Ben Armistead | Truck Broker Insurance Network

Broker Shipper Contracts and The Broker’s Assumption of Shipper and Carrier Liability

We continue to see a poor trend in broker shipper contracts respects their being more onerous and risk assumptive on the part of the broker. It is clear that, in consideration of the broker’s arranging transportation on behalf of the shipper, that the shipper wants the broker to assume contractually all liability for any transportation claim involving the shipper’s goods- period.

While it makes sense for a truck broker to guarantee and indemnify for the truck brokers legal liability in the supply chain, it is almost impossible for a truck broker to guarantee the performance of any third party- and most specifically a carrier for hire. Even more, a truck broker cannot guarantee the performance of the carrier’s insurance company.

So if the truck broker has signed a contract to guarantee the aforementioned performance, this is a recipe for failure. And the truck broker will want its insurance company to assume all this contractual liability and that rarely happens. Only a few insurers provide contractual liability for either truck broker liability or contingent auto liability- but in our view it does not really matter per the analysis below.

Regrettably shippers, shipper’s counsel, truck brokers, truck broker’s counsel, their insurance agents,and in some cases their insurance companies do not understand that if contractual liability is actually afforded, it is not expanding the terms and conditions of the policy to be broader than it already is; moreover, since most shippers require being added as an additional insured for defense and indemnity reasons, the issue becomes moot. Shippers are defended and indemnified anyway in most cases.

In broker shipper contracts, the indemnification clauses vary, and again, it is clear that shippers are looking for their shipper liability to be transferred to the truck broker. That can work effectively if only two things happen:

1) The shipper was added as an additional insured under the truck brokers policy, and

2) Both the shipper and broker were legally liable.

One of the challenges is that if the shipper is liable but the truck broker is not legally liable, defense and indemnification will not happen in the truck brokers policy to defend and indemnify the shipper. In fact , in most broker shipper agreements , indemnification for legal liabilities are irrespective of whether the broker has legal liability- thereby creating a big coverage gap and an uninsurable liability.

But it gets worse, due to some very overzealous shipper attorney’s, we are seeing contracts that require the truck broker to be responsible and thereby assume the legal liability as a carrier. And there are 2 issues with that as well.

1) The Moving America Towards Progress in the 21st Century ( MAP-21) established clarity respects a carrier always representing themselves as a carrier to the general public and a truck broker representing themselves as a truck broker to the general public. So it begs the issue of how a broker is supposed to assume contractually the legal liability of a carrier, when it is solely responsible for acting as a truck broker in the supply chain.

2) Truck broker insurance can and does cover losses due to negligent hiring, negligent entrustment, and vicarious liability for the carriers a truck broker hires. But it is not the intention of current truck brokerage insurance to ever cover the truck broker for carrier liability. A commercial auto policy does that. And truck broker policies are not commercial auto policies.

So again, stakeholders trying to seek coverage for shipper contracts are placing potential coverage gaps in the laps of both truck brokers and shippers. It begs the question, do the shippers really want truck brokers to be guaranteeing exposures they might be self-insuring? They indeed may. And do they really want the truck brokers being liable for guaranteeing carrier performance they cannot control? Again they indeed may.

It’s early days in the contract development between the truck broker and their shipper customer. Let’s hope the trend does not get worse.

Communication Versus Control- Issues and Dilemmas for Truck Brokers

Control has been a major determination of liability as it relates to case law. How a truck broker communicates to a carrier can be a major determinant of legal liability in a courtroom.

That being said, there are no best practices or communications regulations dictated by the Federal Motor Carrier Safety Administration (FMCSA) of which we are aware. Furthermore and specifically, the FMCSA has not provided any road map (so to speak) as to how communication is to transpire between a truck broker and a carrier.

Conversely, the FMCSA has given strict rules as it relates to Coercion. See the attached link: https://www.fmcsa.dot.gov/safety/coercion

Prudence lends itself to suggest that if a truck broker is doing business with a carrier who has an office or central dispatch, communication should only take place between the insured and the office/central dispatch- and not the driver.

That being said, when the carrier owner is also the operator, there is really no choice for the truck broker but to get in touch with owner operator driver. How the insured should communicate is up for debate.

Texting (essentially illegal in all states while driving) when you know the carrier driver is driving would sell poorly in a court room- although it could be argued that there was no other way to get in touch other than calling. A best practices approach to texting that is quite sensible is for them to add a line at the bottom of the text “that they do not expect the driver to check any texts from the brokerage during the course of transit”.

