Don’t get railroaded

Lexington Insurance Co. (www.lexingtoninsurance.com) said it now offers truck broker liability insurance, covering bodily injury and property damage. The insurance offering responds to the vicarious liability risk resulting from a recent federal court ruling that shippers and brokers failing to use “reasonable means” to perform background checks on a motor carrier could be liable for that carrier’s accident.

Iowa Gov. Chet Culver issued an executive order establishing a task force to consider changes in how companies in all industries classify their workers. Composed of representatives from various state agencies, the Independent Contractor Reform Task Force will review and make recommendations on state regulations as they relate to employee misclassification.

Wayne Parker, an Alabama truck driver, was charged and pled guilty July 17 in U.S. District Court in Cullman, Ala., to undeclared transportation of hazardous waste; sentencing was not scheduled. A port check operation inspection at a weigh station found Parker to be in possession of three separate driver logs, according to the U.S. Department of Transportation’s Office of the Inspector General. Logs showed that Parker omitted recording a trip that involved transporting hazardous waste.

California Air Resources Board recently fined four companies or governmental entities – the City of Pasadena, Universal Waste Systems, Henkels & McCoy and Don E. Keith Transportation – for violating state air quality laws related to diesel emissions.

Q What is the difference in carrier liability for cargo loss or damage when shipping by truck or in substituted rail for motor service?

A There are important distinctions in cargo liability between motor carrier service and substituted rail for motor service. The Carmack Amendment, 49 U.S.C. 14706, is the statute that governs all regulated interstate moves by truck. Among other things, the statute made the motor carrier a virtual insurer for loss or damage and required it to pay the “full actual value” for any cargo lost, damaged or destroyed in transit. In addition, certain presumptions favorable to the shipper apply. Unless “shipper load and count” conditions apply, the carrier’s signature on the bill of lading at time of pickup is prima facie evidence that the shipment is received in good order and is braced properly for shipping.

Like truck transportation, rail service once was subject to the Carmack Amendment, but that changed after the Staggers Act. The resulting liability standards imposed by rail circulars now are decidedly different. The railroads now have their own standards for bracing shipments that are much stricter than truck standards. If the cargo is upset in transit short of derailment, the burden of proof basically is reversed, and the shipper must show that it met the more stringent rail packaging and brace requirements. So in the case of a multimodal cargo claim, the shipper likely will find that a claim valid for an interstate highway move is denied by the railroad. Moreover, shortened time limits for presenting and litigating the claim often apply. And the shipper might have to pursue arbitration or mediation before it could sue.

From the point of view of a third-party logistics (3PL) provider or property broker arranging for both highway and intermodal transportation, these differences pose real risks. Although 3PLs have no direct liability for cargo loss or damage, they assume liability for breach of contract and negligence by diverting a highway shipment to rail without the shipper’s approval and acceptance of rail terms and conditions. A motor carrier must advise its shipper when a movement is being diverted from motor to substituted rail for motor service, and 3PLs should do likewise despite the potential to pocket the extra margin from the undisclosed substitution.

With the cost of diesel fuel, diversion from motor to rail is an increasingly common practice. Shippers, brokers and carriers need to be sophisticated and informed of the risk of slower transit times and different cargo handling and claims requirements before freight is diverted from truck to rail.