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Legal Update – The Indisputable Conflict Among Federal Circuits On Freight Broker Liability

Last month, we analyzed two decisions within the United States Court of Appeals that create an opportunity for the Supreme Court of the United States (“Supreme Court”) to consider and accept jurisdiction on the question of whether state law negligence claims against freight brokers are preempted by the Federal Aviation Administration Authorization Act (“F4A”). See Aspen Am. Ins. Co. vs. Landstar Ranger, Inc., 65 F.4^th 1261 (11^th Cir. 2023); Miller v. C.H. Robinson Worldwide, Inc., 976 F.3d 1016 (9^th Cir. 2020).

At the time of this writing, the deadline for an appeal of Aspen to the Supreme Court has yet to expire. Our discussion last month contemplated that the Supreme Court could decline jurisdiction of such an appeal on a narrow reading that no conflict exists with Miller because each case focuses on different provisions of F4A addressing different exposures (cargo vs. bodily injury).

Since our last update, a third Federal Circuit has offered its opinion on the subject to create an indisputable conflict with Miller, and increase the likelihood that the Supreme Court will provide guidance on F4A preemption.

On July 18, 2023, the United States Court of Appeals for the Seventh Circuit (“7^th Circuit”) issued a ruling favorable to freight brokers in the case of Ying Ye vs. GlobalTranz Enterprises, Inc., No. 22-1805 (7^th Cir. 2023), when it decided that F4A preempts state law negligence claims for personal injuries sustained in a motor vehicle accident.

In Ying Ye the 7^th Circuit was presented with facts including that GlobalTranz brokered a load to a motor carrier whose driver collided with a motorcycle during transit. The motorcycle driver died of his injuries, and his surviving spouse filed claims against GlobalTranz based upon Illinois state law theories of negligent hiring, and vicarious liability for exercising control of the motor carrier.

The United States District Court for the Northern District of Illinois, Eastern Division (“Illinois District Court”), dismissed the claim for negligent hiring, concluding that it was preempted by F4A as relating to the services of a broker to arrange transportation, and did not fall within an exception to preemption for regulation of motor vehicle safety. The Illinois District Court granted summary judgment on the claim for vicarious liability.

The 7^th Circuit affirmed the Illinois District Court dismissal of the negligent hiring claim, agreeing that it is preempted by F4A and not preserved by the safety exception. In reaching this conclusion, the 7^th Circuit recognized the similarities in fact and legal issues with those considered by the 9^th Circuit in Miller, and delivered a detailed analysis of why the conclusion in favor of preemption is compelled by application of established principles of statutory interpretation to the language and intent of Congress reflected in F4A.

Thus, if both Aspen and Ying Ye are appealed as expected, and jurisdiction is accepted in each case, then the combined impact provides the Supreme Court with the opportunity to provide guidance on F4A preemption for cargo and bodily injury claims at the same time.

Even if the Supreme Court issues favorable rulings in both cases, a narrow reading of Ying Ye could support the conclusion that only claims for negligent hiring are preempted, and other allegations of negligence not included in the appeal remain viable, such as vicarious liability on theories of control.

For those keeping score at home, the unfavorable 9^th Circuit decision in Miller applies in Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Washington, Guam, and the Northern Mariana Islands; the favorable 7^th Circuit decision in Ying Ye applies in Illinois, Indiana, and Wisconsin; and the favorable 11^th Circuit decision in Aspen applies in Alabama, Florida, and Georgia.

In combination with GTU’s legal and claims pedigree, our insurer and claims handling partners have achieved success pursuing the preemption defense in many federal and state courts to eliminate and minimize freight broker loss experience, which is now further strengthened by the Ying Ye case.

While the industry waits for issues of F4A preemption to work their way through the legal process to obtain guidance from the Supreme Court, it remains impractical to draw territorial lines in the operation of a brokerage using motor carriers regularly moving loads through multiple federal and state jurisdictions in a single trip. In a legal environment where even favorable decisions lack finality and may be overturned, prudent freight brokers should continue to apply best practices in carrier selection to minimize these exposures and protect their business. GTU continues to support those efforts including delivery of our unique advantages, such as our proprietary algorithm and model broker carrier agreement, to protect the reputation, goodwill, and profitability of our customers.

