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Cargo Risk Transfer Strategies for Freight Brokers in Trucking

posted by TrueNorth Transportation on Thursday, June 15, 2023

As freight brokers in the trucking industry, it's crucial to mitigate risks associated with cargo transportation. In this second installation of our Freight Brokerage Series, we explore strategies and options to help freight brokers safeguard their business and manage liabilities. 

Understanding Liability 
Under the Carmack Amendment, freight brokers are not legally liable for goods damaged during transit, since they do not physically possess the freight. However, customer contracts and service expectations are evolving, with some customers requiring brokers to assume direct liability for cargo losses. This trend poses financial risks to brokers and necessitates risk mitigation measures. 
To protect your brokerage from potential financial risk, consider the following strategies based on your risk tolerance and financial position. 

This is typically approached in a couple ways: 

1. Conduct business without a service agreement.

For regional or lower revenue scale customers who may not fully understand shipping regulations or the distinctions between a motor carrier and a freight broker, formal contracts may not be necessary. Some sectors of the industry still rely on verbal or handshake agreements. However, this approach has its drawbacks. Without a defined contractual foundation, you, as the broker, are not directly liable for damages in the case of loss. If litigation arises, the court will primarily consider your status as a freight broker. It's important to be cautious about the risks associated with this method. 

There are potential problems with this approach. First, failing to disclose broker status, using misleading documentation, or inadequate insurance coverage can undermine legal standing. Unfortunately, some brokers use this tactic to get in the door with customers who may not otherwise be inclined to utilize a third-party logistics company or freight broker. Lack of a service agreement is not foolproof and poses substantive risks. 

The omission can have severe consequences if a significant loss occurs. If a customer sues the broker and claims misrepresentation of services provided, it can greatly impact the court's decision on your legal liability. 
Another pitfall to this approach is that it can weaken your legal standing, including using shipper-generated bills of lading that identify the broker as the motor carrier instead of the actual carrier, handling bonded shipments under a broker's customs bond instead of requiring a customs broker, or booking a bonded motor carrier and requiring them to utilize their bond. Failing to ensure that the transporting carrier has motor truck cargo coverage is also a risk.

While the absence of a service agreement may allow the broker to rely on the lack of statutory liability for freight damages, it is not foolproof. The tactic can hurt a broker's legal standing in the case of a loss. 

2. Develop a broker-shipper agreement that transfers a portion, or even all, liability and financial exposure in the event of a loss when the motor carrier is in possession of the goods.

This is generally a preferred option. A well-written agreement clarifies responsibilities, liability requirements, claims handling, insurance coverage, legal venue, termination triggers, and other contentious topics. Such agreements reduce ambiguity and provide a solid foundation in the case of litigation. 

It also serves to define potential contentious topics that can arise in the event of litigation, like claims filing and handling responsibilities and time periods, insurance coverages and limits, consequential damages inclusion/exclusion, stipulation of legal venue and jurisdiction, notification of service issue and cure period responsibilities, termination, breach of contract triggers and more.

Creating a well-written broker-shipper agreement reduces risk and sets up a broker to better handle litigation if it does come up. This is the preferred method for freight brokers.


Not all customers will have insurance coverage for their owned or manufactured goods. In fact, many customers expect their brokers to have cargo insurance to cover potential losses or damages.  

There are many forms of cargo insurance that are customizable to your business needs and model, however, freight brokers will generally obtain one of two varieties: contingent cargo or shipper’s interest. This choice has the potential to change as your customer base and contractual requirements grow.   

Contingent Cargo Insurance

Many freight brokers start their operation with a single customer and arrange for the transport of a specific good. In most instances, this tends to be a lower value product that may not pierce the industry standard of motor truck cargo insurance limits held by most carriers of $100,000 per shipment. Under these circumstances, a contingent cargo product generally meets the business need and customer expectation. 

A contingent cargo policy is contingent upon a coverage determination made by a different policy, meaning it is not the primary insurance agreement on any shipment. As is the case with Contingent Auto Liability, a contingent cargo product will only provide coverage when the primary motor truck cargo policy held by the transporting carrier fails or declines to cover a loss.

