An Insurance Policy That Actually Protects You – Part 1 of 2

In the TSL industry, it is becoming standard practice to obtain copies of a counterparty’s road carrier’s liability insurance policy or freight forwarder’s liability insurance policy. The purpose of obtaining these documents is to confirm that the counterparty has appropriate insurance cover for its business activities.

This is the right approach – provided that the objective is to confirm that the counterparty has the right kind of insurance, i.e. insurance that will actually make it possible to obtain compensation from the insurer if a loss occurs during transport.

Simply presenting an insurance policy does not mean that the level of cover is adequate. 

In my legal advisory practice for carriers and freight forwarders, I have repeatedly encountered cases where transport was entrusted to a company that did not have appropriate insurance cover. The freight forwarders engaging such carriers had limited their checks to obtaining a scan of the policy and confirmation that the required premium instalments had been paid. They did not take the additional step of carefully reviewing the actual scope of cover or the exclusions applied by the insurer.

There have been cases where:

• cabotage transport was entrusted to a carrier whose policy did not include cover for cabotage operations, 
• fresh fish was entrusted to a carrier whose policy excluded goods requiring temperature-controlled transport,
• a used excavator worth several hundred thousand Polish zlotys was entrusted to a carrier whose policy excluded used goods,
• goods worth almost EUR 150,000 – a value known to the freight forwarder – were entrusted to a carrier whose policy provided a sum insured of only EUR 101,000 per occurrence and in the aggregate,

and many similar situations.

Before discussing what to look for when assessing the actual scope of insurance cover, it is worth setting out a few basic principles that many readers may not be aware of:

1. Carrier’s liability insurance and freight forwarder’s liability insurance are voluntary forms of insurance

This means that in Poland – and in most other European countries – there is no general legal requirement to hold this type of insurance. Germany is an exception. There, the requirement to maintain insurance for transport operations carried out with vehicles exceeding 3.5 tonnes maximum permissible weight is set out in § 7a of the German Road Haulage Act (Güterkraftverkehrsgesetz). The absence of a statutory framework defining the scope of carrier’s liability insurance means that insurance coverage can vary significantly. This is not simply a matter of different insurers offering different levels of protection. Even policies issued by the same insurer can provide completely different levels of cover. For example, under one policy issued by insurer X, losses caused by gross negligence may be entirely excluded. Under another policy issued by the same insurer, such losses may be covered up to EUR 10,000, while under a third policy the limit may be EUR 100,000.

2. Freight forwarder’s liability insurance provides no cover where the insured party has entered into a contract of carriage

In other words, if the insured party has undertaken towards its customer to perform the transport of the goods, rather than merely arrange the transport, standard freight forwarder’s liability insurance will not provide the required protection. This issue was discussed in more detail in the article “Freight Forwarder’s Liability Insurance in Losses Resulting from Fraud” When entrusting transport to a freight forwarding company that does not operate its own vehicles, you should require it to provide a freight forwarder’s liability insurance policy extended to include so-called contractual carrier’s liability cover.

3. Many aspects of carrier’s liability insurance are structured through exclusions

This means that, rather than looking only at what is expressly covered by the policy, it is often more important to identify what has been excluded from cover. For example, when defining which types of cargo are covered, a policy may contain wording such as:

“Insurance cover does not include the Insured’s liability arising from the carriage of:

1. live animals, human or animal bodies and remains; 
2. cash, valuables, documents and written correspondence; 
3. works of art, philatelic and numismatic collections; 
4. weapons and ammunition; 
5. dangerous goods classified under Classes 1 and 7 of the ADR Agreement; 
6. new and used motor vehicles; 
7. household goods and property transported as part of a relocation or removal.” 

4. Clauses and provisions contained in the insurance policy take precedence over the general terms and conditions Under Article 385 § 1 of the Polish Civil Code: “In the event of a conflict between the wording of the contract and a standard set of contractual terms, the parties are bound by the contract.” Accordingly, if the general terms and conditions exclude losses caused by gross negligence, but the policy itself states that such losses are covered, the insurer’s liability should be determined on the basis of the wording contained in the policy.

5. Insurance contracts and general terms and conditions must be drafted clearly and unambiguously. Under Polish law, insurers are required to formulate insurance contracts and general terms and conditions in a clear and comprehensible manner. This follows, among other provisions, from Article 15(3) of the Polish Act on Insurance and Reinsurance Activity. Where contractual provisions are ambiguous, they should be interpreted in favour of the policyholder, the insured party or the person entitled to benefits under the insurance contract. Article 15(5) of the same Act provides that: “Provisions of an insurance contract, general terms and conditions of insurance and other standard contractual terms which are formulated ambiguously shall be interpreted in favour of the policyholder, the insured party or the person entitled under the insurance contract.” The requirement to resolve ambiguities against insurers is also reflected in court judgments, including decisions of the Polish Supreme Court.In judgment V CK 35/03, the Supreme Court stated that ambiguous provisions of general insurance terms and conditions should be interpreted in favour of the policyholder, the insured party, the beneficiary or the person entitled under the insurance contract.

I hope the above principles will prove useful when verifying insurance policies provided by counterparties.

In the next article, we will look at the possible scope of road carrier’s liability insurance and contractual carrier’s liability insurance. In particular, we will discuss how to read insurance policies and general terms and conditions in order to identify the actual scope of cover and determine whether that cover is appropriate for the specific transport operation that is to be entrusted to a given carrier.

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