Certainly standards for communication need to set by the FMCSA. Disclaimers, while certainly fallible, do help. We recommend that during the load/transit negotiation and agreement between a carrier and the broker that in writing there should be “the insured/broker does not sanction any FMCSA violations by the carrier in the acceptance of the load”. It does not hurt and certainly looks better in the courtroom.

Also, the improvements in technology provide less need for communication and less exposure. We understand there is GPS software that always knows where the load is for as little as $1 a load. If the broker always knows where the carrier is (sooner or later this will be a requirement of transit to obtain the business from the shipper), then there is less reason to need to communicate. Less communication is less control. Less control = less legal liability.

Why We (And You) Should Use SaferWatch for Carrier Selection

Automation is becoming more important to transportation insurance- especially to the logistics/truck broker side of the equation. There are vast amounts of data available to both friends and foes of truck brokerage operations. The biggest growth area is in carrier selection data.

As the data is easily obtainable from both public and private sources, failure of an insured to obtain information on their carriers can and will be used against them in a courtroom. So even the smallest truck broker is using carrier selection software to qualify carriers that not only protect their insurance company and balance sheet, but also to augment commerce by providing their shipper customers the best carriers they can find.

From an insurance agent’s perspective, it is important to know that there is not only the opportunity to sell best-in-class insurance coverage, but also provide risk management turnkey within the insurance sale. We see no other such value added being offered in the logistic insurance sector.

There are several good vendors in the carrier selection data and software business. There is only one great one from our perspective, SaferWatch. www.saferwatch.com

While GTU has no financial interest in SaferWatch, we have partnered with them for many years. The partnership has been so good that our carrier insurance partners for whom we have the underwriting pen also believe in their inherent value. Likewise, as GTU is the only underwriter nationally to have a trucking insurance division alongside a truck brokerage insurance division, SaferWatch wanted to learn how a trucking underwriter views and grades carriers. The upshot of our collective work is that we created a carrier risk management algorithm which grades every single carrier in the FMCSA database like a trucking underwriter would.

Go to: http://www.saferwatch.com/main/gtu-saferwatch-snapshot/ .

Note the carrier selection algorithm is based on carrier risk selection underwriting that has been both tested and proven for over 30 years. As part of our service, we actually upload from Excel the carrier name and MC(motor carrier #) and provide the report free of charge.

The idea is not to advise a truck brokerage or their agent who their carrier heroes or zeroes are. Rather, it is to provide data that integrates with their TMS ( transportation management software) . So with their TMS, they can know which carriers, shippers and freight lanes are most profitable to them. By integrating SaferWatch, they can dovetail carriers that have the risk management data with profitability- thereby creating a scientific, best practices solution to something today that is used subjectively and with happenstance.

What makes this more compelling is that if GTU writes the contingent auto liability or the truck brokerage liability, our carrier insurance partners will provide free annual service with SaferWatch by discounting the premium for the cost of the basic annual service. So at binding they simply get a username and password and they are able to add and delete carriers at will. The value of the service is that anytime the information changes, whether it be safety rating, CSA-e percentile score or insurance carrier, that data will be automatically updated and the insured will be notified of the changes. Pretty cool indeed.

So how does SaferWatch compare to other carrier selection software services? We looked at two competitors and this is what we found out:

Carrier 411
From a very general perspective, Carrier411 is similar to SaferWatch Guardian, except it is more expensive and less robust.

SaferWatch technology for updating carrier data is superior to Carrier411.
SaferWatch calculates and provides CSA-e percentile scores, the comparable to CSA scores still used by SMS. Carrier411 does not.
SaferWatch Guardian offers users the ability to create custom carrier selection guidelines, as well as multiple shipper specific checklists. Carrier411 does not.
At the next level, SaferWatch Assure includes Certificate of Insurance requesting and monitoring. Carrier411 does not.
Carrier411 has FreightGuard Reports for marketplace fraud reporting. These reports are very popular with their users. SaferWatch counters with TIA Watchdog Reports, however, this feature is only available to TIA members.

