The Moving Ahead for Progress in the 21st Century Act (MAP-21) took effect in 2012, increasing requirements and penalties as they relate to operating as a freight broker.
Changes in effect from MAP-21 include:
• Brokers must register with FMCSA, and by definition may only arrange, not perform, transportation unless the person is also separately registered as a motor carrier
• An increase in the surety bond agreement amount from $10,000 to $75,000
• Brokers must have an officer (not a mere employee) that has three years of brokering experience and exhibit knowledge of brokering practices, rules, and regulations.
Unlawful brokering carries penalties up to $10,000, which can be levied upon the company’s officers and partners.
Costly litigation
In addition to new MAP-21 requirements, over the last five years there have been more court cases and litigation involving freight brokers. Where there is an issue with a trucking, it is not uncommon for everyone involved in the shipment to get dragged into the issue, even if the broker didn’t “touch” the shipment.
Here are three high-profile cases to consider:
- In 2009, the case of Sperl, et al. v. C.H. Robinson, et al. awarded the plaintiffs $23.7 million, because the truck driver and her employer had the minimum applicable insurance coverage, leaving the broker for the load responsible.
- And in 2012 Hoffman, et al. v. Crane et al. awarded the plaintiffs $27.7 million. In this case, the plaintiffs argued that motor carrier, logistics provider, and shipper acted as a joint venture.
- In 2017, JB Hunt’s brokerage operation was levied a $6.3 million settlement as it relates to their hiring of a motor carrier involved in a fatal accident.
While these settlements may seem extreme, there is an increasing pattern of cases where the broker ended up sharing in or bearing the brunt of a brokered load claim. Even though you are not hauling the freight, there are liability risks such as Vicarious Liability and Negligent Hiring that can be attributed to the broker.
Mitigate risk
There are best practices that can be followed to protect your brokerage operation:
- Keep written procedures for all Brokerage employees to follow and a written agreement with all Motor Carriers used to haul freight for your brokerage
- Ensure the Motor Carrier’s liability and cargo limits are appropriate for the haul and value of the cargo. Cargo coverage forms vary dramatically from one carrier to another. When a broker is contracting a load to a carrier, it is recommended to know the specific exclusions that are on the end carrier’s policy. For example, exclusions can range from specific commodities to other causes of loss.
- Coverages such as Contingent Cargo, Contingent Liability, and Errors & Omission are tailored for a brokerage operation (see below)
- Have a current Certificate of Insurance with the Motor Carrier naming the brokerage as additional insured and provide a 30-day cancellation notice on file for every carrier
- Do not name the brokerage on the Bill of Lading under “Motor Carrier”
- Allow the Motor Carrier to direct activities during transit of load
- Do not impose fines for delivery issues
- Check FMCSA’s SAFER system to check the Motor Carrier’ s Out of Service scores (below national average?) and Safety rating (Satisfactory rating?) prior to releasing a load
- Do not allow the Motor Carrier to double broker loads
Insurance coverage
There are several insurance coverages tailored specifically for freight brokerage operations including:
- Contingent Auto Liability: Provides investigation, indemnity and defense to a truck broker for 3rd party claims (Bodily Injury or Physical Damage).
- Contingent Cargo: Provides coverage for cargo losses that are not covered by the motor carrier’s cargo policy. However, this coverage is NOT designed to be broader than the end carrier’s policy or excess insurance. It is critical that the end carrier has coverage for the specific commodity being hauled and for the appropriate limit.
- Broker E&O Policy: A professional liability policy covers errors and omissions that are committed during the course of a truck broker’s business day. Examples: misdelivery – sent to wrong address (Cleveland, OH vs. Cleveland, TN)
As with any insurance policy, the devil is in the details. Policies vary considerably for freight brokerage coverages. Furthermore, the best practices noted above are often included as conditions of coverage in these policies. Once again, proper process, paperwork, and diligence rules.
Do you want to discuss this topic in more detail?
Consult with a Risk Manager at National Risk Management to assess your brokerage operation by calling (800) 747-6247 or email at contactus@ntlrisk.com