Freight brokers and carriers often find themselves in a game of hot potato when determining who will shoulder the cost of lost or damaged cargo. Here’s what’s important to know when navigating the complexities of freight broker liability in cargo claims.
When Are Brokers Liable
Under the Carmack Amendment to the Interstate Commerce Act, a carrier is liable for damage or loss incurred during a shipment of goods, but a broker—who only arranges the transportation—is not liable.
So, in the strictest sense, brokers should not have to pay out cargo claims. But in the evolving transportation industry, it can be hard to tell the difference (legally speaking) between a freight broker and motor carrier. Additionally, the Interstate Commerce Act has expanded the definition of “motor carrier” to be anyone providing motor vehicle transportation for compensation...which could easily encompass brokers.
A determination of liability is often left up to the courts, which results in case-by-case decisions that gradually provide further clarity for brokers, carriers, and shippers. Some recent court decisions reflect just how much the landscape is shifting as to what qualifies as broker liability:
- Essex Insurance Co. v. Barrett Moving & Storage, Inc.: “The Court concluded that Barrett ‘acted as a motor carrier, not a broker…’” and was liable for damages.
- Mecca & Sons Trucking Corp v. White Arrow LLC: “...White Arrow [carrier] is liable to Mecca [broker] under the Carmack Amendment for the losses incurred by the rejected cheese.”
- Tryg Insurance v. CH Robinson Worldwide Inc: “...CRWH was ruled to be a carrier rather than a broker and therefore liable for the damages caused to the miniature chocolate liqueur bottles.”
Tips For Brokers To Protect Against Cargo Claims
With so much gray area between broker and carrier liability in cargo claims, it’s critical for brokers to understand their biggest risks and how to insulate against them. Here are some basic tips to keep in mind:
- Realize that the Carmack Amendment isn’t foolproof protection. You can be liable under various state law causes of action, such as negligence, breach of contract, etc.
- Be cautious of how you market and perform your services. Advertising as an “all in one” transportation solution may bring in more customers, but can aid legal arguments that your company “held itself out as a carrier”...and is therefore subject to the Carmack Amendment.
- Address cargo liability in your default terms and conditions of service, such as including language that disclaims liability altogether or accepts liability in instances of proven malfeasance, but then caps that liability.
- Invest in all-risk insurance to protect your business against claims for loss or damage. You can customize the coverage to suit your specific needs.
For more information on how to limit broker liability in any situation, contact us.