Introduction

In the vast majority of personal injury and wrongful death cases involving commercial motor carriers the insurance limits for the motor carrier are sufficient to cover the loss given the required $750,000 minimum limits applicable to such claims.

However, the Federal Motor Carrier Safety Administration (“FMCSA”) recently concluded in its April 2014 Report to Congress “that the current financial responsibility minimums are inadequate to fully cover the costs of some.” FMCSA stated the following:

• “Catastrophic motor carrier-related crashes are relatively rare. Based on limited available claims data, it was estimated that catastrophic crashes, resulting in injury, death, and/or property damages that exceed the current minimum levels of financial responsibility, comprised less than one percent of all CMV crashes (about 3,300 of 330,000 total crashes per year).”
• “However, costs for severe and critical injury crashes can easily exceed $1 million. The analysis reveals that two categories of injury crash (severe and critical) yield damages of more than $1 million, in nominal terms, using the DOT’s previous estimated value of a statistical life (VSL) of $6.2 million.”

In the rare and tragic crashes that do result in personal injury or death damages in excess of the minimum limits plaintiffs’ attorneys have often looked to other sources of insurance including the broker that hired the motor carrier or even the shipper that hired the broker.

What is a broker?  A broker is the entity that arranges the transportation between a shipper and a motor carrier.  The broker acts as the “middleman” between the motor carrier and the shipper.  The FMCSA defines “a broker in part as a person who, for compensation, arranges, or offers to arrange, the transportation of property by an authorized motor carrier.”  According to the FMCSA’s April 2014 Report to Congress “brokers that are subject to FMCSA jurisdiction are required to register with FMCSA.  As part of that registration, they are required to maintain process agents to accept service of process, and file evidence of financial responsibility.  As of November 2013, FMCSA’s Licensing and Insurance database listed over 21,400 registered brokers.”

Plaintiff’s theories to try and hold brokers liable.  Plaintiff’s two most common causes of action against a broker are: (1) negligent hiring, selection and retention of the motor carrier – arguing that the broker should have somehow known that a carrier was incompetent or unfit and (2) agency (respondeat superior) – arguing that the broker exercised sufficient control so that the broker should be held vicariously liable for the negligent driver’s actions.

Plaintiff’s will often allege both of these causes of action arguing on one hand, in support of the negligent hiring claim, that the broker exercised too little control and then arguing on the other hand, in support of the agency claim, that the broker exercised too much control over the driver.  Plaintiff’s often attempt to advance other causes of action against a broker including negligent entrustment of an activity, lease liability, joint venture and even punitive damages.  These causes of action, however, are universally rejected by the courts.

This article does not reflect an exhaustive list of cases discussing broker liability but it presents various cases and fact patterns from different jurisdictions across the United States in both state and federal courts which have considered these issues.

Maryland – 2004

In Schramm v. Foster, a truck driver ran a stop sign causing an accident which left a minor in a “semi-vegetative state.” 341 F. Supp. 2d 536, 541 (D. Md. 2004).  Due to insufficient insurance limits, the plaintiff sued C.H. Robinson (“CHR”) the broker who employed the carrier who hired the driver, alleging that CHR was liable for the driver’s negligence because an agency relationship existed between them.  Additionally, plaintiff alleged that CHR negligently hired the broker.

With regard to the agency claim because no agreement existed establishing an agency relationship, the plaintiffs could only establish the relationship by inference, to do so, they had to show that “1) the agent was subject to the principal’s right of control; 2) the agent had a duty to primarily act for the benefit of the principal; and 3) the agent held the power to alter the legal relations of the principal.”

In Schramm, the only evidence of such a relationship was an agreement between the broker and the carrier that gave specific instructions on making the delivery, checked up on its progress, and required the use of certain safety measures.  There the evidence clearly supported a conclusion that the carrier was an independent contractor:  “An independent contractor is one who contracts to perform a certain work for another according to his own means and methods, free from control of his employer in all details connected with the performance of the work except as to its product or result.”  As the court concluded, “it is not enough that [the broker] retain general control over [the driver’s] participation in the transaction. To subject the principal to vicarious liability, the key element of control, or right to control must exist in respect to the very thing from which the injury arose.  Thus, unless [the broker] had control over [the driver’s] driving time and the condition in which he drove, it will not be vicariously liable for [the driver’s] negligence.”