Legal Update – How a Potential Conflict Among Federal Circuits Impacts Best Practices

On April 13, 2023, the United States Court of Appeals for the Eleventh Circuit (“11^th Cir.”) issued a ruling favorable to freight brokers in the case of Aspen Am. Ins. Co. vs. Landstar Ranger, Inc., No. 22-10740 (11^th Cir. 2023), when it decided that the Federal Aviation Administration Authorization Act (“F4A”) preempts state law negligence claims for a cargo theft loss.

In Aspen the 11^th Cir. was presented with facts including that Landstar brokers loads in accordance with a process that requires motor carriers to create an online profile to be eligible to bid on a load. Once registered, Landstar verifies information before dispatching a load. Landstar did not follow its usual verification process, and dispatched a load to an imposter posing as the authorized motor carrier. The load was stolen and not recovered. The subrogated insurer of the owner of the goods filed claims against Landstar based upon Florida state law theories of negligent selection of a motor carrier.

The United States District Court for the Middle District of Florida (“FL DC”) concluded that such claims were preempted by F4A because they relate to the services of a broker to arrange the transportation. The 11^th Cir. affirmed the FL DC, agreeing that the cargo claim did not fall within the safety exception of F4A regarding operation of a motor vehicle.

Counsel for the freight broker in Aspen advised GTU that they expect an appeal of the 11^th Cir. decision to be filed with the Supreme Court of the United States (“SCUS”). Aspen is the second time a Federal Circuit has considered whether state law claims against a freight broker are barred by F4A preemption, and arguably creates a conflict that increases the likelihood that the SCUS will accept jurisdiction.

On September 28, 2020, the United States Court of Appeals for the Ninth Circuit (“9^th Cir.”) issued a ruling unfavorable to freight brokers in the case of Miller v. C.H. Robinson Worldwide, Inc., 976 F.3d 1016 (2020), when it decided that the F4A does not preempt state law negligence claims for personal injuries sustained in a motor vehicle accident.

In Miller, the 9^th Cir. was presented with facts involving a motor vehicle accident caused by a trucker who lost control of his vehicle in adverse weather. The trailer crossed the median and collided with a passenger vehicle, whose occupant sustained severe injuries. The injured party filed claims against C.H. Robinson based upon Nevada state law theories of negligent selection of a motor carrier.

The United States District Court for the District of Nevada (“NV DC”) concluded that such claims were preempted by F4A because they related to the services of a broker to arrange transportation. The 9^th Cir. reversed the NV DC, concluding that the claims fell within an exception to preemption for regulation of motor vehicle safety. C.H. Robinson filed an appeal with the SCUS, which declined to accept jurisdiction of the case without opinion.

The freight broker industry is hopeful that Aspen will be appealed to the SCUS and jurisdiction will be accepted to obtain a favorable ruling and resolve the apparent conflict with Miller. However, there is no guarantee that the SCUS will conclude that such a conflict exists. Narrow readings of Aspen and Miller can support a conclusion that each case deals with a different portion of the F4A statutory language, and different liability exposures, such that no conflict among the Circuits exists.

Regardless of the ultimate outcome with SCUS, the fact patterns in Aspen and Miller demonstrate unfavorable trends of diminished safety on America’s roadways and in the chain of custody of goods which create significant tort and contractual liability exposure for freight brokers. Prudent freight brokers will apply best practices in carrier selection to minimize these exposures and protect their business.

Freight brokers insured with GTU possess a unique advantage over their competition with the opportunity to apply our proprietary algorithm to their motor carrier lists to identify those most likely to create losses. In addition to obvious lessons like never use the services of motor carriers rated conditional or unsatisfactory with the FMCSA, our algorithm assists with nuanced identification of motor carriers who present an increased likelihood of a motor vehicle accident, an uninsured cargo claim, and theft of a load.

