The complex world of motor truck cargo legal liability - an adjuster's perspective

By Shubham Gupta, CIP, FIII, BE    |     May 2018    |    22-minute read

"If you bought it, a truck brought it" – it is not difficult to appreciate the meaning of this industry adage in today’s world of trade. Most industries rely heavily upon the commercial trucking industry to satisfy their distribution needs. The global cargo shipping market is projected to be worth 12.52 billion tons by 2021, growing at a Compound Annual Growth Rate (CAGR) of 3.5% from 2016.

Two trucks on a highway

Whether it is an air, ocean or rail shipment, the first and the last leg of any transit is a road voyage, which is mostly completed using a combination of tractors and trailers, commonly known as motorized trucks.

With the predicted influx of autonomous vehicles combined with artificial intelligence (AI) and blockchain, there is both fear and excitement in the underwriting world about what the future may entail. Automated trucking may come as boon, eliminating (or at least minimizing) human/driver errors, while it may come as a bane for the truck drivers, who risk losing their jobs and their livelihoods. According to a report from Goldman Sachs Economics Research, around 300,000 jobs a year could be lost in USA when autonomous vehicle saturation peaks. This is in quite contradiction to current shortage of drivers faced by the trucking companies in North America.

Andrei Korottchenko from Isaacs & Company, specializing in transportation law, is of the following viewpoint: "The transportation industry continues to evolve. Emerging technologies, such as autonomous vehicles and blockchain, have the potential to fundamentally change the way the industry works. The extent of future changes remains to be seen, but all market participants, from shippers to carriers and from underwriters to regulators, will need to adapt to the changing industry landscape."

Marsh, one of the world’s leading insurance brokerages highlighted the potential concerns of automation in their recent paper - Transportation Insurance on Contract Liability and Brokers Liability: " As we see change taking place at an ever increasing pace in both the way goods are moved and the expectations being placed on the parties involved with the movement of goods, the insurance industry is going to be challenged to keep up. The coverage structures of the past may not be suitable for the contractual and operational exposures of the future."

As with any industry, insurance is a critical component of the commercial trucking industry. Given that the cargo carried by the trucker (or common carrier) is usually owned by an independent third party, there are numerous legal scenarios the common carrier or other involved parties could be faced with while carrying someone else’s property in its “care, custody or control.” This is where it becomes important for the carrier to properly ensure that it acts in accordance with due diligence, by making sure that there is adequate coverage available under the motor truck cargo legal liability insurance.

This paper will provide a detailed synopsis on the world of motor truck cargo legal liability insurance for a common carrier, from an adjuster’s perspective.

Parties Involved

There could be numerous parties involved in any given transit that involves transportation of cargo. The most common are listed below.

Shipper: The entity that dispatches the cargo. The carrier would take possession of the cargo from the shipper’s location (point of origin) for delivery to its destination.

Consignee: The delivery point of the cargo is the consignee’s location. Upon delivery, the carrier will transfer care, custody and control of the cargo to the receiving party, completing the contract of carriage.

Common Carrier: A carrier who transports goods or people and receives payment in return.

Load Broker: An agent arranging transportation of goods, by hiring the services of an independent third party common carrier, at the request of its customer. A load broker, as the name suggests, simply brokers the load for its customer (usually a shipper or a consignee) to a common carrier without getting directly involved in the physical transportation of the shipment. They may have only limited legal liability under law with respect to cargo, unless a contractual obligation is in place, as they never physically handle the shipment.

Freight Forwarder: Usually arranging overseas shipments only, these entities also arrange for the transportation of shipments by hiring the services of third party carriers, at the request of their customers. However, they may handle the shipment physically at some point during transit. A freight forwarder could be held, depending upon their role in the shipment, to be as much liable as a carrier who carried out the transportation of the shipment.

Insurance Adjuster: An adjuster gets involved only when an insurance claim is reported. There could be multiple adjusters involved on the same shipment with respect to damages to the same cargo. Each of the parties involved in the shipment may report a claim to its respective insurer and in turn, each insurer may hire services of an independent insurance adjuster, depending upon the severity of the claim and potential of the liability.

Types of Cargo

The two broad categories into which the freight could fall are:

• Dry Freight
• Temperature Controlled Freight

Dry Freight encompasses a variety of cargo, ranging from furniture to oil and gas to electronic products, and any cargo that does not require transportation under a temperature controlled environment. This type of cargo would usually be transported in a dry van trailer or a specialized and/or customized trailer used for bulk or liquid transportation. The cargo will often be packed in cartons, stacked over wooden pallets and then stuffed into a trailer, or the cargo such as oil, could be simply filled directly into specialized bunkers/containers for transportation.

