You’ve got the best freight insurance in the world, right? Sure you do—until you have a claim, that is. When compensation is needed, some policies can turn out to be about as much good as a screen door in a submarine. In other words, you're not covered.

The 4 Basic Types of Freight Claims 

Damage 

Probably the most common form of freight claim, this type occurs when damages to a shipment is noted upon delivery before unloading, during loading, or on the dock once the product has been fully unloaded and the damage is revealed.  

Loss 

A claim is made for losses when the shipment of cargo disappears. It was picked up, recorded, and then never arrives at its destination. This is most commonly a theft-related claim. Thieves steal cargo by driving off in a loaded tractor-trailer with fraudulent paperwork or stealing from loaded trucks that are sitting idle at storage facilities or rest stops.  

Shortage 

Shortages occur when the number of pallets or the number of boxes on pallets differs from the amount stated on the bill of lading at the time of the delivery. They may have fallen out when loading or may have been miscounted originally. Either way, there is a discrepancy.  

Concealed Damage 

A concealed freight claim happens when the product delivered has internal damage that is not noticed immediately upon delivery but is discovered once the packaging is opened and the driver has left.  

What to do: If you suspect damage, always make a note of it on the delivery receipt. Look for evidence of damage to the pallets, lack of shrink wrap, or shifted product. You will have to prove damage did not occur after delivery of the product, so break down the shipment as quickly as possible. Take photos and document as much proof as possible.  

Knowing what kind of claim you have is important. Knowing your policy, understanding the fine print, knowing what is covered, what is not, and who is responsible are all pop-quiz questions you should be able to answer without peeking at the paperwork.  

Filing a Claim 

Even with the best laid plans, damages and losses will occur when shipping freight. So what do you do now?  

There is documentation you will need to have handy when you file a claim: 

• Presentation of Loss and Damage Claims Form
• Freight Bill 
• Bill of Lading (BOL) 
• Merchandise Invoice – must state the value of the goods damaged 
• Photos of Damage – (if taken) 
• Survey or Inspection (if taken) 

Getting familiar with the Carmack Amendment will can help you understand your insurance policy. 

Carmack Amendment Basics 

When you hear someone talking about Carmack (no, not CarMax), they are referring to the Carmack Amendment, which is a law that was enacted in 1906. The original law, the Interstate Commerce Act of 1877, was proposed to oversee the connection between shipping companies (carriers) and owners of goods being shipped when losses or damages occur. Back then, most cargo traveled by rail and sea. In 1935, Congress expanded the Carmack Amendment’s sphere to include motor carriers, and it has been an important regulatory piece of legislation ever since.  

Liability laws were regulated state-by-state before Carmack, which now serves both the interstate shipper and interstate carrier.  Under the law, the motor carrier is held liable for the “full actual loss” caused by the motor carrier by reason of loss, damage, and/or delay in the transport of the product.  The way it works sounds rather simple, but often is not. That is:  at shipping point, the carrier receives the product and acknowledges receipt by their signature on the Bill of Lading.  The signed Bill of Lading then becomes prima facie evidence (or proof) of the carrier’s receipt in good condition.  If, and when, the product arrives in a damaged condition (or product is short, lost, etc.), the burden of proof then shifts to the carrier who must now prove “freedom from negligence” (meaning that they are not the cause ).  

Get all the FAQs about Carmack 

Contract Terms and Exceptions 

There are five exceptions to the amendment that after putting the burden of proof on the carrier, who must prove that the exception applies.  

(1) Act of God: This defense applies when a carrier can show that damage was caused by a physical phenomenon or natural disaster than was not within the control of the carrier.  

(2) Public Enemy or Act of War: This exception applies to damage caused by hostile acts of military forces that are enemies of the government. This exception does not apply to organized crime. 

(3) Act or Default of Shipper: The carrier can avoid liability if it can show that the damage was caused by an action of the shipper, such as insufficient packaging of the product. 

(4) Public Authority: Under the Carmack Amendment, a carrier can also avoid liability if the government caused the cargo damage. Quarantines, product recalls, or trade embargoes would fall under this exception. 

(5) The Inherent Vice or Nature of the Goods Transported: If the goods being transported are naturally subject to defects, diseases, or decay, and the carrier can show that this "inherent vice" in the product was the cause of such damage and not the carrier’s negligence, there is no liability on the carrier. Examples of relevant products include fruits, vegetables, and cheese. The burden of proof is on the carrier to show that this exception applies. 

Carmack can be waived if alternate terms are stated in the contract, and both parties sign off on those terms. Reading the fine print on all contracts and understanding the respective terms can save you from possible devastating claims.  

Shipper’s Interest Insurance vs. Motor Carrier Cargo Liability Insurance 

The next step is basically understanding insurance, as it is a necessary part of doing business, and which can be rather tedious at times.  Not everyone fully understands the difference between Shipper’s Interest Insurance and cargo liability insurance. There are important distinctions to make between the two, especially if you don’t want to lose your shirt from a freight claim.  

