delta nu alpha - june 26, 2008 henry e. seaton, esq. seaton & husk, lp transportationlaw
DESCRIPTION
CONTRACTS OF CARRIAGE A Study of Controversial Provisions which Divide Shippers, Brokers and Carriers. Delta Nu Alpha - June 26, 2008 Henry E. Seaton, Esq. Seaton & Husk, LP www.transportationlaw.net -and- Scott W. McMickle, Esq. Dennis, Corry, Porter & Smith, LLP www.dcplaw.com. - PowerPoint PPT PresentationTRANSCRIPT
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Delta Nu Alpha - June 26, Delta Nu Alpha - June 26, 20082008
Henry E. Seaton, Esq.Henry E. Seaton, Esq.Seaton & Husk, LPSeaton & Husk, LP
www.transportationlaw.netwww.transportationlaw.net -and--and-
Scott W. McMickle, Esq.Scott W. McMickle, Esq.Dennis, Corry, Porter & Smith, LLPDennis, Corry, Porter & Smith, LLP
www.dcplaw.comwww.dcplaw.com
CONTRACTS OF CONTRACTS OF CARRIAGECARRIAGE
A Study of Controversial Provisions which A Study of Controversial Provisions which Divide Shippers, Brokers and CarriersDivide Shippers, Brokers and Carriers
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Air & Expedited Motor Carrier AssociationAir & Expedited Motor Carrier AssociationApex Capital LPApex Capital LP
Champagne LogisticsChampagne LogisticsGreatwide Truckload ManagementGreatwide Truckload Management
Kings ExpressKings ExpressLandstar RMCSLandstar RMCS
USA Transportation Services, InternationalUSA Transportation Services, International
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About DNAAbout DNA
Fraternity of transportation professionalsFraternity of transportation professionals Open to all with interest in educationOpen to all with interest in education Interdisciplinary – shippers, carriers, third Interdisciplinary – shippers, carriers, third
party logisticians and studentsparty logisticians and students Traditional chapter format – Milwaukee, Traditional chapter format – Milwaukee,
Chicago, Rockford, Nashville, Bowling Chicago, Rockford, Nashville, Bowling Green, Grand Rapids, Louisville, Le High Green, Grand Rapids, Louisville, Le High ValleyValley
Student chapters at Western IL UniversityStudent chapters at Western IL University Scholarship programScholarship program
www.deltanualpha.org
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Syllabus of Future Webinars Contains Syllabus of Future Webinars Contains Chronic and Acute Industry ProblemsChronic and Acute Industry Problems
Format is issue presentation followed by open Format is issue presentation followed by open question and answer.question and answer.
Diverse opinions are encouraged.Diverse opinions are encouraged. Goal is to assess issues, impart information and Goal is to assess issues, impart information and
better prepare listeners as knowledgeable better prepare listeners as knowledgeable professionals in any industry which too professionals in any industry which too frequently ignores day-to-day problems of frequently ignores day-to-day problems of contracts, claims and operations in favor of contracts, claims and operations in favor of “supply chain management.”“supply chain management.”
CCPAC accreditation of 3 courses for cargo CCPAC accreditation of 3 courses for cargo claims specialists.claims specialists.
