Goods In Transit
Insurable interest, in motion
Assets, whether they are sold, purchased or needed as manufacturing components, are moved within the RSA on a daily basis.
Often, the value of the property transported is high and should be transferred to an insurance policy via a Goods in Transit Section, as events like theft, hijack, fire, accidents can occur on any time during the transit.
Definition
What Is Goods In Transit Cover?
Goods in Transit insurance protects a business against physical loss of or damage to goods while they are being moved from one place to another.
It can cover goods carried in the business's own vehicles as well as goods carried by couriers, hauliers or other transporters.
Cover is usually on an all risks basis and can include accidents, fire, theft, hijacking, loading and unloading and temporary stops during the journey.
Insurable Interest
Who Is Responsible For The Goods?
Before deciding what insurance is required, establish who carries the financial risk while the goods are being transported.
Ownership of the goods and responsibility for loss are not always the same thing. A supplier may still own the goods while the buyer carries the risk, or the seller may remain responsible until delivery.
The sale agreement, purchase terms and delivery conditions usually determine when that risk passes from one party to another. The practical question is, if the goods are destroyed halfway through the journey, who loses the money?
That is the party that needs to make sure the insurance protects its financial (insurable) interest.
Third Party Cover
Do Not Assume The Transporter Will Pay
Using a professional transporter does not mean your goods are automatically insured.
If your business carries the financial risk in the goods while they are being transported, the goods should generally be insured under your own Goods in Transit policy, preferably on an all risks basis.
The transporter may have liability insurance, but that protects the transporter against claims for which it is legally liable. It is not a substitute for insuring your own goods.
If insured goods are lost or damaged, your Goods in Transit policy should respond to the insured loss subject to its terms, limits and excess. Your insurer can then pursue the transporter or another responsible party where there is a legal right of recovery.
The key question is therefore not “Does our transporter have insurance?”
It is “Are our goods insured under our own policy for their full value while they are in the transporter’s care and we carry the responsibility to insure?”
Scope Of Cover
What's Normally Covered
Broad Goods in Transit cover generally protects insured, consigned goods against accidental physical loss or damage during an insured journey, unless the cause of loss is specifically excluded.
This can include damage following a collision or overturning of the vehicle, fire, theft, hijacking and other accidental events. Loading and unloading may also be covered where they form part of the policy's definition of transit.
Temporary stops during a journey may be included, although the policy can impose limits on how long goods may remain at one place and what security arrangements must apply.
The policy schedule remains critical. It should identify what goods are insured, where they may travel, which vehicles or transporters may be used, the amount insured, the excesses and any special conditions.
Transit Period
When Does Transit Start And End?
This is one of the most important definitions in the policy.
Transit may start when goods are first moved for loading and continue until they have been unloaded at their final destination. It does not necessarily continue indefinitely merely as the goods have not yet reached the customer.
A normal overnight stop that forms part of the journey may still fall within transit. Deliberately placing goods into storage, leaving them at a warehouse for an extended period or holding them for later distribution may bring the transit cover to an end.
At that point the goods may need to be protected under stock, warehouse or another section of the insurance programme.
Businesses should therefore map the journey from beginning to end to ensure it falls within the policy definition.
Sum Insured
How Much Should Be Insured?
Do not base the amount insured on the average delivery.
The more important question is the largest maximum value that could be lost in one event.
The same problem arises where several loads can be affected by the same event.
Scenario
Three trucks may each carry R800,000 of goods. If all three are parked next to one another at a depot overnight, a single fire could expose
The business should therefore consider the maximum value on one vehicle, the maximum value in one consignment and whether several vehicles, loads or temporarily stored consignments could be affected by one event.
Seasonal peaks, once off projects, unusually valuable deliveries and major contracts should also be allowed for.
Valuation
What Value Is Used?
The policy should state how the value of the goods will be calculated following a claim. Depending on the business and policy, this could be cost price, invoice value, replacement cost, landed cost, selling price or another agreed basis.
