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For the trucking industry, heightened pressure to transport goods in a short amount of time means that any setbacks in the supply chain pose a major risk to the carrier’s assets, or expose it to liability for damages.
Transportation providers can use insurance to protect against these supply chain risks. For example, contingent business interruption coverage mitigates lost profits resulting from an interruption of business caused by physical damage to a supplier’s property, while cyber insurance protects against the costs of digital threats, such as ransomware attacks, phishing or hacking.
Perhaps the most obvious coverage is supply chain insurance (SCI), a specialty “all-risk” type of coverage that responds to losses caused by supply chain disruption. These include political unrest, labor disputes, cybersecurity breaches, natural disasters and regulatory action. A major benefit of SCI is that the coverage is customizable, meaning the policyholder may negotiate coverages and other policy terms that are specifically tailored to the its business. For a trucking company, insuring for financial losses resulting from natural disasters such as hurricanes, and costs associated with labor shortages resulting in delayed delivery, are likely to prove beneficial. The ability to customize the company’s policy to cover losses beyond those resulting from physical damage is one of the many advantages of SCI, helping to bridge gaps in a standard coverage program.
Cargo insurance is another crucial type of coverage for the trucking industry, protecting against loss, damage or theft of goods during transit. The coverage is so important that the Department of Transportation has set required minimums for coverage of both non-hazardous and hazardous goods and materials. However, trucking companies should consider whether DOT’s minimum limits are sufficient to cover their specific exposures, especially where they transport high-value goods. Policyholders should also evaluate whether poor packaging, “inherent vice,” and loading/unloading exclusions are sufficiently narrow so as to not limit the scope of necessary coverage.
In the digital age, it’s imperative that businesses, including trucking companies, evaluate their cyber-related exposures and consider purchasing cyber insurance. Threat actors may use attacks such as phishing, malware and ransomware to access a trucking company’s internal systems. Once inside, they can manipulate delivery routes, steal sensitive customer information, disrupt the company’s operations and cause delivery delays. Note, however, that cyber policies typically contain exclusions for certain types of crimes, so to avoid coverage gaps, policyholders should evaluate how their cyber coverage works in unison with other coverages, such as crime and fidelity insurance.
Along those same lines, cyber insurance generally covers risks that originate from the policyholder, so supply chain risks that arise from a third party’s business or operations (such as a customer or vendor) might not be covered. To maximize coverage, policyholders should consider how their cyber policies interact with other insurance products, such as business interruption insurance.
Contingent business interruption (CBI) insurance protects policyholders against losses caused by physical damage to the property of others, as opposed to the policyholder’s own property. Companies may use CBI to recover lost profits resulting from damage to a customer’s property that impacts the latter’s ability to perform the contract with the trucking company. However, policyholders should carefully review their policy forms for exclusions or endorsements that exclude loss arising out of a contract or breach thereof. While contractual liability exclusions aren’t common in CBI policies, they may appear in other types of policies with CBI coverage parts or endorsements.
As part of the backbone of supply chains, trucking companies face significant supply chain-related risks and exposures. For this reason, they should implement a comprehensive insurance coverage plan that contemplates how various coverages interact and work in unison to mitigate losses resulting from supply chain disruptions.
Directors and officers (D&O) insurance can help with losses due to supply chain issues by protecting a company against alleged “wrongful acts” by the company’s management. D&O insurance can come into play when parties sue the company for wrongful acts in managing the company — including, for example, missed earnings results because of disruptions to the supply chain. D&O policies, however, might exclude losses for catastrophic hazards, such as war and terrorism. In addition, while coverage may remain where liability would exist even in the absence of a written contract, D&O policies might also include breach of contract exclusions. Thus, policyholders with business operations susceptible to supply chain risks should tailor their D&O policies to ensure that the coverage aligns with the company’s business needs.
Given the many complexities of transportation and the supply chain, policyholders must understand how to manage the unique risks associated with claims, and have a plan to maximize coverage options should a loss occur.
Jorge R. Aviles is counsel, and Jae Lynn Huckaba is an associate, with Hunton Andrews Kurth LLP.
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