Q

Until recently, our insured had been shipping goods to their customer for more than twenty years without a single instance of property being lost in transit. This record indicates that there is no reason to doubt the integrity of our insured or their customer. The question of integrity is important because the customer's employee signed a bill of lading indicating receipt of a shipment, yet the customer later discovered that it was in fact not received. The shipment was unique, so there is no chance that it might have been misplaced in the customer's warehouse.

The policy covering the goods was one of those special broad policies that cover goods in transit, even when they have been sold. Is there any way we can get the insurance company to take a “common sense” approach to this loss and pay the claim even though the bill of lading was signed?

Michigan Subscriber

A

While it is apparent from the facts presented in your letter that your insured's customer did not receive the goods shipped by the insured, the employee's erroneous signing of the bill of lading releases both the trucking company and the insurance company from any liability for the missing goods. The signature says that the goods were delivered in good shape.

Due to confusion on shipping docks, bills of lading are often signed before the shipment of goods they represent are inspected. The employee engaged in lamentably standard, if not correct, business practice.

His signing of the bill of lading completed the transit coverage provided in the insurance policy. Technically and legally, the insurer is under no obligation to pay the claim. However, that the insurance company recognized the need for coverage in this situation is demonstrated by the “F.O.B. Shipments” coverage provided in the same policy. This coverage is offered in recognition that the shipper maintains an interest in goods shipped F.O.B. his dock. While the shipper's ownership of the goods and his legal responsibility for them end when they leave his dock, the providing of F.O.B. coverage recognizes that the shipper, for reasons of customer relations, does not want to try to collect payment from customers for goods that do not arrive.

This legitimate need for coverage for nonowned goods in transit is analogous to the need your loss represents. In both cases the goods are lost in transit with the shipper's legal responsibility for them having ended; but also in both cases the shipper's customer relations interest in them continues. In the case of F.O.B. shipments coverage, the insurance company foresaw the need for coverage and provided it. In the case of the mistakenly signed bill of lading, the insurer did not anticipate the need for coverage; but perhaps it should recognize the need now that the loss has occurred.

Insurance policies are armed with many devices designed to protect the insurer from fraud and other abuses of the policy's coverage intent. However, occasionally these devices operate to prevent coverage where it is intended to be given. The fact that a policeman carries a gun does not mean that it must be used in every confrontation. Likewise, a technicality in a policy should not be automatically employed to deny coverage when everyone agrees that the loss would be covered but for the technicality. If the employee had not erroneously signed the bill of lading, the loss would have been covered.

While a claims adjuster must follow the terms of the policy, there should be someone else in the insurance company charged with maintaining good agent and public relations. Even though the signed bill of lading effectively cuts off any chance for subrogation, making a judicious decision not to employ the policy's protective device in this case could be money well-spent by the insurer.