Truck Broker Liability Legal Precedents

It is important to understand that broker liability is a developing area, not a mature area of the law. The exercise and narrative below will simply prove the need for coverage.

As relates to truck brokers, the insurance coverages being offered today in the marketplace vary from truck broker liability ( viewed as the best coverage available today) to hired and non-owned to contingent auto liability. The bottom line is that there is a growing trend on behalf of plaintiff's attorneys to show both malfeasance and tort liability in truck brokers'operations- specifically as it relates to carrier selection.

Case # 1 Shramm versus Foster (Maryland )-2004

This is the case that changed everything. Prior to this case being tried there was no known legal precedent establishing and confirming liability on behalf of the broker.

In Schramm, C. H. Robinson (CHR) was a 3PL specializing in brokering the shipment of goods. CHR did not own or maintain equipment but matched shippers with motor carriers who did own and operate equipment. Robinson had brokerage contracts whereby truckers ( carriers)  agreed to haul loads on behalf of shippers. CHR's promotion material provided that CHR was the one point of contact in its services to shippers. The promotional material also asserted that CHR only worked with motor carriers with adequate insurance. Finally their "promotional" material stated that they had excess liability to pay for damages in the event of exhaustion of a carriers insurance limits. As you will see, their advertising and marketing materials ended up hampering their defense in this case.

The trucker that CHR hired  was an authorized motor carrier. This carrier unfortunately ran an intersection and hit a pickup truck and caused severe injury with irreparable neurological damage. The driver had been driving over the maximum hours allowed by law..

CHR's defense successfully confirmed with the court that CHR was not liable for damages under the Motor Carrier Act or for Federal Motor Safety Violations. CHR also successfully averted liability under negligence/ respondeat superior that Robinson was an agent of the driver. ( there was no written agreement between the driver, the trucker and CHR- basically confirming the agreement that the trucking company and driver were independent of CHR ). That is the good news that came out of this case.

The bad news is that the court found CHR liable for negligent hiring of an independent contractor. The reason for this is that CHR did not use reasonable care in their selection of a carrier. What is too bad is that even though Safestat had a threshold at the time that a score of 75 or below was satisfactory, the trucker CHR hired had a score of 74!

In the Schramm case, CHR only lost the negligent hiring aspect of the case- but that was enough to start the precedent of broker liability.

See more complete information on this case based on the link below:

http://www.sfl-legal.com/Recent%2005/SchrammvFoster.htm


Whereas Schramm is the decision that changed the game, there are other legal precedents where tort liability was established against the truck broker. In these cases, this involved defendent C. H. Robinson ( the nations largest truck broker). Likewise, I would be stunned if CHR is still doing business ( i. e. carrier selection and risk management) the same way today as they were prior to these claims, judgements, and loss payments.

Case # 2- Jones versus D'Souza ( Virginia)-2007

This case involves another unfortunate death claim where CH Robinson brokered a load to a trucking company whose driver crossed the median and hit another tractor trailer.

Like Schramm was able to successfully defend their claim that they were not:

• Negligent per se
• Violated conditions relative to the Motor Carrier Act

C. H. Robinson lost however specifically the negligent nuances of negligent hiring and negligent entrustment.  What is interesting is that even though the negligent trucker was deemed to be an independent contractor supported by a contractural arrangement of same with a motor carrier, the court still deemed that the trucker should not have been hired nor should CH Robinson have entrusted the load to such a potentially high risk trucker. By the way the trucker had a conditional DOT.

See link below for a more eloquent analysis of this case:

http://www.forwarderlaw.com/library/view.php?article_id=474

Case # 3- Sperl versus Henry (Illinois) -2009

This case got a lot of peoples attention. Two reasons:

1. It again involved C. H. Robinson
2. The jury verdict against CH Robinson was $24,000,000 ( almost)

The case involved another death claim. This time the tractor trailer involved rear-ended a number of private passenger cars involving injury and death. And to add insult to that injury, the trucker hired by Robinson had previously been fined for falsifying hours of service log books and had a lapsed drivers license. Unlike the Jones v. Souza case, the jury failed to rule in any favor to CH Robinson. Basically the jury found that C.H. Robinson was vicariously liable and had been involved in negligent hiring.

So what theories were proved here

• Vicarious liability. C. H. Robinson was held liable for the acts of a third party as if C. H. Robinson was driving and operating the truck. There need not be any direct relationship between the parties, and their mere involvement in certain, often hazardous, transactions render them liable.
• Negligent hiring of a subcontractor. C. H Robinson failed to ascertain that the carrier was properly qualified to undertake the move.The lapsed state of the driver's license most certainly was a factor in establishing liability.

