Should a Freight Broker Pay the Shipper for Damage to the Shipper’s Cargo?

A question we frequently get from our broker clients is whether they should pay their client, the shipper, for loss or damage caused to the shipment during transit, and take an assignment of the shipper’s claim against the carrier. The question can be a difficult one and often largely depends on the broker’s relationship with the shipper. A broker only arranges for the transportation of freight by authorized motor carriers. Accordingly, any claim that a shipper may have for damaged freight will be against the carrier, not the broker. A broker is usually not liable for damage or loss to cargo.

That being said, brokers want to maintain a good relationship with their shipper clients. As such, it is possible for a broker to pay the shipper for the loss or damage and then take an assignment of the shipper’s claim against the carrier. If a broker does this, the broker then steps into the shoes of the shipper and can make a claim to the carrier for the damage or loss. This provides relief to the broker’s shipper clients and allows the broker to maintain a good relationship with the shipper, who will hopefully give the broker repeat business. However, if the broker pays the claim and takes the assignment, the broker now shoulders all the risk of whether or not the carrier will pay the claim for loss or damage. Depending on the amount of the claim, this could work a serious financial hardship on the broker. Accordingly, a broker considering paying the shipper and taking an assignment should carefully consider whether they can financially handle that commitment and whether it makes good financial sense to do so. The decision should be made on a case by case basis.

A shipper does not have a claim against the broker for loss or damage to the shipper’s cargo and the broker does not have to pay the shipper for the loss or damage. However, there may be instances where it makes business sense for a broker to pay and take the assignment. A broker needs to seriously consider whether it makes good business sense to pay the claim before committing to do so.

If you have taken an assignment of your client’s claim, or if you are contemplating doing so and would like assistance, give us a call and we would be happy to discuss your case with you.

Skoubye, Nielson, Johansen Attorneys Salt Lake City Utah

Mark B. Thornton