The Reefer Breakdown Endorsement – A Big Red Flag

By: Brian Schrumpf

The terms “Reefer Breakdown Endorsement” and “Reefer Breakdown insurance coverage” should raise red flags for motor carriers, brokers, freight forwarders, and shippers. Why? Because insurance policies with Reefer Breakdown coverage commonly deny cargo claims on reefer loads. This article explains what a Reefer Breakdown Endorsement is and common insurance issues that arise from the endorsement.

You are most likely to encounter a Reefer Breakdown Endorsement in one of these scenarios:

  • You are involved in a cargo claim for a refrigerated load.
  • You are purchasing cargo insurance and considering whether to add Reefer Breakdown coverage to your cargo policy.
  • You are reviewing a transportation company’s Certificate of Insurance that lists Reefer Breakdown coverage.

A Reefer Breakdown Endorsement is an add-on to a motor truck cargo insurance policy. The endorsement is often portrayed as adding coverage to the cargo policy if the reefer unit breaks down or malfunctions. However, there is much more to understand about the endorsement.

So, you might be wondering – “Isn’t it good that the cargo policy is adding this coverage?” The answer is, no. There are several problems with the Reefer Breakdown Endorsement, and cargo policies with a Reefer Breakdown Endorsement commonly deny coverage for refrigerated shipments.

Adding a little coverage to a big exclusion. Let’s  begin with the biggest red flag related to Reefer Breakdown Endorsements – a Reefer Breakdown Endorsement tells you that the cargo policy will exclude many claims for damage to refrigerated loads.

If you ship, broker, or transport refrigerated loads, then you want the motor truck cargo insurance policy to cover damage to cargo during transport. Some cargo insurance policies broadly cover damage to refrigerated cargo; however, some cargo insurance policies exclude coverage (i.e. will deny claims) for damage related to temperature.

Cargo policies with a Reefer Breakdown Endorsement typically contain a broad exclusion for damage arising from improper temperature control (driver negligence), freezing, spoilage, contamination, or similar basis. The Reefer Breakdown Endorsement is only adding coverage if the reefer breaks down. The Reefer Breakdown Endorsement does not broadly add coverage for refrigerated cargo.

If a cargo insurance policy includes (or offers) a Reefer Breakdown Endorsement, then the policy typically only covers reefer loads if the reefer breaks down or there is direct physical loss (e.g. a collision causing direct, physical damage to the cargo). If a cargo policy includes (or offers) a Reefer Breakdown Endorsement, then the policy typically does not cover damage from causes like improper temperature setting (including the number setting, using cycle sentry instead of continuous, and mixing up Fahrenheit and Celsius) or missing/tampered seal, which are common causes of damage to reefer loads.

If you are brokering reefer loads, a motor carrier Certificate of Insurance showing Reefer Breakdown coverage should be a red flag. The motor carrier’s insurance will likely deny coverage for many refrigerated cargo claims.

If you are a motor carrier shopping for cargo insurance, understand that a policy with an optional Reefer Breakdown Endorsement will likely deny many claims for damage to reefer loads. If your present policy has a Reefer Breakdown Endorsement, understand that your insurance policy likely does not cover many claims for damage to reefer loads.

The burdensome requirements of Reefer Breakdown Endorsements. Reefer Breakdown Endorsements often contain terms and requirements that make coverage unlikely, even if there was a reefer malfunction or breakdown. Here are some of the common terms and requirements:

  • The reefer unit cannot be older than 10 years.
  • All manufacturer’s recommendations regarding repair and maintenance must be followed.
  • The reefer unit must be inspected monthly and documentation of inspection retained.
  • All repair documents must be retained.
  • The cause of damage must be “conclusively proven” to be from reefer malfunction or breakdown. “Conclusive proof” can be difficult, especially when there are various factors.
  • Certain parts of the refrigeration system are not covered, even if they malfunction or breakdown (e.g. sensors, valves, seals, and air chutes).
  • Breakdown arising from improper refrigerant, fuel, or oil levels is not covered.
  • Faulty defrost cycle is not covered.