What Every Freight Forwarder Needs to Know About Professional Liability Insurance

What is professional liability insurance and why do freight forwarders need it?

Professional liability insurance, sometimes referred to as errors and omissions insurance, is a type of insurance that protects businesses from financial losses due to mistakes or negligence in the course of providing professional services. Freight forwarders need professional liability insurance to protect themselves from potential lawsuits and damages that may arise from errors or mistakes made in the course of their work. Given customers entrust freight forwarders with shipments that can be valued at thousands or even millions of dollars, there’s a lot at stake.

It’s a fact: as supply chains become more complex, the opportunity for things to go awry increases exponentially. And even though digitization and automation are helping stave off many potential errors, there’s still a lot that can go wrong while a freight forwarder is legally liable for a shipment.

Ask Yourself:

• Is there any material impact my services have on my clients? How would it affect my business if I make a mistake or upset a client?
• Are my clients ever at risk of monetary damages if I make a mistake on a shipment or document, or give bad advice?
• I have a large list of clients. What if one of my workers makes a mistake because of the amount of variations in the services I provide?
• Do I ever make suggestions or claims that could be misunderstood by a client?

If you answered yes to any of these, then you should consider investing in professional liability insurance.

How does professional liability insurance protect freight forwarders from potential lawsuits and damages?

Professional liability insurance protects freight forwarders from potential lawsuits and damages by providing coverage for legal defense costs and any settlements or judgments that may be awarded in a lawsuit. Mistakes happen, and honest mistakes would be covered under professional liability insurance, but malicious acts would not, as they could be considered a criminal offense. This type of insurance can also cover expenses related to investigations and audits that may be conducted in the event of a claim. Ultimately, this can help protect the freight forwarder’s business (and, sometimes, personal) assets from being seized to pay for legal costs and damages.

What are some specific examples of situations where professional liability insurance would be beneficial to freight forwarders?

There are many situations where professional liability insurance would be beneficial to freight forwarders. Even superstars like Rihanna are not immune from getting bad advice from professionals: she recently made headlines because her former accountant will be paying her millions for mismanaging her finances, most likely covered by their professional liability insurance. Some freight forwarding-specific examples include:

• A freight forwarder arranges for the transportation of a client’s goods, but the cargo is lost or damaged in their warehouse or in transit. Professional liability insurance can provide coverage for the cost of replacing lost or damaged goods.
• A freight forwarder fails to properly document and process the necessary paperwork for a shipment, resulting in delays and additional costs for the client. Professional liability insurance can provide coverage for any damages that the client may incur as a result of the freight forwarder’s negligence.
• A freight forwarder is accused of providing inaccurate or misleading information about the transit times or costs of a shipment, resulting in financial losses for the client. 
• A freight forwarder fails to obtain the correct and complete information, resulting in a shipment error. For instance, sending a load to Paris, France, when the customer meant Paris, Texas. 

How much does professional liability insurance cost, and how can freight forwarders get coverage for their business?

The cost of professional liability insurance varies depending on a number of factors, including the size and type of the freight forwarding business and the level of coverage desired. Freight forwarders can get coverage for their business by contacting an insurance broker or agent. Ideally, you should select an agent who specializes in professional liability insurance for freight forwarders, like Magaya Insurance. These professionals can help freight forwarders identify the coverage they need based on deep industry knowledge. Freight forwarders can also get coverage by contacting a freight forwarder’s association or trade group, which may offer group insurance plans at discounted rates.

What questions should you ask when shopping for professional liability coverage for freight forwarders?

When shopping for professional liability coverage for freight forwarders, it is important to ask the right questions. Here are a few examples:

• What types of losses are covered under the policy? It is important to ensure that the policy covers losses related not only to errors and omissions but also, ideally, cargo theft, natural disasters, and supply chain disruptions.
• What is the limit of liability for the policy? This is the maximum amount that the insurance company will pay out in the event of a claim. It is important to ensure that the limit of liability is adequate to cover the potential losses that the freight forwarder may incur.
• What is the deductible for the policy? A deductible is the amount that the freight forwarder will have to pay out of pocket before the insurance company will start paying for a claim.
• What is the policy’s term? This is the length of time that the policy is in effect. It is important to ensure that the policy’s term is long enough to provide adequate coverage for the freight forwarder’s needs.
• Are there any exclusions or limitations on the policy? It is important to understand what types of losses or situations are not covered under the policy.

How does professional liability insurance differ from general liability insurance?

General liability insurance, also known as commercial general liability insurance, is a type of insurance that provides coverage for third-party claims of bodily injury or property damage that may arise from the freight forwarder’s business operations. This type of insurance typically covers losses such as slip and fall accidents, product liability, and other types of third-party claims.

Professional liability insurance, on the other hand, provides coverage for losses that may arise from errors or mistakes made in the course of providing professional services. This type of insurance typically covers losses such as lost or damaged cargo, errors in documentation or processing, and other types of losses related to the freight forwarder’s professional services.

A common misconception is that general liability insurance is sufficient for a freight forwarder, but this is not usually the case, since the two types of policies cover different things. 

In conclusion, professional liability insurance is a coverage every freight forwarder should strongly consider. A single lawsuit can bring a business to its knees without adequate coverage. If you’d like to review your coverage options with an expert, contact Magaya Insurance.