With regard to the negligent hiring claim the court noted that the evidence against CHR was “thin” but ultimately allowed that cause of action to proceed past summary judgment.  The court first noted that Maryland recognizes a cause of action against a company for negligently selecting, instructing or supervising an incompetent independent contractor.  The court then noted that CHR’s self-proclaimed status as a “third-party logistics company” providing “one point of contact” service to its shipper clients was sufficient under Maryland law to require it to use reasonable care in selecting the truckers whom it maintains in its stable of carriers.

The court further noted that “[t]his duty to use reasonable care in the selection of carriers includes: (1) to check the safety statistics and evaluations of the carriers with whom it contracts available on the SafeStat database maintained by FMSCA, and (2) to maintain internal records of the persons with whom it contracts to assure that they are not manipulating their business practices in order to avoid unsatisfactory SafeStat rating.”

The court noted the following:

• the carrier did not have a sufficient rating as required by CHR’s own policies – CHR’s contract-carrier agreement required its carriers to have “Satisfactory” US DOT rating which the court apparently believed that it did not have because it was a “new company” and presumably unrated;
• the carrier had a “marginal” SafeStat score;
• CHR advertised to shipper customers that “[i]n the rare event that the damage [caused in an accident] goes beyond the carrier’s insurance limits, CHR maintains a liability insurance policy that pays the rest.”

New Jersey – 2006

In Puckrein v. ATI Transp., Inc., an unregistered and uninsured tractor trailer collided with plaintiffs. 186 N.J. 563, 897 A.2d 1034(2006). The tractor trailer had faulty brakes when it ran a red light.  Plaintiffs’ estate sued several defendants including the company that arranged the load.  The court found that there was an exception to the general rule that a principal is not liable for the negligent actions of independent contractors—that is when a principal engages an incompetent contractor.

The court found that there was a genuine issue of material fact for the jury with regards to whether the shipper selected an incompetent driver.  Because the carrier had no insurance or registration the court found the carrier to be incompetent.  As to whether the shipper should have known of this incompetence, the court concluded that the shipper failed to verify the hauling credentials of the carrier.  The court continued that, while the carrier may have had a valid certificate of insurance on file at one point, the shipper failed to continue to monitor such credentials.

Georgia – 2008

In McClaine v. McCloud, the driver received all dispatch instructions from the broker and his only contact with the motor carrier was to pick up his pay check at the end of the week. 661 S.E.2d 695 (Ga. App. 2008).  After the accident, he made the comment to the state police that he was driving for the broker.  In dismissing the vicarious liability/agency claim against the broker at summary judgment the court noted the following:

• The broker had no ability to hire, fire or discipline the driver;
• The broker merely conveyed pick-up and deliver instructions provided by the shipper;
• The broker never dictated required routes.

In dismissing the negligent hiring claim at summary judgment, the court noted:

• The driver had driven tractor-trailers for the motor carrier for two months without incident;
• In the contract between the broker and the motor carrier, the motor carrier warranted that its drivers were competent and properly licensed;
• Plaintiffs cited no authority that would have allowed the broker, who was neither the driver’s employer nor potential employer, to access the driver’s driving records.

Plaintiffs also argued that the broker should be held liable for negligently hiring the motor carrier as an independent contractor because the act of driving a tractor-trailer is “inherently dangerous.”  The court quickly rejected this argument noting that plaintiffs had failed to cite any Georgia authority supporting that proposition.

