Treating brokers as carriers is risky business

Brokers should be considered just arrangers, not providers

By Henry E. Seaton
February 2011
Reprinted /

Q: I think a big issue for brokers is getting shippers to draft a contract that make us arrangers of transportation and not carriers or service providers that hire subcontractors. I have seen your arguments, but often it is difficult to tow the line with shippers that seem unresponsive to change.

A: I, too, am seeing this trend in shipper-drafted contracts. First, they want the broker to accept carrier duties, accepting all of the responsibilities for hours of service, safe operations of commercial motor vehicles and equipment maintenance – all of which by statute and regulations are the sole responsibility of the carrier you hire. These contracts do not recognize that your business is a creature of federal regulation.

Post-deregulation confusion will spawn litigation and chaos.

By law, you must retain an authorized carrier to provide service and cannot misrepresent your operations to be that of a carrier. Apparently, shippers untutored in the field of transportation law are so wedded to their procurement contracts for other goods and services that they cannot see the important distinction between intermediaries and service providers.

Failure to draw this distinction clearly can have severe adverse consequences for you, the broker. As a broker, you can call yourself a sophisticated third-party logistics (3PL) provider if you wish, but ultimately you are protected by your status as an intermediary or broker arranging for transportation to be provided by independent contractors you retain.

When you make yourself a “service provider” or a “prime contractor hiring subcontractors,” you unwittingly give plaintiff’s bar the argument that under state law you are just as responsible for the act or omission of the carrier you hire as the management of the company itself. Because trucking is a dangerous enterprise, there is an exception to the general principle that a prime contractor is not responsible for the acts or omissions of its subcontractor. I have provided the case law for this principle before (see Ill. Bulk Carrier, Inc. v. Jackson, 2009 Ind. App. LEXIS 900 [Ind. Ct. App. June 16, 2009]) and shown how the few reported vicarious liability judgments against brokers typically result from the broker assuming unnecessary duties in shipper/broker contracts.

No shipper or shipper representative has explained satisfactorily why its legitimate interest cannot be satisfied by contractual language that makes the broker solely responsible for carrier selection with a suitable indemnity to assuage fear that liability somehow might run up the supply chain. I am aware of no reported case in which it has.

As I have discussed in both the November and December columns, shipper and broker misapprehension over vicarious liability and the perceived need to use Compliance Safety Accountability (CSA) program methodology has the counterproductive effect of placing safety credentialing obligations on shippers and brokers, which is inconsistent with statutes and regulations. On this issue, brokers that accept carrier duties in contracts, accede to “service provider” language or call their retained carriers “subcontractors” are exacerbating their vicarious liability exposure with frightening potential consequences.

Shippers, brokers and carriers need reaffirmation that in the absence of active negligence by shippers and brokers, the authorized carrier solely is responsible to the traveling public for accidents. Otherwise, this type of post-deregulation confusion over the role of the broker only is going to spawn more chaos and more litigation.

Article printed from Commercial Carrier Journal:
(703) 573-0700
Copyright© 2006 Law Office of Seaton & Husk, LP. All rights reserved.

Return to Seaton & Husk Transportation Articles