RMIS (Registry Monitoring Insurance Services)

From the perspective of a third party certificate of insurance company, RMIS is similar to SaferWatch Assure. That said, as a robust carrier risk management solution (with certificates of insurance), RMIS falls far short of

SaferWatch Assure, and it too, is far more expensive.
SaferWatch data, and technology for updating carrier data is far superior to RMIS.
SaferWatch calculates and provides CSA-e percentile scores, the comparable to CSA scores still used by SMS. RMIS does not.
SaferWatch provides users the ability to create custom carrier selection guidelines, as well as multiple shipper specific checklists. RMIS does not.
SaferWatch provides carrier search tools for capacity development on a scale that no other product can compete with.
SaferWatch Assure provides immediate ‘load waiting’ Certificate of Insurance requesting with a Service Level Guarantee. RMIS does not.
SaferWatch Assure offers unlimited requesting and monitoring. RMIS prices based on the number of carriers monitored.
SaferWatch Assure is priced hundreds of dollars (sometimes $1000’s) less per month than RMIS.

Note SaferWatch integrates with virtually all TMS (transportation management software). It is not a requirement that the insured change vendors. We are just trying to offer a value added and since the service is less expensive , it’s a why not from our perspective.

So in closing, SaferWatch is the perfect risk management solution for truck brokers. The data is more robust and it is cheaper. It’s like the insured getting better coverage at a cheaper price. Truly the value added proposition.

Truck Brokers and Truck Broker Insurance 101

I continue to get calls from good folks that simply do not understand what truck brokers are and what insurance they need. While I have addressed this in a more simplistic basis in the past, I thought it made sense to revisit the world of truck brokers. So here you go:

According to industry sources, there are over 16,000 truck brokers. A truck broker is in essence a freight intermediary- linking the shipper to the carrier. Unlike a trucker, they own no assets involved in the transit of freight. What most people do not realize is how many different parties can be involved in the overall transportation of freight- otherwise known as the supply chain.

To illustrate how convoluted the supply chain can get with regard to freight in the supply chain, let’s look at an example. Transit of freight could have an ocean liner dropping a container to a third party logistics operation (3PL)-who has it transported by rail to a yard- whereupon a freight forwarder takes it on- and finds another broker -who has the carrier relationships- who in turn finds the trucker to get the freight to its final destination.

Where insurance kicks in is relative to understanding the liability during transit. The legal liability that is assumed arises from the bill of lading or tariff along with the contractual liability and legal precedents of tort liability. Today, the insurance on truck brokers is a fledgling work in progress. Many folks confuse a truck broker with a freight forwarder (a freight forwarder is licensed as a motor carrier while a truck broker is not). There are many more truck brokers going into business today than freight forwarders and 3PLs due to the more economical nature of operating as truck broker with just a phone and software- and not assuming a greater legal liability that freight forwarders and 3PLs have and do assume. From a casualty perspective the auto is construed to have the largest exposure while the GL is mostly construed to be a premises exposure- if that. I have never seen a GL loss on a truck broker and candidly have only seen 1 loss for GL for a trucker in my over 25 years in the business. The reason for this is that an auto liability policy ( the motor carrier form) covers the ownership, maintenance and use so it picks up most exposures. Other casualty losses involve professional liability which covers financial loss due to errors and omissions- a growing product.

The cargo insurance demand is probably the second most important insurance and is written on a contingent cargo basis. What is especially odd about this is that statutorially the truck broker has, as an intermediary, no insurable interest in the cargo. However, does that mean the truck broker is not legally responsible for cargo loss anyway? The answer is no in that they sign agreements with shippers that require insurance, require full indemnification, and require waiver of subrogation. While the casualty insurance previously mentioned offers the biggest source of balance sheet protection, the most important insurance to a truck broker is contingent cargo- as the truck broker needs to protect his end client- the shipper. Without that protection, usually a truck broker is unable to obtain freight from that shipper.

Truck brokers come in many shapes and sizes and it is important to understand what they are from bottom to top. Currently truck brokers exist on two bases- one as a standalone operation autonomous to any other transportation operation and secondly as an adjunct to a trucker’s operation. (There are also freight forwarders and 3PLs that have brokerage operations but I do not wish to address that here.) With the recession just over and truck utilization at an all-time high, a trucker would rather be in control of a shipper by having a brokerage operation to assist when all their power units are dedicated and already out on the road.

With respect to insurance, the truck broker operating autonomously is a fairly easy operation to underwrite. A truck broker operating in conjunction with a trucker can have separate authority or have authority in conjunction with a trucker’s existing common and/or contract carrier status. Most truck liability writers have disdain for operations with brokerage authority as they view it as providing coverage for trip leasing.

