Chapter 7 Study Notes – Manufacturers and Distributors
MANUFACTURERS
Because even a small speck of dust can render a component defective, some computer components, satellites and other electronic equipment are manufactured in clean rooms in which air quality, temperature and humidity are constantly monitored and regulated to protect sensitive equipment from contamination. Workers wear special protective clothing so they don’t introduce any dust and lint from their normal clothing into the room.
Risk Analysis and Assessment of Manufacturers
During the risk analysis research, determine if this type of risk is typically underwritten by insurers who specialize in this class of business. Discuss the prospect with your underwriters to pre-qualify and attain access to a valuable resource of loss control information.
If the business has out of province operations, you would not normally be the broker assisting in this aspect – provincial regulations can require you and/or your brokerage to be licensed in the province where the additional locations are as well as in your own province. Collect information and documents necessary to your understanding of the risk, including a copy of their existing insurance program and loss history.
Determine if the business is a subsidiary of a foreign parent or do they have branches in other part of the world. Depending on the answer will determine how you insure this client and the named insured on the policy. The client could be part of a much larger organization, consider if this will affect which insurers you approach for a quote.
Property and Crime
Reassess values of property and equipment. If there have been renovations and any new equipment, this allows you to confirm that the prior policy values have been updated and to discuss any changes in limits or coverage forms that may be required. Because values of stock can fluctuate between different locations, you can recommend a blanket insurance and a stock reporting form.
If the client has equipment, (dies, patterns and jigs) that, while are still operational and functional, are obsolete but they have elected to keep them in case they need to make the parts again. If this equipment was insured on the commercial building equipment and stock (CBE&S) form their replacement value will be included when calculating the total replacement cost for coinsurance purposes in the event of a loss. You can recommend excluding them from the CBE&S form and insuring them separately on a miscellaneous property floater for either replacement cost or actual cash value depending on the clients preference – this allows the client the option of insuring for a reduced value without incurring coinsurance penalties.
For computer equipment that the business relies on for both manufacturing and record keeping, review the EDP and the CBE&S forms to determine appropriate insurance for the equipment, any customized computer control and programs and loss of data.
If the cost to replace the electronic data contained in computer controllers is not included in the EDP form you can consider adding valuable papers coverage to insure it. If possible, place all coverages with one insurer to avoid uninsured exposures.
For business conducted over the internet, they are exposed to attacks from viruses and hackers and well as fraud and deceit. Since insurance for these types of exposures can vary depending on the state of the insurance market and what safeguards the insured has in place to prevent losses, good loss control practices are beneficial to the client:
- hardware and software based firewalls
- regularly updated anti-virus software that provides constant monitoring of the system
- a secure site for internet sales traffic including verification for credit card transactions
- a regular system review by an outside computer security expert to maintain safety measures and systems are current.
If the manufacturer attends trade shows determine where, how often and what property is taken to the show including the value, also if they attend out-of-country shows. Based on the answers, you can recommend insuring the exposure either as an extension to the CBE&S form or on a separate exhibition floater.
No matter how small amount of cash or securities are on hand, the manufacturer still has crime and fidelity exposures. As there is a risk of loss of money and securities inside our outside the premises, you can recommend burglary and robbery insurance.
If products are small, easily transportable and have high values, which may be easily disposed of, confirm that theft is an insured peril on the CBE&S form as wordings can vary.
If employees have access to money and securities as part of their regular duties, this presents a fidelity exposure which can be insured under the comprehensive dishonesty disappearance and destruction (3-D) form. You can review coverages with the client and request confirmation of limits required.
Review of the security procedures at the plant and any warehouse locations, including restriction or access controls to product storage areas, and the type of burglar alarms and/or security in place, to determine if you can make suggestions for improvement where possible.
Business Interruption
Ascertain how a loss at any location will affect the client’s business and what would be necessary to bring the business back to its pre-loss position.
Following a loss there could be:
- a delay in replacing imported components in machinery
- loss at the warehouse might mean a delay in filling orders in time
- specialized production equipment may be difficult to replace.
