Contingent Cargo Insurance

Contingent cargo insurance

Insurance for freight brokers that covers a complex claim between shipper and carrier. It provides coverage in the event that a general cargo insurance claim doesn’t function as it is designed to.

In many ways, the world has become significantly smaller over the past few decades. We can speak to someone on another continent in real-time. We can eat fish that was caught on the opposite side of the country just yesterday. We can order goods from all over the world with a few clicks.

And while those goods can now be delivered to our doorstep in a matter of days, the great physical distances they need to travel hasn’t changed. The longer journey, the higher the likelihood of something happening to our precious packages en route. That’s why cargo insurance is essential for any company that transports goods by freight.

Not sure if this applies to you? In this guide, we’ll break down everything you need to know about contingent cargo insurance, including what it covers and what situations would require you to carry it.

Let’s start unpacking!

What is contingent cargo insurance?

Contingent cargo insurance is insurance for freight brokers that covers a complex claim between shipper and carrier. It provides coverage in the event that a general cargo insurance claim doesn’t function as it is designed to.

If a cargo insurance claim is declined, or one or more parties fails to meet obligations, contingent cargo insurance comes into play. All freight brokers should carry it in case this happens.

Before getting into the specifics, it’s essential to understand the main parties and functions involved in general contingency insurance:

  • The shipper – The company supplying products that need to be shipped. Typically, larger companies outsource freight to other companies, who become…
  • The carrier – The company doing the freight work, using boats or other vehicles to move the shipper’s products across land or sea.
  • The freight broker – An individual or firm that negotiates deals between shippers and carriers, facilitating the business end for both sides.
  • The managed risk club – The insurance agent who underwrites the policies protecting the cargo being shipped by the carrier (on behalf of the shipper).

In regular cargo insurance, the shipper is protected in the event that cargo is damaged or lost while in possession of the carrier. Should a natural disaster or other insurable event occur, the carrier files a claim that gets paid out by the carrier and the insurance agent. In most cases, the freight broker isn’t involved.

In a contingency cargo case, the freight broker does get involved.

If a carrier is responsible to pay for losses incurred to a shipper’s cargo, they may decline to pay. Or, worse, they may be unable to pay. Whatever the case, if they fail to pay, the shipper may hold the freight broker accountable. In these cases, the freight broker can count on their contingent cargo insurance to cover the financial loss.

Do you need contingent cargo insurance?

If you’re a freight broker, the answer is yes, absolutely.

While you’re not under any legal obligation to carry contingent cargo insurance, in most cases, there are still significant reasons almost all freight brokers do need it.

Firstly, there is reputational pressure on freight brokers to carry shipping insurance. Businesses want to partner with other businesses that will protect their interests. Because the coverage exists, there is precedent in the market that freight brokers will fulfill a claim when the carrier refuses to pay. For example:

  • A large shipper contracts a carrier for a freight project. They expect that the freight broker will handle any and all contingencies.
  • If an emergency happens and the shipper’s cargo is destroyed, the shipper will need to recoup their cargo loss and will turn to the freight broker.
  • If the freight broker cannot or will not pay the shipper, the freight broker may lose trust in the eyes of this and other shippers.

A sunken reputation in addition to goods can turn a bad situation into an inescapable one. For this reason, contingent cargo insurance is needed.

Secondly, a broker’s reputation amongst carriers is also at risk. Again, since contingent cargo insurance is a well known and widely available form of coverage, carriers expect freight brokers they work with to carry it. A freight broker who doesn’t may have a difficult time finding carriers willing to work with them!

All told, contingent cargo insurance is an incredibly complex area of shipping insurance coverage. It entails a niche portion of the market, and the circumstances it directly relates to are also very particular. But that doesn’t mean they’re uncommon!

If you’re a freight broker looking to grow lucrative relationships, there’s nothing complicated about the decision. You absolutely need contingent cargo coverage.

Contingent cargo insurance in summary

It’s a bit of a niche product, but that doesn’t make it any less important for those who need it. And if you’re a freight broker who works to facilitate relationships between shippers and carriers, you absolutely need it.

To recap, here are the biggest takeaways about contingent cargo insurance:

  • Shippers may hold freight brokers accountable for damaged cargo
  • Carriers are primarily responsible for damaged cargo, but may fail to pay for the financial loss
  • Contingent cargo insurance protects freight brokers when that happens
  • There are no legal requirements for freight brokers to carry it
  • There are market-driven expectations that necessitate it

If you’re a freight broker without contingent cargo insurance, stop whatever you’re doing and find a plan. And if you do business with any freight brokers, make sure they’re covered so you can ship out without worry.

The content on this page has been verified by
Terri Hitchcock, JD
Chief Insurance Officer, Thimble
Terri has 38 years of industry experience and knows a thing or two about insurance, so she reviewed and approved everything on this page.

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