Through effective utilization of this resource alone, GTU freight broker customers can promote public safety and protection of the chain of custody of goods; reduce frequency and severity of claims; lower loss costs; create the opportunity to enjoy most favored premium rates; stabilize risk management costs over time regardless of size or expertise, or the coverages and insurance limits purchased; maximize goodwill in its shipper relationships; and improve profitability.

Update – Game Changer Case Decision- Miller versus CH Robinson- The Case Against Preemption

We just got an update on this decision from our friends at Frilot (freight brokerage industry and insurance leading claims TPA concerning the recent US Supreme Court decision not to hear this case. (It had been appealed to the US Supreme Court).

What is the upshot here?

The use of the defense of preemption is effectively gone in the states of Arizona, California, Idaho, Nevada, Oregon and Washington.
In these jurisdictions, the defense strategy will necessitate the freight broker going through discovery and adjudicating the claim relative to both vicarious liability and independent negligence statutes.
Intrastate moves are not applicable to this new development and there is no safety exception for intrastate moves.
Services can still be preempted which is applicable to cargo claims.
Claims outside of these states (the 9^th circuit) are the same as before and the good fight continues.
Carrier selection by freight brokers has been and will continue to be a very big deal and will be scrutinized by courtrooms going forward.

Below was the original communication on this subject:

My friends at Frilot (Industry leading claims TPA) sent me the following:

“On Tuesday, September 29, 2020, a panel of three judges in the United States Ninth Circuit Court of Appeals issued a ruling in the case styled Miller v. C.H. Robinson Worldwide, Inc., No. 19-15981 (9th Cir. 2020), overturning the availability of preemption as a statutory defense to third party claims of freight broker negligence in personal injury cases.”

This is a big deal in that, while Preemption does not work in every jurisdiction, it has been one of the common defense strategies for defending a truck broker in personal injury claims. So defense attorneys’ first order of business is trying to get a case removed to federal court. So what is the deal with Preemption?

Per Frilot, ““Preemption” is a legal concept that is rooted in the idea that while individual States maintain a certain degree of sovereignty, the federal government has the ability to displace state laws in favor of a federal law if a single cohesive law will better serve the nation in its entirety. In the freight broker and trucking context, Congress exercised this “supremacy” power of the federal government over States in order to deregulate both industries and thereby created a set of laws at the federal level that applies to freight brokers. “

Further specific Federal Preemption Defense applicable to Freight Brokers peculiarly comes from the Federal Aviation Administration Authorization Act ( the FAAAA) which provides that:

(1) A state may not enforce a law, regulation, or provision related to a price route or service of any motor carrier, broker or freight forwarder with respect to the transportation of property

(2) BUT the Safety Authority of a state will be a matter not covered with respect to motor vehicles (this is known as the Safety Exemption).

You will note that there is both confusion and consternation concerning how freight brokers are intertwined with motor carriers in (2) above. So the issue is does Preemption work for freight brokers even with the safety exemption? The answer has been yes and no.

Well leave it to CH Robinson to again lose an important case. The 9^th Circuit Court of Appeals, the highest court to review and decide on a freight broker personal injury case ( that is what Miller versus CH Robinson is where the plaintiff was left a quadriplegic by the carrier that CH Robinson hired. In a 2-1 ruling that per Frilot “The Court did not believe that Congress intended to immunize freight brokers from liability for the negligent selection of motor carriers. Further, the Court found that even if Congress intended the reach of the FAAAA to be beyond mere economics, the “safety exception” was intended to act as a safeguard that would allow States to regulate brokers through state tort law.”

Note the upshot is that a major battle has been lost- and that does not bode well for freight brokers. And while this is only one district order, this case now becomes the gold standard for cases against freight brokers.

Specifically, based on the 9^th District, this case will serve as a binding precedent for the states of AZ, CA, ID, MT, NV, OR, and WA ( and a few other territories and states that are not pertinent) relative to Interstate Shipments.