A good opportunity to discuss the client’s contingency plan and ask how long it will take to replace any specialized equipment.
Gross earnings only covers income lost from the time of loss to the date the business resumes operations, so if replacing specialized equipment could delay the business recovery, you can recommend profits coverage. If the manufacturer relies on suppliers for parts and/or if a large percentage of output to one customer, recommend contingent business interruption both on the suppliers and customers forms.
Gross earnings insurance is available on two different wordings (mercantile and manufacturing) the difference being in how the amount of gross earnings is calculated and how a business interruption loss can arise.
The same basis formula (discussed earlier) can be used: annual sales less cost of sales – projected for twelve months and increasing for inflation.
Now, for manufacturing risks, the sales figure is not split into the total net sales value of production and the total net sales of merchandise to reflect the differences between the revenue of a retailer and manufacturer.
Total net sales value of production is the net sales less the inventory at the beginning of the policy period plus the inventory at the end of the policy period.
Total net sales of merchandise comprise revenue fro the sale of goods the insured did not manufacture.
Since finished stock is considered a “product of the past”, the manufacturing form excludes finished stock from property damaged/destroyed by an insured peril giving rise to a business interruption loss.
Since this might not be the case, to compensate for a client’s potential loss of profit for finished stock, brokers frequently add a selling price clause to the property insurance - the valuation of finished stock calculated based on the value the stock would have had if it had been sold.
For boiler and machinery exposures, review existing insurance to ensure adequacy of values paying particular attention to limit per accident, especially if renovations have been done. You can consider what form of boiler business interruption insurance is most appropriate and ask client to evaluate limits for adequacy.
If manufactured components are transported they may be both easily damages and a target for thieves. Load security and insurance are issues to discuss with the client.
- are trucks left unattended while being loaded
- do drivers follow preset routes
- is it possible to vary itineraries
- are trucks easily identified as carrying attractive merchandise
Consider which form will provide the most comprehensive insurance – either a transportation floater or motor truck cargo. If a transportation floater is used, the goods shipped by the freight forwarder can be insured under this form as well.
When using a freight forwarder, goods are frequently un-loaded at interim points in the transit process. While stored in a terminal warehouse is short term it still presents a property exposure which can be insured under a broad form known as terminal coverage.
Insurance provided by trucking companies is often limited to a rate per pound. Confirm that when products are shipped through a freight forwarder, client uses a declared value on the bill of lading to ensure the trucker will reimburse any loss in full.
Since relying on a freight forwarder can be time consuming dealing with their insurer in a claims situation, you can recommend the client insure all goods in transit themselves. In doing so, the client assumes appropriate insurance coverage and, in the event of a loss, will be dealing directly with their own insurer. The insurer can subrogate against the freight forwarder or any other party responsible for the loss.
Automobile
The most common non-owned auto exposures arise out of employees using their own vehicles for business errands. Ask the client about their own transportation of goods and any other auto or non-owned auto exposures they may have. Confirm if they have any US exposures.
Evaluate their existing coverage and make recommendations for coverage improvements as appropriate. Discuss:
- maintenance
- fleet safety programs
- driver hiring
- ongoing training processes
- procedures for long haul driving safety
- drug testing of drivers (especially if driving to the US)
Most insurers will send loss prevention personnel to inspect:
- vehicles
- facilities
- trip records
- driving logs
- training an safety procedures
- loss history records
either prior to quoting or prior to binding insurance.
For inter-provincial trucking, certificates of insurance, for each province traveling to, will be required to confirm the automobile insurance meets the provincially required minimum limits.
If using a freight forwarder for shipping to the US, they freight forwarder is responsible for all paperwork relating to shipping. If client uses their own trucks they will require an Authority to run in the US (known as an automobile filing) from the Federal Motor Carrier Safety Association (FMCSA) formerly the Interstate Commerce Commission (ICC)
This authority is proof that the trucker is licensed and has the minimum required insurance coverage. Minimum limits for general freight is $750,000US for liability and $5,000US for cargo insurance. Limits are higher for hazardous materials and require additional filings. Be prepared to explain to the client what materials are considered hazardous goods.
