Many motor carriers have formed broker divisions or entities. The proliferation of brokerages and the varied practices performed by them have created a whole new line of legal decisions.
Traditionally, brokers were immune from liability for freight damage or accident injuries caused by underlying motor carriers (except where the broker was found to have negligently selected an underlying carrier). As evidenced by a number of recent cases, including the 2011 California case of Contessa Foods v. CST Lines, brokers may no longer assume they are immune from such liability. “Given the increased burden of potential liability exposure for transportation brokers, it is critical that they adapt their practices to comply with the evolving state of the law in this area,” notes renowned transportation attorney Ronald Chauvel of Chauvel & Descalso, LLP in San Mateo, CA.
In Contessa Foods, the court set forth two alternative situations where a broker may be held liable as a motor carrier. First, the court held that “[A]n entity has liability … if it accepts responsibility for ensuring delivery of the goods, regardless of who actually transports them.” If the facts show that the broker’s communications and/or conduct reasonably led the shipper to believe that the broker would be providing the transportation then the broker will be held liable as a motor carrier.
Second, a broker can be subject to agency liability if its actions “were not limited to arranging transport, but also exerting some measure of control” over the transportation process. If the broker is found to exert too much control over the motor carrier it selects, then the broker may be held liable under general principles of agency. This is a murky quagmire that should be of great concern to all brokers.
In the Contessa Foods case, the facts showed “that after booking the shipment with … Contessa, … CST Lines faxed a load confirmation document with specific handwritten instructions concerning the manner and means by which the load should be carried. The instructions directed [the carrier] to carry the load at a specified temperature, make daily check calls to [the broker]…, and sign all papers using [the brokers] name.” The court found that “detailed instructions are indicative of the control” that a broker exerts over a motor carrier and may support liability of the broker under the principles of agency.
The "agency" theory of broker liability has recently been applied in a number of cases where brokers have been held liable for both freight damage and personal injuries caused by underlying motor carrier accidents. One of the most notable examples is the Sperl v. C. H. Robinson case where a multi-million dollar jury verdict was rendered against C.H. Robinson in a case alleging wrongful death and personal injuries resulting from an accident caused by an underlying motor carrier. As in the Contessa Foods case, C.H. Robinson was found to have exerted too much control over the underlying motor carrier’s activities.
As an aside, the recent federal Highway Act prohibits carriers from subcontracting shipments to other carriers. Upon implementation, carriers will have to form broker divisions to engage in such subcontracting in the future. This new law will undoubtedly result in the formation of many new brokerages. And, the Highway Act increases the surety bond required of brokers to $75,000, which will make the process of becoming a broker more expensive.
Lastly, Chauvel suggests that motor carriers that conduct brokerage operations would be wise to consult transportation counsel and adapt their practices to comply with the evolving state of the law in this area.