Posted in Transportation Law by

Freight brokers often find themselves in a losing game of tug-of-war with carriers when it comes to deciding who will shoulder the costs of lost or damaged cargo. Now, thanks to the emergence of industry-specific insurance, this is starting to change.

The Carmack Amendment places liability for lost or damaged cargo in the laps of motor carriers.[1] Brokers, who never physically touch or transport the cargo, are not liable for cargo damage under the Carmack Amendment. But as any broker will tell you, a law that says the motor carrier is liable for loss or damage to cargo and the reality of holding that party accountable are two separate things. This reality often leaves cargo damage problems in the hands of the broker rather than the motor carrier.

This puts brokers in a vulnerable place when negotiating with shippers. Shippers know that brokers want their business, and often try to cram down the motor carrier’s liability for loss or damage to cargo onto the freight broker. If the freight broker refuses to assume that liability, the shipper finds another broker. Consequently, when a cargo claim occurs, brokers almost always front the cash to keep the client—anywhere between $20,000 and $100,000 (sometimes more depending on the type of freight). Brokers are then left to their own devices to try and chase down the carrier for reimbursement.

The arrangement is a precarious one for brokers, whose profit for any single load is often just a few hundred dollars. If the broker pays a loss totaling tens of thousands of dollars, it can take that broker many months if not years to make that loss up and make its shipping customer a profitable one. Remember that under the Carmack Amendment, brokers are not liable for loss or damage to cargo. Rather, it is the desire to maintain relations with shipping customers that drives them to accept it. The difference is a critical one. Fortunately, there’s a fix.

An old party in the transportation arena has re-entered the scene in a new and surprisingly helpful way: insurance companies. Insurance companies have recently begun offering primary coverage policies to brokers with language stating that should a broker find itself legally liable for lost or damaged cargo, the insurer will cover the loss and pursue the carrier on behalf of the broker. Such coverage is a welcome change to an industry that made millions selling policies to brokers that rarely (if ever) provided meaningful coverage. While expensive, these policies provide actual coverage and allow a broker to resolve a claim without having to retain legal counsel to pursue the motor carrier.

Though counterintuitive, by assuming primary liability for the cargo in a shipper/broker contract, a broker in possession of a primary coverage insurance plan shields itself from forking out the cash from its coffers should it find itself in a cargo loss situation.

To discuss available insurance options and engage in a contract review to ensure coverage, don’t hesitate to reach out at 801.365.1019.

[1] http://www.hni.com/blog/bid/84213/faqs-about-the-carmack-amendment

Stevan v2
Stevan R. Baxter
[email protected]
801.365.1019

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