Brokers, Shippers and Liability

Q: As a shipper, we have long discouraged the use of brokers in general.

Our position has been that using a broker has potential liability exposure. We are trusting that a broker only uses carriers that carry full liability coverage and have well-maintained equipment. If the broker finds a carrier sitting at a truck stop looking for a load, how do we, the shipper, know what we are getting?

Although we discourage the use of brokers, some of our locations utilize them. To try to protect our company, we have a broker agreement that requires the broker to carry its own auto and general liability, cargo insurance and workers’ comp. In addition, we require that we be listed as additional insured. The contract also indemnifies and holds us harmless.

Is this adequate protection?

A: No.

Oh, you’re probably doing pretty much all you can to cover the liability question; at least, I can’t quickly come up with anything significant to add. But “all you can” still isn’t full protection in these litigious days, and that holds true irrespective of whether you’re dealing with brokers or with carriers.

The reality is that if a carrier hauling your goods has an accident resulting in personal injury or death, there’s a perceptible chance you will get dragged into any resultant lawsuit — a chance that increases greatly if you have the deepest pockets in view (that is, you’re wealthier than the carrier, the broker, etc.). If you work for a company doing business out of multiple locations, that is very likely to be so.

You minimize that risk by doing your best to ensure that any carrier responsible for putting your freight on the road is solidly safe and legal, as you’re doing. But do you want to bet that some creative lawyer can’t find something more you could have done and peddle it to a jury that has a lot more sympathy for injured people than corporations? That’s what lawyers get paid to do.

Don’t count on the insurance you’re requiring of brokers, which won’t cover somebody else’s vehicles or employees. As to the indemnity and hold-harmless provisions, they’re only as good as the wherewithal of your contracting partner to support them, and brokers, remember, are non-asset-based.

I’m not trashing brokers here; you can hit most of the same problems with carriers. I can think of reasons for you to “discourage” the use of brokers, but the liability issue you’re worrying about isn’t a big one to me.

While you’re focusing on liability, though, you’re neglecting a much more possible scenario — that one or more carriers, unpaid by the broker, come around demanding its or their freight charges from you even though you’ve already remitted to the broker.

This, too, can happen even if you deal directly with carriers, because they not infrequently subcontract the actual hauling to others. With brokers, however, someone other than the party you’re paying is guaranteed to be moving the freight, in the nature of the business, which exposes you on that front.

Especially in light of the recent Oak Harbor Freight Lines v. Sears, Roebuck & Co., 513 F.3d 949 (U.S.C.A.9, 2008), not to mention other, earlier cases, that should be a concern. In these cases, the shipper was made to pay a second time to the carrier, which in Oak Harbor cost it several hundred thousand dollars.

To protect against this, the surest way is to have bills of lading showing the broker itself as shipper. Unfortunately, that’s pie in the sky; every broker I know wants your name, not its, in the shipper block.

A second approach is to do business only with brokers who have separate, ongoing contracts with the carriers they use. That, too, should stand in the way of a carrier claiming a contractual relationship with you through the bill of lading that obliges you to pay it.

At the very least, the bill of lading should include a “pay to” notation identifying the broker as the party entitled to receive your money. That way you can document that your payment to the broker discharges your obligation under the contract agreed to by the carrier.

Thus, while your focus on liability is not entirely misplaced, I’d be giving more of my attention to protecting myself from this double-payment possibility. Perhaps you already are and simply didn’t see fit to bring it up; but you didn’t say anything about it, so I thought I’d better do so.

Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at 5201 Whippoorwill Lane, Johns Island, S.C. 29455; phone, 843-559-1277; e-mail, BarrettTrn@aol.com. Contact him to order the 536-page compiled edition of past Q&A columns, published in 2001, at $80 plus shipping.