Freight Forwarders/Carriers/Storage Operators Beware:
"A Handshake May Not Cut It"
The good old days of a handshake, she’ll be right, are sadly, slowly diminishing.
As insurance brokers, we view our customers’ contracts they have with their own customers to assist with RISK, TITLE, and INSURANCE issues that may be pertinent.
We are sometimes shocked at what our customers have signed or are intending to sign and assist where we can (more on this later). More importantly we are more concerned when we don’t sight the contract or there is none.
Where there is a relationship with a third party, be it carriage, storage, lease, hire, supply, construct, secure, repair, etc, then ideally the ‘understanding’ between the parties should be in writing. You know the old saying “a verbal contract is not worth the paper it is written on.”
In the absence of a written contract, the legal ‘default’ position could disadvantage you.
Many Carriers, Freight Forwarders and Storage owners do not have contracts or they have one that is basic or ultimately inadequate.
Some common themes are:
- “Limited Carriers Act” will cover
- “I am protected – my contract states that I am only liable when I am ‘negligent’”
- “I had to sign the contract to get the work”
- “I have always done business on a handshake”
- “My Liability insurance policy will cover”
I will deal with each of the above separately:
LIMITED CARRIERS ACT WILL COVER
As a ‘Carrier’ in the absence of a written contract, “Limited Carriers Act” does apply. Your customers therefore only get $1,500 per unit, etc. This limitation at law for negligence with Carriage is on balance a good thing, but be aware:
- $1,500 limitation can be woefully inadequate compensation to the valued customer.
- You can extend the compensation available for Carriage by declared / agreed terms (this can also be ‘backed’ up by insurance)
- “Limited Carriers” applies for normal course of carriage, not storage outside normal course. And neither for other work not associated with Carriage, e.g. ‘Lift’ contracts.
I AM PROTECTED – MY CONTRACT STATES THAT I AM ONLY LIABILE WHEN I AM ‘NEGLIGENT’
We sight numerous variations of contracts particular with Carriers who have a storage operation as well (i.e. where they are paid to store). The storage operators normally have a ‘contract’ with their customers and will usually cover things like customers must insure their own goods and storage company is only liable when ‘NEGLIGENT’. On the surface this seems common sense and provides a simplistic solution. However, the major pitfall can be:
- If ‘NEGLIGENT’ and without a stated LIMITATION (cap) the claim against you could be unlimited (even if insurance responded, you will not have unlimited insurance coverage).
I HAD TO SIGN THE CONTRACT TO GET WORK
We see a lot of this ‘bullying’ where a smaller operator, when quoting for work or supply to a major company is ‘forced’ to sign their contract. What can occur is that the contract places all or unreasonable risk and responsibility on the ‘supplier’. What we look for in a contract is ‘balance’ and fairness in a relationship contract, i.e. each party is responsible for their own negligence to each other and other parties.
I HAVE ALWAYS DONE BUSINESS WITH A HANDSHAKE
Trust, integrity, honor are, of course, the kiwi way of doing business – until something goes very wrong. It is better to not leave things to chance.
MY LIABILITY INSURANCE POLICY WILL COVER
“Insurance does what insurance does.” It will not ‘necessarily’ cover (or mirror) all liabilities you have or have ‘assumed’. All liability insurance policies will exclude “liability assumed by agreement” – meaning, if that ‘agreement’ goes beyond normal ‘legal liability’ then the insurance will not respond (unless specifically negotiated and agreed).
In summary, therefore:
- Carriers Act is ‘default’ a position, limited to $1,500 per unit. Can be varied and insured by agreement. Separate consideration for storage and other work, e.g. lift.
- Contracts stating only “liable when negligent” can have its pitfalls, e.g. unlimited exposure (no cap).
- Written ‘contract’ is better than a handshake.
- Don’t ‘be bullied’ into signing an unfair contract.
- Liability insurance only goes so far.
BEST PRACTICE THEREFORE:
1. Endeavour to have all contractual relationships in writing
2. Involve your advisors, lawyers and insurance brokers
3. Contracts should incorporate the following aspects:
A. Your Liability for negligence to be “capped.”
B. Your customers to insure their own goods whilst in your care.
C. Make customers liable for damage/injury that their goods may cause to you or the other parties. Article supplied by Roger Hanson, South Island Manager, I C Frith &Associates, International Insurance Broker
Email: roger@icfrith.co.nz
Phone: +64 3 3660 243
www.icfrith.co.nz
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