The fee that transporters charge their customers to ship goods is typically far out of proportion to the value of the goods themselves. The prospect of having to pay to replace lost or damaged goods would prevent most people from entering the transport business if the responsibility could not be spread around. Bailee insurance is the means a transporter uses to manage the risk.
How Does Bailee Liability Insurance Work?
Say, for instance, that a cargo company contracts with Nike to transport a container filled with the latest LeBron James signature sneaker to market overseas. With an average retail value upwards of $200 per pair, the cost of replacing a container filled with sneakers, should the contents of the container be damaged or lost in transit, dwarfs the fee the transporter receives for moving the shoes. The replacement cost might even put the transporter out of business. Bailee insurance protects transporters from such a catastrophe by transferring the risk of lost or damaged cargo to the insurer.
What Is Covered?
Short of willful destruction of goods on the part of the bailee, contracts can be written to cover nearly any scenario that might result in a claim filed by the bailor. Coverage for acts of God, including natural disasters, as well as many acts of man, such as theft or vandalism, are standard features of most bailee insurance policies. Nonstandard items include legal defense coverage and protection against clean-up costs.
Bailee insurance is not only a smart idea, but is often a requirement when entering into a cargo contract. A careful analysis of likely risks will help companies determine the level of coverage they need to prevent a catastrophic claim against the business.