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Upcoming Webinar TopicsUpcoming Webinar Topics
7/15/2008 7/15/2008 FMCSA Safety RegulationsFMCSA Safety Regulations8/19/2008 8/19/2008 The Scourge of Double BrokeringThe Scourge of Double Brokering9/16/2008 9/16/2008 Cargo Claim Mitigation, Adjustment and Salvage Cargo Claim Mitigation, Adjustment and Salvage
IssuesIssues10/21/200810/21/2008 INCOTERMS – The Language of the Global INCOTERMS – The Language of the Global
EconomyEconomy11/18/2008 11/18/2008 Supply Chain Security Issues – Alphabet Soup Supply Chain Security Issues – Alphabet Soup
andandNew RegulationsNew Regulations
For more information and to register, go to For more information and to register, go to www.deltanualpha.orgwww.deltanualpha.org
Approved for Certified Claims ProfessionalApproved for Certified Claims ProfessionalAccreditation Council (CCPAC) Credit (1.5 CEUs)Accreditation Council (CCPAC) Credit (1.5 CEUs)
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SHIPPER AND BROKER CONTRACTSSHIPPER AND BROKER CONTRACTS
1.1. Waiver of statutes and regulationsWaiver of statutes and regulations2.2. Special and consequential damagesSpecial and consequential damages3.3. Indemnification clausesIndemnification clauses4.4. ““Additional insured” languageAdditional insured” language5.5. The right of setoffThe right of setoff6.6. Salvage / no duty to mitigateSalvage / no duty to mitigate7.7. Shipper load and count / concealed damage waiversShipper load and count / concealed damage waivers8.8. No penalties for nonpaymentNo penalties for nonpayment9.9. Homer provision / arbitrationHomer provision / arbitration10.10. Integration clausesIntegration clauses11.11. No recourse provisions; andNo recourse provisions; and12.12. No back solicitation agreementsNo back solicitation agreements13.13. Shipper contracts making a broker into a “carrier” or Shipper contracts making a broker into a “carrier” or
“service provider”“service provider”
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What is a Waiver?What is a Waiver?Answer:Answer:
Pursuant to 49 U.S.C. 14101(b):Pursuant to 49 U.S.C. 14101(b):““If the shipper and carrier, in writing, If the shipper and carrier, in writing, expressly waive any or all rights and expressly waive any or all rights and
remedies … for transportation covered remedies … for transportation covered by contract, the [services] provided by contract, the [services] provided
under the contract shall not be subject to under the contract shall not be subject to the waived rights and remedies and may the waived rights and remedies and may not be subsequently challenged on the not be subsequently challenged on the
grounds that it violates the waived rights grounds that it violates the waived rights and remedies.”and remedies.”
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What are the consequences of waiving What are the consequences of waiving federal “rights and remedies” and standard federal “rights and remedies” and standard
bill of lading terms and conditions?bill of lading terms and conditions?
Answer:Answer:
It takes 10 to 20 pages of fine print to It takes 10 to 20 pages of fine print to address the issues you just excluded address the issues you just excluded
and in the details the carrier often and in the details the carrier often loses.loses.
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61 Good Reasons Not to Waive Federal 61 Good Reasons Not to Waive Federal Transportation Law and Bill of Lading TermsTransportation Law and Bill of Lading Terms
I. I. IntroductionIntroductionII. II. What is Waiver? 49 U.S.C. What is Waiver? 49 U.S.C. §14101(b)§14101(b)III. III. What gets thrown out by a blanket waiver? What gets thrown out by a blanket waiver?
A.A. Carmack (49 U.S.C. §14706)Carmack (49 U.S.C. §14706)1. National uniformity and consistency of statute1. National uniformity and consistency of statute2. Predictability v. state law variance2. Predictability v. state law variance3. Uniform treatment of special and consequential 3. Uniform treatment of special and consequential damage issuedamage issue4. Removal to federal court, 28 U.S.C. §13374. Removal to federal court, 28 U.S.C. §13375. Venue flexibility for deciding and situs of loss, 49 5. Venue flexibility for deciding and situs of loss, 49 U.S.C. §14705(a)U.S.C. §14705(a)6. Forum non-conviens, right to transfer to convenient6. Forum non-conviens, right to transfer to convenient venue, 28 U.S.C. §1391venue, 28 U.S.C. §13917. Burden of proof for negligence transferred to shipper7. Burden of proof for negligence transferred to shipper8. Document presumption of good order and case law 8. Document presumption of good order and case law lost.lost.
