August 31, 2017

Contingent Auto Liability Insurance


Freight brokers are intermediaries between shippers that have goods to transport and carriers who can move them. Despite the fact that brokers never take possession of items being shipped, they can still be liable when claims are filed. When motor carriers carry inadequate amounts of liability insurance to cover the full amount awarded to the claimant, brokers, freight forwarders and even shippers are the next targets in line to satisfy the remaining balance not paid by the insurance held by the carrier. Though brokers generally have contracts, written confirmations, bills of lading, invoices and even a history of doing business, these can be used against them in establishing control over the driver, although they are not directly involved in how the driver operates his truck. The use and operation of motor vehicles inherently has bodily injury and property damage liability risks, and these risks can be passed on to the broker.

There has been several high profile and large cases where the broker was found liable. These types of lawsuits are typically based on negligent hiring or from the theory of vicarious liability. Under vicarious liability, independent motor carriers are either found to be an agent of the broker or as participants in a joint venture with the broker. In either case, the outcome is the same – large financial awards assessed against brokers. In the case of Sperl v. C. H. Robinson Worldwide, Inc., the plaintiffs were awarded $23 million for wrongful death and personal injuries. In the similar case of Hoffman v Crane, the jury’s verdict was in excess of $27 million with a majority of it given to the 50-year-old plaintiff driver for paraplegia. In both cases, the broker was found vicariously liable because it had the ability to enforce its own rules in a carrier manual, could deny loads to a driver if he didn’t comply with the rules, and issued professionalism requirements. The truck driver was found to be acting within the scope of his agency to the broker and trucking carrier.

The current requirement for insurance is a minimum of $750,000 for general freight, $5 million for the most dangerous hazmat freight, and $1 million for other hazmat cargo freight. Congress set these levels in 1985, so it is debatable whether they are sufficient for present conditions and costs. For instance, medical inflation has driven the cost of bodily injury much higher. In 2014, the Federal Motor Carrier Safety Administration (FMCSA) announced that they were issuing an advance notice of proposed rulemaking to determine if the financial responsibility of motor carriers, freight forwarders and freight brokers for bodily injury or property damage should be increased. The public seemed primarily in favor of the increase. However, data did not substantiate this stance. The Owner-Operator Independent Drivers Association reported that more than 99% of crash damages are covered under these limits. On June 2017, the FMCSA announced that they were withdrawing this proposal to increase the minimum insurance requirement amounts, so existing levels will remain. Without the new regulation to require higher minimum limits, it is up to businesses themselves to fully protect their company against claims.

Selecting motor carriers is a fundamental function of the freight brokerage industry, so brokers are often exposed to their risks as well. Shippers continue to confuse a broker as carriers and often require additional insured status under the broker’s auto liability and commercial general liability policies. These requests are expensive and generally ineffective. The typical auto exclusion in a commercial general liability policy will deny coverage to the broker for vicarious liability resulting from a truck accident. Contingent Auto Liability coverage is specifically intended to protect brokers and forwarders when they are held responsible for the actions of motor carriers that they select, such as when a motor carrier is involved in an accident involving a bodily injury or damage to third party property. If a motor carrier’s insurance is invalid, was not in effect at the time of the accident, their insurance limits and all other coverages have been exhausted, then Contingent Auto Liability coverage will provide valuable coverage by providing expert legal defense and pay eventual judgments. Never take for granted that you have sufficient coverage. Ensure your legal liability exposures to your business are protected.


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