The Voluntary Parting Exclusion: What You Need to Know

While many of these crimes involve personal data breaches, phishing, and spoofing, which may be covered by your property and casualty policies, policies often have an exclusion that you may not know about. And this exclusion doesn’t just apply to cyber complaints.

Many companies that routinely ship out their goods are unaware of what is known as the voluntary parting clause. For example, if a bad actor reroutes a delivery, the company may assume their property policy covers the loss—it doesn’t. This article explains the voluntary parting exclusion and what you can do to protect your business from an unexpected loss.

What Is Voluntary Parting?

A typical voluntary parting exclusion clause states that a loss due to entrustment of property to another entity, even if that entrustment is due to any "fraudulent scheme, trick, title, or false pretense" would not be covered. In other words, the exclusion applies if you release (or voluntarily part with) your goods to a shipping service.

How can the routine shipping of your goods and services to customers become a costly problem? Here are two recent examples of what can go wrong after you entrust your goods to a third-party shipper and how the voluntary parting clause can be a key component.

• An individual created more than 170 fake accounts to order over $823,000 worth of luxury clothing from three designer clothing rental services. Between April 2022 and February 2024, the individual sold the rented items on another online site. The elaborate scheme involved mail and wire fraud and interstate transportation of stolen property.
• Cybercriminals hacked into a global shipping company computer system to change the delivery addresses for high-end cutlery shipments. More than $300,000 worth of merchandise was sent to residential addresses for resale on the black market.

In both examples, the company voluntarily parted with its goods and was subject to the voluntary parting exclusion. Since many companies—from food and beverage distributors to machine rental companies—use third-party shippers, they are at risk of their products falling into the wrong hands after they leave their shipping site.

How Can You Mitigate Voluntary Parting Losses?

The first steps to protecting your company are carefully vetting all shipping agencies you use and maintaining scrupulous shipping records. Here are some internal controls you should implement and confirm:

• Make sure your passwords on the shipping company website are secure.
• Make a list of authorized individuals who are allowed to make changes, including to the shipping address.
• Keep copies of all shipping labels and receipts.
• Verify that the customer’s funds are available prior to shipping a product or providing services by checking their bank account or credit card information.
• Do not transfer funds after an email request alone. Verify identity with a phone call or in-person conversation with the individual requesting the transfer.
• Use dual authorization to transfer or release funds.
• Reconcile bank accounts with someone not authorized to deposit or withdraw funds.

However, these important steps may only go so far if your coverage has a voluntary parting clause. Here are other key ways to mitigate your losses in case your goods do not go where you intended them to go:

• Meet with your broker to explore an endorsement that would offer more than the minimal coverage in the event of a voluntary parting loss.
• Talk through probable scenarios with your broker to see if there is other coverage that could apply (such as cyber coverage for a cyber breach).
• Meet with your shipping company to discuss your concerns and the possibility of an increase in their coverage of in-transit losses. Many shipping companies only have minimal coverage for these types of losses.
• Obtain cargo coverage. Most cargo insurance policies do not have a voluntary parting clause. Therefore, your best bet to avoid voluntary parting losses may be a cargo policy.