Virginia – 2008

Jones v. C. H. Robinson Worldwide, Inc., involved a personal injury action after two tractor trailers collided head-on. 558 F.Supp.2d 630 (W.D.Va. 2008).  CHR hired the motor carrier and the motor carrier assigned a load to one of the carrier’s employees. CHR’s motion for summary judgment was granted with regard to plaintiff’s claims for agency and negligent entrustment but denied with regards to the plaintiff’s claim for negligent hiring. In dismissing the agency claim, the court concluded that under agency/respondent superior there was not enough control to convert such relationship into an employer/employee relationship. The court noted:

• The contract-carrier agreement stated that the company was an independent contractor;
• Even though CHR arranged pickup dates and times, provided addresses to the carrier, communicated information from the shipper regarding the loading and unloading of cargo, provided other directions regarding the transportation of the load, and required drivers to call in to report the status of shipments these were only incidental to accomplishing the goal, not sufficient control.

In addressing the negligent hiring claim, and denying CHR’s motion for summary judgment, the court stated that: “in order to succeed on a claim for negligent hiring of an independent contractor, the plaintiff must also be able to prove that the contractor was, in fact, incompetent or unskilled to perform the job for which they were hired, that the harm resulted arose out of that incompetence, and that the principal knew or should have known of the incompetence.”

CHR maintained that it made the proper inquiry into the motor carrier – that the carrier was insured and had the proper operating authority from the FMCSA. Plaintiff argued that CHR should have conducted an investigation into the carrier’s safety program and its safety ratings would have disclosed that it “was an at risk carrier and was likely to be involved in an accident.”  It appears from the opinion that CHR was aware that the carrier had a “conditional rating” and CHR’s contract carrier agreement required the carrier to have a “satisfactory” rating.  The court also noted that the carrier had deficient Safestat scores that were publicly available and the carrier’s overall SEA rating was in the bottom 3% of all motor carriers in the county in vehicle and driver SEA scores.  The plaintiff presented an expert who testified that the FMCSA data is a reliable and accurate measure of a driver and carrier’s safety.  CHR argued that the available FMCSA date was unreliable noting, inter alia, that there was a disclaimer on the FMCSA’s website that recognized that the information may not be intended for commercial use.  The court, citing Schramm, found a material issue of fact and allowed the case to go forward on the negligent hiring claim.

Illinois – 2011

In Sperl v. C.H Worldwide, Inc., CHR was again involved as the broker. 408 Ill.App.3d 1051 (2011).The driver, hired by the carrier, caused a multiple car pileup where two people died and another sustained serious injuries.  Plaintiff brought several theories of negligence against CHR. The case went to a jury trial on the issue of agency and not negligent hiring.  The jury concluded the CHR was vicariously liable and awarded over $23,000,000.  The court upheld the verdict noting:

• CHR had direct contact with the driver;
• CHR “had extensive requirements” which were set forth in the “load confirmation sheet” (e.g., CHR required the driver to continuously measure the temperature load during the trip and stay in “constant contact” with CHR throughout the trip);
• CHR used fines to ensure the driver’s compliance;
• CHR’s scheduling required its driver to violate FMCSR’s hours of service limits;
• The driver’s services were closely aligned with the broker’s business (CHR owned the cargo and load going to a CHR warehouse);
• CHR paid the driver directly.

The court held that these were significant factors that supported a finding that the broker directed the driver’s conduct during the entire transportation process and that the broker had the right to control the manner in which the driver performed his job.

New Hampshire – 2012

In Ameriswiss Technology, LLC v. Midway Line of Illinois, Inc.,et. al., the plaintiff-shipper sued the broker, CHR, and the motor carrier, Midway, alleging that CHR negligently hired the motor carrier after the motor carrier damaged the plaintiff-shipper’s machinery during transport. 2012 WL 4483744 (D.N H. 2012). CHR moved for summary judgment contending that plaintiff’s claims were preempted by federal law.  The court granted CHR’s motion for summary judgment under both implied and express federal preemption.  The application of preemption in this case should provide a strong argument that federal preemption applies to the defense of brokers in personal injury cases and should be raised accordingly.

