A Look inside UPS, FedEx and USPS Declared Value Coverage Policies for the Parcel Shipper

Are you paying too much for declared value coverage? When you ship something valuable, chances are good that you will consider insuring the package against loss or damage. Major carriers such as UPS and FedEx offer declared value coverage, and you might assume that buying this coverage means your package is fully insured against loss or damage. If you send the item through the US Postal Service, you can purchase parcel insurance to cover loss. However, the sad reality is that declared value (DV) coverage is not real insurance in the classic regulatory senseand what the USPS calls insurance is really more like DV coverage. Unlike insurance you might purchase for your home, automobile, business or health care, there is no insurance regulatory agency overseeing UPS, FedEx and USPSat the state or federal level. No one is monitoring and the carriers do not voluntarily report their indemnity ratios (the ratio of premiums collected to claims paid out). Lets just say that with no cat around the mice can fearlessly raid the cupboards. The profound differences between declared value coverage and actual insurance Among the many distinctions between DV coverage and what real insurance would covermuch to the shock and dismay many claimants feel after having a claim deniedis that DV does not cover the package all the way to the recipients hands. A package stolen from the recipients doorstep, or damaged by weather before the recipient obtains custody, may not be eligible for a claim. The lack of transparency around exclusions and limitations often misleads consumers, and offers a false sense of insurance coverage. Marketing materials and service guides often portray the purchase of additional DV coverage as a way for the shipper to gain peace of mind when shipping. Unfortunately for the consumer, the rules and restrictions that may destroy their peace of mind are often only discovered after a claim is filed and denied. Ironically, UPS does operate a subsidiaryUPS Capitalthat is a regulated insurance provider. UPS Capital will create custom insurance policies for customers who ship more than $1M of insured value goods per year. It can be an amusing exercise to speak with a UPS Capital representative and ask for a comparison between the real insurance they offer and the DV coverage offered by their parent company. How much should parcel carriers be allowed to charge customers for protection against their own failure to deliver a parcel unharmed? According to Tax Court documents from an IRS lawsuit1 against UPS, between 1984 and 1999 UPS consistently kept 60% to 70% of declared value coverage premiums as profit. The suit claimed that during the time period in question, UPS had attempted to avoid paying taxes on billions of dollars of insurance premiums routed through a Bermuda-based corporation ostensibly set up to avoid costly and cumbersome U.S. insurance licensing procedures. The court ordered UPS to pay $1.8 billion in back taxes and penalties; however, an Appeals Court reversed the original courts judgment against UPS two years later. The court determined that when a private individual sets up an offshore entity to evade taxes it is illegal, but when a corporation does it for a business purpose it is not a sham. UPS has nevertheless been the target of dozens of class action lawsuits over its DV policies and premiums, and has had to disgorge millions of dollars in voucher refunds to its customers over the years.
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http://www.bizjournals.com/atlanta/stories/2004/04/05/story6.html?page=all

UPS is not alonenor is it the worst offender at profiteering from DV coverage. In 2003 the Postal Regulatory Commission published a report2 indicating that between 2000 and 2002 the USPS only paid between 16% and 25% of premiums to claimants. It also cited an economic expert who characterized such indemnity ratios as unheard of. He pointed out that in the regulated casualty insurance industry the norm payout ratio is 67%, and that state regulatory agencies create a furor when ratios fall below 50%. A tapestry of clever policy language designed to advantage the carrier in denying claims The carriers policies are riddled with exclusions, restrictions and limitations. Indeed, this is what makes offering DV coverage such a lucrative prospect for carriers who effectively self-insure. So what are you really getting when you purchase DV coverage from these carriers, and does paying for additional coverage improve your odds of collecting the full value of a claimed loss? Declared value coverage is the carriers way of limiting their maximum liability for a parcel in the case of loss or damage. In order for a claim to be paid, the shipper must prove that direct negligence of the carrier resulted in the loss. Paying for additional declared value coverage does not increase a carriers scope of liability. It simply allows a shipper to pursue a higher recovery amount. It bears repeating: the burden is on the shippernot the carrierto prove that the loss was due to the carriers error. When it is the consumers word versus the carriers driver, the carrier will almost always give the drivers report greater credence. Things to know when purchasing additional declared value coverage Lets take a look at some of the most common tactics that UPS, FedEx and the USPS will use in denying or reducing claim payouts. When you purchase declared value coverage it is important to thoroughly read through the carriers terms and conditions. UPS, FedEx and the USPS all have extensive lists of specific items that have limitations on liability. The most commonly limited items are jewelry, televisions, antiques, glass, and musical instruments (see listings of each carriers claims limitations in Appendix A). If you purchase coverage in excess of an items value limitation, you likely wont be notified in advance of shipment, and your insurance costs likely wont be refunded after the fact. It cannot be overemphasized that without paying attention to the details in the carriers policies you may wind up paying for coverage that you will not be able to benefit from, and those details are typically spread out over multiple reference locations. The shipper must also examine the carriers list of restricted items, especially for exports. The carriers will deny claims for items that youre not supposed to be shipping through them in the first place, and those items may not necessarily be specifically listed under the DV limitations sections of their policy guides. In addition, there are numerous nuances that may not be obvious to the consumer. For example, UPS may further lower your claim ceilings if you paid for your shipment online using a credit card. None of the carriers has a unified policy description you can reference in one location. The consumer must wade through a plethora of documents and links in order to ascertain coverage. Even then, there are a number of easy outs carriers can use to deny claims, some of which are highlighted below. A simple Google search will bring up countless consumer complaint websites that are filled with horror stories from customers who were denied a claim by one of the major carriers, typically for reasons that they did not understand prior to their purchasing the shipping service or additional DV coverage.

