Selecting Insurance Programs for 3PLs: Primary vs Wrap-Up Policies and Limits

Third‑party logistics providers (3PLs) operating in the United States—especially in major logistics hubs like Los Angeles/Long Beach, Houston, and New Jersey/New York—face complex insurance decisions. Choosing between a primary policy and a wrap‑up program affects claims flow, contractual leverage with shippers and carriers, and overall cost. This article explains the differences, recommends practical limits for U.S. 3PLs, shows cost examples with leading insurers, and gives an implementation checklist tailored to freight brokers, forwarders and 3PLs.

Table of Contents

Why this matters for 3PLs, brokers and freight forwarders

3PLs often act as intermediaries, arranging carriers and warehousing; they face contingent liability exposures (when a carrier fails or the shipper demands recovery).
Shippers and large contract partners increasingly demand proof of insurance and specific wording — sometimes requesting the 3PL to be named insured, carry primary coverage, or accept indemnity terms.
The wrong insurance structure can leave gaps, cause coverage disputes, or create expensive layered claims.

See foundational coverage and claim interaction topics:

Primary policy vs Wrap‑up program — clear definitions

Primary policy

A 3PL purchases insurance that responds first to a covered loss. Examples:

3PL’s Professional Liability (E&O / Errors & Omissions) that pays a shipper’s claim for negligent brokerage decisions.
A 3PL‑held cargo policy that acts as the initial responder for lost/damaged freight when contractually required.

Advantages:

Faster claims resolution when the 3PL is directly responsible.
Greater control of defense and subrogation.

Drawbacks:

Higher premium if the 3PL is paying for exposures that more properly belong to the carrier.
Potential moral hazard (less carrier vigilance).

Wrap‑up program

A wrap‑up (sometimes called a principal’s primary or program policy) is structured so that the 3PL or shipper’s policy “wraps over” the subcontractor/carrier policies, becoming primary to the subcontractor’s coverage (or filling gaps). Wrap‑ups are used to centralize coverage for multiple contractors or carriers under a single program.

Advantages:

Centralized claims handling and potentially lower total cost when the program can aggregate many risks.
Uniform coverage and limits across vendors and carriers; simplifies certification.

Drawbacks:

Significant administrative overhead and underwriting scrutiny.
Higher premiums and potential resistance from carriers who don’t want their own limits disturbed.
Requires tight contract language and broad subrogation provisions.

Quick comparison table

Feature	Primary policy (3PL pays/controls)	Wrap‑up program (3PL/shipper centralizes)
Who responds first	3PL insurer	Wrap‑up insurer (may be primary over carriers)
Control of defense	High	High, but may limit carriers’ defense rights
Typical use case	E&O, corporate GL, contingent cargo for brokers	Large contract logistics programs, carrier networks, port/terminal operations
Cost drivers	3PL’s track record, revenue, claims	Number of underlying contractors/carriers; total payroll/tonnage
Good for	Brokers wanting direct protection for professional errors	Shippers/3PLs wanting consistent, centralized coverage across many vendors

Key coverages for 3PLs and recommended limits (U.S. market focus)

Note: Limits should be tailored by revenue, contract size, and trade lanes (e.g., high‑value electronics moving through LAX or cross‑border Mexico freight). Figures below reflect typical market practice in 2024; consult your broker for tailored underwriting.

Errors & Omissions (E&O) / Professional Liability
- Typical limits: $1M / $2M or $2M / $4M aggregate for mid‑sized 3PLs.
- Rationale: E&O claims can include large shipment loss or misrouting damages plus consequential business interruption.
Commercial General Liability (CGL)
- Typical limits: $1M per occurrence / $2M aggregate minimum; $2M / $4M preferred for national accounts.
Cargo Insurance (3PL‑held or contingent cargo)
- Limits by shipment: $100k–$1M depending on freight value. Many shippers require $1M for high‑value lanes.
Auto Liability (if the 3PL owns trucks)
- Typical limit: $1M; for interstate hazmat increase subject to FMCSA and state regs.
Cyber Liability (data / TMS exposure)
- Typical limits: $1M–$3M depending on volume of personally identifiable info and value of TMS systems.
Employer’s Liability / Workers’ Comp
- State‑specific; ensure coverage in California, Texas, New Jersey, etc., aligned with state law.

