Coverage Corner

Property in Transit - Christmas Edition

By Cathy Trischan, CPCU, CRM, CIC, ARM, AU, AAI, CRIS, MLIS, TRIP

Children the world over wonder how Santa and his team of reindeer manage to deliver so many presents to so many homes in just one night. Those whose dreams involve insuring agreements and exclusions rather than dancing sugar plums, though, wonder something else. They wonder, “How would Santa insure all of those toys?”

As a general rule, commercial property forms are fairly grinch-like when it comes to covering property in transit away from the insured’s premises. In the ISO property program, for example, $5,000 coverage for property in transit applies as an extension in the Causes of Loss – Special Form (CP 10 30 09 17). The property, though, must be in a vehicle owned, leased, or operated by the named insured. There are a few more restrictions – the property cannot be in the care, custody, or control of a salesperson, and the property must be moving between points in the coverage territory which includes the United States, its territories and possessions, Puerto Rico, and Canada. Limited perils apply to this coverage, but fortunately, vehicle collision, upset, or overturn is one of them. When it comes to theft, an entire bale, case, or package must be stolen from a securely locked vehicle, and there must be visible marks of forced entry. This extremely limited coverage leaves insureds with no protection should they hire a common or contract carrier to ship goods for them. In the case of Santa, there is an additional problem. Commercial property policies do not cover personal property while airborne or waterborne.

Businessowners policies do a slightly better job of covering property in transit. The ISO Businessowners Policy (BP 00 03 07 13), for example, provides $10,000 coverage for personal property off-premises. Unlike property forms, the BOP includes property in transit in this coverage extension. The property can be in another’s vehicle, and full policy perils apply. Although the BOP does not exclude airborne property, Santa and many businesses will still have problems with the coverage territory which is the same as in the property form.

How does one, then, insure property in transit? One of the best options is a Transportation Policy. Using the AAIS Transportation Policy (IM 72 50 04 04) as an example, an insured can include coverage for property being shipped by aircraft, owned vehicles, carriers for hire, or railroads. The insured is able to select separate limits of insurance, as needed, for each mode of transportation. Coverage applies on an open perils basis (covered unless excluded), but does not include coverage, for example, for employee theft or loss involving spoilage and temperature/ humidity changes. Coverage for the latter can often be added by endorsement if the insured is shipping goods in a refrigerated truck. There are also certain types of property that are not covered under the Transportation Policy. Examples include art, antiques, jewelry, and precious metals. Separate coverage must be arranged for these types of valuable articles. As was the case with the property policy and the BOP, though, the coverage territory is limited to the US, its territories and possessions, Puerto Rico, and Canada.

There is yet another policy to be considered to help Santa and the myriad businesses that ship property internationally – Ocean Cargo. These policies can be written to cover a single shipment or all shipments an insured has during the year. Coverage is written to cover goods being sent by air and/or by sea and applies to shipments outside the US coverage territory commonly found in property and inland marine forms.

Ocean Cargo doesn’t cover property only while in the air or on watercraft outside the United States. Ocean Cargo coverage can be combined with coverage for domestic and/or international inland transit. This approach covers the property from the time it leaves its original destination (e.g. North Pole) until it arrives at its final destination (e.g. Cindy Lou Who’s Christmas tree). Coverage under these policies is broad, with valuation that includes the invoice price of the property plus charges for freight and related costs. Also included is a factor to cover profit and/or other expenses – 10% is common here.

Regardless of how insureds are getting their property from one point to another, proper coverage should be considered for the exposure. While Santa has the elf-power to easily replace property damaged in transit, most insureds are unable to do so without proper insurance coverage.

Til next year!

Cathy Trischan, CPCU, CRM, CIC, ARM, AU, AAI, CRIS, MLIS, TRIP is IA&B’s commercial lines education consultant. She works with our CIC and CISR programs, as well as our live CE webinars. Catch her at one of our upcoming courses: IABforME.com/education