http://www.scribd.com/doc/63555437/Postal-Insurance-a-Bad-Deal-for-Consumers

Determining the value of unique or used items Verifying the value of a unique or used item can be a difficult task, and your purchase invoice will not necessarily prove the value in the eyes of the carrier. Heres a classic example: an individual ships a special edition DVD set, declaring a value of $400the amount paid for it. If this package gets lost or damaged, the shipper may only be eligible to recoup the cost of the media on which the content is recorded, especially if there is no other comparable product in the marketplace. Furthermore, if an item is damaged, an appraiser may be required to determine the value of repair, and this must be paid for by the shipper. That is, assuming the item isnt lost and therefore cannot be appraised. In other words, the carrier might very well reimburse you for the cost of a couple of blank DVDs instead of the $400 you paid for your special edition commemorative set. Purchasing additional coverage $100 increments are the norm, sort of When you purchase incremental coverage with UPS and FedEx, you cannot declare an items value at $200. Due to their minimum declared value purchase amount, to cover a $200 dollar item you are required to buy a minimum of $300 of coverage. Therefore, the $100 DV coverage that was originally included goes away, and you are forced to pay for excessive coverage that you will not be eligible to make a claim for. This is another example where DV coverage varies from regulated insurance offerings. Administrative claim rejections UPS reserves the right not to pay any claims until the customers account balance with UPS has been paid in full. As for the USPS, if you purchase incremental coverage and do not keep your receipt, your claim will be denied. It is clearly stated in section 609.4.3 of the USPS Domestic Mail Manual that unless you provide evidence of your insurance, your claim is not payable. Not completing the forms exactly as required, or turning them in beyond the prescribed deadlines, will also lead to a denied claim. Paperwork counts with the USPS. To protect yourself from paying twice for incremental coverage, it is important to recognize the differences in each service offering. For example, Express Mail includes $100 of coverage in the postage price whereas Priority Mail and all other USPS services do not. Refund of shipping costs In order to receive a full refund of your shipping costs, you need to pay attention to the details on your claims form. There is a special line item, often labeled Transportation Cost that must be filled out in order to receive this refund. If you do not fill this out correctly, you will not receive a refund for the amount you paid for shipping. Even people who have been shipping parcels for many years may be unaware that they can claim their shipping expenses, or perhaps they are merely unable to justify the amount of time it takes to figure out what the exact charges wereincluding all afterthe-fact accessorial surchargesthat they need to report in the form. Loss or damage occurring outside of a carriers control Any loss or damage occurring outside the control of the carrier is not covered. An example of this could be weatherrelated incidents, or thefts off the back of the truck. Most commonly, inappropriate packaging is what leads to denied claims. Due to the physical handling that UPS, FedEx and USPS packages are expected to withstand (Google Youtube UPS Drop Test for a video demonstration), it is relatively difficult to prove negligence by a carrier. Sort center workers tell stories of packages that dropped 20 from conveyer linesfar more than the 6 drop test standardyet the packages were sent on to the recipients without any notification to the customer that they may have damaged the contents during sortation.

