transport brokers face new liability threat

A March 19 verdict in an Illinois court has put domestic truck brokers in the unprecedented and potentially costly position of assuming liability for the actions of motor carriers t hey contract with to move customers' freight.

A circuit court jury in Will County, Ill., found C.H. Robinson Worldwide, one of the nation's largest brokers, liable in a fatal 2004 collision involving Utah-based Toad L. Dragonfly Express, which Robinson hired to haul a load of potatoes. Two people were killed and another seriously injured in the accident. The driver was reported to have been driving on a suspended license with falsified logbooks. The trucker eventually went out of business. Robinson was named as a defendant based on legal doctrine that makes an employer "vicariously liable" for an employee's actions when they occur within the scope of employment. Robinson argued that it only booked the load with Dragonfly and that the driver was an independent contractor, not a Robinson employee. However, the jury determined that the trucker was considered part of the brokerage company instead of an independent carrier, and that Robinson was liable as an employer. Robinson itself was not accused of negligence or any unsafe actions.

Robinson officials declined to be interviewed for the story, citing pending litigation. In a statement, Angie Freeman, a Robinson vice president, said the company would appeal the verdict.

Unwanted exposure
If upheld on appeal, the verdict may open up a new and troublesome legal frontier for brokers and intermediaries across all transport modes. Historically, brokers have not been held liable for accidents caused by a carrier they hire. Rather, the carrier and insurance company assumed all accident-related liability for bodily injury, property damage, and loss and damage to freight.

Even so, said an article in the April 2009 issue of TransDigest, published by the Transportation & Logistics Council Inc., the Illinois case "clearly demonstrates that a third-party logistics provider can have significant liability for the acts of motor carriers that [it] hires." And the liability could run into the millions of dollars. Jon A. Langenfeld, transportation analyst for the Milwaukee-based investment firm Robert W. Baird, says Robinson maintains a $5 million deductible on its liability coverage, the amount it could be liable for if the verdict is upheld.

Langenfeld says that although plaintiffs' lawyers would be more likely to pursue deep-pocketed brokers like Robinson for monetary damages, smaller brokers would actually be hurt the most should the Illinois verdict become precedent. Langenfeld contends insurers would be compelled to raise premiums and to limit access to adequate liability coverage, actions that would add significant costs to already thinly capitalized third parties.

Ann Christopher, vice president and general counsel for Kenco, a third-party logistics company, told attendees at the recent Warehousing Education and Research Council annual meeting that the verdict could have "dramatic implications" for brokers and third parties. In the future, she said, brokers will need to be more careful in conducting due diligence on a carrier's safety record before engaging that carrier.

Christopher also warned that the case is a shot across the bow for the entire industry. Transportation, she said, "is the next cash cow that tort attorneys will go after."