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9. Consignee duty to accept shipment unless practically worthless and to mitigate damage loss10. State law liability standard inconsistent with cargo insurance coverage11. Joint line apportionment-49 USC 14706 12. Liability imposed on connecting line carriers, issuance of bill of lading not required, 49 USC 14706(1)13. Full actual value14. Released evaluation15. Preemption trumps state law causes of action
B. Written Claims Requirements16. Regulations establish standards of what constitutes a claim-370.3(c)17. Minimum claims requirements established-370.3(b)18. Adjustment and response procedures-deadlines, free astray certifications-370.5 and 370.7(c)19. Administrative Ruling 65 and 128-payment of freight charges/dispute resolution of claims vs. offset
C. Uniform bill of lading or standard bill of lading provisions waived 20. Bill of lading is contract of carriage/waiver results in shipping documents becoming simple receipt for goods-VICS bill contains no terms and conditions21. Loss of release rate notice and inadvertence clause, opportunity to
declare higher rate
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22. Loss of C.O.D. provision to require collection upon22. Loss of C.O.D. provision to require collection upon deliverydelivery23. Special instruction block for special service terms23. Special instruction block for special service terms24. Identity and definition of the party-who is the carrier in24. Identity and definition of the party-who is the carrier in
possession and controlpossession and control25. Identify payor of charges/is shipment prepaid or 25. Identify payor of charges/is shipment prepaid or
collectcollect or third partyor third party
26. Accurate description of commodity including hazmat26. Accurate description of commodity including hazmat certificatecertificate
Back Side Terms and Conditions Omitted from Back Side Terms and Conditions Omitted from ContractContract
27. Reasonable dispatch defined27. Reasonable dispatch defined28. Act of God exception28. Act of God exception29. Act of public enemy29. Act of public enemy30. Authority of law30. Authority of law31. Inherent vice31. Inherent vice32. Act or omission of shipper 32. Act or omission of shipper
Common Law Exceptions Trumped by Waiver
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33. 9 month rule for filing claims, statement in writing33. 9 month rule for filing claims, statement in writing required-49 U.S.C. 14706(e)(1)(a)required-49 U.S.C. 14706(e)(1)(a)
34. 2 years after denial to file suit limitation, stated in 34. 2 years after denial to file suit limitation, stated in writing-writing-
49 U.S.C. 14706(e)(1)49 U.S.C. 14706(e)(1)35. Carrier lien for freight charges confirmed-49 U.S.C.35. Carrier lien for freight charges confirmed-49 U.S.C.
80109, 49 U.S.C. 1370780109, 49 U.S.C. 1370736. Provision for warehouse statement of status upon36. Provision for warehouse statement of status upon
wrongful rejectionwrongful rejection37. Salvage provisions/non-perishable37. Salvage provisions/non-perishable38. Salvage provisions/perishable38. Salvage provisions/perishable39. Deduction of transportation charges from salvage after39. Deduction of transportation charges from salvage after
salesale40. No liability for items of extraordinary value40. No liability for items of extraordinary value41. Hazmat protocol/shipper duty to identify41. Hazmat protocol/shipper duty to identify42. Payment of freight charges/liability of consignor and42. Payment of freight charges/liability of consignor and
consignee (UBOL Section 7)consignee (UBOL Section 7)
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43. Instrumentalities of Transportation-Define the 43. Instrumentalities of Transportation-Define the PartiesParties Consignor-49 USC 80101(2)Consignor-49 USC 80101(2) Consignee-49 USC 80101(1)Consignee-49 USC 80101(1) Broker-49 USC 13102(2), 49 CFR 371Broker-49 USC 13102(2), 49 CFR 371 Motor Carrier-13102(14)Motor Carrier-13102(14) Not defined – 3PL, Logistics company or Not defined – 3PL, Logistics company or
“transportation service provider”“transportation service provider”44. Pitfalls to broker of waiving statutory definition44. Pitfalls to broker of waiving statutory definition
Loses statutory definition as arranger, easily Loses statutory definition as arranger, easily becomes “provider” entering the liability loop and becomes “provider” entering the liability loop and chain of custody vs. the mischief of “Service chain of custody vs. the mischief of “Service Provider” statusProvider” status