Especially for claims over $100, UPS and FedEx will likely send an inspector to evaluate the packaging; the USPS will require you to mail the item back to them for further investigation. If the parcel is damaged, it will be difficult to prove that it was packaged appropriately considering it was most likely damaged during transit. In fact, all the carriers may deny a claim regardless of the abundance of packaging precautions taken by the shipper if the contents are fragile in nature. Hows that for an escape hatch? In a perfect world, all parcel recipients would have a camera at the ready to photograph the damaged package (and the driver) the moment it is delivered to them. Drivers are savvy, though, and will sometimes hide a damaged parcel beneath undamaged parcels, or drop the damaged parcel off and dash out quickly before the recipient has a chance to notice. Drivers would rather not face the scrutiny of their own supervisors should they accidentally damage a package after it had been placed on their truck at the sort center. The most extreme DV coverage limitation we could find With the increase in e-commerce shipments and residentially-addressed packages, many sellers are turning to postal consolidators like FedEx SmartPost in order to avoid the carriers steep surcharges for residential deliveries, rural deliveries, address corrections and the like. Shippers need to be aware that the $100 of built-in DV coverage ends when the carrier hands the packages off to the USPS for final delivery to the home. Also, $100 is the absolute maximum coverage available. FedEx does not offer incremental DV coverage on SmartPost packages. Finding the needle in the haystack Coverage limitations presented by UPS, FedEx and the USPS are hard to find and difficult to decode for the average layperson. The information is often scattered among voluminous terms and conditions, website text, customer support scripted responses and hard copy text located at retail stores. Due to this lack of transparency it is difficult for consumers to fully understand all of the limitations, leaving the consumer at a distinct disadvantage when fighting a claim denial. To demonstrate how complicated these rules are for a layperson to comprehend, an experiment was conducted: a business analyst with a degree in Finance and Accounting was asked to research each carriers policies for domestic ground shipping services alone, documenting his findings along the way (to include policies for airborne shipments and international shipments would require an article at least three times as long as this one). The flow charts and supporting screen shots in Appendix B are the results of this eye-popping investigation. The research project required several days to complete because carriers policies often redirect the reader to multiple websites and reference documents, as well as to their customer service call centers, and sometimes even to the physical offices of the company in order to get a complete picture of what is actually covered by their policies. These many reference points often provide conflicting information. Even the carriers own call center and retail store employees often seemed hopelessly misinformed or confused about DV coverage limitations. In conclusion, UPS, FedEx and the USPS craftily limit their liability on lost or damaged packages to maximize their operating margins. Collecting premiums for increased DV coverage is clearly a huge, hidden profit center for the carriers. Their coverage policies arguably mislead consumers by providing a false sense of confidence that their packages are protected by an actual insurance policy. With e-commerce growing at a rapid pace and more people purchasing valuable items online, it is only a matter of time before the marketor government intervenersdemand that the carriers make their policies more user friendly and their indemnity ratios more acceptable. Decades have already passed with no material change, so until that day arrives all we can say is caveat emptor!