Filings require insurance has a 30 day notice of cancellation unless is policy is cancelled for non-payment (statutory cancellation condition applies)
The party transporting the goods is responsible for arranging the filing. The broker’s job is to arrange the appropriate insurance and request the insurer complete and submit the paperwork required to have the filing issued.
If the client is unsure of what is required, direct them to either the FMCSA or to a permit agent – someone who, for a fee, will apply for filings for the trucker as well as doing fuel tax reports and other required services.
Liability
While manufacturers have similar premises, tenants legal liability and non-owned auto exposures as any other risks, they differ substantially in their individual contractually arranged liability exposures, their premises and products liabilities.
For premises liability exposures hazards could arise out of basic care and maintenance of the premises such as:
- visitors slipping, tripping over obstacles or falling on the premises
- slip and fall accidents on snow or ice in the parking lot.
Due to the nature of the business, visitors/customers would unlikely be allowed access to the plant or warehouse but may be limited to office portions thus reducing the probability of a loss.
If the warehouse is leased, there is a tenants’ legal liability exposure and may apply to other incidental premises as yet undisclosed or perhaps not yet existent (trade shoes; conventions)
Contractual relationships will vary based on the individual contract. Premises or equipment leases are written individually however, their clauses are similar to any lease agreement. Hold harmless agreements can also be similar (transfer of liability) however, use care when reviewing the insurance requirements of any contract as the individuality can make substantial differences in your risk analysis. Keep in mind you’re not a legal advisor and should advise the client to retain one for this type of transfer
Operations exposures of manufacturers are unique because manufacturing processes differ in style, function and purpose (ice cream – machine shop – garment manufacturer) However, in each case, you would assess the premises exposures using the standard risk analysis process by researching the operation, inspecting the premises, asking questions about the operation process and discussing any specialized process, supplies or machinery used.
Products manufactured today may be in use for many years. Liability can continue long after the product has ceased to be made. This is known as the long tail effect. While computer parts produced will become obsolete after a few years, they may be in use for many years representing an ongoing liability exposure. Similarly, the sale of a subsidiary company doesn’t necessarily mean the clients liability for the products manufactured there is sold also. Because liability can exist for an extended period of time, a similar length of loss history is required to assess the clients exposure. It’s not unusual for underwriters to required up to 25-30 years of loss history when manufactured products are particularly hazardous.
To accurately assess the risk, obtain detailed information:
- current products
- methods of manufacture
- markets for the product
- past acquisitions
- discontinued products
- acquisitions of new companies
- proposed changes in products
By investigating clients future manufacturing and business plans, you can more accurately advise them regarding insurance costs and select insurers willing to write both the risk now and as it may be in the future.
The clients website is a source of underwriting information. The website can be a powerful marketing tool, providing potential customers a synopsis of who the client is and what products/services they provide. Explain to the client that their website visitors will form perceptions of what is offered by the material on it and so will the insurers. Content can affect the acceptability of the risk and the rating used to calculate premium. It is important that the client keep their information current and accurate.
If site lists products the company has made in the past but no longer produces, recommend the client delete references to discontinued products – unless they are still supporting/servicing them. Recommend the website be updated to reflect the revised status of these products or perhaps a more general statement could be used incorporating the idea that the company services all products they manufacture.
Since the website would be open to international customers, ask about sales to other countries. Determine the scope of any non-Canadian sales and the percentage each foreign country represents the businesses overall sales figures. To protect from foreign suits, review current policies to confirm the policy territory and if necessary (and possible) arrange to amend the territorial definition to include suits brought about anywhere in the world.
Look at the clients current list of products and familiarize yourself with how they are used and what kind of injury or damage could result from the product.
If the clients product is not identifiable from other similar products, in the event of a lawsuit involving a class of similar products, your client could be held liable even if it was not their product that caused the damage. Consider the industry your client is in to measure their exposure. Not all manufacturers maintain the same records not can they necessarily identify their products as unique to them.
SEE EXAMPLE ON PAGE 14
Inquire about business practices, procedures and controls - staff training, quality control, reports to customers – as well as any disclaimers and obtain copies of any quality approval reports/brochures that discuss clients standards.