Illinois – 2013

In Scheinman v. Martin’s Bulk Milk, plaintiff was permanently injured when he was rear ended by a tractor-trailer. 2010 WL 6467525 (No. 09 C 5340)(N.D. Ill., 2013). Plaintiff sued various entities including the truck driver, his employer (“assigned carrier”), the shipper of the subject load (“shipper”) and the company that arranged for the assigned carrier to transport the load (referred to as “broker/carrier” since there was a dispute as to whether that company was acting as a broker or carrier).  Plaintiff based his claims against the shipper and broker/carrier on vicarious liability.  In its analysis the court examined the contract between those parties and noted:

• the broker/carrier was contractually obligated to provide the shipper with tractors, driver and trailers on a daily or weekly basis;
• the broker/carrier was required to provide to the shipper “qualified, licensed drivers who shall comply with all local, state and federal laws and regulations;”
• the broker/carrier was required to “maintain all tractors and trailers in a safe operating condition;”
• the shipper also required the broker to have the ability to communicate electronically with the shipper regarding acceptance of a load tender, the anticipated pick-up date/time, any unexpected delays and other similar “delivery events;”
• the contract between the broker/carrier and shipper required the broker/shipper “to coordinate and establish delivery schedules for all services provided” and to meet a “minimum on-time delivery requirement of 98%.”

The shipper testified that it expected that these contractual obligations be followed regardless of whether the shipper/broker hauled the load or assigned it to another carrier as it did in this case.  At summary judgment the plaintiff, relying on Sperl, argued that the assigned carrier was operating as the broker/carrier’s agent as a matter of law, or in the alternative, that there was a genuine issue of fact as to whether an agency relationship existed.  The court disagreed, however, noting that “the majority of factors relevant to establish principal-agent relationship are not present including that the assigned carrier, and not the shipper or broker/carrier, did the following: (1) paid the driver directly, (2) had the sole right to hire and fire the driver, (3) withheld all taxes from the driver’s earnings (4) furnished all tools, materials and equipment to the driver, (5) dispatched the driver; (6) owned and maintained the subject truck; (7) qualified the driver; and (8) specified the routes taken by the driver.

New York – 2014

In Kavulak v. Juodzevicius, plaintiff, a bridge cleaner, claimed severe personal injuries when he was struck by a tractor-trailer carrying a load of plastic yogurt cups. __F. Supp. 2d __, 2014 WL 173905 (W.D.N.Y 2014).  Plaintiff sued several entities including the broker alleging agency/vicarious liability.

In support of summary judgment, the broker argued that it did not own or operate the tractor-trailer and it simply arranged for an independent contractor, the carrier, to deliver a shipment of good to the shipper’s customer.  The broker also argued that it did not set the carrier’s schedule or route for delivery and never communicated with the driver while he was en route, and did not control or have the right to control the manner in which the driver performed his job. In granting the broker’s summary judgment motion the court noted several factors:

• The broker had no control of the carrier’s choice of the driver or the route, delivery or selection of the tractor trailer that was used;
• The contract-carrier agreement between the broker and carrier was “non-exclusive and provides that the carrier can pick and choose which shipments it accepts from the broker;”
• The contract-carrier agreement “expressly recognized that the broker the carrier has “no authority to act for, bind or otherwise obligate [the broker]” and “that all drivers of any motor vehicles employed by [the carrier] in connection with the transportation of commodities under the agreement are, and shall be at all times, remain subject to the discretion, control and supervision of the carrier;”
• The carrier was responsible for all of the driver’s compensation and fuel costs;
• The broker never communicated directly with the driver.

Plaintiff also attempted to use the Carmack Amendment to argue that the broker was a “motor carrier” as defined by the FMCSA.  The court stated that the “Carmack Amendment gives a shipper the right to proceed against the initial carrier in a case where damages or loss occurred while the shipment was in the hands of the subsequent carrier.” Carmack “does not, apply to create a private right of action to recover for personal injuries sustained by a motorist struck by a tractor-trailer driver.”

Conclusion

While most cases against a broker and shipper are properly disposed of at summary judgment plaintiffs’ attorneys will likely continue to try and sue up the supply chain to find deep pockets when faced with inadequate insurance limits.  The cited case law demonstrates the types of analysis that the courts have undertaken in these cases.