The Cost of Risk: 12 more things to worry about

Some of your risks are clear, such as the possibility of a catastrophic accident. But many risks are hidden or less obvious. What are some things that you should be worrying about that perhaps you aren’t?

Henry Seaton, a partner with Seaton & Husk and CCJ’s legal columnist, addressed that question last month in a presentation at the Truckload Carriers Association annual meeting. He highlighted 12 areas for concern.

Vicarious liability and negligent entrustment. Plaintiffs in accidents involving smaller carriers may look for deeper pockets by arguing that the 3PL or core carrier is liable. To limit the risk, Seaton recommends avoiding any language assuming carrier liability, keeping your name off the bill of lading and assuming no liability other than arranging transportation with a contractor who is licensed, authorized and insured as required by Federal Motor Carrier Safety Administration regulations.

‘Arising out of indemnity’ and ‘additional insured’. Shippers and brokers often ask that carriers indemnify them against loss “arising out of” the carrier’s services and add them as “additional insured.” Shippers sometimes even seek indemnity and coverage for their own contributory negligence. But a motor carrier’s commercial liability insurer may not accept the additional insured obligation when a loss occurs.

Gaps in insurance coverage. Motor carriers often are unaware that their cargo policies exclude coverage for certain commodities, for moisture, for vehicles left unattended or for upset not caused by an accident, for example. Also, carriers that accept unit-specific bodily injury and physical damage policies must pay careful attention to additions and deletions.

Cargo theft. Carriers must know what they are hauling to ensure they have sufficient coverage. Truckload carriers should establish a standard release rate equal to the level of insurance coverage, Seaton says.

Detention/spotted equipment. Spotting loaded trailers increases the chance for disputes over stolen or damaged freight. Seaton recommends that carriers insist on “shipper load and count” terms and make clear that effective delivery is when they tender it, not when it’s unloaded.

Seals and chain of custody. Homeland security concerns and regulations from the Transportation Security Administration and Food and Drug Administration have raised the stakes on broken seals, Seaton says. “The consignee might say, ‘The seal’s not intact, there may be ricin in the rice.’ ” Carriers need a seal integrity system that ensures notification every time a seal is broken.

Offsets. Seaton recommends that carriers simply refuse through their contracts and rules tariffs to accept offsets, which allow shippers and brokers to deduct claims upfront by withholding the amount from freight charges.

Indemnity as cargo claims alternative. Brokers sometimes try to use indemnity as a way to liquidate damage claims and circumvent claims handling procedures.

State overtime laws. Truck drivers are exempt from overtime under the Fair Labor Standards Act, but FLSA does not preempt state overtime laws. This recently became an issue for some carriers in the State of Washington. The issue remains unresolved, but it’s one carriers should watch closely, Seaton says.

Workers’ comp problems. Carriers can get caught up in complexity of workers’ compensation laws that treat owner-operators differently from state to state. Some states are applying to motor carriers laws designed for the construction industry that make prime contractors liable for the workers’ comp of a subcontractor’s employees. One approach that might help in some cases is to retain contractors through brokerage affiliates, Seaton says.

Intermediaries and third-party recourse. Carriers can lose money if intermediaries go out of business or refuse to pay freight charges due them. There is ample case law supporting a carrier’s right to receive payment from the shipper if the intermediary withholds funds, and carriers should preserve the right of recourse to the shipper through contracts, bills of lading and rules tariffs.

Bankruptcy preferences. Trustees often demand that carriers return freight charges paid them in the weeks preceding a bankruptcy filing. Especially if they believe a customer is getting into trouble, carriers can’t afford to be nice and let payments slide. Another possible tool is critical vendor status. (See “Law,” March 2005.)