The Controlling Facts In the Debate About Brokers Paying Claims for Loss and Damage to Freight.

By William Tucker, Chairman, TBCA

• WT’s Background Notes:
• A debate is raging about whether the motor carrier broker should volunteer to become the party with primary cargo loss and damage (CL&D) insurance and, of course, responsibility. For decades, they have never been so; the shipper/owner of the goodsand the carrier/bailee actually in possession in transit have always been seen as thepeople with primary responsibilities for loss or damage to the goods in transit. The broker/arranger of the freight shipment between the two primary parties has never been seen responsible for any CL&D risk. They can help either or both parties process the claims, negotiate settlements, write settlement checks to be reimbursed later, etc.
• The broker can voluntarily provide broker contingent CL&D insurance to protect the shipper/owner in case the carrier or its insurance company (or both) are incapable of paying when it is time to pay a claim. But except for some really rare
• circumstance of irresponsibility on the part of the broker, and I don’t know of the existence of any lead cases, the broker is simply not the primary party responsible for loss or damage to freight in transit.
• In the marketplace of shippers and carriers there seems to be no pressure to invent this new responsibility. The statutes, common law and realities of freight relationships between the parties have provided crystal clear precedent to handling and settling claims. The shipper’s have extraordinary powers compared to any other bailment contracts for the carrier to pay, in full for loss and damage.
• The people pressing for these changes are some lawyers (legal wrangling will increase dramatically), an insurance firm who developed and is selling this new product (of course they are impressed) and some transportation industry trade associations inside the beltway (who "network with" and derive advertising and/or small commission type revenues from sponsoring industry suppliers.

(The following is as printed in "TIA UPDATE", October 1999)

Our firm has been in business 38 years as a Motor Carrier Broker. We have arranged hundreds of thousands of shipments. We now deal in many other areas of freight management and logistics in addition to brokerage but, in the majority of our many types of relationships with shippers and carriers, we continue to broker a lot of freight.

The fundamentals of our relationship to the cargo loss and damage responsibility remain remarkably consistent since, in our view, they are grounded in strong statute and common law but most importantly, in practicality and common sense.

The controlling facts are:

12. Only the carrier’s driver and shipping firm’s shipper(s) are present at loading time. They are looking at the freight and the loading of it. They each sign the bill of lading that the shipment is exactly what the document says it is (piece count, description, weights, time of day, date, destination, etc.) and that it is loaded in a fashion acceptable to both.

2. Only the carrier (or any succeeding carrier or agent he may select) controls the driver(s), terminal managers, inspectors, etc. under its employ while the freight is in transit.

3. Only the delivering driver and the receiving firm’s receiver(s) are present during the unloading, from the time the doors are opened to the time the freight is off the truck. They are looking at it and its handling. They are the only parties present to attest to the state of the shipment; its loss, damage or perfection. They are the only two parties who can accept or reject part or all of the shipment and/or make notations on the delivery receipt. They and only they cosign the document.

4. During the time from departure at origin to opening of the doors at destination the carrier(s) is the only party who can      damage or lose the freight.  

   Why would it be in anyone’s interest to remove that first hand control and testimony responsibility to protect the shipment   from loss or damage from any of these primary parties?

5. The statutes and common law have always held and continue to hold the carrier to a high degree of responsibility for the freight in its possession. The carrier’s bailee responsibility is stricter than a warehouseman’s.

   As a professional, third party arranger of freight, we have always known in our bones that no one should disturb the above facts and  contractual-legal precedent. And it is especially not in the shipper-customer-owner of the goods in transit’s interest to disturb this favorable and realistic status quo. If we, as our shipper’s third party freight arranger-manager, began holding ourselves out as the party responsible for loss or damage to freight while in a carrier’s possession we would be undermining the owner’s recovery power.

   Equally important, we would be lessening the carrier’s heavy sense of (a) responsibility to protect the goods in his care and (b) knowledge that the world demands he reimburse the shipper in full for any freight lost or damaged while in his possession.

   Having said that, yes, we process or assist in processing the shipper’s claims against the carrier and in the carrier’s evaluation of the claim’s legitimacy. We have the shipper send the claim to us; often it arrives as entered against us. We then forward it to the carrier with a detailed transmittal letter and a copy to the shipper-claimant. We start a file and keep after the processing on a proactive basis until it is resolved.

   Having been involved in the shipment from long before the carrier took possession to and through claims processing long after delivery, we are in a good position to assist both parties in evaluating and settling the claim. The object is to maximize the relative satisfaction and equity for each party in the settlement process.

   Often it is simply the carrier’s fault. Both parties are in a position to abuse the claims process and sometimes do. Sincere, serious shippers and carriers expect business like treatment and get it. Our role in the process, as usual, is to work to be the best honest broker we can be.

   The myriad of variations of transaction type demands we stay flexible. We sometimes throw some money in the settlement. We sometimes write the check to the shipper and deduct from the carrier. We sometimes agree with the carrier. For example, the shipper’s packaging may have caused the damage. In this case we would both explain the claim denial and suggest experts to evaluate the packaging design to avoid future problems.

   We sometimes request our contingent cargo loss and damage insurance provider participate on our behalf to pay and subrogate against the carrier or to provide legal defense for the shipper, etc.

   The reality is that good shippers and good carriers don’t have many claims, relative to the total volume of freight moved. Most legitimate claims get handled with a minimum of both. We do the processing of most of them.

   We have written contracts with every carrier detailing their historic CL&D liability will still apply to the shipper in our transactions. They readily sign.

   We are convinced that for intermediaries to give in to the ill advised wish of the shipper that the intermediary be the party responsible for loss and damage undermines the shipper’s financial and legal interests. We are convinced that, structured our way, the shipper retains his full leverage against the carrier. Our participation then enhances the shipper’s position; we bring additional insurance and legal specialists; we do the additional negotiation and process the paperwork.

   We are also convinced that to volunteer to take the CL&D burden off the shoulders of the only party in position to physically protect the freight in transit is irresponsible. Good deeds such as that will surely not go unpunished.

   Ropes are best pulled on. We think the way the legal-contractual-practical CL&D regime has been designed, tested and continues to execute is excellent rope pulling. We would not look forward to pushing on the ropes that alternative suggestions are trying to design.

   We don’t recommend such changes to our shippers or our carriers. It ain’t broke; don’t fix it. We don’t even recommend them to our competitors.

   Be careful what you wish for; you may get it. Responsibility to protect freight in a carrier’s possession is not something anyone but the carrier should have.