TT Talk - Club warns on logistics liability and insurance

In a speech to the Logistics Law seminar in London, Mike Foster Claims Director based in the Club's London office, has warned that logistics operators should make sure that their insurance cover is adequate. The reason for this, he explained, was that insurance providers are finding it difficult to keep up with the pace of change in terms of complexity of risk in the logistics and transport industry, and many are still basing their principal insurance product for this sector on a model of the freight forwarding industry that is up to thirty years old.

The basic premise of those policies was that forwarders would incorporate their standard trading conditions and could then limit liability in the event of an accident, with the business actually retaining very little of the risk. "But for the logistics operator", Mike continued, "the bounds are not so set. Liability for goods does not cease at the customer's gate: it may extend to delivery to a production line. The operator may even be part of the extended production line, with pre-delivery inspections now trumped by minor assembly work. What implication does this have for risk and insurance?"

Responding to the changes in logistics operators' liabilities, the Club has developed model contract conditions to assist its logistics operator members to minimise risks in their contracted services. "The logistics operator needs a process that continually assesses his exposure to risk in the light of the contracts that he is considering and the activities he may undertake," Mike explained, and "in turn, the insurer of logistics operators needs to be able to verify the assessment of risk, using as his starting point the obligations in the logistics contract. "

Mike recommended that, when considering the section of the contract that addresses liability for goods, logistics operators should keep some guiding principles in mind:

- They should find out the cost that the risk represents before pricing the contract.

- It is unlikely that the contract will be back-to-back with their carriers and other sub-contractors in accepting liability on an "all risks" basis. The gap in liability may be profound.

- All 'risk' related issues should be on the table in contract negotiations so that the true operational risks are clearly understood.