45. Shipper pitfalls45. Shipper pitfalls Loses standard as “member of shipping public” Loses standard as “member of shipping public”
and public utility analysis – prime contractor in and public utility analysis – prime contractor in supply chainsupply chain
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46.46. Broker recordkeeping and production of Broker recordkeeping and production of paymentpayment
records waived-49 CFR 371.3records waived-49 CFR 371.347.47. Misrepresentation provision separating broker Misrepresentation provision separating broker
fromfromcarrier-49 CFR 371.7carrier-49 CFR 371.7
48. 48. Anti-rebate prohibitions waived-49 CFR 371.9Anti-rebate prohibitions waived-49 CFR 371.949.49. Broker responsible for discharging shipper’sBroker responsible for discharging shipper’s
payment duties-371.10payment duties-371.1050.50. Prohibition against broker commingling of funds Prohibition against broker commingling of funds
and and requirements of segregation waived-371.11requirements of segregation waived-371.1151.51. Basis for “constructive trust” under statutes and Basis for “constructive trust” under statutes and
regulations waivedregulations waivedMiscellaneous statutesMiscellaneous statutes52.52. Off-Bill discounts, truth-in-billing-49 USC 13708Off-Bill discounts, truth-in-billing-49 USC 1370853.53. Overcharge, undercharge and duplicate Overcharge, undercharge and duplicate
payment payment regulations wiaved-49 CFR 378regulations wiaved-49 CFR 378
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54.54. Statutory time limits for identifying overcharges andStatutory time limits for identifying overcharges andundercharges-180 day rule, 49 USC 13710undercharges-180 day rule, 49 USC 13710
55.55. Broker’s bond registration and bond requirementsBroker’s bond registration and bond requirementswaivedwaived
56.56. Shipper load and count provisions which resultShipper load and count provisions which resultpresumption on shortage and damage claim waived-presumption on shortage and damage claim waived-49 USC 8011349 USC 80113
57.57. Possessory lien and duty to deliver-49 USC 80109-Possessory lien and duty to deliver-49 USC 80109-49 USC 1370749 USC 13707
58.58. Self-help provision, 49 USC 14704Self-help provision, 49 USC 1470459.59. Anti-lumping statute, 49 USC 14109Anti-lumping statute, 49 USC 1410960.60. Payment liability, 49 USC 13706, 49 USC 13707,Payment liability, 49 USC 13706, 49 USC 13707,
Credit Regulation at 49 CFR 377Credit Regulation at 49 CFR 37761. 61. Statute of limitation for collecting freight chargesStatute of limitation for collecting freight charges
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Waiver Under §14101 (b)
Objectionable Language Acceptable Language
“The parties expressly waive all rights, duties and obligations permitted under § 14101 (b)"
“General principles of Federal Transportation Law, Statutes and
Regulations shall apply to the extent not expressly waived herein.”
Partial List of Affected Items Preemption Claims rules and salvage §370 Overcharge and Undercharge §378 Through routing and joint ratesCarmackBill of Lading Terms
Federal Court JurisdictionCredit Regulations §377Broker Accounting and Segregation180 Day Rule for auditing bills
ATA Broker
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Special and Consequential Special and Consequential DamagesDamages
Carmack – is “full actual value” Carmack – is “full actual value” No special or consequential damagesNo special or consequential damages Shipper has duty to mitigateShipper has duty to mitigate
By contract shippers seekBy contract shippers seek Payment of penalties for late deliveriesPayment of penalties for late deliveries Waiting crane fees, missed market feesWaiting crane fees, missed market fees
What can resultWhat can result Crushed new cars because of bent bumpersCrushed new cars because of bent bumpers $30,000 charter plane bill to replace $500 delayed $30,000 charter plane bill to replace $500 delayed
shipmentshipment Imposition of penalties for delay beyond driver’s control Imposition of penalties for delay beyond driver’s control
which exceed guarantees of expediters like FedEx, DHL which exceed guarantees of expediters like FedEx, DHL or UPSor UPS
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“Carrier shall be liable for cargo loss and damage in accordance with federal law (49 U.S.C.
§14706) with respect to all shipments. Carrier shall not be liable for special or consequential damages. Carrier’s liability for cargo loss and damage shall be limited to the shipper’s actual cost of the articles, lost, damaged or destroyed
and shall not exceed $___per truckload or $___per pound per article, whichever is less.”
