Know what you’re signing, transportation lawyer says

Jun 6, 2006

By John Latta

Potentially devastating and often well-hidden legal problems are waiting for trucking companies that do not do their homework before signing contracts, according to Henry Seaton, a transportation industry lawyer speaking Tuesday, June 6, at the CCJ Spring Symposium in Tuscaloosa, Ala., sponsored by Randall-Reilly Publishing.

Seaton is an attorney with Seaton and Husk in Vienna, Va., which has represented motor carriers and brokers in the Washington, D.C. area for 30 years. The firm specializes in freight claims, freight charge collection, contracting and bankruptcy issues. “For most truckload carriers, these are the best of times,” he said. “Rates are up. After a number of lean years, most carriers are in the black. Yet, from a legal liability point of view, these are the worst of times.

“Today, a key for carriers is to be sure that they limit their liability to what they are liable for, and to be sure they are not potentially liable beyond that without being aware of it,” said Seaton, who writes a monthly column for CCJ Magazine. “It’s important for a carrier to establish its own terms and conditions, to make sure those procedures are always followed, and then to manage by exception. For example, if you change from hauling a relatively inexpensive product to hauling something like big-screen televisions, you would need to adjust your basic terms and conditions – for example, getting extra theft insurance.”

Seaton highlighted a number of circumstances where a less-than-thorough, non-vigilant carrier could face expensive legal problems:

Because so many smaller carriers have little net worth and limited insurance coverage, after major accidents plaintiff’s lawyers will look to find “deep pockets,” successful companies that can pay large sums. “You can find yourself named in an accident lawsuit when the accident was not your fault and it was not even your driver. The argument may be that you subcontracted to the carrier involved and should have known there was a risk. A jury may well be told that you assumed the carrier was safe.

“Limiting the risk involves making sure you do not assume another carrier’s liability, you keep your name off the bill of lading and you assume no liability other than arranging transportation with a contractor who is licensed, authorized and insured as per FMCSA regulations.”

Beware demands for indemnity or insurance coverage from shippers or brokers, says Seaton. “These provisions require broad indemnity against loss ‘arising out of’ carrier services and demands to be named as ‘additional insured.’

“It is possible for a carrier who is not careful to indemnify a shipper and also to insure them. These are the two-handed pickpockets. If you focus on one, the other one will pick your pocket. A carrier can become responsible for paying for a shipper’s mistakes that they had no part in making.”

Carriers, to their great cost, often are unaware of the terms of some of their insurance coverage. “Motor carrier coverage is often bought on price, and policy terms are not negotiated,” said Seaton. “A lot of policies have exclusions that leave uncovered the very things a carrier is most worried about. Pin down your insurance agent when a policy is ambiguous, and know just what risk you are assuming.”

Cargo coverage comes with loopholes. For example, a flatbed carrier with a $1 million policy that is expected to cover any possible problem may find out that the policy includes “wetness, dampness and moisture” exclusions. Another example: If a driver leaves a truck to sleep in his own bed during a weekend break and the load is stolen, the carrier may find that because the driver wasn’t with the truck, the load was not deemed to be “in transit” and therefore the insurance was void.

Check the terms of your theft insurance. “Often the wording says that unless a driver is hit over the head and forcibly robbed, you don’t have insurance.”

Know what you carry. “In one case, a carrier insured the load he was hauling, thinking that under the tarp on his flatbed was a used canning machine. Only after an accident did he discover it was a missile launcher.”

Be sure your contracts establish when your liability begins and when it ends. “It is possible for a carrier to be held responsible for a theft from the shipper’s property after his truck has arrived and parked. You do not want to be in a situation where you are liable for a load after it had gotten where it was supposed to be.”

“Every motor carrier who hauls foodstuffs or perishables needs a corporate policy on broken seals. That policy is what can save you when a driver arrives at a dock, is told to break the seal and back up to the doors to unload, and when he gets there, he’s told no one saw him break the seal – and the load is rejected.”

Be sure of your position when it comes to cargo claims, again by having a written corporate policy. Seaton cited an example in which a broker paid significantly more than a load was worth to settle a shipper’s claim, and then turned to the carrier and demanded the same amount. A court said that because the value of the load had not been stipulated in contract, the carrier had to pay the broker what he had paid, even thought he never checked with the carrier before paying it.

If you do business with intermediaries, be sure you have a contractual limit to your liability – you cannot rely on the notion that the intermediary has such a clause in their contract with the shipper. After a problem, the shipper may turn to you for compensation.

Read your contracts – then read them again. Seaton cited an example using the 180-day rule: Under this rule, shippers and carriers have 180 days to post-audit bills and file notice of overcharges or undercharges. But some shippers, in their contracts, override the rule and extend this period to two years, something many carriers do not notice when they sign. In one case, during those two years, a post-audit firm retained by a shipper found that a carrier had increased its rates and the shipper had agreed and paid them. But the shipper’s contract had stipulated all rate hikes had to be agreed to in writing. In this case, the shipper that had agreed to pay the higher rates demanded back all of the extra money it had paid the carrier.

Know what you’re signing, transportation lawyer says

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