Understanding Excess Liability in Freight Shipping

Whether your transportation operations are completed in-house, via a TMS, or through a logistics provider, chances are you will have some shipments that require more attention than others. One such instance that requires more attention is shipping high-dollar freight. When you need information on shipment insurance, it is of the utmost importance to defer to the carrier’s tariff and email the carrier’s customer service. An email provides a paper trail from the carrier which you can refer to in the event something goes awry.

If an agent of your logistics provider gives you incorrect information or mistakenly fills out a BOL on your behalf, it can result in insufficient liability insurance for your shipment and ultimately you are the one taking the loss. It is of note, if you use a 3PL or some other logistics provider, they will more than likely walk you through everything and make sure you are adequately protected. However, it never hurts to have an understanding of what is going to protect the bottom dollar of your freight.

Defining the Pertinent Terms

             When speaking with your clients, colleagues, suppliers, or a carrier’s customer service personnel, words that are similar but have different meanings are often interchanged. A client may refer to coverage as Declared Value Insurance, Liability Insurance, or Declared Liability and their meaning is completely understood. However, when a carrier is assessing what to pay out for a claim, terminology and a correct BOL make all the difference. It is important to review the pertinent terms and understand what terminology will provide the best financial security if your shipment goes awry.

• Insurance – An arrangement with a company to receive a specified amount of compensation in the instance a product is lost or damaged. While everyone has a personal understanding of how insurance works through life experiences such as health insurance, auto insurance, home insurance, etc.; shipping insurance, particularly LTL, is much different. In fact, the majority of carriers do not reference “insurance” in their tariffs or refer to the coverage they offer as “insurance.”

• Declared Value – Most often the Declared Value of an item is the retail price; the actual amount exchanged for the item (not including shipping). Declared Value is required for international shipments, additional coverage on small pack shipments, and shipments that are classed based on value. Additionally, Declared Value will play an important role if a claim must be filed on a shipment. Stating the Declared Value of an item on the BOL is NOT sufficient notation for acquiring coverage exceeding the carrier’s standard $/lb payout based on National Motor Freight Classification (NMFC).

• Excess Liability – An additional amount of coverage that is purchased from the carrier to be paid out upon a successful claim that the shipment was damaged or lost. Excess Liability refers only to the amount of coverage that is greater than the coverage inherent to the billed class. This is preferred term used by carriers to mean “additional insurance” and is found in most carriers’ tariffs. While “Excess Liability” is the most common term among carriers, it is in no way implemented the same among carriers. It is imperative to review each carrier’s tariff and understand when Excess Liability can be purchased, the charge, and correct terminology on the BOL.

Reviewing Tariffs

            When you need Excess Liability coverage, it is up to you to determine the correct amount needed and how much it will cost. This information is found easily with a term search. Excess Liability is usually purchased on a per pound scale, possibly with a minimum charge. You only need to purchase Excess Liability for the amount that is greater than the coverage already provided by the Class. To further guarantee yourself a successful claim in the event of damages, you must have the correct NFMC item number. This can also be double-checked in your email to the carrier.

            More helpful information that can be found in the carrier’s tariff includes the standard coverage based on the class. Having the correct NMFC Item number means you will have the correct class. Knowing beforehand if the item is new or used is also of vital importance. Completely different rules, prices, and possible coverage limits apply based on whether the product is new or used. 

The Last Mile

            Carriers will use every single angle possible to avoid paying a claim, especially a large one. There are a few steps that must take place on shipments requiring Excess Liability. When you need Excess Liability Coverage, a good course of action includes an e-mail to the Carrier’s Customer Service with all the information for the shipment, explain how much Excess Liability is required (using tariff language whenever possible). Having this record will help to determine the correct amount of Excess Liability to purchase and assist in the claims process in the instance the shipment is damaged. A phone call to the carrier to get the information may be quicker, but the lack of a written record from the carrier can cost $1000s later if an issue arises.

            If you are requesting a quote for a shipment, as a whole, that includes the need for Excess Liability Coverage, you MUST get it in writing from the carrier that the quote number includes the Excess Liability. Also required in writing, from the carrier, is the verbiage required on the BOL. If you received a quote including the Excess Liability, is writing the Quote # by itself on the BOL sufficient in guaranteeing the shipment is covered? Some carriers state explicitly in their tariffs that their BOL must be used and there is a specific section designated for Excess Liability that must be filled out completely. The Special Instructions section of a BOL is not a “catch all” for everything, particularly for $1000s in claim damages.

In Practice

            Above, is all the information you need to navigate Excess Liability. However, it is always best to see a real-world application of information; below is an example of a real situation. Additionally, the last page includes an infographic to bring about a visualization of this process.

Shipment Information:

• 1 pallet 48”L x 44”W x 62”H
• 600lbs
• Industrial Dishwasher (New), Item 119540 Class-100
• Declared Value of $2,200.00

Carrier Information:

• Standard liability pays $1/lb for Class 100
• For Excess Liability, the carrier will charge whichever is the greater amount:
  • Minimum charge of $65.00/shipment
  • 3% of Declared Value that is excess over the standard liability
• Excess Liability must be clearly requested on the BOL for the full Declared Value of the freight. Example verbiage: “Excess Liability coverage $______ requested”

Ready to Ship:

• Clearly write on BOL, “Excess Liability coverage for $2200 requested.”
• The standard liability already covers $600 of the $2200 declared value leaving a difference of $1600.00.
• The carrier’s tariff clearly states the charge is the greater amount of either:
  • Minimum charge = $65.00
  • 3% of $1600.00 = $48.00
• We know we are going to pay the minimum charge of $65 on this shipment for the Excess Liability coverage.

 Interested to learn more about Excess Liability? Visit our Website