Appendix A
USPS Non-Payable Claims
Evidence of insurance coverage not provided. (Dont lose your insurance receipt!) The sender or addressee failed to cooperate in the completion of required claim forms. Fragile nature of article prevented its safe carriage in the mail, regardless of packaging. Loss, damage, or have missing contents, that occurred after delivery by the USPS. Claim amount based solely on sentimental rather than actual value. Requested replacement value exceeded actual value at the time and place of mailing. The contents of film (e.g., positives, negatives, slides, transparencies, videotapes, laser disks, x-rays, magnetic resonance imaging (MRI) prints, computerized axial tomography (CAT) scan prints), the cost of creating or re-creating these items, or the photographers time and expense in taking the photographs. Loss resulting from delay of the mail, except under DMM 4.2a..2, Payable Express Mail Claim, and 4.3ad. Cost incurred for estimates and appraisals. Mailer refuses to accept delivery of the parcel on return. Mail not bearing the complete names and addresses of the mailer and addressee, or is undeliverable as addressed to either the addressee or the mailer. Lottery tickets, sweepstakes tickets, contest entries, and similar items. Event or transportation tickets (e.g., concert, theater, sport, airline, bus, train, etc.) received after the event date. Such items are insured for loss, but not for delay or receipt after the event date for which they were purchased unless sent by Express Mail and the delay is attributable solely to the failure to meet the guaranteed delivery standard under the terms and conditions for the Express Mail service selected. Software installed onto computers that have been lost or damaged. Damaged articles not claimed within the time limits in the Postal Operations Manual. Personal time used to make hobby, craft, or similar handmade items. Consequential loss claimed rather than the actual value of the article. Perishable contents froze, melted, spoiled, or deteriorated. Damage by abrasion, scarring, or scraping to articles not properly wrapped for protection. Personal time required to replace documents. Claim filed after the article transported outside the USPS. Damage caused by shock, transportation environment, or x-ray, without evidence of damage to the mailing container. Mail article or part or all of its contents officially seized while in the military postal system overseas. Consequential loss of Express Mail claimed, except under DMM 4.2a..3. and 4.3ad.. Nonmailable items, prohibited items, or restricted items not prepared and mailed according to postal standards (DMM 601), or any item packaged in such a manner that it could not have reached its destination undamaged in the normal course of the mail. Loss or damage caused by employees or agents of the sender or addressee. Radioactive injury, electrical or magnetic injury, or erasure of electrical recordings. War, insurrection, or civil disturbance, or seizure by any agency of government. Loss after items signed for by the addressee, the addressees agent, or delivery employee if authorized under the applicable standards. Items sent COD without the addressees consent. Adult birds in Express Mail with no physical damage to the container. Death of baby poultry caused by shipment to points where delivery could not be made within 72 hours from the time of hatching, unless it is determined that transportation was in place to achieve the 72-hour target. Death of honeybees, crickets, and harmless live animals not the fault of the USPS (mailability of these insects and animals is subject to DMM 601.9.0, Perishables).

FedEx Non-Payable Claims and Claims Subject to Limitations

Artwork, including any work created or developed by the application of skill, taste or creative talent for sale, display or collection. This includes, but is not limited to, items (and their parts) such as paintings, drawings, vases, tapestries, limited-edition prints, fine art, statuary, sculpture and collector's items. Film, photographic images (including photographic negatives), photographic chromes and photographic slides. Any commodity that by its inherent nature is particularly susceptible to damage or the market value of which is particularly variable or difficult to ascertain. Antiques or any commodity that exhibits the style or fashion of a past era and whose history, age or rarity contributes to its value. These items include, but are not limited to, furniture, tableware and glassware. Collector's items such as coins, stamps, sports cards, souvenirs and memorabilia. Glassware, including, but not limited to, signs, mirrors, ceramics, porcelains, china, crystal, glass, framed glass and any other commodity with similarly fragile qualities. Plasma screens. Jewelry, including, but not limited to, costume jewelry, watches and their parts, mount gems or stones (precious or semiprecious), industrial diamonds, and jewelry made of precious metal. Furs, including, but not limited to, fur clothing, fur-trimmed clothing and fur pelts. Precious metals, including, but not limited to, gold and silver bullion or dust, precipitates or platinum (except as an integral part of electronic machinery). Stocks, bonds, cash letters or cash equivalents, including, but not limited to, food stamps, postage stamps (not collectible), traveler's checks, lottery tickets, money orders, gift cards and gift certificates, prepaid calling cards (excluding those that require a code for activation), bond coupons, and bearer bonds. Guitars and other musical instruments that are more than 20 years old; and customized or personalized musical instruments.

UPS Packages containing the following items are limited to specific quantities, size and/or value or are strictly prohibited:
Artwork Jewelry Loose Gemstones and Loose Pearls Precious Metals Furs Airline Tickets Checks Phone Cards, Tickets, Gift Cards, and Similar Cards Media Pairs and Parts Knives Dangerous Goods Magnets Ammunition Animal products, no domesticated Cash Corpses Firearms Human Remains Industrial Diamonds Ivory Letters of Credit Shipments Live Animals Pornographic Materials Postage Stamps Perishable Commodities Pharmaceuticals Coins Negotiable instruments Any article that contains more than 50% by weight of gold or platinum Common Fireworks

Appendix B
The search for declared value information FedEx

The search for declared value information USPS

The search for declared value information UPS

Appendix C Screenshots from UPS websites and policy documents

Screenshots from FedEx websites and service guides:

Screen Shots from the USPS website and Domestic Mail Manual.