A business should not assume that it will receive the retail selling price simply as that is what the goods would eventually have been sold for.
Freight, duty, packaging and VAT may also need to be considered when calculating the correct value.
The valuation basis should be agreed before the loss, not argued about afterwards.
Security
Theft From Vehicles
Theft cover often comes with strict conditions.
The policy may specify where vehicles may be parked, whether they must be locked, whether the goods must be hidden from view and whether alarms, immobilisers or tracking devices must be activated.
The policy will have theft restrictions when a vehicle with insured goods is left unattended.
Vulnerable Points
Loading And Unloading
Goods are often most vulnerable while they are being loaded or unloaded.
They can be dropped, crushed, struck by forklifts or damaged while being moved between the vehicle and the premises.
Businesses should confirm that loading and unloading fall within the insured transit period and that the cover applies at both collection and delivery points.
Transit Period
Temporary Storage During A Journey
Goods are not always transported directly from one premises to another.
They may stop overnight, be held at a depot, wait for another vehicle or remain temporarily at a distribution point.
Temporary storage that forms a normal part of the journey may be covered, subject to the policy. Extended or deliberate storage may not be.
The business should establish exactly when Goods in Transit cover ends and stock or warehouse insurance takes over.
Preparation
Properly Packed
Goods must be properly packed and prepared for the journey.
Damage caused by inadequate or unsuitable packing is commonly excluded.
This is particularly important for fragile goods, machinery, glass, liquids, electronic equipment and palletised stock.
The packaging needs to cope with the normal forces and handling that can reasonably be expected during transport.
Exclusions
What Is Usually Not Covered?
Goods in Transit insurance is primarily designed for accidental physical loss or damage.
- Loss caused by inadequate packing, gradual deterioration, ordinary leakage, delay, corrosion, rust, infestation, shrinkage, wear and tear or the natural characteristics of the goods is commonly excluded
- International sendings, incoming or outgoing, must be insured on a marine cargo policy
- Fraud or theft involving owners, directors, employees or other people connected to the business usually also falls outside the normal GIT section and requires fidelity or commercial crime insurance
- Confiscation, seizure or detention by authorities is generally excluded
The exact exclusions vary, so the policy wording and schedule must always be read together.
Self Audit
The Key Questions
Run through these before your next renewal, grouped so you can work through them a section at a time.
Risk and responsibility
- Who carries the financial (insurable) risk in those goods at each stage of the journey?
- If our transporter loses say R1 million of our stock tomorrow, do we have our own insurance or are we relying on the transporter accepting liability?
- If a critical load never arrives, what would the financial effect on the rest of the business be?
- What goods do we actually transport and are any of them particularly valuable, fragile, theft attractive, hazardous or temperature sensitive?
Sum insured and valuation
- What is the greatest value we could realistically lose in one transit event rather than merely on an average delivery?
- Could several vehicles, loads or consignments be exposed to the same fire, theft or other event at one location?
- Are our peak season and once off high value loads adequately insured?
- How will the value of damaged or lost goods be calculated?
- Are freight, duty, packaging and VAT correctly dealt with?
Cover scope
- Does our policy still protect the goods when we use couriers, subcontractors, hired vehicles or temporary replacement vehicles?
- What happens if our appointed transporter passes the load to another transporter?
- Are non consigned goods covered?
Transit and storage
- Exactly when does transit start and when does it end?
- Does cover continue during loading, unloading, overnight stops, temporary storage, returns and collections?
- Do refrigerated or temperature sensitive goods have the protection they actually need?
Security and theft
- Where may our drivers park overnight and what security requirements apply when a vehicle is unattended?
- Are tracking devices, immobilisers, approved routes, dual drivers, armed escorts or other security measures required?
- Is hijacking specifically covered and what excess applies?
Territory and international
- Does our territorial cover match every country through which the goods travel?
- Do imports or exports require marine cargo insurance rather than ordinary inland Goods in Transit cover?