Opinion: Read the Fine Print of That Insurance Policy

By Robert Mucci

Certified Insurance Counselor

Wolpert Insurance Agency Inc.

This Opinion piece appears in the Aug. 20 print edition of Transport Topics. Click here to subscribe today.

If some enterprising psychologist hasn’t done so already, an intriguing study could be conducted on why so many otherwise intelligent people have never managed to read all of a warranty, a homeowner’s insurance policy or even the instruction manual that came with the latest piece of pricey electronic equipment. If you doubt this, consider the thousands upon thousands of digital displays ceaselessly blinking “12:00” over and over again simply because nobody knows how to make them stop.

Perhaps there is a universal gene that makes us shun reading anything we imagine to be long, complicated, technical and boring. If there is, you might get away with indulging it in the case of home electronics, but when it comes to insurance in general and business insurance in particular, not reading the policy almost inevitably leads to deep regret — usually after a disastrous loss.

Many business people, including those who own trucking companies or warehouse operations, assume that an insurance policy specific to their business will protect them. After all, every state regulates insurance sales, and the language and pricing of most of these policies are controlled by state insurance departments.

However, not all insurance is subject to the same degree of regulatory control. And marine insurance, both ocean and inland — which happens to include Motor Truck Cargo and Warehouseman’s Legal Liability policies — is in the less-regulated category.

Both MTC and WLL policies are classified as Commercial Inland Marine (CIM), and neither requires rate and form filing. That means inland marine underwriters are free to write their own terms and conditions and charge whatever they can get away with. It also means that, to be effective, MTC and WLL insurance policies require the services of an insurance agent or broker to tweak them to ensure they cover the buyer’s exposures.

With these policies, the insured literally gets what he or she pays for. And it’s important to know that, while whatever coverage an insured company needs usually can be supplied if you’re willing to pay for it, whatever coverage the underwriter wants removed can also be removed.

Even though MTC and WLL policies are usually preprinted by the insurance companies for their convenience, they are at least theoretically modifiable, making them more susceptible to errors in customization.

Let’s say W.E. Coyote Trucking, Phoenix, is to pick up an outbound seafaring container headed to a California shipping port and valued at $700,000. WECT sends a driver to Acme Products, where he signs for the container. Realizing he can’t make it to the West Coast before the port closes, the driver unhooks the container and, with permission, leaves it in an apparently secure corner of the Acme facility. When he returns in the morning, the container and its contents have vanished and Acme sues the trucking company for the cargo’s worth.

Unfortunately, the carrier’s MTC insurance policy — the one nobody bothered reading — says only loads hooked to vehicles are covered, although certain terminals and drop yards listed on the policy may be covered. But Acme’s facility isn’t listed for coverage and the insurer denies the claim.

In that case, WECT’s exposures to risk didn’t mesh with its coverage, and the carrier was stuck with legal fees, court costs and any judgment or settlement out of the income the trucking firm earns.

Here’s another example: A carrier’s MTC insurance turned out to cover only shipments for which the trucking company issued the bill of lading. Because BOLs in this company’s operation are always issued by a steamship line, the forwarder or a shipper, the trucking firm had been paying hefty premiums for years for essentially zero coverage. They would have known if they’d read the policy.

Now let’s look at what warehousemen risk when insurance is unread.

Coverage for goods in transport differs from coverage for goods stored in a public warehouse. Insurance carriers generally design policies to cover the warehouseman’s legal liability for the property of others stored at the warehouse he owns or rents. That’s tricky because the meaning of “legal liability” can be somewhat fluid and may not mean that stored property damaged by a covered peril will be covered by the insurer.

Take, for example, the case of a building rented by a warehousing business. The warehousing operation’s biggest and most lucrative client loses enormously valuable goods stored there when the sprinkler system is triggered by maintenance performed by the landlord, damaging substantially all the merchandise in the warehouse. The client wants reimbursement, and the warehouse business assumes its insurance will cover it. But it doesn’t.

If the unendorsed policy had paid the “legal liability” of the warehouseman, the loss would not have been covered because the actual warehouse operator had nothing to do with the sprinklers going off and wasn’t legally liable.

Even when a claim is covered, unless otherwise agreed to, it will be settled for whatever maximum amount is specified on the warehouse receipt issued to the customer acknowledging that property described on the receipt is being stored at the warehouse.

Nobody likes reading a stack of paperwork, no matter how important. We assume all the language contained in legal documents is there to help and protect us. But that’s not always the case. So, get a good desk light, have your eyeglass prescription brought up to date, brew some coffee — and start reading.

Wolpert Insurance Agency Inc. has headquarters in Worcester, Mass.