Unanimous Ruling by the Supreme Court of the United States Finds Brokers Have a Duty of Reasonable Care in Selecting Motor Carriers
To those of you who know me, I’m NOT a “GLASS HALF EMPTY” kind of person; rather, I’m a “GLASS ALL FULL” type (it just so happens that the second half of the glass is filled with a gas rather than sweet tea). Now, don’t get me wrong, yesterday’s unanimous 9-0 ruling by the Supreme Court of the United States in Montgomery v. Caribe Transport II, LLC, et. al. (No. 24-1238) (found here) dashes any and all hopes any 3PL had of tearing up its contingent auto/truck broker liability policy and tossing the shredded bits in the air like a high school senior tosses her/his crumpled notebook pages on the last day of school…but I do not believe Montgomery significantly changes a freight broker’s liability landscape, and in fact, it may actually provide greater customer opportunities and available lanes for both well positioned freight brokers and carriers with appropriate safety policies.
To those of you industry participants living under the proverbial rock, in Montgomery, the SCOTUS held that while state-law negligent-hiring claims against freight brokers are preempted under the 49 U. S. C. §14501(c)(1) of the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”), such state law causes of action are saved by the Safety Exception of §14501(c)(2)(A), thereby finding that a freight broker may be held liable for negligent-hiring claims due to the fact that such negligence claims arise “with respect to motor vehicles.”
Despite yesterday’s ruling, the sun still rose over the Atlantic in the East and will do so again tomorrow, and the next day, and the day after that (unless of course you’re a motor carrier with a “Conditional” safety rating, then those single tire tracks in the sand when you were at your lowest aren’t because the FMCSA was carrying you, it’s because SCOTUS in Montgomery did not come to your aid when plaintiff’s counsel shouted, “No Conditional carriers are allowed on this beach”…but more on that in a moment).
To put this ruling in context and potentially calm some nerves:
- Montgomery truly only overturns Circuit Court precedent in 6 states (to those mathletes out
there, that’s just 12% of the country) - Most freight brokers already have a written carrier selection policy and many carriers already
have written safety policies - Most freight brokers already have contingent auto/truck broker liability insurance policies
(and while I am hopeful premiums are not likely to increase significantly as this is the same
risk freight brokers have faced for years, you and I both know insurance companies find
reasons to increase rates easier than a cruise ship passenger finds a norovirus [too soon?]) - I believe more shippers, whether accurately or not, will likely want to use freight brokers (and
those shippers already using freight brokers may want to use them on more lanes) in an
attempt to insulate themselves from liability, as their use of a broker, may place them out of
reach of these claims due to the fact that the selection of a potentially unsafe motor carrier
was the proximate cause of the broker’s actions, not the shipper’s actions.
Returning quickly to the use of “Conditional” carriers: The SCOTUS did not come out and say freight brokers will always be liable for negligent hiring in the event they contract with a motor carrier with a “Conditional” safety rating as issued by the FMCSA and that motor carrier causes an accident. Instead, they mention Caribe Transport’s safety rating five separate times in the context pushed by the injured party, that “Based on that safety rating…C.H. Robinson knew (or should have known) that choosing Caribe Transport to move goods was reasonably likely to cause an accident.” While the SCOTUS did not push back or further contextualize such position, they did quickly revert back to causation without making such a bold proclamation about “Conditional” carriers. So, while they did not specifically come out and say “using a conditional carrier is always unreasonable,” I do not envy any attorney that must stand before a court and argue the reasonableness of their freight broker client’s selection of a “Conditional” carrier with the Montgomery language now so prevalent among our jurisprudence. And to be clear, I’m not saying a broker cannot be successful in such defense, it will just be a taller hill to climb in order to overcome the FMCSA’s finding of a motor carrier’s deficiencies, and the motor carrier will certainly want to work with transportation counsel to develop a well-crafted safety policy addressing such deficiencies to promote their continued participation in the industry.
Now, over the past 24 hours, I have read and listened to countless (not because there were so many, I just didn’t count) opinions about Justice Amy Coney Barrett’s majority opinion, and I can confidently proclaim, I do not share Chicken Little’s world view, nor do I see this as a seismic shift from the risks, pressures, and business decisions freight brokers faced all the way back…[turns pages]…on Wednesday. Back in those simpler times, in all but six states (11 th Circuit: FL, GA, AL and 7 th Circuit: IN, WI, IL [and yes, these are ordered from best to worst states for College Football]) freight brokers could, get this, be held liable for state law negligence claims because the specific jurisdiction either already ruled in the same manner as the SCOTUS (see 6 th and 9 th Circuits) or it was still an open question. And because I know each of the freight brokers reading this article didn’t limit the lanes they bid on to transits in just the six states detailed above, you all were already exposed to this risk in all of the other 44 states.