From an insurance buyer perspective, truck brokers also come in various shape and sizes. To get their authority from the Federal Motor Carrier Safety Administration, truck brokers have to provide a bond of $75,000. This is a pretty easy process but it means a truck broker has to pay to play. From there we see five types of insurance prospects:

♦ New Truck Broker Operations- no sophistication- only buying insurance for what the shipper requires. Seldom have a broker carrier agreement. Usually only buy contingent cargo although more and more are being required to have contingent auto, contingent cargo, and general liability

♦ Small truck brokerage operation in conjunction with a trucker- minimal revenue- only buying contingent cargo as well but like new operations are being requested to have coverage for the contingent auto, the contingent cargo and the GL.

♦ New Operations having experience and sophistication- employing best practices- want all coverages and expect high growth- have both an existing shipper and carrier network- work with industry standard broker carrier agreements.

♦ Seasoned Operations but no carrier agreement and no best practices- these are “country “ operations that do not have broker carrier agreements or industry best practices but have operated well within their environment. They are irritated as their shipping customers have been demanding insurance and end up buying contingent auto, contingent cargo, and general liability.

♦ Seasoned operations having experience and sophistication –employing best practices- want all coverages and best coverage and expect growth- employ great broker carrier contracts.

The broker carrier contract is a fairly big deal when underwriting truck brokers and a constant work in progress. When we underwrite the contingent cargo, we look for essentially 3 things in the broker carrier contract: indemnification, insurance limits mandated, and that the carrier is responsible for all losses. From a broker liability context, there is a need to have the broker carrier contract coincide with operational best practices and insurance underwriting requirements. Additionally, in any case where the broker can remove liability by requiring the carrier to name the broker as an additional insurable, our desire for writing coverage increases (note most trucking insurance companies do not want to name brokers as additional insureds but we see that changing.)

From an insurance distribution perspective, most insurance agents and MGA’s have no clue about truck brokers and the insurances needed. While some trucking agents are getting better and better, they do not write enough of it to show any proficiency. GTU is able to show proficiency with a daily understanding of the business and how it is evolving.

♦ Surety (previously discussed)

♦ Contingent Cargo

♦ Contingent Auto or Broker Liability- the fastest growing demand is for this product

♦ General Liability- no one provides contractual and that is what they are looking for

♦ E & O- greater interest is in this product- a really necessary product

♦ Property- primarily limited contents

♦ XS- more and more are asking for higher limits

Note there is vast interest in Cargo Identity Theft which we provide on a sublimit basis to some of the contingent cargo policies we write.

I hope this helps you have a better comfort of what truck brokers are, what insurance they need, and information that help you be more relevant/provide a value added to your client- the truck broker.

TT Club Transport Operators Coverage Explanation and Their Place in Logistics Insurance

TT Club is an interesting company, and they have an interesting place in GTU and in the logistics marketplace. What you find in the logistics insurance marketplace is domestic insurance capacity and international insurance capacity. This is understandable in that freight moves both domestically and internationally and therefore the insurance needs to dovetail those exposures. As a British mutual insurance company, TT Club is both an anomaly and an exception to the alternative domestic stock insurers.

TT Club also has 3 interesting profit centers. They are the largest container insurer in the world. Also, they are a leading underwriter of port authorities all over the world. The profit center in the logistics space is Transport Operators. It is intended for non-asset-based intermediaries in the transportation sector. TT Club has done well in this segment, particularly with truck brokers, and they write half of the national accounts in logistics. GTU is delighted to write its share of national accounts with TT Club.

Logistics insurance, as a component of transportation insurance, needs to be able to address and cover the legal liabilities a transportation intermediary might have from both a regulatory basis and a contractual basis. Aside from the regulatory side which affects operational issues, the intermediary typically will have a contract requiring indemnity with their customer, the shipper and those contracts will have insurance requirements required of the intermediary.

While we deal with the many different components of transport operators in the intermediary space, our primary focus is freight brokers, also known as truck brokers. Their only required insurance with the FMCSA is a bond for $75,000. That said, the shipping world requires a multitude of coverages and we will address these coverages shortly.

Why GTU and TT Club? At GTU, we underwrite in-house and are program manager for roughly 80% of the risks we see. We have developed a proprietary carrier risk management algorithm that is all about having a defendable file in a courtroom situation where negligent hiring, negligent entrustment and vicarious liability are applicable. Also, we have a division at GTU that does logistics insurance all day every day. We know the business. TT Club uses GTU’s proprietary application and will offset the cost of our carrier selection software in their overall premium so that the risk management service is provided free. They allow GTU, as underwriter, to pre-underwrite all accounts to streamline and quicken the underwriting process. Finally, we have arranged 25 million in capacity over TT Club which is the most capacity in the marketplace.

