Authored by Andrew Robinson and Mmathabo Lekalakala.
It remains a common practice in the freight operator industry for road hauliers, freight forwarders and transport brokers to offer their customers insurance.
This insurance may be of two main types – goods in transit insurance where the cover relates to the loss or damage to the goods themselves, or liability insurance where the freight operator’s legal liability to the customer is insured.
A less common, but probably more suitable, insurance is bailee’s insurance, where the freight operator who has care and custody of the goods, insures its interest in those goods as bailee. Bailees should still make sure that their potential liabilities as bailees are also insured.
All three types of insurance are subject to exclusions and limits, warranties and terms that may prevent the customer from being paid out or indemnified by the insurer.
The freight operator will usually pass on the premium for this insurance on to the customer as part of the cost for the services rendered by the freight operator.
In 2010, the Financial Services Board (FSB) issued a memorandum that sought to protect customers from being “sold” cover by freight operators. The FSB believed that the freight operators were acting as intermediaries providing intermediary services – in essence the freight operators were providing insurance advice to customers, were misdescribing the cover in place and were not passing on the full, or any, indemnity to the customer.
The issue of indemnity services was the focus of a recent High Court decision.
Under the agreement between the parties, a company referred potential customers to an insurer and marketed the insurer’s short‑term insurance products, including passenger liability insurance. In return, the referrer earned a percentage of the premiums paid on policies concluded as a result of its referrals. The fee was payable for as long as the policies remained in force.
The agreement stated that the referrer would act "as marketing agent and lead referrer only" and would not perform any intermediary functions. The court found, however, that this stated intention was contradicted by the substance of the arrangement. The referrer also marketed insurance products, arranged customer consent for referrals, and retained a degree of control over how the insurer dealt with leads.
This judgment is relevant to freight operators who offer and arrange insurance on behalf of their customers. Almost invariably the insurance is provided in a standard format through a broker, marine manager or insurer.
Freight operators (and their brokers and insurers) who provide or facilitate insurance for their customers should ensure that they are either authorised as financial services providers or appointed as representatives of an authorised provider. The alternative is to arrange insurance of themselves based on their interest as a bailee – assuming they operate as bailees. Failure to do so risks not only the unenforceability of any commission arrangements but also regulatory consequences.