The ABC’s Of Your Courier Insurance Policy

The ABC’s Of Your Courier Insurance Policy

If your insurance program feels foreign to you, you're not alone. There's nothing tangible to handle, and it's hard to get a "feel" for loss control because more often than not it's less than user-friendly and difficult to understand. This guide will help you understand your insurance by explaining common concepts and categories that make up the foundation of many types of policies.

Insurance is a key component of your same day courier operation. Protecting you against risk allows you to invest in your company and expand your customer base while upholding the promise to protect against financial harm.

Time-sensitive delivery and other mission-critical logistics services expose you and your customers to hazards every hour of every day.

Courier insurance can be both misunderstood and NOT understood. Unlike a new truck or warehouse, or even new technology, insurance doesn't seem to "pay off" until or unless there's a big claim. In truth, if you know where to look, and you're not noticing daily returns on your insurance investment, you should reexamine your coverage, broker service, and risk strategy.

It's important to note that the summaries we're providing are general guidelines. It's always important to read your policies, including "exclusions" and "definitions" that often provide key provisions. The good news: you'll find there's much more "plain English" than there used to be, also never be shy about having your broker translate when needed. Remember, your courier insurance is one of your largest investments.

What You Should Know

  • Limit of Insurance - (aka policy limit, limit per occurrence, or just "limit"): The dollar amount up to which your insurance will pay in the event of a covered claim. If the claim is greater than the limit, you're on your own for the excess amount. Some policies contain one or more "sub-limits" which set more conditions on how much the policy will pay. For example, a policy with a $200,000 limit on property loss could have a $50,000 "sub-limit" for property left unattended. An "aggregate limit" on the other hand, shows the most an insurance policy will pay for all claims combined during the policy term (usually a year).
  • Deductible - Deductibles reduce your costs. By agreeing to share a manageable portion of the risk, you presumably will do what you can to minimize claims. The higher the deductible, the lower the premium charged. Some policies feature multiple deductibles that apply to different types of claims. Deductibles are applied to the first dollar payable on a claim. Then insurance takes over and pays the rest, up to the policy "limit." Either your payment is reduced by the deductible amount, or you contribute that amount to the settlement of a claim, or you reimburse the insurance company if it lays out the money.
  • Self-Insurance Retention (SIR) - Like deductibles, but your contribution is triggered by legal expenses as well as claim payments. Since legal expenses tend to be incurred earlier (or exclusively) in the claims process, your obligations may kick in sooner. Still, they are capped, just as they are with a deductible.
  • Endorsements - An amendment or change to an insurance policy. Endorsements are used in two ways. First, they are added during the course of the policy term to reflect changes in your preferences (e.g., increased or decreased limits) or your operations (e.g., new locations, vehicles, drivers, etc.). Second, insurance companies attach endorsements to the basic policy contract at the outset in order to adjust its terms and conditions.

These "initial endorsements" can be as common and standardized as the basic policy forms they modify. They can expand or restrict coverage. Some are required by various state regulations (e.g., slate specific cancellation provisions). Others customize the policy for your company, reflecting either the preferences of the insurance company or special requests from you and your broker. If these are important to you, check to make sure they appear as you expected. Policies often include a list of initial endorsements toward the beginning.

Liability Insurance

Aka: "third-party coverage" refers to a category of insurance policies that protect against claims/lawsuits brought against you. Claims may allege injury to people, loss or damage to property, mistakes that cause others to suffer financial loss and various kinds of misconduct. Commonly, liability insurance policies pay for your legal defense costs, court settlements or awards, and related costs, such as interest, bonds, etc.

Various kinds of liability insurance protect against different risks. Coverage you should consider include: "Auto" insurance (the liability section),"Warehouse Liability" insurance, "General Liability" insurance, "Management Practices Liability" insurance, "Errors & Omissions Liability" and "Directors & Officers liability" insurance. Cargo insurance is often sold as "Cargo Liability" insurance, but better "non-liability" protection is available.

