Posted on February 28, 2018
The federally mandated prerequisite of contingent auto liability freight brokers is to ensure that there is enough value and type of insurance. Brokers are often held liable for loss or damage to the shipper’s freight. Also, when accidents occur and property gets damaged, third parties claim that the brokers are responsible.
It is often alleged that responsibility was breached by the broker, citing that investigations on safety records were not carried out. Claimants also argue that the brokers and carriers had some hidden agendas.
Types of Freight Broker Insurance
Broker insurances are so complex, especially because there are multiple variations to choose from. It is, therefore, vital to learn and understand the difference. The first type is broker bond, requiring freight brokers to carry a surety bond.
The bond ensures carriers and shippers are paid when the broker is unable to meet the contract in full, failure to keep the contractual agreement, or delay payments. The other is the contingent auto liability. This protects brokers against third parties.
General liability addresses issues beyond driving. Brokers should consider coverage such as property and general liability, workers’ compensation, vicarious auto liability and umbrella, contingent cargo, and errors and omissions. Errors and omissions are particularly very important because there could be claims that are not covered by policies such as contingent cargo.
For instance, if a broker makes the mistake of giving incorrect information to a carrier, that would fall under errors and omissions and would be considered as negligence. The broker would, however, not pay for property damaged and bodily injury. Apart from workers’ compensation, which is required by law, all other policies are part of a broker’s decision.
The decision made will depend on the assessment of risks that could potentially touch on the operation of the shipment. Brokers are advised to avoid wasting money on excess auto liability, carrier-supplied insurance certificates, incomplete carrier qualification, and to quit relying on the FMCSA for insurance data.
Negligent Selection
Although contingent auto liability freight brokers do not find themselves directly negligent, they still need to protect themselves. If for instance, the insurance of the carrier is invalid at the time of the accident or their coverage have been exhausted, the broker’s coverage should offer a valuable legal defense.
Despite having bills of lading, history of doing business, contracts/written confirmations, and invoices, liability risks can still be passed on to them. Once the motor carrier that is selected by the broker is found to be negligent, questions may arise as to whether the latter had a particular motive by using that specific carrier.
Investigations may then be carried out to examine the safety ratings of the carrier and history of accidents caused, among other faults to determine if the broker actually had this information before selecting it to transport the load. If suspected to have this information beforehand, the court may decide to hold the broker responsible for the loss or the damages caused.
There have been cases where the broker was found liable based on the theory of vicarious liability. This is where the carrier is determined to have some connection with the broker. Before selecting a carrier, brokers are advised to check their safety status, verify their insurance, and get proper liability insurance coverage.
Brokers act as intermediaries between carriers and shippers. They do not take possession of goods being shipped but can be liable for damages and losses resulting from the transportation when claims are filed.
As such, contingent auto liability insurance is necessary to protect them against claims. The coverage is intended to protect the brokers when they are held responsible for the carrier’s actions especially in cases where accidents involve bodily injuries. All legal liabilities to a broker’s business must, therefore, remain protected.
Posted on February 28, 2018
By definition, a third-party logistics provider is an entity that arranges shipment on behalf of its clients, in addition to managing transportation and advising them on related issues. This describes a handful of firms that operate within the logistics landscape, including consolidators, 3pl insurance brokers and freight forwarders. With the industry evolving rapidly in the recent past, these companies are now facing new liability risks in providing supply chain management services.
4PL Agreements
Also known as lead logistics providers, 4PL companies have become quite common in the last 5 years. This can be traced to the benefits they provide to their 3PL clients, such as an extensive network of warehouses and more resources. On the flip side, outsourcing with such a firm comes at the steep price of facing more risks.
While a solid contract can take care of some threats in this area, the majority of a firm’s liability risk will inevitably remain. For instance, a 3PL company could be held liable for a damaged item that changed hands several times while in transit, their own adherence to protocol notwithstanding. Even if this is covered under their policy, having solid loss control procedures in place can make a huge difference.
Legal Coverage
As more shippers chose to hand over their warehouse management duties to 3PL companies, it was only a matter of time before the latter were expected to assume more liability. Even with an ironclad contract, a negligence claim arising from this area can have disastrous consequences for such a firm. Legal fees aside, there’s often the cost of dealing with issues not covered under the law. To make matters worse, the probability of facing such a nightmare isn’t as low as one might assume — a third-party logistics firm can be found negligent both as a result of their actions, and from a contractual standpoint as well.
Food Safety
Driven by the ever-escalating need to uphold safety, regulatory bodies now require everyone who deals with food products to invest in better tracking capabilities. In particular, warehouse operators now have to trace the origins of all products within their premises, and the destinations as well. This isn’t always easy, especially when dealing with complicated networks that extend beyond international borders. As such, it’s not uncommon for firms to find themselves being held liable due to unexplained gaps in coverage.
Dated Goods
The advent of tighter regulations, coupled with the rising need for brands to protect their products, has forced logistics service providers to take on the responsibility of managing products by their expiry date. When this passes, it isn’t always clear whether this automatically declares the goods to be damaged. This is a grey area that often divides opinion, but what’s indisputable is the fact that 3PLs can be held for losses that may arise thereof.
Recalls
Product recalls cost around $10M on average. While exercising caution can minimize the risk of facing such a huge penalty, this hasn’t stopped anyone from looking for scapegoats. In an attempt to mitigate risk on their part, manufacturers are always looking to spread the blame to their partners, including 3PLs. These companies have been left with no option but to buy product recall coverage, in spite of its steep cost.
Other risks that need to be taken care of include:
- Political risks: This is the case where a firm faces negative consequences due to the actions (or inaction) of a government. Coverage has to include the firm’s interests within the country, plus the damages that could result from politically-fueled violence.
- Trade disruption: This covers damages resulting from the delayed or suspended arrival of shipments due to a disruption in transit.
- Rejection: This covers the event where items are rejected by a governmental body.
While 3PL insurance still remains to be a crucial risk-management tool, it shouldn’t be viewed as a comprehensive solution for all threats. Because not all insurers understand the landscape, many policies simply can’t keep up with the changing landscape, more so when it comes to addressing emerging risks. 3PL companies would thus be better off creating a number of safeguards, some of which might include:
- Encouraging openness: A culture that encourages transparency makes it easier to correct errors and identify suitable solutions for anything that threatens to disrupt the flow of operations.
- Quantifying value at risk: Companies need to understand the extent to which they can be held liable at any particular point of failure.
- Lobbying: Firms within this niche should consider joining hands to press for the modernization of current laws and/or the creation of new ones altogether, keeping in mind the need to account for the interconnected nature of risk.
Above all is the need to review one’s coverage to make sure it covers emerging threats, which can be easily taken care of by partnering with an experienced insurance agent.
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