Temperature Controlled Freight requires a temperature controlled trailer, which has an independent reefer/heater unit controlling the temperature of the cargo during transportation. The reefer/heater unit is not designed to change the temperature of the cargo, but is only designed to maintain it during transportation. This type of cargo could include perishable food products such as fresh produce, frozen meat, medicines, etc.


The most important document in any transportation of cargo is the bill of lading. A bill of lading is a mercantile document recording the event of carriage and is issued to evidence the contract of carriage between carrier and shipper or the owner of the cargo. It can be “issued” by the carrier (since carrier is the one accepting goods into its custody) but can be “prepared” by the shipper, carrier, freight forwarders and similar entities. Interesting scenarios may arise where there are multiple set of bills of lading, prepared/issued by different entities.

A bill of lading serves three important purposes:

• It is a receipt for the cargo, acknowledging its receipt and its condition,
• It is evidence of the terms of carriage, and
• It is sometimes a title document for ownership of goods in a negotiable bill of lading.

The following information usually appears on the face of the bill of lading:

Shipper, Consignee, Commodity, Weight, Carrier, Forwarding Agent, Date of Shipment, Shipment Terms, Liability Terms and Conditions.

The limitation of carrier’s liability is usually conspicuously mentioned on the bill of lading with a space to declare the value of the shipment. It is pertinent to note here that simply by declaring the shipment value does not mean the carrier will be liable for the declared value in all circumstances. Though carrier has a strict liability, there are a few defenses available to the carrier where no liability exists and hence declared value shipments are not a substitute for first party cargo insurance (insurance effected by the cargo interests or by other parties on behalf of the cargo interests). These defenses are discussed later in this paper.

Other claim documentation may include commercial sales invoices, carrier and customer confirmations and cross border customs documentation, etc. All of the above documents could play a critical role in determining the extent and quantum of liability for a motor truck carrier and other parties involved in the shipment, when the cargo has been alleged to have been damaged during transit.

Nature of Liability - Cargo

From the early 1700’s, it has been held that carrier has strict liability for damages to the cargo unless otherwise stipulated on the bill of lading. As time has gone by, this principle of liability has been extended to include motor truck carriers. The principle provides that a carrier in possession of cargo is presumptively liable for loss to the cargo, subject to a few limited exceptions and/or defenses.

In cases of connecting carriage, the carrier issuing the bill of lading and the carrier who assumes responsibility for delivery may both be held liable for any damage occurring while the goods are in their custody (Joint and Several Liability). Indemnity is however afforded in favor of the original or delivering carrier where the loss can be established as having occurred while the goods were in the possession of any connecting carrier.

A few possible defenses against this strict liability are listed hereunder:

Act of God (Force Majeure in Quebec), Inherent Vice, Shipper’s/Consignee’s Default, Queen’s or Public Enemies, Acts of Public Authority, Riots, Strikes, differences in weight of grain, seed or other commodities caused by natural shrinkage.

Conflict of Laws – Canadian Vs American

Cross-border shipments are not uncommon, and are inevitable, as are the incidents and damages associated with these shipments; and whenever there is cargo damage, various parties will immediately start working to determine who is liable for what, and for how much. Questions will be raised as to which federal or state law ought to apply or which provincial regulation the shipment could be subjected to limit the carrier’s liability.

The below conversation will likely sound familiar if you are in the trucking business and/or handling cargo legal liability claims.

“The shipment was picked up in New York, USA. Carmack applies to it. You are liable for the full shipment value. And we will be claiming for the commercial invoice value and freight for the entire shipment.”

From a claims handling and liability perspective, the following points are highly relevant: (i) The claimant feels that the Carmack Amendment applies just because the shipment was picked-up in the USA; and (ii) The claimant wishes to put forward a claimed amount equivalent to the commercial invoice value and shipment freight.

Hence, it is imperative and critically important to determine which law would apply.

Canadian Law

Inland marine or motor truck transport law in Canada is governed independently by each of the 10 provinces and 3 territories in Canada. It is contrary to Canadian Maritime Law which is governed by federal law. There is a federal motor vehicle transport act dealing with inter provincial trucking and its regulations provide that provincial law where the transport originates ought to apply.