So what is the impact of this case from a defense, tort and insurance perspective?

There will need to be a different decision in another district court. Right now the 6^th circuit has one. If it rules the same, it will make the defense road that much harder.

As safety in carrier selection is not preempted, the bar will be raised on carrier selection and plaintiff attorneys will work harder to show negligent hiring and negligent selection- notwithstanding trying to encourage success from the broker being vicariously liable.

The pervasive issue of a broker acting like a carrier ( or worse being construed to be a carrier) will become a greater issue as well.

The Miller case supports the notion of higher loss cost ( more claims) for freight brokers and their insurance carriers.

So is there any good news about this decision? The answer is unfortunately no.

The Differences Between Truck Broker Liability and Contingent Auto Liability

We are asked nearly every day to describe the differences between Truck Broker Liability coverage (TBL) and Contingent Auto Liability coverage (CAL). To understand the differences, it is important to look at the history of coverage for truck brokers.

History of Coverage

Heretofore, there was only Contingent Auto Liability with one exception, the AIG program of Primary Truck Broker Liability (TBL) – an unprofitable program that has now shut down. That program evolved out of the need to insure truck brokers on a primary basis- as many producing agents in the insurance marketplace felt the conventional CAL programs did not offer comprehensive coverage. The problem with the AIG program was that it was only designed for the largest truck brokers and the minimum premium was too expensive for the average sized truck broker to consider. Also, many shippers required additional insureds and waivers of subrogation, along with primary and non-contributory wording, which AIG was not willing to offer.

That changed with the Markel TBL program designed for all truck brokers. Now there are both Hudson and Beazley programs that offer TBL as well. These are the only three mainstream TBL programs in the marketplace. TBL coverage is more important today as shipper’s demands on both truckers and truck brokers have changed. Shippers have gotten much more educated relative to coverages and they want a truck broker to have several things:

♦ to have primary coverage

♦ to add the shipper as an additional insured

♦ to defend and indemnify the insured (and the shipper if named as an additional insured) irrespective if the trucker’s coverage defended/indemnified or not

♦ to waive subrogation

Discussion

Are CAL programs as worthless as the marketplace thinks they are? Absolutely not.

Is CAL coverage as good as TBL coverage? Absolutely not.

Let’s look at some of the differences:

♦ CAL – Covers damages resulting from auto liability that may arise on a contingent basis. That is, it will cover the broker if the carrier’s primary auto liability coverage fails to cover a claim.

♦ TBL – Covers bodily injury or property damage resulting from the ownership maintenance and use of a carrier’s auto arising out of and emanating from the insured’s operations as a transportation broker.

Note the TBL does not mention being contingent and is therefore primary coverage (a very big deal). The coverage form is a hybrid policy (GL & Auto) covering a truck broker’s liability arising out of an auto claim on behalf of a trucker to whom the insured brokers. The TBL’s wording comes straight out of an ISO commercial auto policy.

The major differences are the specific conditions that could negate coverage for an insured under the CAL policy that are not present in the TBL policy:

♦ Defense/Duty to Defend- Both programs have a duty to defend, but the CAL will not defend if there is other valid insurance. So a truck broker could be sued and not defended if the trucker’s coverage is providing defense. A big deal.

♦ Punitive and Exemplary Damages- Excluded under the CAL and not under the TBL (some smaller accounts are endorsed to have an exclusion for same).

♦ Annual Aggregate- CAL has an annual aggregate (which is the most the insurer will pay during a policy period). The TBL is like an auto policy and has no annual aggregate (some smaller accounts are endorsed to add aggregate limits).

Agent’s Duty

We are all in the business of trying to sell the best coverage to protect the insured. In the past, when there was only CAL, there was no other choice in coverage. It now makes sense to offer TBL coverage if a prospective insured meets risk acceptability and best practices standards. Note as more and more shippers become aware that this coverage is now available, TBL coverage will help truck brokers meet risk acceptability standards with new shippers.