ISO – International Organization for Standardization; ISO, from the Greek wording meaning equal, is a non-governmental organization that develops standards applicable to many types of business and technologies (ISO 9000 certification standard used to measure quality)
If your client is ISO certified, that means that their facilities meet the quality requirements and that all their suppliers, (including offshore) do also. Ask for copies of suppliers certification.
Although it is difficult for end users to sue overseas manufacturers it is likely your client would be named in any suit. With enough information, the insurer may be able to subrogate so if possible, have the client determine what insurance their suppliers carry.
In the event of a loss that is attributable to a defective part, confirm your client can identify which components come from which suppliers – this information could help insurers when they subrogate.
Consider if a part is used or sold to others as received or if the client changes the part before using it. If loss results due to failure in the part as a whole, that manufacturers’ insurance would respond however, if your client alters the original part and the loss was a result of this alteration, they are liable.
If your client offers guarantees of quality or performance of their products/services, these are usually considered a business hazard. Advise the client that standard liability policies don’t cover this type of economic loss – special coverage on warranties can be obtained and the corresponding rate can be expensive.
Knowing what products your client manufacturers doesn’t always tell the whole story. Probe to determine the possible end uses of your clients products.
Ask the client for a breakdown of their sales by product and by customer type as it is likely that underwriters will rate each exposure differently.
Through discussions with your client, you may discover past acquisitions which may not be in existence any longer. Enquire how any acquisition changed their product line or changed the way they sell their products. Ask for loss history of all prior subsidiaries and their insurance details to assess whether they are any outstanding claims that may exceed any prior entity’s insurance and arrange past products liability coverage to insure the assumed exposure.
Past products, procedures or holdings, even if currently discontinued can still have an effect on current liabilities – Products liability exposure. Just because a company not longer makes or sells a product doesn’t mean the liability exposure has ceased as there could still be products in use. Ask the client about all past products and collect data on:
- what products were
- to whom were they sold (type of customer)
- what they could be used for
- where they were sold
- why these products were discontinued
Discuss also any future acquisitions. Will there be changes in the product line or company operations as a result. What basis is the new company being purchased – buying assets only or assets and expertise. By this purchase they could also assume responsibility for the entity’s liabilities
Consider if there are loss control concerns to discuss. For more hazardous products, the client may want to set up a separate entity with separate insurance to insulate existing insurance from the higher exposure and resultant costs. Your options to arrange insurance for this newly acquired exposure may be limited and insurer may be reluctant to take on this exposure. Because of the high hazard you may only be able to obtain insurance on a claims made basis (CGL policies are generally written on an occurrence basis)
A claims made policy will respond to losses that are reported during the policy period regardless of whether the loss occurred during the policy term – claims made policies usually have a retroactive date – a cutoff date before inception of policy defining the period of time an incident will qualify and a discovery period – an extended reporting period within which claims can still be reported even though the policy has expired.
When changing coverage from occurrence basis to claims made basis there is the concern of creating an uninsured time period when neither policy provides coverage – review both policies to ensure no gaps
Aggregate limits is also a concern – most CGL wordings limit amount of insurance available for products liability claims to either limit of policy or some multiple of that limit (2-3 times the policy limit) The aggregate applies per policy term and since the policy limit doesn’t re-instate following a loss, the total amount of insurance available to respond to future losses is used up by each ensuing loss and can be exhausted entirely.
Recommend your client purchase the highest amount of insurance they can afford and offer options of increased CGL limits and umbrella coverage. When recommending umbrella, review the policy wording to ensure the umbrella will drop down once the primary policy is exhausted (not all umbrella wordings contain this provision) Also consider if the umbrella will also drop down to the reduced aggregate as well as the exhausted limit.
