(O2O Creative/Getty Images)
key takeaways:
- The federal law ruled by the Supreme Court does not protect brokers from state negligent hiring lawsuits, removing a widely used defense in litigation.
- Experts say brokers have faced these risks before, but now they have to ensure that the vetting process is documented, consistent and defensible in court.
- The decision is causing brokers, insurers and shippers to reevaluate screening practices, contracts and ongoing carrier oversight.
Legal experts are urging the freight brokerage industry to strengthen its carrier-vetting practices in the wake of Montgomery v. Carib Transport II.
The Supreme Court ruled that brokers are not protected by federal law from state lawsuits regarding negligent recruiting claims. The presumed pre-existing origin originates from language in the Federal Aviation Administration Authorization Act that prohibits states from regulating certain broker operations. But it also includes a security blueprint that has divided lower federal courts.
“A starting point to keep in mind in all of these discussions, and I’m telling clients the same, is that brokers face the same risks today that existed the day before Montgomery,” he said. Mark BlubaughCo-chair of the Transportation and Logistics Group at law firm Benesch. “What Montgomery did was remove a defense.”
Blubaugh said the defense was facing challenges from federal and state courts even before the verdict. The Seventh and Eleventh Circuit courts ruled that federal law preempted state-law negligence claims against freight brokers. Instead the Sixth and Ninth Circuits held that these state claims were not pre-empted by federal law.
“It’s set a lot of brokers on fire,” said Josh Lowen, industry trading consultant at JJ Keller & Associates. “Most of your larger brokers have a pretty good idea about how to vet carriers. But a lot of your smaller brokerages, I think this is where it’s going to have a huge impact on them because they don’t necessarily handle the volume of freight that these super carriers broker.”
The lower court’s split did not prevent brokers from operating in and through states that have already rejected the defense. The Supreme Court’s unanimous decision became necessary to resolve this conundrum of legal liabilities by clarifying what the law actually says.
“This decision was huge,” said Adam Green, senior vice president of logistics at insurance brokerage firm Brown & Brown. “Prior to the ruling, freight brokers would use federal pre-emption as a strategy for themselves, for their attorneys. Insurance companies would try to use federal pre-emption whenever a bodily injury or property damage claim arose.”
Green said the Circuit Court’s successes were enough to make it a presumptive protection, even despite the split. He explained that when state lawsuits came up, the defense would often argue that it should be in federal court, where they would invoke pre-emption.
chance to double check
“But it also provides a really good opportunity for brokers to rethink their processes,” Blubaugh said. “It has made the issue more apparent to many brokers in the market, who perhaps did not fully appreciate the fact that they were already exposed to this risk. So again, I think it is a very healthy practice for brokers to start evaluating what they are doing.”
Mark Blubaugh of the law firm Benesh says it’s essential that brokerage personnel tasked with onboarding and monitoring motor carriers are trained to understand and follow company policy. (Benesh)
Blubaugh said most brokers were already doing this, but he also suspects it is a wake-up call for many and that even good brokers are probably reevaluating themselves. He emphasized that each broker should have a written policy that governs how they monitor and monitor the ongoing eligibility of a carrier within their network.
“The second part of that, once they have it established, is to make sure that their employees who have the responsibility of boarding and monitoring motor carriers are trained to understand and follow the broker’s policy,” Blubaugh said. “The policy has to be implemented in some way, whether it’s through personnel or through technology, to make sure they’re in compliance with it.”
JJ Keller issued a notice The ruling comes shortly after warning companies about the legal changes they are now facing. The security- and regulatory-compliance services company is assisting clients in building their own carrier-assessment processes or by leveraging its in-house carrier risk review service.
“It should be fully documented, it should be a process that can be defended in court, and it should be the same process every time with every single carrier,” Lowen said. “You need to be able to explain why you chose a specific carrier.”
“It’s important for (freight brokers) to make sure they have written carrier-qualification guidelines,” says Josh Levan of JJ Keller. (JJ Keller & Associates Inc. via LinkedIn)
Lowen said brokers need to treat onboarding as an ongoing process rather than a one-time checkbox. They have seen active efforts to do so, including comparing and discussing vetting processes by brokers.
“Most established freight brokers have focused on carrier screening and qualification for the last 10 or 15 years,” Green said. “It’s important for them to make sure they have written carrier-qualification guidelines in place, carrier-vetting processes. They should review these screening requirements and guidelines frequently.”
Green said what appropriate care means, and what a proper screening process looks like, can be a moving target. He sees the need to maintain an updated vetting process as a main accomplishment for brokers. This means continuing to monitor a carrier even after it passes the vetting process, which many brokers try to do.
uncertainty remains
“I must say there is a lot of panic in the insurance market,” Green said. “I’ve had dozens of calls, emails. I’ve had freight brokers asking me to take a look, asking us to take a look at what they’re doing, and asking for any advice or recommendations moving forward.”
Green has also heard from shippers who are now reevaluating their vetting processes for carriers and brokers. He expects many shippers to change their contracts and insurance requirements in the coming months to better protect themselves.
“The largest brokers have teams of data analysts and security resources on which they can base their scoring protocols,” Blubaugh said. “Whereas smaller companies won’t really be in a position to do that.”
Blubaugh said it can be difficult to determine what that vetting process looks like beyond the obvious steps, such as brokers making sure they are using federally licensed motor carriers with good safety ratings. He said there are additional parameters on which experts and industry players have different opinions.
“Most of our customers who have contacted us are trying to be as proactive as possible,” Lowen said. “Their in-house attorney teams are really focused on creating a process, or partnering with a third party to have a standardized process, and they’re really looking at states where tort reform hasn’t happened.”