Regulatory and surety essentials: the broker bond

Freight brokers and freight forwarders who operate in the U.S. must carry a broker bond or trust fund—historically known as the BMC‑84 (surety bond) or BMC‑85 (trust). The mandated amount is $75,000 (per FMCSA registration requirements). See FMCSA for details: https://www.fmcsa.dot.gov/registration/registration/brokers‑freight‑forwarders

Typical surety pricing:

Firms with strong credit: ~1–3% of bond = $750–$2,250 annually for a $75k bond.
Weaker credit or new firms: ~4–10% = $3,000–$7,500 annually.
Major surety markets include Travelers, Liberty Mutual, and The Hartford; surety basics are explained by carriers like The Hartford: https://www.thehartford.com/surety/bonds/what-is-a-surety-bond

Example: a first‑year freight broker with good credit may pay about $1,500 annually to secure the $75k BMC‑84.

Pricing examples and carriers (market context)

Exact premiums depend on revenue, claims history and lanes. Ballpark, U.S. market examples for a mid‑sized 3PL (national load volumes, modest claims history):

E&O / Professional Liability (Limits: $1M / $2M)
- Carriers: Hiscox, Next Insurance, coalition programs through Marsh or Aon
- Estimated premium range: $2,000–$8,000/year depending on underwriting details.
- Small brokers with very limited exposure may find E&O from digital carriers (e.g., Next Insurance) at the lower end; national programs through Marsh/Aon will price higher but include broader endorsements.
- See Next Insurance professional liability offerings: https://www.nextinsurance.com/small-business-insurance/professional-liability-insurance/
Contingent Cargo (broker/3PL contingent cargo coverage)
- Annual premium: $1,500–$10,000+ depending on declared value and territories (international lanes cost more).
Wrap‑up Programs (large contract logistics)
- Often placed through wholesale brokers (Marsh, Aon). Annual premiums can be six‑figures for multi‑state programs that cover large fleets and warehouses; but per‑unit cost may be lower due to aggregation.

Note: these ranges are indicative. Market quotes from Marsh, Aon or regional retail brokers will provide precise figures for Los Angeles, Houston, Dallas, Chicago, or New Jersey operations.

How to choose: decision framework for 3PLs in the U.S.

Map your exposures
- Lines of business (brokerage vs asset‑based trucking vs warehousing)
- Geographic concentration (e.g., Port of LA vs inland hubs)
- Contractual demands from top shippers
Determine who is financially responsible
- When can you shift to the carrier? Where might you be secondarily liable?
Evaluate claims & subrogation strategy
- Centralized claims handling and aggressive subrogation can reduce net costs if the 3PL controls the program.
Compare total cost of risk (premium + retention + claims administration)
- Wrap‑ups may increase premium but reduce uncovered claim friction and contractual negotiation costs.
Negotiate contractual wording to align with insurance placement
- Don’t accept broad, uninsurable indemnities without corresponding coverages.

For contractual exposure tactics, see: Contractual Exposure Management: Negotiating Indemnity and Insurance Clauses as a 3PL

Implementation checklist (practical steps)

Engage a specialized broker with 3PL/logistics experience (Marsh/Aon or a regional specialist).
Gather underwriting data: revenue by lane, carrier vetting program, GL losses, claims history for last 5 years.
Decide program type: standalone primary for E&O + contingent cargo vs full wrap‑up for large vendor networks.
Confirm required endorsements:
- Waiver of subrogation in favor of carriers or shippers (if agreed).
- Additional insured wording that matches contract language.
- Primary and non‑contributory wording if the 3PL is required to be primary.
Reconcile with surety/bond program (BMC‑84/BMC‑85).
Test run with sample claims scenarios (see how E&O + contingent cargo interact): Claims Scenarios: How E&O and Contingent Cargo Interact After a Lost or Damaged Shipment

Final considerations

For smaller brokers focused on matching carriers to shippers in markets like Atlanta, Dallas or Phoenix, a focused E&O + contingent cargo program with solid subrogation may be the most cost‑effective solution.
For 3PLs managing large carrier rosters, port operations or multi‑state warehousing (e.g., Los Angeles, Houston, New Jersey), a carefully underwritten wrap‑up can improve operational consistency but requires rigorous contract and risk control discipline.
Work with a broker who understands both the transportation exposures and the insurance market (surety, E&O, cargo, cyber). Use carrier references (Travelers, Liberty Mutual, The Hartford, Marsh, Aon) and obtain competitive quotes to verify whether a primary or wrap‑up program delivers the best total cost of risk.

References and helpful resources

FMCSA — broker and freight forwarder registration and bond requirements: https://www.fmcsa.dot.gov/registration/registration/brokers-freight-forwarders
The Hartford — surety bond basics: https://www.thehartford.com/surety/bonds/what-is-a-surety-bond
Next Insurance — professional liability offerings for small businesses: https://www.nextinsurance.com/small-business-insurance/professional-liability-insurance/