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Increased traffic leads to an increase in accidents, which consequently leads to an increase in litigation. Every year, more and more freight brokers are pulled into litigation and the risks and responsibilities that go with it. Recent trends in the market are showing patterns that impact freight brokers in relation to a broker’s likelihood of being involved in a lawsuit and their risk of exposure.
Federal preemption is no longer a reliable bar to keep commercial vehicles out of state court proceedings.
In 1986, Congress created the Federal Motor Carrier Safety Administration and required that all states adopt uniform standards for commercial drivers. In addition, states have also adopted federally mandated uniform standards for motor carriers to follow in hiring commercial truck drivers. Because these uniform standards are set by federal law, federal law largely preempts state law. Therefore, for a long time, under federal preemption, courts found that federal courts, as opposed to state, are the proper place to pursue causes of action involving freight brokers. Historically, if a freight broker were named in a state court action, the attorney would file a motion and that would be enough to end the state court litigation.
This is no longer the case. Over the last three years, a number of state courts have entered landmark decisions going against, what was considered for a number of years, standard practice. The rulings in these decisions, entered in state courts such as Florida, Louisiana, and Texas, find that federal preemption does not apply to bodily injury claims. So that while claims involving cargo continue to be subject to federal preemption law, state courts are now hearing cases that involve freight brokers for lawsuits pursuing causes of action for bodily injuries.
Plaintiff’s attorneys are increasingly naming everyone involved in the domestic transit shipment chain as defendants in their lawsuits.
Another troubling trend that is on the rise and impacting our transportation and freight clients is that plaintiff attorneys have begun casting a wider net in their negligence lawsuits. Instead of just suing the drivers and the vehicle owners, plaintiff attorneys are now bringing in as many potentially responsible parties into the suit, no matter how small a role they may have played in the accident. As a result, we are seeing more and more relatively minor players—including trucking companies, loaders/shippers of the cargo carried by the involved vehicle, companies that lease vehicles from actual owners, and even truck and truck part manufacturers—being brought into what are relatively simple commercial vehicle accident cases. This is a blatant attempt by plaintiff attorneys to increase the size of the pool of potential money to collect from, and unfortunately, there is very little that entities can do to prevent this from happening without first incurring substantial litigation costs. This trend is on the rise because at present there are very few laws that impose a downside on plaintiffs for dragging every potential minor party into accident lawsuits. There are likewise few laws that limit the amount of potential monetary judgments against motor carriers specifically.
As a result, this problematic trend is unlikely to decrease any time soon, especially considering that the average judgment in accident cases involving commercial motor carriers where a fatality occurred normally averages about three million dollars per fatality. Furthermore, unfortunately, these higher judgments and poor litigation results in turn have several other negative consequences on the trucking industry, including:
- Increased financial risk/exposure on the majority of motor carriers that only have the minimum amount of one million dollars of automobile liability coverage
- Increased cost of automobile liability insurance for motor carriers
- Increased exposure for larger and mid-sized carriers who have been forced to reduce their policy limits due to the increased cost of such coverage
Shippers and freight brokers are unknowingly increasing their exposure to liability.
As a product of the specific roles freight brokers and shippers serve in the movement of freight, shippers and freight brokers normally are excepted from costly collision lawsuits and other negligent actions involving commercial drivers. Such risk normally only extends to a motor carrier. Recently, well-intentioned sellers in the pursuit of being thorough are adding certain provisions and terms to their freight broker contracts that remove these protections recognized under the law.
Under the standard rules, freight brokers and sellers are not liable for the actions of a motor carrier and its drivers. However, this assumption does not apply in instances where a plaintiff can successfully show that the seller or freight broker fall within the scope of responsibility under the doctrine of vicarious liability.
Vicarious liability holds that certain individuals and organizations may be held accountable for damages suffered by third parties as the result of the negligent operation of a vehicle, when the vehicle is driven by others with their knowledge and consent. Thus, vicarious liability awards compensation for injuries without regard to fault. The rationale for imposing vicarious liability is the seller or freight broker’s control over a motor carrier, and the vehicle causing the injury, and the right of a defendant to compensation. Importantly, there must be an ability to exert control over a vehicle before vicarious liability will be imposed for its operation.
As such, the safest way for sellers and freight brokers to proceed is by distancing themselves from motor carriers and commercial drivers as much as possible. Unfortunately, uninformed shippers do not understand how brokers can extend a great deal of protection to a shipper, and shippers are increasing their exposure unknowingly by removing freight broker authority. For example, a shipper will add a term to a contract stating, “a freight broker agrees to assume the liability of a motor carrier.” Although a freight broker may have absolutely no ability to take any preventative actions such as perform vehicle maintenance and oversee the hiring and firing of drivers, the language in the contract gives a different impression. The more control a broker is able to exert over a driver, the higher the likelihood of a court finding a relationship between the parties that rises to the level of a principal-agent, opening the door to exposure for negligence actions.
Therefore, it is essential that freight brokers understand the risks of exposure from seemingly harmless actions, such as belt-and-suspender language in a seller contract or certain actions words used in marketing materials. By educating your freight broker team and other commercial transportation partners on the current risks and trends in the industry, you will be better able to avoid costly and damaging litigation.
Protect your business from the threats of litigation and contact us to discuss how freight broker insurance safeguards freight brokers against legal fees and judgments.