Regulations or conditions of carriage surrounding inland trucking are virtually uniform through all the provinces (except in Newfoundland and Labrador and Prince Edward Island where applicable duties, responsibilities and liabilities of various parties will depend on the wording of the contract of carriage).

Common valuation and maximum liability clauses are found in almost all the provinces’ laws (except for Prince Edward Island and Newfoundland and Labrador) for shipments originating in Canada. These types of clauses typically state:

A carrier will be liable for losses based on the value of the goods, unless a lower value has been declared, but always subject to a maximum liability of $2 per pound ($4.41 per kilogram) unless a higher value has been declared. In any event, liability is no more than the actual value at the time and place of shipment including freight and other charges if paid.

The weight defense clauses are broad, and with the exception of willful misfeasance, protect a carrier from liability for all loss or damage to the cargo it is carrying, even in the event of negligence on the part of the carrier or the carrier’s employees. However, the weight limit defense is not without its own limits. Some points to remember include:

• The defense does not cover lost profits due to non-delivery of cargo.
• The weight limit defense does not cover damages due to delay in the delivery of cargo.
• The defense does not apply when the carrier’s conduct has been determined to be “unconscionable” - This could include cases of theft by carrier’s employees

Declared Value Shipments

By declaring a shipment value on the bill of lading the shipper requests that the carrier be liable for a greater amount – up to the declared value and not based on the cargo’s weight as appearing in the statutory regulations. The carrier thus accepts this declared value and higher liability when it is included on the bill of lading. The carrier however has the opportunity to reject the shipment and insist on the limited value or to charge the shipper an additional freight charge to cover the increase in liability.

Based on the jurisdiction, a carrier’s right to limit its liability is determined by establishing whether a bill of lading has been issued and whether or not the same has been issued respecting provincial regulations and conditions of carriage. Also, statutory liability may be overridden by a contract that may supersede the respective jurisdiction.

The way in which the uniform conditions are incorporated into contracts of carriage in the different provinces is not completely uniform. As a result, it is important to ascertain which law (i.e. of which Province) will govern the contract at the outset of the cargo claim. Usually it is the province where the shipment originates, but not always, depending on what other contractual arrangements may exist between the parties.

With the exception of British Columbia, Saskatchewan and Prince Edward Island, all other provinces deem their Uniform Conditions to apply to contracts of carriage made in those provinces as a matter of law. Regulations provide for following: "Except as otherwise provided by or under these regulations, the following clauses are prescribed as uniform conditions of carriage of freight by a motor carrier and are deemed to be part of every contract for the carriage of freight by a motor carrier and shall be contained or incorporated by reference in every bill of lading relating to the carriage of freight by a motor carrier."

It is interesting to note here how the wordings in the respective statutory regulations could lead to different settlements in different provinces, depending upon which provincial law would apply to the specific shipment.

The British Columbia case Shooters Production Services Inc. v. Arnold Bros. Transport Ltd. [2003] B.C.S.C. No. 92 is an illustration. The carrier damaged a mobile broadcast trailer while hauling it from Ontario to British Columbia. The parties agreed that British Columbia law applied to the contract of carriage. The carrier prepared a bill of lading which complied in all respects with the Motor Vehicle Act Regulations but which was not presented to the shipper at the time of shipment. Rather, it was given to the consignee or recipient of the trailer for signature at the completion of the transportation. The British Columbia Supreme Court found that nothing in the bill of lading, including the Uniform Conditions, formed part of the contract of carriage. The rationale was that the terms in the bill of lading could not have been agreed on by the parties if the shipper of the goods had never seen them or had an opportunity to see them.

The leading Alberta case is Hoskin v. West (1988), 55 D.L.R. (4th) 666 (Alta. C.A.). The carrier damaged a printing press while it was being loaded onto its truck. This damage occurred before the bill of lading was signed. The Court of Appeal ruled that the carrier would be entitled to limitation of liability whether or not a bill of lading was completed and signed by both the consignor and the carrier. The court found that the failure to comply with the requirements set out in Section 3 of the Regulations may compromise a breach of the Regulation, “but that does not alter or detract from the limitation on liability imposed on the agreement to transport by the statutory deeming provisions.”

Notice period

A notice of intent to claim for damage must be made by the cargo interests and/or their representatives within 60 days after delivery or, in the case of a failure to deliver the goods, within 9 months after the date of shipment.

The final statement of the claim must be filed within nine months after the date of shipment, together with a copy of the paid freight bill.