Contingent cargo product coverage typically has…

  • Lower premiums. Since it’s secondary coverage, the insurer’s expected exposure is less. This can potentially make it attractive to new brokers that may not have initial investment capital, cash on hand, or sufficient credit.
  • Coverage limits within a higher overall policy limit. In general, a contingent cargo product will only cover up to the insurance limit of the underlying motor carrier. Meaning that if you book a carrier with a $100,000 limit, in the event of a declination by the carrier’s cargo insurer, contingent coverage limit will be capped at that same limit. A contingent cargo policy could have a declared policy limit of $250,000 or $500,000 but will cap that amount to match the amount held by the motor carrier. This is why ensuring that the underlying motor carrier has cargo limits to cover the value of your customers goods is paramount to trigger a matching limit via a contingent policy and avoid potential coverage gaps in settlement amounts.
  • Named perils/broad exclusions. Most contingent cargo products will contain a specific list of loss triggers or types, after which coverage can be triggered. Additionally, a typical contingent product will contain exclusions for losses stemming from things like human error in reefer temp settings, unattended trailer losses, theft by employees of the motor carrier, specific commodity exclusions (like livestock, art, fresh/frozen food products, etc.). Brokers should be aware of all commodity types they arrange for transport and ensure their contingent coverage does not exclude same.

Contingent cargo coverage is activated when the primary motor truck cargo policy of the carrier fails to cover a loss. It offers lower premiums but has limitations regarding coverage triggers and exclusions.

Shipper’s Interest Policy

This covers the owner of the goods being arranged for shipment by the broker in a similar way to a primary motor truck cargo product held by the underlying carriers. A shipper’s interest underwriter may require more stringent carrier onboarding criteria and internal controls from the insured broker to qualify, however, in general, shipper’s interest is normally a more flexible and expansive coverage option.

Shipper’s interest policy coverage typically has…

  • Broad commodity coverage. This coverage normally covers any type of commodity unless specifically listed as excluded. If a commodity is not specifically excluded in some way, the expectation is that coverage will be afforded at the policy’s coverage limit.
  • Expanded geographic coverage range. Shipper’s interest policies are usually designed for domestic and international shipments, and this is usually reflected in the geographic locations portion of the policy. If a broker is expanding into foreign markets, a shipper’s product can provide coverage for the maritime portion of the shipment - with caveats - as well as the inland or domestic leg of transit.
  • Portal access for individual certificates. Some insurers writing shipper’s interest policies will offer their insureds access to a certificate portal from which individual shipment certificates of insurance can be issued if requested by a customer.
  • Primary coverage. Generally, the insurer’s subrogation team will pursue the responsible carrier’s motor truck cargo policy for recovery, leaving your customer whole and out of the picture with the subrogation responsibility transferred to the insurer. A shipper’s interest policy is generally far more attractive to a potential customer and can help differentiate brokers during RFPs or potential customer outreach.
  • Increased premiums. As primary coverage, the insurers exposure basis is increased, and this is reflected in higher premiums.

Shipper’s interest policy is primary coverage that protects the owner of the goods, offering broad commodity coverage, expanded geographic range and portal access for certificates. It provides more comprehensive protection but comes at a higher cost.

Choosing the Right Coverage for Your Brokerage

Selecting coverage is not one-size-fits-all, and brokers must look at things like:

  • Financial position.
  • Growth expectations.
  • Customer/commodity base and expectation.
  • Customer contract requirements and terms of service.
  • Whether there’s opportunity to expand into niche or unique freight markets.
  • If you have international customers or plan to pursue those markets.

Determining your internal risk appetite and managing it is an exercise brokers should do frequently, as customer base and revenue outlooks change. Insurance renewal periods are a natural break point to address these questions and take stock of your current and future state plans.

Our Specialists Can Craft a Coverage Plan Fit Just for Your Freight Brokerage

There is so much nuance and many factors that go into choosing the right coverage. Partnering with an insurance broker like TrueNorth, who understands your journey and evolution, the potential pitfalls freight brokers face daily, and can serve as your trusted partner to assist in managing your risk transfer strategies is incredibly important to your continued growth and longevity in the industry.

Our colleague Chad Graber is a former risk manager at one of the largest freight brokerages, so he has extensive experience in risk management and compliance strategy. At TrueNorth, Chad works with clients to align their risk management techniques to their growth strategy. What to start the conversation? Reach out below!

About Author

TrueNorth has a team of dedicated transportation staff with deep specialization to each facet in the industry. Our solutions beyond the insurance policy help transportation companies reduce risk in new, innovative ways. Learn more about the solutions we offer here or call us at (800) 798-4080.

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