Liability Runs Up The Supply Chain
By Henry E. Seaton
August 2009
Reprinted from

Q: Are you familiar with the new Indiana decision, Ill. Bulk Carrier, Inc. v. Jackson? (2009 Ind. App. Lexis 900; Ind. Ct. App. June 16, 2009). The ambulance chaser appeared to lose, but if the negligent entrustment principles enunciated by the court are accepted, every logistics company better get much more liability insurance.

A: Thank you for sending me the case. In many respects, the court’s decision is curious because it ultimately correctly found that the federal motor carrier safety regulations impose direct liability on the motor carrier and that the safety regulations were nondelegable and did not extend up the supply chain. The scary part of the court’s analysis was then to jump over to state common law principles to decide if the defendants accepted responsibility for the carrier’s safe operations in its contract with the shipper.

It is clear to me that three decades after deregulation, the courts have forgotten that motor carriers are still a federally regulated utility and that the federal government, through the Federal Motor Carrier Safety Administration, ultimately calls the shots on who is safe to operate as a carrier. Decisions with dicta like Ill. Bulk Carrier, Inc. v. Jackson only confuse the issue. The courts seem to forget about preemption and that the scheme of federal regulation is intended to permit a shipper to use a licensed, authorized and insured carrier without having to second-guess the government regulators.

The government has decided that a million dollars in insurance backed up by a BMC-91 endorsement is sufficient to protect the public and that small motor carriers should have equal access to shippers’ traffic. Yet if ambulance chasers are to be allowed to troll indiscriminately for deep-pocket shippers, the result will be a chilling effect on competition.

We already see that repeatedly in contracts. When shippers, to avoid vicarious liability suits, insist on intermediaries “assuming carrier duties and responsibilities” for the safe operations of the licensed carrier they in turn hire, the broker or 3PL unwittingly gets thrown under the bus, as a series of recent decisions clearly show. (Ill. Bulk Carrier is instructive and helpful in this regard because the defendants only accepted responsibility for hiring licensed and authorized carriers and escaped liability under the common law analysis.)

Maybe it is about time for the entire transportation industry to recognize that this issue should not divide us in contracts. The registration of motor carriers and the safety regulations are intended to protect “the traveling and shipping public.” Somehow that fact has been lost in the brave new world of deregulation and the specter of runaway jury awards on tenuous state law theories.

If I were a transportation czar, maybe I could straighten all of this out. In the meantime, it is a real and continuing problem that creates only unmeasured conflict and consternation. Absent some contributory negligence on its part, a shipper or broker who hires a licensed, authorized and insured carrier should be no more liable for the motor carrier’s accident, loaded or empty, than subway riders should be responsible for the recent accident on the Washington, D.C. Red Line.
– Henry Seaton is a transportation lawyer
who represents carriers.
(703) 573-0700
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