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Seafood Processors & Wholesalers

 

Why it is not a good idea to insure your seafood in a Property/Liability Package or a Separate Property Policy.

 

The most common way of insuring seafood stock for seafood Processors or Wholesalers is through a Property/Liability Package Policy or a separate Property Policy.  However, the most common way is the wrong way to insure temperature-sensitive seafood stock and will result in uninsured or underinsured events that could cost you many hundreds of thousands of dollars.  These policies were not designed to address the normally occurring risks of a seafood business and no amount of modification will satisfactorily eliminate all the defects.

 

Twenty-seven years of seafood stock loss history show that Change of Temperature is the most frequent cause of loss while goods are stored at process plants and warehouses or while goods are being transported by truck around the country.  The following is a brief analysis of the coverage defects that exist in Property/Liability Package Policies or Separate Property Policies.

 

Coverage Defects That Exist in Property/Liability Package Policies or Separate Property Policies:

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● Change of Temperature – Mechanical Breakdown: Only covered due to mechanical breakdown or failure of

    refrigerating equipment.

 

                Coverage Caveats:

 

                                1) Policyholder must maintain a refrigeration maintenance or service contract

                                2) Loss must happen only at a premises described in the policy

                                3) The “described premises” must be owned by the policyholder or by others and seafood

                                     stock must be in the care, custody or control of the Policyholder.

 

            ”COT” COVERAGE IS ELIMINATED AT ALL PUBLIC WAREHOUSES OR OTHER NON-OWNED STORAGE

            FACILITIES DUE TO 1-3 ABOVE AND LOSS DUE TO FAILURE TO MAINTAIN SPECIFIED TEMPERATURE,

            FOR OTHER THAN MECHANICAL BREAKDOWN, IS ALSO EXCLUDED.

 

                                ESTIMATED UNINSURED COST TO POLICYHOLDER: $250,000 to $10,000,000

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● Change of Temperature – Power Outage: Only covered due to conditions beyond the control of the Policyholder,

    on or off the premises.

 

            COT” COVERAGE DUE TO POWER OUTAGE IS ELIMINATED AT ALL OWNED LOCATIONS FOR PROCESSING

            AND WAREHOUSING.

  

                                ESTIMATED UNINSURED COST TO POLICYHOLDER: $250,000 to $10,000,000

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● Direct Physical Loss – Perils Insured: The word “Direct” eliminates certain coverage.  Losses, such as fire,

    collapse, wind, water damage, earthquake, flood, etc., that do not impact directly on seafood stock and cause

    a change of temperature, resulting in a loss to seafood stock, are not covered.

 

            THIS IS A MAJOR DEFICIENCY.  A SMALL LOSS TO THE REFRIGERATING MOTOR/COMPRESSOR UNIT

            CAN CAUSE A LARGE CHANGE OF TEMPERATURE LOSS THAT IS NOT COVERED.

 

                                ESTIMATED UNINSURED COST TO POLICYHOLDER: $250,000 to $10,000,000

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● Goods of Others: Many Processors and Wholesalers sell their goods to others but hold them in the

    processor/wholesaler’s warehouse.  Some Package and Special Property Policies do provide bailee

    coverage but at low limits, such as $10,000 to $25,000.  Some provide no coverage at all.

 

            HOLDING GOODS OF OTHERS IS GENERALLY CONSIDERED A BAILMENT, WHERE YOU ARE LIABLE

            TO THE OWNER FOR DAMAGE.  THE RUDE AWAKENING COMES WHEN EITHER THE OWNER OF THE

            GOODS SUES YOU OR THEIR INSURER SUES YOU FOR THE DAMAGE DONE TO THE GOODS WHILE

            IN YOUR POSSESSION.

 

                                ESTIMATED UNINSURED COST TO POLICYHOLDER: $250,000 to $10,000,000

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● Coinsurance Penalty: Many Policies have a coinsurance penalty clause which requires the Policyholder to

    insure to a proper value based on the “Valuation” clause.  Failure results in a penalty at time of loss.  Stock

    value variability is the major factor in the failure to insure to proper value under the coinsurance clause.

 

            FEW POLICYHOLDERS UNDERSTAND THE IMPACT OF THIS PENALTY AND ARE RARELY IN

            COMPLIANCE WITH THE POLICY REQUIREMENT.  EIGHTY-FIVE (85) PERCENT OF THE TIME,

            POLICYHOLDERS ARE IN VIOLATION OF THE POLICY REQUIREMENT AND ARE SUBJECT TO A

            REDUCED CLAIM PAYMENT—AS MUCH AS 50%.

 

                                ESTIMATED UNINSURED COST TO POLICYHOLDER: $250,000 to $1,000,000

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● Valuation Clause: This is the most important and most misunderstood policy element.  The “Valuation Clause”

    determines what you will be paid at time of loss.  The inflexible nature of the “Valuation Clauses” found in a

    Property/Liability Package Policy or a separate Property Policy results in the Policyholder’s inability to be fully

    compensated for a loss.  Moreover, having the wrong valuation makes it much more difficult to adjust a loss.

