1. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Third Party Liability Issues Facing Customs Brokers & Freight Forwarders CCBFA – September 27, 2007 Presented by: Michael S. Brown Sr. Vice President - Sales Avalon Risk Management, Inc.

2. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Death & Bodily Injury Exposure Domestic Auto Liability

3. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Death & Bodily Injury Exposure - Basis of Liability Domestic Auto Liability - Liability arising out of the hiring of motor carriers and local truckers - Negligent selection risk

4. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Death & Bodily Injury Exposure -Real World Claims Situations Schramm v. Foster (CH Robinson) Puckrein v. ATI Transport (recent increase in shipper requests for indemnifications in contracts)

5. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Death & Bodily Injury Exposure -Protecting Your Company Seek additional Insured Status on sub-contractor’s liability policies Indemnities (in both directions) - Beware of indemnifying shippers - Seek indemnities from carriers Inspect scope of your GL policy - Review Auto Exclusion Use Caution when referring to “Partners” Verify carrier safety ratings at www.safersys.orgwww.safersys.org Consider adding Contingent Auto Liability Coverage to your E&O policy.

6. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Contingent Auto Liability Coverage protects Transportation Brokers & Surface Freight Forwarders when they are held liable for death, bodily injury and/or property damage liability as a result of their hiring of truckers. Requires that you be licensed as Broker or Forwarder by DOT (licensure creates need for surety bond (Broker) or cargo liability insurance filing (Forwarder))

7. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Death & Bodily Injury Exposure Foreign Liability

8. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Death & Bodily Injury Exposure - Basis of Liability Foreign Exposure - Individual(s) killed or injured overseas as a result of your negligence

9. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Death & Bodily Injury Exposure -Real World Claims Situations Worker killed while stripping container of chemicals Damage to vessel caused by loose cargo in container

10. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved.

11. M/V Hanjin Pennsylvania

12. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Hyundai Fortune

13. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Death & Bodily Injury Exposure -Protecting Your Company Seek additional Insured Status on packing/crating sub-contractor’s liability policies Indemnities (in both directions) - Beware of indemnifying shippers - Seek indemnities from packers/craters Inspect scope of your General Liability policy - Coverage Territory - Consider Export Package Policy Consider adding 3 rd Party Liability Coverage to your E&O policy

14. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Third Party Liability Third party liability coverage protects you from claims brought by entities other than your customers (third parties) as a result of death, bodily injury, or property damage. Coverage is not widely available. Similar coverage is usually afforded by business package policy but typically with territorial limitations and sometimes transportation exclusions. 3 rd Party Liability coverage often excludes claims for events that occur in the US as General Liability insurance typically covers this.

15. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Death & Bodily Injury Exposure Incidental Product Liability

16. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Death & Bodily Injury Exposure - Basis of Liability Incidental Product Liability - Liability arising out of Customs Brokerage activities and the perceived “importation of cargo”

17. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Death & Bodily Injury Exposure -Real World Claims Situations Broker enters gumball manufacturing machine on behalf of importer 3 years later, worker loses hand while operating machine Importer of record no longer in business Broker is sued

18. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Death & Bodily Injury Exposure -Protecting Your Company Ensure that your General Liability Insurer is familiar with international trade Never act as importer of record Be careful of indemnifying importers

19. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Workers’ Compensation Exposure

20. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Workers’ Compensation Exposure - Basis of Liability Premium Exposure - Liability for payment of premiums on un-insured individuals - For truckers, Payroll is assumed to be 1/3 of “Cost of Hire” Claims Exposure - Liability for payment of Workers’ Compensation claims

21. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Workers’ Compensation Exposure -Real World Claims Situations Forwarder in NE charged $35,000 in premium for use of uninsured local cartage companies - Exposure identified in Payables Ledger during physical audit Claim against Broker/Forwarder for uninsured contractor falling off of office roof

22. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved.

25. Workers’ Compensation Exposure -Protecting Your Company Certificates from all Sub-Contractors System of Managing Certificates Beware of excluded individuals

26. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Assuming Contractual Liability

27. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Contractual Liability Cargo legal liability policy covers typical transportation documents/contracts of carriage provided that they were accepted by underwriters during application process. This usually includes HAWB, NVOCC bill of lading, warehouse receipt, Terms & Conditions, etc. Increasingly, our clients’ customers ask them to enter into contracts before commencing business dealings. –Contracts usually override or modify T&Cs –Less frequently, amend conditions of carriage

28. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Contractual Liability Most E&O / Cargo Liability policies exclude liability assumed under contract (except for the “normal” contracts that were approved at the time of application) unless specifically agreed by underwriters. Contractual liability endorsement maintains coverage for these contracts by specifically listing special customer contracts that underwriters have approved (usually in exchange for additional premium). Signing a contract without this coverage could jeopardize your company.

29. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Contractual Liability An Important Policy Exclusion Distinction All liability assumed by contract is excluded vs. The contract will not void the existing coverage under the policy but will not extend it either Read Your Policy!

30. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Contractual Liability When contractual coverage is added back to the E&O policy and a special contract is covered: Underwriters often don’t cover every aspect of contract - Many contracts are too broad covering areas not contemplated by E&O/Cargo Liability coverage Typical method is not to broaden coverage but to cover increased cargo liability and agree that signing contract will not void policy In addition to your insurer, it is important to have your attorney review contracts

31. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Contract Tips Create procedures for contract execution detailing an approval process Negotiate (as a rule) Try to start with NCBFAA Terms & Conditions and increase limit of liability Attempt to avoid adding clients as additional insureds to your policies - Not appropriate on cargo & cargo liability policies (Loss Payee is more correct) - Splits your limit

32. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Questions?

33. The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved. Thank You Presented by: Michael S. Brown Sr. Vice President - Sales Avalon Risk Management, Inc. 888-750-5677 mbrown@avalonrisk.com