With cargo theft and double brokering (including dispatch offices, virtual offices, etc.,) still on the rise, insurance claims have risen dramatically. Claims themselves are understandable as the shipper expects someone to compensate them for damaged or lost freight. Yet, the rise in the need for claims at all is less easily explained.
Another growing concern of shock, reptile, and nuclear verdicts against asset carriers (read our previous article here) has the potential to financially disrupt transportation businesses.
In this article, we are going to review the process a 3PL or Broker should be following as well as the position they should be taking to best protect themselves against these two major threats.
Is the shipper clear on your role in their transportation?
As a transportation broker, the first rule is that you should NEVER position yourself as a carrier.
Brokerage companies I have worked for in the past have often trained salespeople and dispatchers to speak and behave as if they were the carrier. Though every company can manage its operations the way they believe is best, I will caution against taking this position in the current market.
If a shipper is under the impression you are a carrier or act more like a carrier than a broker, you are creating the liability risk of being a carrier.
When it comes to reptile verdicts, brokerages who are positioning themselves as the carrier are also being fully implicated by ambulance chasers. If the broker properly maintains their position as a broker (which is accurate and truthful), and they have done their due diligence in hiring, the claim has greater odds of remaining with the carrier.
Why worry about being implicated in one of these reptile verdicts?
Once again, I would suggest reading our previous article. Long story short, the amounts being awarded range from $30 million to over $100 million. This is not a position you want to be in as a broker. If you have represented your company as the carrier, ambulance chasers can and will ensure your company is fully implicated.
A word from Drew Wilder,
“If a broker finds themselves implicated in a reptile verdict, it is likely that their insurance provider will deny providing a defense or participate in any claim’s payments. Commercial insurance policies are underwritten by assessing risk based on the information provided by the broker. Therefore, in the event of a vehicle accident, cargo claim, or litigation, where the 3PL or Freight Broker position themselves as a motor carrier, their insurer would be within their right to deny coverage including defense cost.”
However, if the broker maintains their position as a broker and they have done their due diligence in hiring the carrier, the claim should remain with the carrier. For further examples, look at the recent Landstar case (article here), or another case of non-liability here. Since these companies did maintain their position as a broker, the courts removed them from potential lawsuits.
In an example with not-so-great results, a broker I spoke to had hired a reputable carrier and the carrier delivered the product. Within 25 minutes of the POD being scanned, the broker received an email from the shipper saying that the truck hit another truck when leaving. If the broker and team had not positioned themselves as a carrier, they would have NO involvement. Since their team did position their company as a carrier, they are now dealing with the accident claim.
From a cargo claims perspective:
In the case of cargo claims, the liability again remains with the asset carrier. In the event of a claim, the broker will support facilitating the claim between the shipper and carrier (read another article with additional depth here).
With self-insured shippers, the broker will be removed from the conversation once they report and provide all the pertinent information. In my experience, a broker should avoid involving their own claims department on email threads initially, (as the claim is going to the carrier) and the broker should reply with a note about their active investigation and current status.
A broker’s manager/claims team will then reach out to their carrier, who already knows about the incident and has the POD with damages noted. The broker next obtains the claim form and proper contact at the carrier.
Once the claim form is completed by the shipper and submitted to the carrier, the broker now documents all communication in chronological order and becomes the facilitator for the process, if the shipper wants the broker to remain in process (through contractual obligation or otherwise). At this point, the broker is providing customer service to their shipper throughout their claim, and their role should be very clear to all parties.
Considering the Carmack Amendment:
Broker managers handling claims need to understand the Carmack Amendment. At its core, Carmack is American legislation intending to provide a uniform claims process and transparency to carriers and shippers moving between states.
For our purposes, this is even more important if the manager handles freight crossing borders. Particularly, if a broker handles freight leaving Canada and entering the USA.
Under Carmack in the USA, coverage is ‘full declared value’ unless the carrier limits liability (which can be the case with LTL providers, and is done in advance with agreement). Cross-border into Canada is also covered under Carmack at full declared value. However, shipments leaving from Canada will not be, and carriers provide $2.00 per LBS unless otherwise requested. If the shipper wants to protect the declared value for Canadian exports, that can be done at an additional cost or charge.
A broker needs to ensure they also understand the time frames to process a claim under Carmack. As one example, carriers can require that claims be made in writing within 9 months. If a broker is assisting their shipper with a claim, they will need to meet these standards and make their shipper aware of them.
For more reading regarding Carmack and interpretation – Brian Schrumpf of Fuentes Law Firm is a great resource. An article by Schrumpf regarding Carmack and claim timelines can her found here. We have added an excerpt below.
“The Carmack Amendment allows the motor carrier to establish a deadline for filing lawsuits for cargo claims with the Shipper (or the Shipper’s agent), but the Carmack Amendment does not establish the deadline. If no deadline is contracted for between the motor carrier and the Shipper, then the lawsuit filing deadline is generally governed by the state’s law for filing a similar lawsuit. However, note that the Carmack Amendment states that a motor carrier cannot require lawsuits for cargo claims to be filed in less than 2 years. So, if the Bill of Lading states that lawsuits must be filed within 1 year, then that provision is unenforceable. (It is a common misconception that the Carmack Amendment requires lawsuits to be filed within 2 years.”
(Filing Lawsuits for Cargo Claims (49 U.S.C. § 14706(e)(1), Author Brian Schrumpf, Fuentes Law Firm)
What else can be done?
As a best practice to stay on top of potential claims, brokers should obtain a POD from the carrier and the shipper, and make sure they match. If they are clean (meaning no overages, shortages, or damages listed – called OS&Ds) and matching, under the Transportation Act the shipper cannot begin a claim against the carrier. If OS&D’s are listed or there is mismatched information, the broker's compliance team should begin an investigation right away whether a claim has begun or not.
Essentially, a Broker needs to ensure they understand all aspects of the carrier they are hiring. Do not assume that having a COI in hand is all you need to be protected from claims. This is false, you can read one of our previous COI articles here on this topic, as well as connect with Drew Wilder, or have further conversation with your insurance broker for additional expertise.
At the very least, keep an eye out for exclusions in the insurance. Brokers and underwriters have exclusions in every contract they issue. Some exclusions will even go against what is written in the Transportation Act.
Exclusion lists are growing. Certain insurance brokers and underwriters are restricting commodities. Others are not covering carriers brokering to another carrier. These are just a few examples. I have even seen a case where the trailer is dropped in a secure yard, yet because the tractor is not hooked to the trailer, the claim was denied.
If you are a broker and you did not do your due diligence, depending on the scenario, you could be processing a claim through your cargo or contingency policies. Keep in mind that most brokers can survive a cargo claim. Still, beware, if you are dealing with multiple claims or brought into a Reptile or Shock verdict, this could be a different story. Carrier compliance and claims should not be taken lightly by any transportation company.