A lawsuit for damage must be commenced within two years from the date of the loss, or as required by provincial statute.

American Law

The inter-state and cross border trucking of cargo in the USA is federally regulated and is governed by the Carmack Amendment.

The Carmack Amendment is an amendment to the Interstate Commerce Act of 1877, first enacted in 1906. It is presently codified at 49 USC § 14706, as part of the Interstate Commerce Commission Termination Act of 1995 (“ICC Termination Act”). It governs carrier’s liability in motor truck and rail cargo, on inter-state shipments and provides uniformity to the rules governing liability under such shipments. Carmack preempts an assertion of state law in USA with respect to claims arising out of inter-state transportation and provides an exclusive remedy to shippers against carriers. It applies to shippers, carriers and freight forwarders involved in the inter-state and cross border shipments of cargo transported under a through bill of lading, between two points within the USA (inter-state only) or for shipments to (and sometimes from) the adjacent countries (Canada and Mexico) originating from USA (cross-border). It should be noted that there are certain exempt commodities to which Carmack does not apply, such as livestock and fisheries, among others.

Carmack is silent on its applicability with respect to shipments that originate from countries neighboring the USA. A variety of approaches have been taken by the courts in determining Carmack’s applicability. The majority view is where Carmack does not apply unless the shipment originated in the USA. A secondary/minority view is the conflict of laws analysis where Carmack may apply to shipments originating in the neighboring countries.

A variety of considerations, such as the contract of carriage, any correspondence between the shipper and the carrier, the choice of law and jurisdiction on the contracting documents and any other relevant documentation, need to be taken into account before deciding on one of the above views.

Thus, it is not necessarily true that Carmack would apply if the shipment were picked up in the USA.

Measure of Damages

From the carrier’s perspective, in order to limit the liability under Carmack, a carrier should: (i) maintain a tariff on file and produce the same upon request from the shipper; (ii) offer differing levels of liability to the shipper to choose from; (iii) get consent from the shipper to be bound by the tariff’s terms and conditions; and (iv) issue a bill of lading and get it signed.

While the general rule establishes that the measure of damages should be the market value of the cargo, less salvage; it is not always the best measure of the actual loss. The courts have repeatedly taken different approaches on this point.

Whether the shipper could recover the commercial invoice value of the shipment or whether only the manufacturing costs could be recovered, is a question that is open to dispute. There is a significant body of litigation and case law debating this very issue.

Before deciding upon the claim amount, a number of factors need to be considered. One of particular interest is the concept of lost volume seller.

A special case in contract law, a lost volume seller is an entity whose capacity to sell/manufacture/acquire goods is adequate to meet the demands of any customer who walks in through their door, at any time. So, if this type of seller loses a shipment, it is not only losing the product, it is also losing an opportunity to make profit on that product. Alternatively, by replacing the shipment, he is losing an opportunity to make an additional profit on the replacement shipment that he could have made had the original shipment not been lost. Hence, if it could be proven that the shipper is a lost volume seller, there is a greater chance that lost profits will be recoverable or the commercial sales invoice value will be upheld to quantify the claim.

In view of the foregoing, the shippers must be cautious while signing contracts with the carriers, given that they must make sure that they request the carrier’s tariff on file. This tariff would generally limit the carrier’s liability and would provide a variety of liability options for the shippers to choose from. It is pertinent to note here that it is the duty of the shipper to request these tariffs and not the duty of the carrier to provide a copy of the same, unless requested. This however may not hold up as a defense when it comes to shippers that may not have extensive experience in dealing with such claims.


The following two questions are the FAQs for a carrier looking to buy insurance:

1. Why doesn’t a Commercial General Liability (CGL) policy provide coverage with respect to cargo damage to a motor truck carrier?

2. Why does a motor carrier need to obtain a Motor Truck Carrier Cargo (MTCC) Legal Liability policy, in addition to the CGL coverage?

CGL policies generally exclude coverage for damages to a property which occurs when the property is in the “care, custody or control” of the Insured. Therefore, a CGL policy will not cover damages to the cargo that occurred when the cargo was in the “care, custody or control” of the motor truck carrier. And thus MTCC legal liability coverage is required for cargo.

