The Tucker Company Worldwide
900 Dudley Avenue
Cherry Hill, NJ 08002
(800) 229-7780
(856) 317-9600
FAX: (856) 317-9699 |
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Letters
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To
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The 'Downside' of
Making Brokers Liable
 his
is in response to the recent letters from Bill Augello and Bob Voltmann about a new type
of cargo loss and damage insurance which is designed to make brokers "primary"
parties supplied with "primary" CL&D insurance to protect the shipper, in
place of the motor carrier.
Because 'of the potential harm to the vital
brokerage industry and the shippers, I felt they had to be responded to. Ultimately, the
market participants, brokers and shippers, not the insurance salesmen or lawyers of trade
associations, will decide what insurance products work for them. They will decide by
buying or not buying the products offered. The products that work will survive and those
that don't will die. That's the beauty of the free market mechanism. CL&D policies
making the broker "primary" have some serious side effects injurious to the
broker's and the shipper's health.
There is an old, very clear, well-defined CL&D law
and precedent in freight which mandates the possessor of the freight in transit is fully
responsible to protect it. The carrier is primary, no one else can be.
The shipper at origin and the carrier co-sign the
bill of lading agreeing that everything is in order before departure. They are the only
primary parties that can.
The receiver at destination and the carrier
co-sign the delivery receipt stating the condition of the freight at arrival and
unloading. They, too, are the only ones that can.
The law requires the carrier to carry primary
CL&D insurance. No one is suggesting that be discontinued.
The relatively few losses and damage incidents in the billions
of freight transactions per year are, by and large, processed to completion quite simply
with a minimum is is etters mum of lawyering.
The CL&D regime is not broken. Since deregulation the amount of
lawyering and complexity has probably decreased since the parties can more freely and
practically negotiate claims settlements; and get back to business. Both during regulatory
days and since, if a broker had arranged the shipment or not, the same two primary parties
were involved in the settlement: the shipper and the carrier. The broker could assist or
not, depending on the facts.
About 1985, after deregulation, the broker community,
working with insurance companies, began developing variations of broker "contingency
CL&D insurance" These policies are designed to further pro-
CL&D policies making
the broker 'primary'
have some serious side effects injurious
to the broker's and the shipper's health.
tect the shipper by providing additional insurance funds in the event the trucker and
its primary CL&D insurance could not pay.
There seems to be no groundswell of demand coming from the
shipper-carrier-broker marketplace for recasting the broker as a "second primary'
(an oxymoron for sure) party responsible to protect the goods in the carriers' possession.
The market participants buy contingent insurance in large quantities.
There are many unknowns about the broker volunteering to put himself
into a "primary" position by holding out that he will pay CL&D claims prior
to and independent of the carrier's response. It takes three or more years of actuarial
experience for the insurance industry to even begin to quantify risk. The ongoing
availability and price of primary broker insurance is a crap shoot. It is experimental at
best, while the present motor carrier primary risk and insurance is well known, simple and
works. Encouraging shippers to look to the broker for settlement of CL&D claims will
begin to erode the shipper's historic, strong claim status against the carrier.
Settlement of broker "primary"
CL&D cases will dramatically increase lawyering and court time. Little wonder lawyers
and insurance salesmen lead the charge to encourage brokers to volunteer to be
"primary"!
For the first five years of so of legal wrangling
over these 'new "second primary" settlements, decisions will come out with
wide varieties of nonsense. The appellate court and/or regulatory "wisdom" which
someday sets the rules may not be easy for carriers, shippers and brokers to live with,
but it will be out of the market participant's hands by that time. This is the negative
that bothers me the most.
The new "broker primary" insurance is
higher-priced than contingency now, even at the "loss leader" introductory
stage. It can never come down. The scary unknowns of where it will ultimately settle is
guaranteed to be financially harmful (fatal?) to brokerages and shippers.
All the unknowns yet unknown if this
"secondary primary" risk is ventured into will not have the ability to further
simplify the shipper-carrier-broker's CL&D needs, only to complicate them and
drive the cost to move freight up. The freight market is aware of this "broker
second primary" option. Only the market participants are qualified to evaluate it and
will do so with their purchase dollars or lack thereof. The lawyers, trade association
officials, media, politicians and government administrators, God bless them, are
studiously unqualified to evaluate it.
Until the market participants sort it out,
the non-market observers should keep the sideline cheerleading, kudos and stampeding to
a dull roar. Let's realize some of the nature and stakes of what's being proposed and
evaluated. The highly touted benefits don't really seem to be buying anyone much of
anything, especially the shipper. The downside looks like it is going to be way down, dark
and dirty, especially to the shipper. WILLIAM J.
TUCKER,
PRESIDENT, TUCKER CO.
CHERRY HILL, N.J.
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