“Carrier shall be liable for all loss resulting from loss, damage, or delay to cargo including but
not limited to lost profits and sales, the cost of cover, the cost of expedited replacement, lost down time, additional handling and shipping
costs, and restocking fees.”
Special and Consequential Damages
Objectionable Language Acceptable Language
What’s the Difference?Do you pay for plant shut downs, air freight replacements, waiting cranes, etc.?
The Carmack Amendment limits liability – no state law remedy (emotional distress, punitives)
Reasonable dispatch only as per Bill of Lading
Don’t admit “foreseeability”
Time sensitive/JIT freight
ATA/NITL Section 7-No special or consequential without notice
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Risk Transfer Provisions in ContractsRisk Transfer Provisions in Contracts
Contractual risk transfer involves an Contractual risk transfer involves an attempt to allocate potential legal attempt to allocate potential legal liabilities which would arise in liabilities which would arise in connection with the performance of a connection with the performance of a contract between the parties to the contract between the parties to the contract. These liability risks are often contract. These liability risks are often allocated in a manner that would not allocated in a manner that would not have occurred under common law or in have occurred under common law or in the absence of contract.the absence of contract.
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Types of Contractual Types of Contractual ProvisionsProvisions
Two types of contractual provisions are Two types of contractual provisions are typically used to effect non-insurance risk typically used to effect non-insurance risk transfer from shippers and brokers to transfer from shippers and brokers to carriers. The are:carriers. The are:
(1) Hold harmless or indemnity (1) Hold harmless or indemnity provisions; andprovisions; and
(2) Additional insured and related (2) Additional insured and related insuranceinsurance
provisionsprovisions
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What is a Hold Harmless and What is a Hold Harmless and Indemnity Provision?Indemnity Provision?
An agreement whereby one party (the indemnitor), An agreement whereby one party (the indemnitor), assumes the other party’s (the indemnitee) legal liability assumes the other party’s (the indemnitee) legal liability to whatever extent delineated in the provisions.to whatever extent delineated in the provisions.
Typically if a hold harmless and indemnity provision is Typically if a hold harmless and indemnity provision is limited to the extent the shipper or broker is held limited to the extent the shipper or broker is held vicariously liable for injury or damage that the carrier vicariously liable for injury or damage that the carrier causes, the indemnity clause is unobjectionable, yet causes, the indemnity clause is unobjectionable, yet many shippers and brokers seek broader indemnification many shippers and brokers seek broader indemnification for losses “arising out of” the services provided for losses “arising out of” the services provided regardless of fault which extends the carrier indemnity regardless of fault which extends the carrier indemnity obligation to include:obligation to include: The negligent acts or omissions of third parties;The negligent acts or omissions of third parties; The contributory negligence of the indemnitee, if not The contributory negligence of the indemnitee, if not
indemnification for the indemnification for the sole negligencesole negligence of the of the indemnitee (if prevented by state anti-indemnity indemnitee (if prevented by state anti-indemnity statute)statute)
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Importantly, indemnity provisions Importantly, indemnity provisions operate independently from the operate independently from the
carrier’s insurance which may or may carrier’s insurance which may or may not cover the risk assumed by the not cover the risk assumed by the
carrier in the contractcarrier in the contract
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“It is the express intent of the parties to this agreement that
carrier will indemnify the shipper
for all loss, damage and claimof any kind arising out of this contract except for
shipper’s sole gross negligence.”
Indemnity
Objectionable Language Acceptable Language
“Except with respect to cargo damage claims as set forth
herein, each party will indemnify and hold harmless the other from all loss, liability or claims to the
extent same is caused by a negligent or willful act or
omission of their respective employees, agents or subcontractors in the
performance of this contract.”What’s the Difference?“Arising out of” language is broader than coverage afforded by additional insured language in new standard ISO endorsementComparative NegligenceCan Carrier can pay for shipper negligence?See anti-indemnity statutes of CA, IN, KS, MD, NC, NE, SC, TN, TX, VA and WV
ATA/NITL Section 10
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Two-Handed Pick PocketTwo-Handed Pick Pocket
The “two handed pick pocket” is the The “two handed pick pocket” is the name given to the combination of name given to the combination of
overreaching indemnification overreaching indemnification provisions coupled with “additional provisions coupled with “additional
insurance” requirements.insurance” requirements.
