Motor Truck Cargo Owners Coverage Form to a reporting basis. Reports of value can be provided on a daily, weekly, monthly, quarterly, or policy year basis.

IH 99 19–Additional Covered Property

This endorsement is used to include coverage for types of property ordinarily excluded.

IH 99 20–Additional Property Not Covered

This endorsement is used to exclude certain types of property the coverage form insures.

IH 99 22–Loss Payable

Loss payees with insurable interests in covered property are listed on this endorsement along with the property in which they have that interest.

Note: No commitment is made to notify them of any cancellation.

IH 99 23–Theft from Unattended Vehicle Exclusion

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

UNDERWRITING CONSIDERATIONS

Motor truck cargo owners coverage insures the value of shipments the named insured makes during the policy period on its own vehicles within the coverage territory. The most important issues are the type of property shipped, its relative damageability and desirability from the standpoint of theft and hijack, the transporting vehicle’s condition and maintenance, the driver’s ability and experience, and the distance traveled.

The process really begins by evaluating the named insured shipping the goods and reviewing its previous loss experience. This evaluation also determines the rating and premium charge required to write the business profitably. It also addresses the named insured’s financial condition, its length of time in business and transporting, the types of goods involved, the vehicle types and their condition, and the drivers’ experience and qualifications.

Drivers’ experience must be measured and assessed. Motor vehicle reports should be obtained regularly as well as on a random basis. Drivers should be hired to be drivers only and not to also perform other jobs. Regular driver training should be conducted onsite or at outside locations that offer such training. Pre-hiring and periodic 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 named insured backhauls for additional revenue, it becomes a carrier for hire and is subject to underwriting as a motor truck carrier for hire.

AAIS Motor Truck Cargo Legal Liability Coverage Forms

ISO Motor Truck Cargo Carriers Coverage Form

The property’s susceptibility to theft or damage must be evaluated. Some merchandise is very attractive to thieves but highly resistant to damage. Other goods are easily damaged but are not attractive to thieves and are rarely stolen. The most difficult property to underwrite and insure is the kind that is both easily damaged and attractive to thieves. In these cases, packaging must be evaluated carefully. The shipper’s experience should match and fit the exposure the merchandise or goods present. Property subject to theft may require vehicle security and burglar alarm systems, secure locks and entry systems, and armed drivers or guards in extreme cases. This area also involves reviewing loading and unloading operations. Loading and unloading should be done only by qualified employees or by persons hired specifically to perform these operations.

An important detail to evaluate is the distance the goods are shipped. Longer distances add time to the exposure equation and increase the chance that a loss may occur. Longer trips mean the driver is farther away from the named insured's base of operations, and the named insured has less control over that driver and the shipment.

Motor truck cargo shipments may result in other exposures and create the need for other coverages. If merchandise is shipped to an exhibition site, the named insured might request Exhibition Coverage. It 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 named insured might request deleting the breakdown of refrigeration equipment exclusion when it transports refrigerated goods.