Liability can break brokers
By Henry E. Seaton
May 2001
Reprinted from

When you haul goods, you subject yourself to liability for cargo loss and damage. But if you also run a brokerage, you aren't liable under federal law for losses when you merely arrange for transportation for compensation. Unless they are guilty of negligent entrustment, property brokers can avoid cargo liability if they are careful in defining their roles with shippers. And yet, for whatever reason, many brokers willingly accept liability for cargo losses incurred by the carriers they hire.

This practice creates big problems for everyone concerned. In accepting liability, brokers often let shippers deduct claims from freight payments. Now the broker is out some money and is left with three equally unattractive options. First, the broker can -- and many do -- deduct the amount of the claim from freight charges owed to the responsible carrier. This is a major broker abuse because the claim never gets adjusted properly. The carrier loses needed freight revenue due to claims that may have no merit. And the trucking company's insurance company won't reimburse the carrier because the claim has not been properly presented or adjudicated.

The broker's second option is to sue the motor carrier for indemnification. This is not an attractive alternative. Because it deducted the claim from freight charges, the shipper has received its money and has no real interest in cooperating on the lawsuit. In addition, litigation is expensive, so the broker is faced with cash flow problems until the damage suit is resolved.

Finally, the broker could have purchased a contingent cargo policy or a truck broker's policy. One respected insurance agent told me recently, however, that brokers should save their money because such policies were expensive and because he had never encountered a loss on which the policy would pay.

The following is an analysis of one of the most popular broker policies. You be the judge. Is it worth the premium?

* The policy does not offer any benefits if the underlying carrier has valid and collectible insurance.
* The cargo policy costs 18 cents per $100 of gross revenue, and the maximum coverage is $10,000 per occurrence with a $1,000 deductible.
* If you fail to get a certificate of insurance from the subcontracting carrier, you are not covered.
* The policy does not apply if the underlying carrier has a defect in its authority.
* Under the co-insurance provision, the policy pays only a pro rata share if the entire cargo is more than the policy limit. For example, if the cargo is worth $200,000, the insurance coverage is limited to 5 percent of any loss, so the insurer's liability for a partial loss of $50,000 is only $2,500.
* No coverage is offered if the underlying motor carrier is an affiliate.
* Coverage does not apply unless the cargo is in transit.
* Coverage does not apply unless there is a "theft," "Act of God," "collision," or "overturning" of the vehicle. Cargo upset during transit without a rollover doesn't qualify.
* The policy does not cover a loss of market resulting from delay; temperature damage, wetness or spoiling; or loss or damage while "loading or unloading," or shifting of cargo.
* Coverage for theft does not apply when dishonesty on the part of the subcontracting carrier is alleged, and does not apply to a theft from a "unattended auto." An unattended auto is a tractor-trailer unit not occupied by a driver. In addition, coverage does not apply to theft from a trailer that is not attached to a tractor. And coverage does not apply if only part of a skid is taken.
* Reduced limits apply to targeted commodities, such as automotive parts, electronic equipment and garments.

In sum, if you are a property broker, think carefully before you accept liability for cargo claims. If you rely on reimbursement by the motor carrier or a contingent cargo policy, you could be sadly mistaken.
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