Many clients have research and development departments. Since the outcome of research and development – new or changed products – directly affect liability exposures, this information is an important part of any liability risk analysis. Ask the client:
- whether they are pursuing research and development
- what direction the research and development is taking – new product; changing existing products
- the extent of the research; how long it takes to develop a product; how close to introducing any new products
- if changing existing products, how long has current product been in market; what result the change will have
Products Recall
The withdrawal of a potentially dangerous product from the market. Ask the client about their contingency plans for product recall – how they identify; how they track. CGL wording does not provide coverage for this exposure. Products recall is a specialty coverage designed to insure the cost of withdrawal of products.
Intellectual Property Infringement
The misappropriation or infringement of proprietary or copyrighted materials – use of materials belonging to others without purchasing them or otherwise acquiring permission to use that material.
Intellectual property infringement insurance is a specialty coverage that may be available through one of your insurers but more likely through a wholesale broker specializing in this line. For small businesses the coverage may be included in a liability package. Some policies will cover only defense costs while others will include damages as well.
Some manufacturers will have the risk of professional liability exposures. To determine, consider how the client makes their products and assess whether any staff members pose a professional liability exposure. The liability exposures of an in-house engineer who looks after the clients plant versus one employed to design products versus one employed so the client can sell that engineer’s services to clients are three very different exposures.
The first in-house engineer probably would be insured by the CGL as they involve servicing and maintaining the building and equipment – only marginally involved in the manufacture of products.
The second engineer, employed to design products, present an increased exposure. Errors in design in manufacturing those products might be considered a products liability exposure of professional liability exposure. To clarify the intent of coverage request the insurer alter the professional liability exclusion to except design that forms an integral part of the product of the insured.
For the third engineer’s services are sold to customers directly. Any errors or omissions of the engineer are a professional liability exposure.
Since not all professional liability exposures can be insured, recommend he client consider loss reduction techniques such as disclaimers on printed reports or work contracts that hold the insured harmless for professional liability
Disadvantages to this include:
- if there is potential for negligence claims, the clients customers could be hesitant to sign such a contract
- if may cost the client sales because customers could be ware of releasing your client from liability
If the company is a publicly traded one, they will have a board of directors and a D&O liability exposure. Review existing policy for adequacy of coverage.
DISTRIBUTORS
Distributors can be the wholesalers in a product transaction, purchasing goods from manufacturers or growers and selling those goods to retailers or they can be wholesalers and retailers selling goods to retailers and to consumers.
Risk Analysis and Assessment of Distributors
As with any risk, begin with who they are (corporate tree, past history); location, building construction and protection details, loss history etc. (as discussed previously)
Property and Crime
When examining property exposures, review business lease to determine whether they are contractually required to insure the building and if so, confirm that the insurance currently in force complies with at least the perils contractually required. If necessary, recommend the client consult with the landlord and/or an independent appraiser to arrive at an adequate amount.
If the building has a large amount of glass, review the building lease to see who is responsible for glass replacement. If it is your client, advise perils applicable to glass on both a commercial building broad form and on a glass policy.
The amount of stock a distributor can have will vary substantially throughout the year. If applicable, consider the stock values in each of the wholesale operation and outlet store for the past 12 months to determine the average, maximum and minimum values. If numbers are close, recommend insuring for the maximum amount. If there are large fluctuations in value, recommend blanket stock coverage on a reporting form.
Stock can be covered using a broad form wording including theft coverage such as the CBE&S if the client is responsible for the building insurance as well or the commercial property floater CPF. Extent each of these wordings to insure the sample products if the client has salesmen – client to confirm limit required.
When considering fixtures and equipment values, remember to include the value of tenants or leasehold improvements – the lease may make these the property of the owner, your client as a tenant has an insurable interest in these until they quit the premises.
For incoming and outgoing shipments, determine who is responsible for insurance on goods at each point in transit (usually found on the bills of lading or invoices) Property in transit can be insured under the transit extension of the CBE&S and CPF. Depending on the number and size of shipments, recommend either a transportation or motor truck cargo form depending on whether the client uses their own vehicles or common carriers.
Computer equipment used for keeping records of sales, payroll, commissions and inventory should be backed up daily/weekly and should be stored off premises. Given this, you can recommend the client consider purchasing and EDP floater instead of relying on an office contents floater.