So what coverages does TT Club write under its Transport Operators form and why are they better than the general insurance marketplace for freight/truck brokers?

● Cargo Liabilities- insures for claims for physical loss or damage to cargo arising from freight/truck brokers operations. This occurs when a truck broker has arranged transportation of cargo with a carrier or railroad. If declared, TT Club can even do ocean and air exposures. Once there is an established liability on the insured has assumed on behalf of the carrier or railroad, TT Club’s coverage will respond when the carrier or railroad or their insurer have failed to respond. While TT Club, like any insurer, hopes the carrier, railroad or their insurer responds first, TT Club’s coverage will respond on a primary basis when such agreement to provide primary cargo coverage has been made with the shipper customer. Note coverage is also offered for consequential loss. So, the primary component and the consequential loss component are the main sales points. Valuable cargo coverage can be included if declared but is typically covered at a lower limit. Exceptions apply to this as TT Club is not looking to have a transport operator not be insured adequately.

● Errors and Omissions- insures for claims for financial loss to an insured’s shipper customer. This is a result of an insured failing to perform certain obligations. Examples include delay where the insured told the carrier to deliver the cargo to the wrong address. Also, the insured may have told the carrier to set the refrigeration unit at the wrong temperature- resulting in rejection of the load. While many insurers offer professional liability, we can only think of one other insurer who offers coverage on an occurrence basis- as most coverages are claims made in the insurance marketplace. As any professional insurance agent is aware, a professional liability loss can occur after the policy expired, so TT Club correctly views that Cargo Liability and Professional Liability are coverages that should be written together- as both coverages serve to benefit the insured in their relationship with their shipper customer.

● Third Party Liability- the most important coverage in our view in that there have been 8-figure court judgments against freight/truck brokers. TT Club’s coverage indemnifies for the insured’s legal liability to a third party for bodily injury, property damage, and sudden and accidental pollution. Their coverage is succinct and unless endorsed does not warrant that the insured has obtained a $1 million commercial auto liability certificate of insurance from the carrier’s agent (although they certainly would expect the insured to have obtained same). TT Club also includes consequential loss which most insurers exclude. Their coverage is succinct and unlike contingent auto insurers where loss is just limited to auto, it can include other conveyances like rail, air and ocean. Add consequential loss and the lack of it being contingent coverage with the ability to get $30 million in limits through GTU (5 million in primary through TT Club and $25 million excess through Lloyds/GTU), it is one of the insurance industry’s leading coverages. In an effort to assist their customers, TT Club will endorse hired and non-owned coverage ( non- ISO) and certain GL coverages such as Fire Legal Liability and Advertising injury if requested.

● Fines and Duties- this is more an ancillary coverage and should be viewed as peripheral and more applicable to freight forwarders (which GTU places with TT Club). Coverage is provided for an imposition by authority (government) of fines due to a breach in regulations and rules because of services performed by the insured. Note the TT Club advantage is most insurers exclude fines in their coverage forms.

● Costs- this also is more an ancillary coverage and should be viewed as peripheral and more applicable to freight forwarders. Provides coverage for the insured’s additional costs incurred for claims mitigation such as expediting expense (getting the cargo in a claim to the intended destination. It also includes defense and disposal, cleanup costs, salvage, and in some cases uncollected cargo costs (typically at sublimits). Note most logistics insurers do not provide such coverage in their policy forms.

● Discretionary Insurance- this is about the oddest coverage we have ever seen offered. What is great is that it shows TT Club’s superior overall coverage intentions. TT Club can and may decide to reimburse an insured at their sole discretion to cover a loss outside of the other coverages. We have seen no other insurer offer this coverage intention- anywhere. So, if they feel it should be covered and for some reason it isn’t, they may indemnify and insured.

For an additional premium, TT Club also can offer coverage for liabilities arising from:

● Handling Equipment

● Carrying Equipment

● Chassis Liability

● Tenants & Fire Legal Liability

● Personal Rights and Advertising Injury

● Property

● Business Interruption and Insured Damage

So, you can see TT Club has a special niche in the marketplace. GTU and TT Club together can offer something truly special with both best-in-class insurance and premier risk management. That is why we lead the industry. Let us lead it with you.