Shipper's Interest Cargo Insurance is a “first party” insurance product; therefore, the cargo owner is reimbursed for their covered losses directly by the insurance company.  Shippers often obtain this type of coverage as a “backup plan” for instances in which the claim is denied by the motor carrier or the motor carrier’s insurance company. Shippers interest insurance is used to reduce the gaps in coverage and is paid for by the shipper.  

With Shipper’s Interest, there is often no burden of proof as to fault. All that’s required is proof that the loss or damage has occurred, and claims usually are paid quickly, often within a 30-day window.  Excess insurance can also be obtained and is highly recommended for both high-value and high-risk shipments.  

• High-Value Cargo:  Shipments are considered high-value when their replacement costs exceed $100k for truckload freight. Examples of this kind of freight are electronics, seafood, cars, jewelry, and designer clothing.   
• High-Risk Cargo: Items that are commonly targeted by thieves are considered high-risk.  Some of the same products listed above fall into this category, but can also include specific lanes, time of year such as holiday freight, and destination, such as ports or cross-border shipments.  

Motor Carrier Cargo liability insurance  

All shipments come with risk, and insurance helps to minimize that risk in case of a claim. One of the many benefits of using a freight broker or 3PL like Choptank Transport is that 3PLs thoroughly vet the carriers the work with to make sure they have current, updated insurance. 

• Truckload:  Cargo liability insurance held by most carriers for truckload freight is typically $100K. This is a basic insurance policy. It can offer adequate coverage for some commodities, but often does not cover the full value of the cargo.  Additionally, it can have many exclusions.   
•  Less-than-truckload:  The amount of coverage for LTL shipments is usually determined by the type of freight (commodity/freight class) being transported and the carrier being selected, with an assigned dollar value assigned per pound. Like truckload limited liability coverage, it does not always cover the full value of the shipment and can also have many exclusions.  

If the carrier only has limited liability insurance, and a claim needs to be filed for either a truckload or LTL shipment, there are a few things that are required:   

• There is a time limitation to file a claim. According to the Carmack Amendment, the claimant has 9 months of the delivery to file. The damage must be documented on the delivery receipt, or the claim may be rejected.  

• Both proof of value and proof of loss must be provided. 
• Carrier negligence must be proven, meaning the goods were picked up intact and properly packaged but delivered damaged.  

Common Misconceptions

“I am not worried about the loss. My company has full coverage,” said the manufacturer. Frequently heard words in the industry—Full Coverage, All-Risk, and Blanket policies—are all terms that can be misleading and have nuanced differences. Although they usually provide comprehensive coverage with few exceptions, they still can fall short of a customer’s needs. Most policies don’t include everything, such as possible repacking and reshipping costs.

Fact #1: Did you know that some policies won’t cover reefer unit failures if you can’t provide proof of reefer unit maintenance, which can result in a denied claim? 

Fact #2: You don’t need to keep the damaged freight, right? Wrong, you should hold on to the damaged freight, unless spoilage or degradation is an issue (as with food or hazmat). The carrier has the right to take ownership of the damaged freight for salvage. If you discard the freight, it may result in a denied claim or partial payment.

Preventing Damage

The best way to deal with claims is to avoid them in the first place. That begins with proper packaging, stacking, and securing procedures.

Make sure the packaging is appropriate for the cargo. If it is fragile, spend the extra money to get thicker corrugated boxes with extra padding and dividers inside. If the product is cold, make sure the specified temperatures are on the bill of lading and that the reefer unit is set properly at the time of pickup. For perishable products like produce, make sure the truck has been pre-cooled prior to loading.

The way freight is stacked and secured can also help mitigate damages and avoid claims. If the product is cold, to ensure proper circulation, pallets should be used instead of slip sheets so that the cold air can circulate below pallets and all around the product. This practice helps avoid spoilage.

Watch our webinar: Refrigerated Shipping-Myths vs Facts

Always make sure boxes and cartons are shrink wrapped or strapped onto the pallet. There should never be any overhang on the pallets. It can be tempting to stack your pallets or boxes as high as possible to maximize your trailer space but be careful. The product weight should be evenly distributed, and pallets should not be leaning or buckling under the weight of too many stacked boxes.

(The above image shows a shipment of perishable freight. The top two illustration show the use of slip sheets that do not allow for proper air circulation underneath the product. The palletized load on the bottom right does not have any space between the two stacks, also limiting the air flow inside the trailer.)

Conclusion: Having the right insurance coverage is an essential part of doing business in the supply chain. There are many confusing terms and conditions, along with a myriad of options depending on your cargo and situation. Seeking the help of a professional cargo insurance agent is always your best bet.