When cargo is lost or damaged, it isn’t always clear who is responsible for the loss. The carrier may determine that they were not at fault in anyway and therefore decline to pay any damages. Shippers may hold freight brokers, who negotiate the transportation contracts on behalf of shippers, liable should cargo be lost or damaged in transit and they determine that they were the responsible party.
When a shipper makes this demand, in order to protect themselves against these claims, freight brokers carry contingent cargo insurance to guard against this situation, and pay those claims. Contingent cargo insurance comes into play any time the carrier refuses to honor a claim.
A situation where a contingent cargo policy comes into play
If, for example, a customer ships a container of car parts to Germany, and the ship’s captain tosses half of the cargo overboard in order to prevent the ship from sinking, the carrier probably will argue against having to pay off the loss. This is a prime example of when a contingent cargo policy pays for the loss.
While freight brokers and freight forwarders aren’t legally required to carry this coverage, it serves its purpose due to the fact that basically no carrier wants to work with anyone who doesn’t carry this insurance. Evidently, the economic pressure on freight brokers and freight forwarders to obtain and carry this insurance is the same making it a requirement.
Furthermore, should a situation arise where a shipper’s cargo does end up suffering some sort of damage and the carrier refuses to pay the claim, the client will naturally look to the freight forwarder to make good on their claim. Although they may not be legally or strictly liable, the forwarder’s reputation could greatly suffer if he or she refuses to pay.
Contingent cargo coverage includes such common causes of loss, like damage of goods, theft in transit, loss of the cargo on any type of common carrier (including truck, rail or ship), and even covers some of the losses specific to rail or ocean shipping, such as sinking or a train wreck. A contingent cargo insurance policy pays for any of these types of claims.