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Indemnity Provisions and Indemnity Provisions and Insurance CoverageInsurance Coverage
Where a motor carrier is obligated to Where a motor carrier is obligated to indemnify a shipper or broker by indemnify a shipper or broker by contract, the motor carrier’s general contract, the motor carrier’s general liability policy will respond to the liability policy will respond to the obligation if and only if the coverage for obligation if and only if the coverage for the claim is not otherwise precluded by the claim is not otherwise precluded by the terms of the policy.the terms of the policy.
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A CaveatA Caveat
A motor cannot assume that a broadly A motor cannot assume that a broadly worded indemnity will be automatically worded indemnity will be automatically covered by its commercial liability policy covered by its commercial liability policy without a detailed analysis of the without a detailed analysis of the exclusions.exclusions.
Even if the policy extends coverage to Even if the policy extends coverage to cover the shipper’s risk of loss by contract, cover the shipper’s risk of loss by contract, indemnification beyond legal liability indemnification beyond legal liability dilutes coverage and can increase loss dilutes coverage and can increase loss runs.runs.
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Motor Carriers Maintain:Motor Carriers Maintain: BI & PD BI & PD
In an amount of $1 million which goes to pay injured third In an amount of $1 million which goes to pay injured third parties/ MCS-90 endorsement and BMC 91X gives shipper parties/ MCS-90 endorsement and BMC 91X gives shipper assurance of payment for primary liability for carrierassurance of payment for primary liability for carrier
CargoCargo Policy loopholes existPolicy loopholes exist Carmack is Carmack is bestbest that can be expected that can be expected ““Loss payee” status is of no help in extending coverageLoss payee” status is of no help in extending coverage
General LiabilityGeneral Liability Covers “non-auto” BI & PD (i.e. excludes coverage for truck Covers “non-auto” BI & PD (i.e. excludes coverage for truck
wrecks)wrecks) Shipper is automatically insured under contractual liability Shipper is automatically insured under contractual liability
languagelanguage New ISO form limits “automatic contractual coverage” to “to New ISO form limits “automatic contractual coverage” to “to
the extent caused by”the extent caused by”
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Shippers demand and think Shippers demand and think they are getting more:they are getting more:
They seek:They seek:Coverage for their own act of negligence (i.e. Coverage for their own act of negligence (i.e.
no contributory or comparative negligence). If no contributory or comparative negligence). If motor carrier is 1% negligent it is responsible.motor carrier is 1% negligent it is responsible.
Protection from third party torts (i.e. if lumper Protection from third party torts (i.e. if lumper runs over their dockhand while loading the runs over their dockhand while loading the carrier’s truck the want protection under carrier’s truck the want protection under “arising out of” language.“arising out of” language.
They want waiver of subrogation and They want waiver of subrogation and protection against suit by carrier’s driver or protection against suit by carrier’s driver or owner-operator and their estates if carrier’s owner-operator and their estates if carrier’s driver or agent is injured by shipper.driver or agent is injured by shipper.
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Additional Insured StatusAdditional Insured Status
Additional insured status is a second Additional insured status is a second contractual risk transfer device intended contractual risk transfer device intended to achieve a similar end without relying to achieve a similar end without relying on the terms of the indemnity clause.on the terms of the indemnity clause.
It makes the shipper or broker an It makes the shipper or broker an insured in the carrier’s general liability insured in the carrier’s general liability policy and in the carrier’s auto liability policy and in the carrier’s auto liability policy subject to the terms and policy subject to the terms and conditions of the policy and the conditions of the policy and the additional insured endorsement.additional insured endorsement.
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What are the primary motives of shippers What are the primary motives of shippers and brokers for requiring additional and brokers for requiring additional insured status on liability policies?insured status on liability policies?
