ACV Cargo Alert
Adding to John Mueller's excellent Blog below left, "All About Cargo", I wanted everyone to be aware that there is a Cargo policy starting to float around our Expediting Community that is ACV vs Legal or Broad Form in how it pays out claims. Why is that important to you?
An Actual Cash Value policy reads in part like this:
Actual Cash Value is calculated as the amount it would cost to repair or replace Covered Property, at the time of loss or damage, with material of like kind and quality, subject to a deduction for depreciation.
...The Actual Cash value of the damaged property may be significantly less than its replacement cost.
A Legal Form or Broad Form Cargo policy reads in part like this:
....in the event of a loss to covered property, we will pay the least of the following:
Your legal liability for the direct physical loss to the covered property;
The declared value of the covered property shown in the bill of lading, tariff
documents, rate confirmation sheet, shipping receipt, or contract of carriage;
For household goods, the amount specified in any advice of coverage, or
other document evidencing an agreed valuation for property in transit;
The actual cost to the shipper to repair or replace the covered property
with material of like kind and quality, not including any claim for diminution
of value to the covered property; or
The "Cargo" limit shown on the declarations page.
...or sometimes you'll see this:
In consideration of the payment of the premium and subject to all terms and conditions of this policy, we will pay for:
a. Physical "loss" to "cargo" owned by you while in transit in or on a covered "auto" operated by you; or
b. Your legal liability as a motor carrier or bailee for physical "loss" to "cargo" owned by others while in transit in or on a covered "auto" operated by you.
...We don't often see an Actual Cash Value or Named Perils Cargo policy anymore so this came as a surprise to me that one is being written for Motor Carriers and Owner Operators in our Expediting Community.
Most cargo policies out there pay, for all intents and purposes, like Replacement Cost Value.
So to put it in perspective, what happens if you have a $100,000 ACV Cargo Policy and an accident occurs that destroys the freight?
Let's say the shipper had the value of that cargo at $75,000. But the insurance adjuster of the ACV cargo policy comes in and determines that the ACV of that shipment is only $50,000. Where is the other $25,000 coming from to reimburse the shipper?
Motor Carriers sign contracts requring them to carry Legal or Broad Form Cargo with Shippers every day, and Owner Operators in turn sign a similar contract with the Motor Carrier.
If you're promising that coverage when signing those contracts, then it's important that you know what kind of insurance you have purchased to pay for that promise in the event of a cargo loss. If it's ACV Cargo, then that promise falls on you, not the insurance policy in your hand.
Read and understand your policies everyone....or work with who you trust.