During oral arguments (transcript found here), like when Cindy Campbell in Scary Movie comes out of the school doors and proclaims to the unknown killer, “What are you waiting for?” Justice Kavanaugh asked, “What have brokers been doing in the Ninth Circuit (and Sixth Circuit) since 2020? Because I assume they have adjusted their behavior in response to [those Circuit Court decisions finding brokers liable for negligent hiring claims].” To which, counsel for the defense replied, “They — they have not made the radical change, waiting for a ruling from this Court to clarify that these claims cannot be recognized.” Welp, the wait is over, and as the SCOTUS proclaimed THESE CLAIMS ARE TO BE RECOGNIZED…govern your acts accordingly.
Despite what counsel said, our firm has worked with countless freight brokers (this time because there have been that many) over the years that have taken action in response to these risks, and we have helped them develop reasonable and defensible carrier selection policies in conjunction with the automation afforded by the various carrier selection software offerings. As with other rulings on the subject, Montgomery offers us additional guidance on the development of that carrier selection policy by quoting the plaintiff’s counsel when he said “the brokers ‘just have to hire carriers that actually have a reasonable [safety] policy.’” Therefore, if a motor carrier shows any major deficiencies (or perhaps any deficiencies at all), freight brokers may want to include a request for the carrier’s safety policies as part of their own updated carrier selection policy. With the help of counsel, freight brokers can work to establish an understanding of acceptable safety policies when determining whether to accept or decline any such policy. Further, motor carriers should seek legal assistance in drafting their own safety policies to better overcome any potential freight broker or shipper scrutiny of their own safety practices. In discussions I have had over the past day, I would expect these policies to take on more significance, and allow well-run freight brokers and carriers to elevate their operations over competitors, during future RFP’s. [Insert shameless plug here:] The attorneys at Taylor Nelson Slattery Bernard PL can assist freight brokers and carriers in establishing and implementing these policies.
To further help with these policy requirements, I would expect many of those software companies to start incorporating findings from this ruling, similar to Ascend TMS’ new Shipper Shield which launched immediately after this decision came down to automatically document what steps a shipper or a freight broker takes to verify a motor carrier.
Due to this known exposure that has haunted brokers for the past few decades, I always counsel my freight broker clients to obtain contingent auto/truck broker liability insurance policies. Many of these insurers already request a copy of the freight broker’s carrier selection policy. While the specific limits of the policies are subject to each freight broker’s discretion, there are arguments among the defense bar that the greater the limits you have, the larger the plaintiff’s demands will be (essentially, The Notorious B.I.G. had it right when he sang, “Mo Money Mo Problems”). However, many of my clients purchase limits not solely due to their potential risk exposure, but because of a contractual requirement passed down from the shippers above. It is important that each freight broker researches and understands its policies, its limits, and its exposure. And while I want to state that insurance premiums are not likely to go up, now is the time to position yourself through well crafted policies and reliable insurance agents to help mitigate those potential increases and negotiate more robust offerings. Essentially, an ounce of prevention is worth a pound of cure, and to my metric-using friends, that’s .0283495 kilograms of prevention is worth 453.592 grams of cure (but that doesn’t sound nearly as impressive that way).
And finally, speaking of shippers, during oral arguments, it was quickly dispelled that any shipper would be protected under FAAAA, and that the argument under preemption was solely with respect to freight brokers. However, that did not stop Justices Kagan, Sotomayor, and Gorsuch, and from inquiring with the various counsels during such oral arguments about whether a shipper would be liable for negligent hiring claims if it used an intermediary to contract with the carrier, or if the proximate cause of the injury would be limited to the broker. While they did not draw a definitively line, many of the questions and responses by the Justices appeared poised to draw a line as to where causation ended between the broker and the upstream shipper, but they failed to take that step, instead leaning back into the premises that each state’s own laws regarding causation will govern. However, with all things, the specific facts of each case will matter, but I do see this as an opening for freight brokers with established carrier selection polices and carriers with detailed safety policies to get more opportunities.
So what now? Just like taking a ride on a seesaw, freight brokers have had some up and downs, but at the end of this ride, we’re right back in the exact same place we were when we got on, only we’re all a little bit older and, for some, our backs are a bit sore. As with the initial cases regarding freight broker liability that predated the first uttering of the FAAAA preemption defense under negligent hiring claims, having now received the stone tablets from the mountain top, freight brokers have a “duty of reasonable care in employing [carriers] for work carrying a risk of physical harm.” Therefore:
Freight Brokers should strongly consider, with the assistance of experienced transportation counsel:
- Creating a reasonable carrier selection policy
- Training team members on what to look for in a motor carrier’s safety policy if requested
- Regularly reviewing the carrier selection policy
- Training its team on the use and application of such policy
- Documenting the training and its compliance with that policy
- Making sure to properly insure against such risks
Motor Carriers should strongly consider, again with the assistance of experienced transportation counsel:
- Creating specific safety policy that addresses overall safety and specific actions to
improve potential areas of concern - Regularly reviewing such policy
- Training its team on the use and application of such policy
- Documenting the training and its compliance with that policy.