Carriers Decline Broker''s Claims

Carriers Decline Broker''s Claims

Copyright 2004, Traffic World, Inc.

Q:

I read your column every week and have the third edition of your "Manager''s Guide to Freight Loss and Damage Claims" (Fort Valley, VA: Loft Press, 2003). But I am facing two scenarios I''m unable to resolve.

First, I''ve had numerous claims where material was damaged due to shifting. We are a freight broker and our customers basically send us an invoice or claim for the material. We in turn try to get that money from the carrier we used. Often the amount is right about at the trucking company''s cargo insurance deductible, which means the insurance company isn''t involved.

Usually what happens is the carrier declines the claim, leaving us to eat the payout. We could tell our customer to sue the carrier, but they''d never use us again.

The shipper says the driver has the right to refuse the load if it''s not loaded to his or her satisfaction. The carrier says the shipper should know how to properly load and secure their own material. Both answers sound good to me, so how do we resolve this conflict?

The second scenario I have come across is wet plywood. We ship a good amount of plywood sheets via flatbed. Sometimes the driver does not follow instructions and neglects to tarp the load, or tarps it improperly, or there are holes in the tarps. Either way, the wood becomes water damaged in transit.

Of the several times this has happened, only one of the truckers'' insurers covered the damaged product. All the others have a moisture exception which usually is very vague, or they claim that the material was damaged due to driver negligence for not tarping the load, which isn''t covered.

I''m beginning to question what exactly motor cargo insurance covers, if not the material. Our insurance as a broker is contingent motor cargo and we have the same moisture exclusion.

A full load of plywood is not cheap, ranging from $10,000 to $25,000, in my experience. If the insurance company doesn''t cover the loss, the carrier usually can''t afford to pay this out of their pocket. Who is responsible for paying for this material? What actions as a broker can I take to recoup this money either from the carrier or their insurance company?

A:

You need to start dealing with a better class of carrier - specifically, a more solvent class. I don''t care how favorable are the rates you''re getting, these unpaid claims are like being nibbled to death by ducks (and, at $10,000 to $25,000 a pop, those are big ducks).

If you''ve read my book, as you say, you know quite well that these declinations are bogus. The carrier''s argument on the loading issue is legal garbage. "Where a shipper tenders to a carrier goods for transportation which are insufficiently crated, boxed, packed or loaded, and such insufficiency is discoverable by the carrier upon ordinary observation and inspection, it is the duty of the carrier to refuse to receive the goods.... [I]f the carrier does accept the goods, it may not thereafter allege that any injury which they sustained in the course of transportation was due to such insufficient crating, boxing, packing or loading." Page 53, quoting Thomson v. C., M. & St. P. Ry. Co., 217 N.W. 927.

The declinations on the wet plywood loads are even worse; there''s no "moisture exclusion" for carrier liability and a carrier is scarcely exonerated by the negligence of its own employee or agent. I admire creativity, but these excuses aren''t even that.

What''s happening is that your carriers simply aren''t prepared to cough up any money not covered by their own insurance - probably, as you seem to at least partially recognize, because they can''t afford to. So it''s time for action.

Since you seem to be voluntarily assuming claims liability to your shippers, you should obtain, in exchange, a transfer or assignment of the claims. Now they''re your claims, and you can begin moving to collect your money from the carriers by means of litigation or, more usefully, setoff against freight charges you owe them.

Be careful about the latter. Setting off could drive an on-the-brink carrier into bankruptcy and, if so, any claim transferred or assigned within 90 days prior to the bankruptcy filing is not eligible for setoff under the Bankruptcy Act; "Manager''s Guide," pp. 286-287, citing 11 U.S.C. ? 553(a)(2). Premature setoff could thus compromise your rights so a little patience could be rewarded.

To the extent that setoff still leaves you short, go ahead and sue.

Even if the carrier proves "judgment-proof" - has no wherewithal to pay when you win (as your brief recitation of facts and stated carrier defenses suggests you almost surely will) - you have some recourse against the carrier''s "BMC-32" insurance. Unlike ordinary cargo insurance, which is maintained by carriers for their own protection, this is coverage mandated by the Federal Motor Carrier Safety Administration "for the protection of the public"; Code of Federal Regulations, 49 CFR Part 387. It''s only $5,000 per shipment and $10,000 total per incident, but it''s first-dollar coverage, it''s payable directly to claimants, and every little bit helps.

Meantime, round up some new carriers with a little better sense of their own liability and a little better resources to pay claims their insurance doesn''t cover. These guys sound like losers to me.



-- Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at P.O. Box 76, Morganton, Ga. 30560; phone, (706) 374-7201; fax, (706) 374-7202; 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.