Professional Liability Insurance for Truck Brokers- Why They Need It and Coverage Intentions

Professional Liability is a very interesting insurance product that has recently received much more notice for truck brokers. Which raises the question: why would a truck broker need Professional Liability coverage when it is not offered for truckers? In my view, we will eventually see truckers required to have Professional Liability. But let’s not get the trailer in front of the tractor….

First, let’s go back to what coverages truck brokers are buying today (in order of popularity):

· Broker Bond for $75,000.

· Contingent Cargo- most look for coverage that includes excess, difference in conditions and sublimits for Identity Theft and Earned Freight.

· Truck Broker Liability- this provides primary coverage versus contingent auto coverage for best practices brokers. Most brokers need and many shippers require this coverage.

· General Liability- this is for premises and incidental exposures normal to truck broker operations.

So why the sudden need for Professional Liability? Both shippers and truck brokers have figured out that, while there has been a vast improvement over the years, truck broker insurance coverage is still in its early days- meaning that the case precedents against truck brokers have not been completely assessed, examined or assimilated in the marketplace. In reviewing the aforementioned coverages, we will then be able to identify the coverage gaps that Professional Liability can fill. Contingent Cargo covers the property or cargo loss that results from the failure of the trucker’s policy to provide coverage. Truck Broker Liability covers the legal liability of the broker for bodily injury, property damage, and pollution for negligence in the supply chain. General Liability covers the premises and can include miscellaneous operations like sales out of the office.

So here is the gap. Could a truck broker be legally liable for a loss that does not result in bodily injury, property damage, or pollution that is not covered in a TBL or GL policy? Could a truck broker be liable for financial loss that is not the property of others? You bet.

A Professional Liability policy covers errors and omissions that are committed during the course of a truck broker’s business day. A truck broker may make mistakes while undertaking their work (overlook a critical piece of information, incorrectly state a fact, etc.) and could be sued by their clients. The fact that a truck broker is in essence a middleman between the shipper and the carrier can create a completely different exposure than for a carrier dealing directly with a shipper. To be more specific, a truck broker needs Professional Liability coverage to cover the following exposures:

· Misdelivery- the truck broker instructed the carrier to deliver the goods to the wrong place.

· Miscommunication- the truck broker told the consignee the load would be delivered on Thursday when he meant Tuesday.

· Regulatory Errors- the truck broker did not know the rules and the load was impounded by a civil authority.

· Discrimination- the truck broker was seen to discriminate against a long standing carrier in favor of another one.

· Negligent Hiring- the truck broker hired an incompetent carrier whose deficiencies resulted in financial loss other than bodily injury, property damage or loss of cargo.

· Negligent Acts

· Negligent Omissions

Although we at GTU are able to sell the only three occurrence forms in the marketplace, most Professional Liability coverage forms are claims-made. Deficient programs only offer coverage on claims-made & reported versus pure claims-made. GTU not only offers claims-made and occurrence coverage, but can also cover punitive damages (where permissible by law), personal injury, disciplinary proceedings, loss of earnings and expense reimbursements.

Aside from normal policy terms and conditions and exclusions, it is important to understand that a Professional Liability policy does not cover:

· The cargo or property lost or damaged in transit (that’s what Contingent Cargo policies are for).

· Bodily injury or property damage (that is what the TBL and GL policies are for).

One last fact to know when dealing with a prospective truck broker. The truck broker business is thriving and averaging 15-20% pretax profit. So if you have a broker doing $5 million in revenue, he is making usually $750,000 to $1 million. If they have any retained earnings, their business is worth way, way more than that pretax profit. So when you are discussing something that seems as insignificant as Professional Liability, the question is: if your business is worth as much as the average truck broker, why would you not have Professional Liability coverage that may pick up the coverage gap?

We hope this offers a clear overview of Professional Liability coverage. Don’t have an E&O by failing to sell Truck Broker Professional Liability/E&O coverage.