Another link that offers a better perspective:

http://www.truckline.com/AdvIssues/Litigation/2009%20Forum%20Documents/Trends%20in%20Damage%20Awards/CH%20Robinson%20for%20ATA.pdf

So if an insurance agent or truck broker tells you that they believe it is not worth the expense to have insurance coverage, we believe this article and these legal precedents will prove to the contrary. Aside from insurance, it is important to employ best practices in carrier selection.

At the end of the day, an insurance agent and insurance company have to prove both their viability and relevance to the end customer. We suggest you prove yourself here.

What Shippers and Brokers Need to Know to Manage Their Liability Exposure and The Effects of CSA 2010

I watched a fantastic webinar put on by American Shipper in November that pointed to ( although they did not specifically mention) two presently underinsured or uninsured exposures- broker liability and contingent auto liability and why coverage is needed today. ( As in right now!)

Both coverages are not understood and frankly not part of the mainstream trucking insurance marketplace. With the current economy, many truck sales professionals are setting up brokerage authority or expanding brokerage sales-as trucking capacity is still tight in many areas. Even today's truckers, who are at an all-time high with respect to operating efficiencies, have found they do not either have the equipment or drivers to keep up with their shippers' needs or demands- and that is poor business. So they are setting up and expanding their brokerage operations both within and autonomous to their existing operating authority.

CSA 2010 will make capacity even tighter as bad trucking operations and drivers will not have long to fix it. And that spells bad news to the brokerage community- who even with best practices will find their operations exposed.

Some information I learned from the webinar corroborates the need for coverage. The Transportation Intermediaries Association understands that brokers need and will be required to have broker liability ( primary coverage) or contingent auto coverage ( secondary coverage). Why?

Truckers who continue to hire or retain unfit drivers will face litigation for negligent hiring and retention. Note a now famous court decision against the nation's largest brokerage operation C. H. Robinson further necessitates the need for coverage ( the Schramm decision).

Attorney Clay Porter, a true pro in the truck broker/ insurance arena has described the truck liability "vortex" well where there is a constant duty to supervise and retain records amongst other things from a best practices context.

Broker/ Shipper Liability can today be summarized by 6 exposures

* Respondeat Superior- the employer ( the truck broker) is responsible for the employee( the carrier). Even though the broker in all cases acts as an independent contractor, the courts are becoming sensitive to this bringing vicarious liability whereby one party is responsible for the actions of others

* Negligent Entrustment- causing injury due to instrumentality( a poor driver operating a extra heavy tractor)

* Claims under the Motor Carrier Act

* Claims that a Broker acted as a Motor Carrier

* Aiding and Abetting

* Negligent Hiring

While I want to emphasize I am no lawyer, it is pretty clear to me the biggest exposure to a broker is negligent hiring- and that a best practices approach needs to be delivered to the truck brokerage community- along with appropriate insurance (we provide same so this may seem a tad self-serving which is not my intention).

Federal laws also necessitate coverage. Which ones?

+49 USC 14704- Rights and Remedies of Persons injured by carriers or brokers- Both the carrier and broker are liable for damages sustained by a person as an act or omission of that carrier or broker in violation of this part

+49 CFR 387.307- Broker surety bond or trust fund- the broker is liable to payments to shippers or motor carriers if the broker fails to carry out its contracts or agreements for supplying of transportation by authorized motor carriers.

Shippers are going to make their brokers have insurance. Attorney Porter says that the indemnity agreements that brokers and truckers are being forced to sign do not hold up in 23 states, meaning shippers will require insurance, waivers of subrogation, and additional insured requirements across the board.

One of the failures of the industry is that there is a fine line between liability exposure either on a primary or contingent basis versus a professional liability exposure ( yes we insure that too). Clearly we are in the early days from a professional liability perspective and few shippers are requiring same of their brokers and virtually none of their truckers. You will see those products as well.

While I have not commented much about CSA 2010, suffice it to say that these factors in a large loss or claim will have impact on the broker that hired them:

^Unsafe Driving

^Fatigued Driving

^Poor Driver Fitness

^Drug and Alcohol Use

^Poor Vehicle Maintenance

^Cargo Securement

^Higher than Average Crash Indicator

These are primarilly no brainers for a plaintiff's attorney to go to war against a trucker or broker but the crash indicator of a trucker is not something available to the broker or general public as I understand it at this stage in time.

You can bet the truck insurance agents will be hit with insurance requests, waiver of subrogation requests, hold harmless contracts, and additional insured requests. And today, no one knows what to do with the exposure when there is more than one broker involved in the transaction.

Keep in touch on this and Happy Holidays.

Ben