Sometimes contracts that customers, landlords, and others present to you will contain liability insurance requirements using outdated and unavailable coverage terminology. These include "comprehensive" general liability, "public" liability, "broad form" liability, etc. Your broker should be able to assist you with suggestions for updated contract language that will allow you to comply.

By definition, liability insurance involves lawsuits or the threat of legal action. It is important to be aware of how your insurance handles the costs of legal representation. Most policies make it the insurance company's responsibility to hire and pay attorneys, but some reimburse you after-the-fact in certain cases.

Types of Liability Insurance

Finally, you should know that liability insurance comes in two basic varieties: "occurrence" policies and "claims-made" policies. "Occurrence" policies protect you against accidents, losses, injuries, damage, mistakes, etc. that take place during the term of the policy. If you are sued years later, the original policy that was in force at the time of the "occurrence steps up."

This approach works well for clear-cut events like auto accidents. However, what if your manager is accused of mistreating someone over a period of time? Should the “occurrence” and which policy or policies should cover the claim? Where insurance companies think "occurrence" is too fuzzy a concept, they use a "claims made" policy instead.

"Claims made" policies protect you against suits, charges, complaints, etc. made against you during the term of the policy. Ideally, you are covered regardless of when the circumstances of the claim took place. Since the real world is often far from ideal, take care to check for any coverage restrictions on "prior acts."

What does it matter which approach your liability insurance policies use? Without getting too technical, this can make a big difference, particularly if you decide to stop purchasing a certain kind of insurance or switch from one variety to another. Generally, "claims made" policies are trickier to manage over time without creating holes in your protection, but they are the only kind of policy available for many types of liability insurance. If you purchase one, make a note to consult your agent carefully any time there is a change.

We'll tackle the ins and outs of Property Insurance in our next segment.

Property Insurance

Aka: "first-party coverage" This refers to a category of insurance policies that reimburse you for loss (typically including theft, damage, and destruction) to a property you are responsible for or own. You can secure coverage for buildings, equipment, supplies, vehicles, financial assets, warehoused goods, cargo and more. As with insurance in general, property insurance policies pay covered claims up to the applicable "limit" of insurance, subject to a "deductible."

Often another party, such as a shipper, auto leasing company or equipment lessor will have an interest in a property you are insuring. If so, then expect claim payments to be made to both you and the other party (known as a "loss payee"). This way, neither loses control over the money.

Types of property insurance include the "auto physical damage" (i.e., collision, etc.) part of an auto policy, “boiler and machinery," "electronic data processing equipment" (aka "EDP") coverage, and of course "commercial property" insurance. So-called "inland marine" insurances, which cover property that may move around a lot, are also a variety of property insurance. These include "equipment floaters," "warehouse bailee" coverage and non-liability "cargo insurance."

At least three things distinguish "property insurance" from "liability insurance" that covers loss to property:

  1. Property insurance policies respond to claims you submit. Liability insurance policies respond to claims by others ("third parties). Property insurance gives you more control over the reporting of claims and the timing of payouts.
  2. Property insurance pays a claim regardless of whether you have any liability (legal responsibility) for the loss. If you are not at fault, or if there is no contract, you—and your customers—can still be made whole.
  3. Property insurance can cover property you own outright. Liability insurance cannot.

Whenever you insure property, you get to choose between purchasing coverage for the property's "replacement cost" (i.e., the cost of new property of similar quality) or its depreciated cost (i.e., "actual cash value"). Other options are also available for special situations. Replacement cost coverage is superior, of course, and the difference in cost is often minimal.

Another factor to consider is called "coinsurance." Despite its convoluted name, the concept is straightforward. You don't receive full compensation for your claims if you don't report the full value of a property you are insuring. This may be discovered upon inspection after a loss. The higher the "coinsurance" percentage (typically 80-100 percent), the more accurate you need to be to avoid penalties. Don't take a chance, make every effort to report accurate values. Better still, seek out a policy with no "coinsurance" provisions.