Attorneys Warn Brokers on Contracts, Citing Liability With Carriers, Shippers

This story appears in the April 14 print edition of Transport Topics.

TUCSON, Ariz. — Transportation attorneys speaking to brokers here emphasized the importance of clarity in their contractual relationships with carriers and shippers to protect against liability.

Eric Zalud, a Cleveland attorney with the Benesch, Friedlander firm, urged brokers to clearly state their role in a transaction — particularly if the broker also is a carrier — since brokers generally aren’t responsible for loss and damage, and carriers are.

“It matters how you hold yourself out to the customer. In these cases, say that you are a broker,” Zalud said. “If you identify yourself as a carrier on an invoice, that opens the door to liability.”

Zalud and three other lawyers spoke at the opening session of the Transportation Intermediaries Association’s meeting April 10.

He urged brokers to use phrases such as “arrange transportation” to describe the company’s service and cautioned against using what he called the worst pronoun, “we,” since that can be construed that the company is a carrier and a broker.

Zalud also noted important exceptions regarding liability, such as cases in which loss and damage were covered in a contract, or, if the broker is negligent in carrier selection and fails to check such qualifications as insurance.

He also urged companies that are brokers and carriers to incorporate separately to limit exposure, noting that current federal transportation law has opened the door for a company’s officers to be found individually liable.

Indianapolis attorney Nathaniel Saylor of Scopelitis Garvin addressed two theories used in court cases: vicarious liability and negligent carrier selection.

Vicarious liability can make a broker liable for actions by an employee; and negligent selection addresses a broker’s responsibility to hire a safe carrier.

Saylor said that some recent vicarious liability cases have given brokers new defenses — that weren’t used in a case involving C.H. Robinson Worldwide Inc., which had to pay $23.7 million because of a single accident by a carrier it hired.

Saylor urged brokers to make it clear that they are not responsible for a carrier’s conduct and that the broker is not controlling the carrier’s actions.

Saylor said the goal in negligent selection cases is to prove that the broker was reasonable in its hiring process, though he acknowledged that the Compliance, Safety, Accountability program that includes a carrier scoring system has complicated the process.

Even though there are significant problems with CSA data, he said, brokers can be exposed if they use the information to select cases. There also are potential problems if brokers choose not to consult CSA scores, he said, because plaintiffs’ attorneys can argue the broker should have looked at the scores.

He urged brokers to cope with that situation by having a clear protocol for carrier selection, including the creation of multiple tiers of carrier selection.

“If you ignore the [CSA] data, it can be prejudicial,” Saylor said. “Stick to your program. You don’t have to be bulletproof. You have to show that you are reasonable.”

Casey Adams, general counsel of Prostar Logistics in Salt Lake City, said it was particularly challenging for brokers who work in a high-speed, high-volume business environment to get contracts in place with shippers and carriers who lay out terms for moving the freight before it actually is hauled.

However, he urged brokers to persist in communicating contract information to protect themselves.

“Slow down the sales force a little bit to get an agreement in place,” he advised.

Complications can arise, he said, when a carrier or a shipper sends back their own version of a contract. In those situations, he urged contacting outside counsel to review both versions so that the broker is protected.

Ronald Usem, of Huffman, Usem, a Minneapolis-based firm, conveyed the example of a shipper and broker who created a secret pass code for loads. That pass code was shared with the driver handling the shipment, who had to provide the code before he could pull the freight.

“Companies spend millions of dollars on product development, but they don’t pay attention once the freight is put on the loading dock,” he said.

Another example, Usem said, was including contract language that shows the intermediary is responsible for paying the carrier, in order to prevent fleets from also seeking payment from the shipper who gave the load to the broker.