Some distributor/retailer businesses warehouse operations involve sophisticated inventory control systems such as wireless portable bar code readers and point of sale systems. This equipment and any other customer software and data can be insured on an EDP floater.
If the operations conducts some of its business on a cash basis, this adds crime exposures including robbery and burglary. If the company depends on employees to manage these assets, there is also an exposure to employee theft. These exposures can be insured on a 3-D policy.
Most distributors have boiler and machinery exposures arising from the power, heat and air conditioning facilities. Other exposures could include any special equipment such as conveyor belts or automated truck-loading machinery. These exposures to loss could also include business interruption losses.
Business Interruption
Select the wordings based on the operations. If the flow of goods in and out is constant throughout the year, gross earnings may provide the coverage your client needs. However, if a company accumulates most of the year’s inventory during a portion of the year and distributes it over the remainder of the year, a loss when the values are high can cause the company’s income to extend beyond the reconstruction period and thus profits coverage could be the better form. If the distributor can resume operations quickly in another location, extra expense insurance either alone or in combination with other forms could provide appropriate protection.
Automobile
Distributors can have owned and non-owned auto exposures. Owned exposures will vary depending on the type of operation (clients own trucks; sales reps vehicles; buyers vehicles) the non-owned exposure could include rented vehicles to replace any client vehicles or employees using their own vehicles on company business.
Liability
Familiarize yourself with your clients range of products. Some business will sell only one line while others may sell job lots (anything they get in bulk in any given week or month including surplus and salvage goods)
Distributors can sell goods in their original packaging or they can buy in bulk, repackage and sell the new packages either to other retailers or to the public.
If the client does repackage, advise them that because they do repackage, they have the same liability exposures as the original manufacturer.
When products are manufactured overseas there is difficulty in ascertaining what, if any, products liability insurance the original manufacturer had. Distributors who import from countries abroad frequently can be held liable as though they were the manufacturer of the product. As such, insurers underwriting rules treat the liability exposures of importers in the same way they would handle the manufacturers’ exposures – which affects risk acceptance and premium terms.
If the client distributes their products overseas, ask for a list of the countries and percentage of sales to each. If possible, ask insurers to amend the territory definition to include suits brought anywhere in the world.
Distributors advertise their wares in many ways including newspaper ads, booklets, newsletters, flyers and catalogues. Where a client advertises or publishes materials there is a risk of libel, slander or copyright infringement. Ask what items are being published and where the source material comes from.
Ask who does the publishing to determine if they are responsible for the material and if they are ask what insurance they have. Recommend your client specify an appropriate minimum limit of media liability insurance be carried by the publisher and request coverage be extended to include your client as an additional insured.
If the client is the publisher recommend media liability insurance to cover potential lawsuits arising from copyright infringement, libel and slander – personal injury protection provided by the CGL does not apply to published works
Review their procedures for avoiding the use of copyrighted materials – licensing and use of trademarks in advertising – to verify that they are not violating copyrights or trademarks
Other Exposures
If your client has employees acting as buyers for the company, they may travel to sometimes volatile, unstable or economically challenged areas of the world. Recommend kidnap and ransom insurance.
While individual wordings vary, kidnap, ransom and extortion insurance is generally offered against:
- actual or threatened kidnapping, bodily injury or extortion
- actual or threatened damage to physical premises or contamination of products
- loss or destruction of ransom monies while being delivered
- payment of any fees, interest charges or salary compensation from settling the kidnap or extortion situation
Because knowledge of the existence of this type of coverage can actually increase the risk keep all details including the existence of the policy strictly confidential
FREIGHT FORWARDERS
Freight forwarding is the business of arranging shipments for others via common carriers using road, rail, air transports or ships. A freight forwarder arranges the space for those shipments either in dedicated shipments or as part of a mixed shipment containing the goods of a number of clients. They will also handle any paperwork connected with the shipments and handles customs and excise clearances too.
Risk Assessment of Freight Forwarders
Freight forwarders primary premises are offices and warehouses. They will have property and crime exposures; for the office contents including computers hardware/software and their business records; accounts receivable; for any freight handling machinery; transit, liability and auto exposures; legal liability for any goods in their care, custody and control.
