Brokering and Constructive Total Loss

December 19, 2012


Your customer has just given you an order to deliver 1,000 cars by the end of the week. Logistically, you’ll be able to handle 800 of them with your equipment but you’re going to have to scramble to get the remaining done through your brokerage.  Like many carriers, you’ve gotten accustomed to relying on these smaller carriers to help with the overflow and using your brokerage is better than disappointing your client.

You have access to a hundred or so carriers so you’re confident all the cars will get moved. These carriers are small, one or two trucks on average, some with a few more.

You have a current brokerage agreement with all of them on file along with a current Acord Certificate of Insurance that shows effective dates and limits of insurance, along with the names of the insurers providing coverage. Your contract may even stipulate that you are to be named as an Additional Insured on the policies. You’ve purchased Contingent Cargo Insurance to cover these brokered loads in the event a problem arises with their insurance.  You are feeling pretty solidly covered on this with a good carrier and a happy customer.

Constructive Total Loss:
Late in the week, you’ve got a dealership on the phone.  One of the sub-haulers has arrived with a damaged unit, Turns out the driver neglected to measure the height of the load and the top car — a 2013 Toyota Avalon — hit a bridge and damaged the roof of the car. You’ve had enough experience with this type of damage before and you know it’s going to be a Constructive Total Loss.

In a week or so you’ll get a call from the adjuster representing your sub-haulers cargo insurer.  They’ve appraised the damage and have determined that the car can be repaired for $8,000 so that’s all they’re obligated to pay.  You explain that the ear is going to be crushed and the dealers invoice shows a value of $44,000 – that’s what the claim is going to end up being.
The adjuster explains to you that they don’t provide coverage for constructive total loss.
Or, they agree to pay the dealer cost but only if they retain the salvage and are able to
resell the unit; that is not going to be allowed by the Manufacturer.
Finally, you resort to filing the claim under your contingent cargo policy only to learn that this coverage does not enhance someone else’s policy.  It only pays if a policy is not in existence at the time of a loss and you have a certificate showing that there was current coverage.  Also, it’s only going to follow the policy language on that policy.

The sub-hauler that caused the damage had no idea he wasn’t adequately covered for this and now owes you $38,500 after his carrier paid you the $8,000 less his $2,500 deductible. You know based on prior experience that you don’t have a snowballs chance in hell of collecting this money and you’ve lost a decent sub-hauler to boot.  You’ll end up making your customer whole and writing off the bad debt; thus an expensive lesson learned.

The Solution:

This scenario is becoming an all too common occurrence and it requires a diligent effort on your part to make sure the sub-haulers you’re brokering for new cars to have proper insurance coverage to deal with both constructive total loss and diminished value damages. Until recently, it was very difficult for a small transporter to be able to find an insurer willing to write this coverage.

Bill Fralic Insurance Services, Inc. has developed a small fleet insurance program designed for these smaller carriers that adequately covers these exposures.  It’s competitively priced as well.  They’ll spend time educating your guys on these coverage loopholes and work up some numbers pretty quickly on the cost of properly covering them.
They’ll be better off and you will too.