Risky Business: Three Ways to Mitigate Transportation Liability

Jay Jeannotte and Billy Worthington | FALVEY SHIPPERS INSURANCE

As a third-party logistics (3PL) company or broker, you’re in a unique position to help educate shippers on transportation best practices. You have the expertise and access to keep all parties informed. Aside from being good business, this will strengthen your professional relationships and protect your own company from liability. Here are three ways you can position yourself as an industry expert to help you and your shippers limit transportation liability:

Protect Yourself First

It’s becoming more common for 3PLs to be held liable for loss or damage to freight. As fingers point at the figurative and literal middleman, 3PLs must draw clearer boundaries around the exact stages of the shipping process they control.

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Mitigating your risk as a 3PL will help clarify where the responsibility lies between brokers, shippers and carriers. Follow these best practices from Falvey Shippers Insurance to limit broker liability:

• Thoroughly Vet Carriers

Brokers likely won’t be found directly negligent in a claim, but may suffer guilt by association if the carrier is found negligent. Proactively safeguard your business by doing your homework on a carrier. There are several third-party risk management companies that offer comprehensive tools to help brokers vet carriers.

• Get Proper Liability Insurance

If the worst happens and you’re embroiled in a claim, you want to be sure you’re covered. These types of liability insurance policies keep 3PLs protected:

    o  Contingent Cargo: Provides coverage for loss when there is non-payment from the motor truck cargo policy.

    o  Errors and Omissions: Protects the 3PL if an error or oversight in the course of business causes the customer financial loss. This is also called professional liability insurance.

    o  Contingent Automobile Liability: Protects the 3PL when they are held liable for death, bodily injury or third-party property damage as a result of the carrier’s negligence.

• Avoid Being Categorized as “One and the Same”

Brokers can limit their liability by clearly defining what the carrier is responsible for and avoiding the appearance of having a shared operation with the carrier. For example, don’t refer to carriers as partners on contracts, don’t claim to control all stages of transportation, don’t involve yourself in typical carrier responsibilities (such as assigning drivers, routes or pickup/delivery times) and never identify your company as the carrier on the bill of lading or other documents.

While it may be tempting for 3PLs to market themselves as a comprehensive solution for shippers, creating a distinct separation from carriers will safeguard you against claims that you’re essentially one and the same company.

Educate Shippers on Carrier Liability

Many shippers think they’re covered by a carrier’s insurance, or don’t realize the extent of liability that may fall on them due to a carrier’s insurance limitations. As a 3PL, you have the opportunity to increase your value to shippers by educating them on carrier liability; start with the Carmack Amendment.

Established by Congress in 1935, the Carmack Amendment outlines the rights, responsibilities and liabilities of shippers and carriers involved in interstate shipments. Under the amendment, a carrier is liable for damages to the goods it transported, but the shipper must prove the carrier’s negligence. A carrier can deny liability due to:

  • An act of God
  • A public enemy (pirates, countries at war with the U.S.)
  • Act or default of the shipper
  • A public authority (the government)
  • Inherent vice or nature of the goods transported

On top of advising your shippers about gray areas in the Carmack Amendment, be sure to bust the myth that requiring a certificate of insurance is tantamount to having evidence of coverage. Almost all carrier insurance policies have exclusions, limitations are generally capped at $100,000 and the deductibles could be sky high. The Carmack Amendment requires only the bare minimum liability coverage and many carriers are underinsured, leaving a gap that shippers must be aware of and fill with their own coverage.

Provide Useful Resources for Shippers

In addition to acting in an advisory capacity for your shippers, there are tangible, specific resources you can provide to them:

  • Clear Contracts

Creating contracts that clearly state the liabilities of both the shipper and carrier will be an incredibly helpful resource for your shippers, as well as your own company. If contracts are written without lawyers who specialize in transportation (or without lawyers at all), important clauses could be missing or in violation of existing laws. Or, if contracts include vague language about what will happen in the event of a loss, the repercussions will snowball.

  • Loss Prevention Best Practices

A 3PL has deep knowledge on the best ways to protect goods for the rigors of transport. Share those with your shippers, whether in an email or a more formal, checklist-type document. This includes how to pack different types of goods, the best mode of transport (e.g. flat-bed truck vs. van), what equipment may be needed and even the right carrier to use for a particular shipment. Be sure to include the advice that you’ve learned with experience, such as how a shipper can mitigate risk for high-value loads by splitting it up between multiple trucks.

It will be important to emphasize that these best practices aren’t meant to micro-manage the carrier. If a shipper dictates how a carrier should handle a shipment down to the smallest detail, it will only create confusion that could result in losses and open the shipper up to more liability and legal complications. Shippers can follow these guidelines for their elements of the transport and ask carriers to comply with the law, but once the goods are in the hands of the carrier, the shipper loses control.

  • Cargo Insurance

Similar to the previous section about how brokers should obtain the proper liability coverage, so should shippers – and your shippers may be asking you for advice on the subject.

  o Contingent Cargo: As previously explained, this provides coverage for loss when there is a non-payment from the motor truck cargo policy. There are two different forms: following and non-following. A following form is the most common and has the same policy exclusions as a carrier’s motor truck cargo policy. The non-following form exclusions depend on the policy and vary among providers. The important thing to know is this cannot be triggered if the carrier pays the claim, so often there can still be a gap in coverage.

  o All-Risk Shipper’s Interest Insurance: Provides full-value coverage to shippers for losses both in and outside of the carrier’s control. This is the broadest policy form available and is not subject to the limitations set forth by the Carmack Amendment. Unlike Contingent Cargo, coverage does not require a denial to be triggered, so you can fill in any existing coverage gaps. (Shipper’s Interest Insurance can be purchased on a per load basis.)

Your transportation insurance provider can help you define and develop a strategy around all of these liability-limiting tactics. Just as your shippers will rely on your expertise, you can rely on the expertise of your insurance provider to determine which policies are best suited to mitigate risk for all parties involved.

Jay Jeannotte and Billy Worthington are Vice Presidents of Falvey Shippers Insurance. Mr. Jeannotte may be reached at 401- 533-5485 or jjeannotte@falveyshippers.com, and Mr. Worthington may be reached at 401-675-9239 or bworthington@falveyshippers.com.