Property and Crime
Some freight forwarders specialize in specific commodities such as food products; computers or furniture while others may take any cargo. Ask client to specify what type of goods they handle. If they are shipping a range of commodities, obtain percentages applicable to each type. Determine if special handling is required:
- for security purposes
- to comply with the law
- for the preservation of the goods
- for handling hazardous materials
Cargo
Freight forwarders are not always responsible for the goods they ship. Depending on the contract terms (bills of lading) the freight forwarder; the customer shipping the goods; or the customer receiving them could be responsible for the goods.
Even if bills of lading make the shipper responsible for insurance on the goods, most regulatory authorities require carriers to carry a minimum stated amount of insurance on the goods in the carrier’s care, custody and control. These requirements will vary depending on jurisdiction and class of carrier license however, in Canada, the carrier is permitted under the bill of lading to restrict their liability for lost/damaged loads to $2.0o0 per pound. In the US, the uniform bill of lading dictates that the trucker is liable for the invoice value of the goods at the time and place of shipment unless a lower valued is declared.
Advise the client to purchase insurance both while at their premises and while in transit, reviewing pas shipment records to ensure adequate limits of insurance comply with US cargo insurance requirements bearing in mind the currency exchange rate.
Also recommend client obtain contingent cargo insurance to protect them if the primary coverage arranged by the common carrier, owner operator, or owner of the goods does not have adequate limits to respond to a loss.
Customers who arrange their own shipments and only use a freight forwarder to handle the paperwork, may also arrange the insurance or ask the freight forwarder to do so. Confirm the client maintains records of the insurance placed on behalf of customers and records to track which customers require insurance.
Warehouseman’s legal liability will insure the freight forwarders legal liability for their customers property in storage. To determine the clients exposure, establish the maximum value of goods in storage at any one time and the type of goods they handle.
If cold storage is included, include coverage for losses caused by change in temperature and discuss loss control measures the client may have in place (temperature alarms; access restrictions) and contingency plans for loss of power.
If the client has premises on both sides of the border (Canada and US) coordinate coverages with an American broker to avoid uninsured exposures. This will include liability and auto coverages between Canadian and US insurers.
The majority of freight forwards’ customers are repeat business, the freight forwarder invoices these customers on a regular basis. At any given time they will have accounts receivable due from customers. If these records are lost or destroyed, they may not be able to collect on the debts. Review clients procedures for storing records and making backup copies and recommend changes to improve recovery of data in the event of a loss as necessary and accounts receivable insurance.
Surety
As a service to their clients, some freight forwarders provide a bonded warehouse – a secure, access-controlled facility where goods subject to customers duties or taxes can be stored prior to the duty being paid. Payment is deferred until the goods are shipped out
To be able to provide this facility, the freight forwarder requires a customs and excise bond and a customs warehouse bond.
Customs and excise bonds guarantee the oblige (government) that either taxes or duties or both will be paid by the principal (owner of goods) when invoiced by the government.
A warehouse bond guarantees that the applicable taxes or duties or both will be paid when the goods are released form the warehouse.
Liability
Freight forwarders have legal liability exposures (bodily injury and property damage) similar to any other business. Review existing policy to confirm the form of the tenants legal liability insurance, non owned auto insurance is in place and discuss the amounts of insurance with the client
Freight forwarders can be found negligent in arranging customs clearance. Recommend freight forwarders errors and omissions insurance to protect against this exposure.
Automobile
Exposures vary based on the clients individual operations. Some have little exposure as they don’t transport goods themselves, others have their own trucks to make long haul and short trips.
Determine the extent of your clients exposure by asking questions about:
- types of vehicles used
- distances traveled
- locations of travel
- type of goods transported
- number of drivers
- driving records
- driver loss experience
Inquire into clients safety procedures including records, driver logs, fleet safety inspections, driver training and testing and compliance with motor vehicle regulations including drug testing.
Auto insurance is highly regulated in Canada and US, a minimum level of coverage is mandatory. Recommend client purchase the maximum insurance they can afford.
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