 

            MOST POLICYHOLDERS DO NOT REALIZE THE SIGNIFICANCE OF “VALUATION” AND THE IMPACT IT

            HAS ON A LOSS PAYMENT, SUCH AS BEING PAID LESS THAN WHAT YOU PAID FOR THE GOODS, OR

            THE TIME SPENT ARGUING OVER WHAT SHOULD BE PAID, BECAUSE THE POLICY IS VAGUE AND FAILS

            TO REFLECT THE REAL VALUE OF SEAFOOD TRANSACTIONS.

 

                                ESTIMATED UNINSURED COST TO POLICYHOLDER: $250,000 to $1,000,000

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● Multiple Coverage Forms: Multiple Coverage Forms must be used by insurers who issue Package Policies or

    Separate Property Policies  to provide coverage for seafood stock. 

 

                1)  Forms differ in coverage, limitation, warranties, and exclusions, causing multiple uninsured or

                      underinsured events.

                2)  Multiple forms cause severe confusion to policyholders and great difficulty to the courts who

                      interpret the forms.

 

            MOST OF THE FORMS CAN NOT BE CHANGED, DUE TO STATE REGULATION.  SOME PROVIDE

            OVERLAPPING COVERAGE.  SOME HAVE EXCLUSIONS THAT CAN NOT BE MODIFIED.  NONE OF THE

            POLICIES ALLOW FOR SEAMLESS SEAFOOD STOCK COVERAGE WHEN THE STOCK CHANGES

            ENVIRONMENT, E.G., WAREHOUSE TO TRUCK TO WAREHOUSE.  USING THE CORRECT POLICY IS

            PARAMOUNT.

 

                                ESTIMATED UNINSURED COST TO POLICYHOLDER: $250,000 to $10,000,000

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● Policyholder Must Prove Loss: Using the coverage forms issued under a Package Policy or Separate Property

    Policy places the onus on the Policyholder to prove the existence of coverage at time of loss.  Policyholders

    are at a disadvantage and poorly-equipped to prove the existence of coverage at time of loss.

 

            A POLICYHOLDER, IN THE CASE OF CHANGE OF TEMPERATURE, FOR EXAMPLE, MUST PROVE

            MECHANICAL BREAKDOWN, THAT “COT” WAS PROXIMATELY CAUSED BY A PERIL INSURED, AND

            THAT THERE WAS NO EXCLUSION OR LIMITATION THAT PRE-EMPTED COVERAGE.  THE

            POLICYHOLDER MUST AMASS THE DATA AND THE EXPERTS TO SHOW SUCH PROOF.  A SIMPLE

            CHANGE OF POLICY WORDING REVERSES THIS PROCESS AND PLACES THE ONUS ON THE INSURER.

 

                                ESTIMATED UNINSURED COST TO POLICYHOLDER: $250,000 to $10,000,000

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● Earthquake, Flood, and Wind Exclusions: Using the coverage forms issued under a Package Policy or Separate

    Property Policy makes it expensive or impossible to obtain coverage for these perils, especially in the critical

    zones, such as Los Angeles and Dade and Broward Counties in Florida.

 

            REINSURANCE TREATIES AND INTERNAL UNDERWRITING RULES, LIMIT OR EXCLUDE NEEDED

            COVERAGE IN THE AREAS MOST PRONE TO THESE PERILS. USING THE RIGHT INSURER, WITH THE

            MOST ADVANTAGEOUS REINSURANCE AND MOST FLEXIBLE UNDERWRITING RULES, WILL KEEP

            COST DOWN AND MAXIMIZE NEEDED COVERAGE.

 

                                 ESTIMATED UNINSURED COST TO POLICYHOLDER: $250,000 to $10,000,000

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● Truck Transit Coverage:  Package Policy or Separate Property Policy forms make it expensive and/or impossible

    to obtain coverage for truck transit perils, especially Change of Temperature.  “COT” is the most frequent Cause

    of Loss during truck transit.  Relying on truckers is not a good idea because they, either, do not have coverage

    or do not have adequate coverage to pay large losses, especially COT, and may not have the cash to pay for an

    uninsured event relating to their liability for damage to shipper’s goods.

 

              HIGH PREMIUM COST, PERILS INSURED, ESPECIALLY “COT” LIMITS, COVERAGE LIMITATIONS, AND

              EXCLUSIONS MAKE IT IMPOSSIBLE TO OBTAIN COMPLETE COVERAGE AT A REASONABLE COST.

 

                                ESTIMATED UNINSURED COST TO POLICYHOLDER: $100,000 to $750,000

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Key words: Mechanical, breakdown, boiler & machinery, power outage, care, custody

or control, maintenance, coinsurance, valuation.

 

Key Products: IQF shrimp and similar seafood products; fresh, refrigerated seafood

products, block frozen seafood products.

 

Solution: CRC’s marine, warehouse, and inland transit seafood stock insurance is the broadest available anywhere in the world.  It resolves all the problems mentioned above, and it is economically-priced.  CRC provides seafood insurance to most of the largest seafood importers in the US, and is making its unique coverage available to processors and wholesalers.  Contact us to learn more about the details and how you might benefit from CRC’s 27 years of experience in specializing in the seafood industry.

 

 

What does your policy cover? Contact John Keane at 914-946-7161, Ext.17, to find out.