How Freight Brokers Can Avoid Excess Liability

Freight brokers are a critical and lucrative part of the transportation industry, handling the logistics between motor carriers and shippers to help ensure efficiency. In fact, a report from the market research firm Technavio states that the freight brokerage market will earn more than $80 billion a year by 2022. However, motor carriers and shippers have recently started to transfer liability for losses onto freight brokers—even if the broker isn’t directly involved in the loss itself. We want to help you understand how freight brokers can avoid excess liability.

Typically, freight brokers aren’t held liable for the negligent actions of a motor carrier or driver that acts as an independent contractor. Some carriers have successfully argued that brokers who’ve exerted too much control over drivers have adopted them as employees and can be held vicariously liable for a loss. Shippers that experience a loss have also successfully sued freight brokers for negligent hiring practices.

In order to protect your business and maintain positive working relationships, it’s important to know how you can be exposed to excess liability and the steps you can take to prevent it.

Select Motor Carriers Carefully

Although it’s always important to check that you’re working with reputable businesses, hiring a motor carrier that’s underinsured or has a poor safety record can expose you to considerable liability. If a loss occurs, a shipper may try to recover any lost revenue by filing a lawsuit against you. And, if you hired an unsafe carrier or aren’t listed as an additional insured on the carrier’s policy, you could be held responsible for part or all of a loss.

How Freight Brokers Can Avoid Excess Liability

Here are some steps to help you select trustworthy carriers and ensure you aren’t assuming part of their liability:

• Check a motor carrier’s safety records on the FMCSA’s website.
• Get a copy of the carrier’s certificate of insurance to ensure they have enough coverage, including excess limits.
• Ask the carrier for copies of any policies that could affect the transport of your shippers’ goods. This could include team driver policies, tarping procedures, specialized trailer use (such as refrigerated or oversized trailers) and high-priority transport plans.
• Create a strong broker-carrier agreement that clearly establishes the motor carrier as an independent contractor. You should also include indemnification or additional insured provisions to ensure that you don’t take on excess liability.

Limit Control Over Drivers

One common way for a motor carrier to transfer liability for a loss onto a freight broker is to allege that the broker treated a driver as an employee instead of an independent contractor by exerting too much control over the driver’s actions. The broker can then be held vicariously liable, even if they only oversaw a driver’s actions.

Consider a freight broker who needed to transport a supply of food products to a shipper under short notice. In order to ensure a timely delivery, the broker contacted a partner carrier’s driver and set requirements for when to pick up the shipment, what route to take and what size refrigerated trailer to use. The broker also called the driver daily to check on the cargo’s status. When the driver got into an accident, the motor carrier brought a lawsuit against the broker alleging that the driver acted under the broker’s supervision and that the broker was liable for the loss.

Because it’s easy to exert too much control over a driver, it’s important to make a clear distinction between motor carriers and their drivers:

• Send rate confirmation sheets and any other paperwork to the motor carrier and not the driver. Once you’ve partnered with a reputable carrier, you should feel confident that they’ll forward important information to their drivers.
• Never contact a driver directly. Use a carrier’s dispatch team instead to check on a shipment’s status.
• Avoid giving specific suggestions, such as routes, truck sizes or the distance to travel each day.

Additional Resources
Although there are important steps you can take to limit your liability, it’s also important make sure you have a last line of defense with the right freight brokerage insurance coverage. Ask Bill today for more help with managing your liability.