Additional insured status may reinforce risk Additional insured status may reinforce risk transfers that would otherwise be invalidated by transfers that would otherwise be invalidated by state anti-indemnity statutes (e.g. Condor Express)state anti-indemnity statutes (e.g. Condor Express)
It may give the indemnitee direct rights under the It may give the indemnitee direct rights under the carrier’s insurance, particularly with respect to carrier’s insurance, particularly with respect to defense coveragedefense coverage
It may prohibit the indemnitor’s insurer from It may prohibit the indemnitor’s insurer from subrogating against the indemnitee when the loss is subrogating against the indemnitee when the loss is caused by the indemnitee’s act or omissioncaused by the indemnitee’s act or omission
It may avoid having losses impact the shipper’s loss It may avoid having losses impact the shipper’s loss run history, avoiding increased insurance premiums run history, avoiding increased insurance premiums in the futurein the future
It may lessen the chance of the shipper having to It may lessen the chance of the shipper having to sue the carrier to be made whole following a claimsue the carrier to be made whole following a claim
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Additional InsuredObjectionable Language Acceptable Language
“Shipper shall be included as an additional insured, with respect to the insurance policies required above. All insurance
required and provided by Carrier shall be primary and any insurance maintained by
Shipper shall be excess and not contributing with Carrier’s insurance.”
“Carrier warrants that it maintains personal injury and property damage insurance ($1Mil
per occurrence and cargo insurance as required by the Fed. Motor Carrier Safety Admin. (Form
BMC-91X and BMC-34 on file). In addition Carrier warrants that it maintains workman’s compensation insurance as required by state
law and all risk cargo insurance in the amount of not less than ___ per occurrence.
Note: If shipper insists on “additional insured” for 3rd party liability, you should exercise extreme caution, providing policy and insurers written endorsement warranting nothing about what is coveredWatch cargo loopholes and Accord exclusions
Problems
Most shippers think you are buying them indemnity covering their own negligence; most insurers don’t agree. Shippers can outsmart themselves and lose their own coverage.
ATA/NITL Section 5
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Avoid the Complexity of Avoid the Complexity of Indemnity/Insurance IssuesIndemnity/Insurance Issues
If you are foolish enough to try to extend If you are foolish enough to try to extend your policy to cover a shipper’s negligenceyour policy to cover a shipper’s negligence(1) you may be covered but don’t bet on it;(1) you may be covered but don’t bet on it;(2) as a general rule, say no, and be(2) as a general rule, say no, and be
EXTREMELY careful with exceptions.EXTREMELY careful with exceptions.
Examples of horror shows involving the Examples of horror shows involving the two handed pick pocket.two handed pick pocket.
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Carrier agreed to indemnify shipper Carrier agreed to indemnify shipper and to acquire insurance protecting and to acquire insurance protecting the shipper against injured driver the shipper against injured driver suit (suit (Quaker v. Condor)Quaker v. Condor) Shipper’s negligence injures driverShipper’s negligence injures driver Indemnity found against public policy under Indemnity found against public policy under
state lawstate law Carrier required to pay because it did not Carrier required to pay because it did not
procure insurance for shipperprocure insurance for shipper
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Indemnity under UIIA – no Indemnity under UIIA – no coverage for brokered loadcoverage for brokered load Chicago drayman checks out container Chicago drayman checks out container
and chassis and gives load to another and chassis and gives load to another carriercarrier
Subcontractor hit a bridgeSubcontractor hit a bridge Indemnitee (chassis owner) sues Indemnitee (chassis owner) sues
drayman’s insurer for indemnitydrayman’s insurer for indemnity Insurer denies coverage (brokerage Insurer denies coverage (brokerage
excluded from auto liability; auto coverage excluded from auto liability; auto coverage was excluded from general liability)was excluded from general liability)
$10 million verdict against drayman$10 million verdict against drayman
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Indemnity Trumps Carmack Indemnity Trumps Carmack and Bill of Lading Limitationand Bill of Lading LimitationAir waybill limits liability to Air waybill limits liability to
$100,000.$100,000.Forwarder pays $692,000 claim and Forwarder pays $692,000 claim and
turns to carrier under shipper/carrier turns to carrier under shipper/carrier contract for “indemnity”contract for “indemnity”
No contract limitation found, no No contract limitation found, no Carmack or bill of lading limitation Carmack or bill of lading limitation appliedapplied
Carrier has to pay $692,000Carrier has to pay $692,000
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Groping for SolutionsGroping for Solutions Limit indemnity to “to the extent caused by”Limit indemnity to “to the extent caused by” Work with your insurer to meet shipper’s needsWork with your insurer to meet shipper’s needs
Be sure “waiver of subrogation” request is acceptable Be sure “waiver of subrogation” request is acceptable and does not vitiate worker’s compand does not vitiate worker’s comp
Examine use of broadly worded CG2026 or CG2010 Examine use of broadly worded CG2026 or CG2010 which should meet shipper’s needs for general liability which should meet shipper’s needs for general liability coverage. It can dilute carrier coverage, but no gaps in coverage. It can dilute carrier coverage, but no gaps in coverage if 2 handed pick pocket is otherwise limited.coverage if 2 handed pick pocket is otherwise limited.