The Insuring agreement of a MTCC legal liability policy is generally worded as under:

Insuring Agreement:

This policy insures the legal liability of the insured as a carrier or bailee, against all risks of direct physical loss or damage from any external cause, except as hereinafter specifically excluded, to cargo consisting of all kinds of goods and merchandise, in the care, custody or control of the Insured which occurs:
(a) While in or on or towed by motor trucks, trailers or semi-trailers owned by or operated by or on behalf of the Insured, including during loading or Unloading and while at a garage or at a terminal or at a depot but all while in “due course of transit”.
(b) While in “due course of transit” in the care, custody or control of any other land carrier to whom the goods and merchandise is transshipped by the Insured in the event that such other carrier fails to indemnify the owner of the goods and the Insured should be held liable to pay.

The above insuring agreement is quite broad and covers risk to the cargo when the same is in the “care, custody or control” of the motor truck carrier, or any of their representative(s). The coverage is also afforded for risks the cargo may be subjected to whilst in storage incidental to transit. In contracts of combined carriage and storage, a carrier may be denied the benefit of a weight limit defense unless it can show that the loss or damage occurred during the carriage portion of the contract.

The general law of bailment and the respective applicable jurisdictional act relevant to a warehousing situation may come into action. There is sometimes an interesting question as to whether cargo was “in-transit” at the time of the loss and whether the loss needs to be covered under the carrier’s liability or the warehousemen’s legal liability.

There may be various sections to a usual MTCC legal liability policy. A few of these are discussed below:

Unpaid Freight Charges

Although in accordance with the statutory regulations in most Canadian provinces, the final statement of the claim must be filed together with a copy of the paid freight bill, it is not uncommon for a carrier to have its customer refuse to pay freight when damages to cargo are discovered. In cases such as these, the payment is withheld until the claim is settled, and the carrier can claim for its unpaid freight, specific to the shipment under claim only, directly from its own insurer under this section of the policy. Depending upon the extent of loss, the freight charges may later be set off against the final claim settlement with the cargo interests.

Debris Removal

A cargo that could not be salvaged may need to be disposed of in a landfill. Usually, such disposal costs may be claimed under the debris removal section of the policy. Sometimes it becomes an interesting argument if the towing expenses incurred in removing the cargo from the site of the accident, as required by law, will fall under debris removal or is a loss mitigation expense or, for that matter, is a liability incurred by the motor truck carrier under the contract of carriage.

Defense Costs

As under any liability policy, coverage is afforded for defense costs incurred in providing a defense to the insured against any suit, alleging damages to the cargo, provided the allegations fall within the purview of the insurance coverage.

The policy is also typically subjected to a few exclusions. Some of the general exclusions appearing under a MTCC legal liability policy are listed below:

The policy does not cover liability or expense for:

1. Money, securities, bills, jewelry.
2. Tobacco and related products.
3. Livestock or other live animals, birds.
4. Latent defect or inherent vice of the cargo, gradual deterioration.
5. Willful misconduct of the insured and/or any of its agents, employees.
6. Loss or damage resulting from change in temperature or reefer machinery breakdown, unless specifically endorsed.
7. Delay, loss of use or loss of market.
8. Mysterious or unexplained disappearance or shortage discovered while taking inventory.


A motor truck carrier should always obtain a MTCC legal liability policy and a specialty insurance broker should be consulted to obtain such policies. Adequate risk management consultancy before issuing such policies could be very helpful at the time of a claim. A carrier must make sure that the limits listed in the policy are well within their legal obligations (jurisdictional or contractual) as in most instances, a carrier would not know in advance the value of the load being carried, or for that matter, may not even now the nature of the load being carried. Also, a carrier should endeavor to get their contracts/agreements entered into with their customers/load brokers endorsed with the underwriters for adequate coverage. A little extra premium spent at the time of policy inception could go a long way in saving out of pocket expenses at the time of a claim.


ADVANTAGE Monthly trends papers

This paper is part of an open online library of ADVANTAGE Monthly trends papers, published by the CIP Society for the benefit of its members and of the p&c insurance industry. The trends papers provide a detailed analysis of emerging trends and issues, include context and impact, and commentary from experts in the field.

The CIP Society represents more than 18,000 graduates of the Insurance Institute’s Fellowship (FCIP) and Chartered Insurance Professional (CIP) programs. As the professionals’ division of the Insurance Institute of Canada, the Society’s mission is to advance the education, experience, ethics and excellence of our members. The Society provides a number of programs that promote the CIP and FCIP designations, continuous professional development, professional ethics, mentoring, national leaderships awards, and research on the issues impacting the p&c insurance industry in Canada.