Truck Broker Carrier Selection and Carrier’s Insurance Issues with AM Best Rating

We are asked all the time to assist in evaluating carrier quality. While the process can be both tedious, exacting, and time consuming, all stakeholders understand that legal liability has, can and will be determined in a courtroom based on the salient issues of negligent hiring, negligent entrustment and vicarious liability as it relates to a truck brokers selection of carriers to haul their customer’s loads. Nobody (or I should say nobody with any sense or anyone looking at any case law) disagrees with this notion.

GTU and its insurance company partners provide free risk management software in carrier selection. The idea serves 2 interests. First, it helps GTU assess the pool of carriers a truck broker uses and identify the carriers that can optimize the risk management characteristics that a truck broker’s customers both need and expect. It is not often said, but at the end of the day, the value a truck broker brings to its customer is the carrier quality used. And some of their shipper customers would be very disappointed in some of the choices made in carrier selection- that they would never choose themselves if they were hiring the carrier directly.

Secondly, the truck broker is served by optimizing the placement of loads with the carriers that represent a better risk management profile.

While carrier DOT Safety Ratings are a fairly black and white issue relative to carrier vetting(we suggest forgoing carriers with a conditional or unsatisfactory DOT Safety Rating), CSA equivalent assessment is a much more dynamic process. At issue is the data. Roughly 75-80% of the carriers have no relevant data so using CSA equivalents in the process is more problematic. That said, less than 4% of the carriers have 2 or more Alerts so that should tell a truck broker to go get the 96% that do not have these inspection problems that can and have been used in a courtroom.

A bigger issue is the carrier insurance AM Best (Best) ratings. The Best rating relates to the financial stability of the insurance company in both key ratios and capital size. Again the data is relevant . Note 16% of the carriers have insurance with a carrier that is less than A-rated. That’s right, just 16% which means 84% of carriers have insurance with Best A-rated insurance. So again why would a truck broker use an carrier with insurance less than an A rating? As far as the truck broker is concerned, it typically has to do with the cost of moving the freight or finding a carrier at all. And that is a poor answer.

What is more perplexing is that if the shipper customer was aware that a truck broker was using a carrier with less than Best A-rated insurance, they would not use that truck broker at all. We see contracts from the shipper that require the broker to use carriers with A-rated insurance- only to not know that truck broker is not honoring those contract terms.

So what is the deal with A-rated insurance? Best confused the issue as well by denoting that a B++ rating is Very Good as far as their rating standards. That said, all insurance agents know that is not the case. And while some will sell poorly Best rated insurance carriers, most of the agents errors and omissions coverage excludes loss and financial insolvency issues that go along with it when using less than Best A-rated carriers.

What adds gas to the fire is that most excess insurers will not write over less than A-rated insurance, and most trucking insurance agents would state, albeit subjectively, that placement with a carrier that is less than Best A-rated is a sign that the carrier has loss problems or other issues making it less than a stellar carrier. And with A-rated insurance being plentiful( think 84% of the carriers with Best A-rated insurance again), a truck broker should select those carriers.

There are exceptions in this marketplace that are worth noting. Many of the insurance companies that have been downgraded to less than Best A-rated have paid other insurance companies to assume their liability or utilize a cut-through endorsement. As underwriters, we think this is both prudent and should be acceptable to all stakeholders. But why would we make this exception?

An Assumption of Liability Endorsement means an insurance company has assumed the liability of the ceding company. So if XYZ Insurance Company is B rated and has had ABC company which is A-rated assume its liability, you in essence have 2 insurance companies on the risk where one of them is A-rated -not a bad solution. The same holds true where a “Cut Through” endorsement has been issued. A Cut Through allows in the case of XYZ’s insolvency that an insured will have access to the assets of ABC- again not a bad situation.

In closing, managing carriers along with their insurance company’s financial rating/ Best rating is a fundamental part of risk management. Our business and the truck broker’s business is getting more scientific in risk management and risk mitigation. At GTU, we include this service as a free benefit to insurance placement, so it is a “why not” for the truck broker. And it can save a truck broker’s bacon so to speak in a courtroom. So do it.

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.