5.2 Cargo, Transit & Bailee Coverages

5.2 Cargo, Transit & Bailee Coverages

Quick Reference: Property in transit is insured either by the owner of the goods (a transit policy or an owner's cargo form) or by the carrier or bailee holding them (a legal liability form). The two are not interchangeable. A common carrier is liable for the goods it hauls subject to only five classic exceptions, a contract carrier is liable only for negligence, and a bailee is liable only for failing to exercise the degree of care its bailment requires. Motor Truck Cargo insures the carrier's legal liability; a bailees customers policy pays the customer without regard to liability.

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1. Who Bears the Risk While Goods Move?

Every transit claim starts with one question: whose property is it, and who had legal responsibility for it at the moment of loss?

The Five Common Carrier Defenses

A common carrier is liable for loss of or damage to the cargo it accepts except where the loss is caused by:

1. An act of God — a natural event of extraordinary and unforeseeable severity;
2. An act of a public enemy — a military force of a hostile nation, not an ordinary thief;
3. An act of public authority — quarantine, seizure, condemnation, regulatory destruction;
4. The inherent vice or nature of the goods — fruit that ripens, chemicals that spontaneously react, steel that rusts in humid air; or
5. The act or fault of the shipper — negligent packing, mislabeling, improper blocking and bracing.

Adjuster Application: These five exceptions are the carrier's entire defense playbook, so they are also the entire subrogation battleground. When a shipper's cargo policy pays a loss and the carrier is at fault, the shipper's insurer subrogates against the carrier and the carrier answers with one of these five defenses. Document which defense the carrier asserts in the first contact.

Released Bills of Lading

Carriers routinely limit their exposure with a released bill of lading — the shipper accepts a lower freight rate in exchange for a stated maximum liability per pound or per package. A $40,000 shipment of electronics moving on a released rate of $2.00 per pound may generate a carrier liability of only a few thousand dollars. The cargo owner's own transit policy covers the difference, and the subrogation recovery is capped at the released value. Always obtain the bill of lading before valuing the subrogation claim.

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2. Motor Truck Cargo: Two Very Different Forms

Motor Truck Cargo — Carriers Form (Truckman's Form). This is a legal liability policy purchased by the trucking company. It responds when the trucker becomes legally liable for loss of or damage to the property of others in its care, custody, or control while being transported. It is not a first-party policy for the cargo owner. Key features:

• Covers property of others, not the trucker's own goods.
• Coverage typically applies while the cargo is on the covered vehicle, and often at terminals or during temporary stops, with restrictions on unattended vehicles.
• Written on named perils in older forms (fire, lightning, windstorm, collision, overturn, theft) and on broader terms in modern forms.
• Common exclusions: dishonesty of the insured's own employees, unattended-vehicle theft without forced entry, contraband, live animals in some forms, and loss caused by improper packing by the shipper.
• Refrigeration breakdown on reefer loads generally requires an endorsement.

Motor Truck Cargo — Owners Form. Purchased by the owner of the goods for the owner's own property on the owner's own vehicles. No legal liability analysis is needed; it is first-party property coverage on wheels.

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3. Annual Transit vs. Trip Transit

Both forms cover the goods regardless of whether the carrier is liable, which is precisely their value: the shipper gets paid now and lets its insurer fight the carrier later.

4. Bailee Exposures: Liability vs. Customers Coverage

A bailment is the delivery of personal property by the bailor (owner) to the bailee (holder) for a specific purpose, with the understanding it will be returned. The bailee's legal duty scales with who benefits:

Virtually every commercial bailee is a mutual benefit bailee owing ordinary care.

Why the Standard of Care Decides the Claim

The bailment classification is the first thing to establish, because it sets the legal liability the bailee's form responds to. The inland marine section of the previous chapter contrasts the two bailee policy formats — bailee legal liability, which pays only on proof of the bailee's negligence, and bailees customers direct damage, which pays regardless of fault. The bailment table above is what determines whether that negligence standard is slight care, ordinary care, or great care in the first place. A commercial bailee is essentially always a mutual benefit bailee held to ordinary care, so a plaintiff who cannot show ordinary negligence recovers nothing under a legal liability form.

Why a Texas adjuster meets these forms. After a hailstorm or a fire at a strip center, the losses inside a dry cleaner, an upholstery shop, a computer repair business, or a self-storage operation are customers' property, not the insured's business personal property. The BPP covers "personal property of others in your care, custody or control" only to the limits and conditions stated; the bailees customers form is designed for the exposure. Determine early which form is in the file, because the two produce very different settlements on identical facts.

Other Commercial Floaters an Adjuster Encounters

• Installation Floater — covers machinery, equipment, or building materials from the time they leave the supplier until the installation is accepted, protecting the contractor or installing party.
• Contractors Equipment Floater — mobile tools and equipment away from any fixed location.
• Processing or Furriers Block — dealer's stock plus customers' goods.
• Accounts Receivable — sums the insured cannot collect because records were destroyed, plus collection expense and interest on borrowed money.
• Valuable Papers and Records — covered separately in the additional coverages section of this chapter.

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5. Where Transit Coverage Sits in the Nationwide Marine Definition

The Nationwide Marine Definition (NAIC, as revised in 1976) is what makes any of this inland marine rather than fire or casualty business. The inland marine section of the previous chapter enumerates its six eligible classes — imports, exports, domestic shipments, instrumentalities of transportation and communication, personal property floaters, and commercial property floaters. Everything in this section lives in the first three of those classes plus the commercial property floater class:

The practical test an adjuster applies when asked whether something belongs on an inland marine form:

IS IT ELIGIBLE FOR INLAND MARINE?
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   +-- Is it MOVING, or capable of moving?           -> likely yes
   +-- Is it an INSTRUMENTALITY of transport/comms?  -> likely yes
   +-- Is it a floater on scheduled personal or
       commercial property?                          -> likely yes
   +-- Is it a fixed commercial BUILDING or its
       ordinary contents at one location?            -> NO, that is fire/property

Transit vs. Ocean Marine Boundary: The moment the goods go to sea, the exposure becomes ocean marine and a different body of law applies — general average, particular average, and the implied marine warranties covered in the next section. Texas also treats these lines differently for consumer-protection purposes: marine insurance is excluded from the Texas Prompt Payment of Claims Act by TIC § 542.053(a)(5), and ocean marine insurance is excluded from Texas Property and Casualty Insurance Guaranty Association protection by TIC § 462.007(b)(7). Inland marine enjoys neither of those exclusions.