““Additional insured” status may give shipper assurances Additional insured” status may give shipper assurances of representation in vicarious liability BI-PD auto case of representation in vicarious liability BI-PD auto case but won’t necessarily “extend” coverage to shipper for but won’t necessarily “extend” coverage to shipper for its acts of negligence. (Carrier spills diesel/shipper’s its acts of negligence. (Carrier spills diesel/shipper’s employee lights a match and throws it on the spill.)employee lights a match and throws it on the spill.)
Know your insurance and offer the shipper only what Know your insurance and offer the shipper only what you have!you have!
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Time to Take a BreakTime to Take a Break
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OffsetOffset What is it?What is it?
When shipper deducts a contested cargo claim from a When shipper deducts a contested cargo claim from a carrier; ORcarrier; OR
When a broker pays a contested cargo claim and When a broker pays a contested cargo claim and deducts from carrierdeducts from carrier
Why do shippers and brokers offset?Why do shippers and brokers offset? Carriers and their insurer do not settle claims; ORCarriers and their insurer do not settle claims; OR Because the carrier’s insurance contains loopholes Because the carrier’s insurance contains loopholes
which allow denial of coverage and the carrier factors its which allow denial of coverage and the carrier factors its billsbills
What is the result?What is the result? Cargo claims are not adjusted in accordance with 49 CFR Cargo claims are not adjusted in accordance with 49 CFR
370370 Insurers will not pay carrierInsurers will not pay carrier Carrier is deprived of needed revenueCarrier is deprived of needed revenue
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Right of Offset
Objectionable Language Acceptable Language
“Compensation paid to Carriers may be withheld to satisfy claims or shortages,
or any debt owed by carrier to shipper/broker at shipper/broker’s
sole discretion.”
“Shipper/broker shall pay freight charges within 30 days
without offset”OR
“Freight charges shall be paid in accordance with the terms of carrier’s
Service Conditions. See www.___.com”
Reasons to Reject Offset
Spiral of death to carriera) Insurer won’t pay b) Factoring terms are violated c) Cash flow interrupted
No mitigation of loss – broker or carrier takes full unadjusted amount of lossRules circular deal with important collection issuesBrokers who have no cargo liability take advantage of carrier to keep shippers happy
ATA/NITL Section 3(a)-No Offset
ATA Broker
4040
Duty to MitigateDuty to MitigateUnder common law, a the consignee Under common law, a the consignee
must accept goods unless must accept goods unless “practically worthless”“practically worthless”
Consignee cannot reject 22 pallets Consignee cannot reject 22 pallets because 2 are damaged – the because 2 are damaged – the mitigation test is one of mitigation test is one of reasonablenessreasonableness
4141
By contract, shippers seek waiver of By contract, shippers seek waiver of duty to mitigate using “sole duty to mitigate using “sole discretion” languagediscretion” language
They require return of rejected They require return of rejected shipments at the carrier’s expense shipments at the carrier’s expense and dump the goodsand dump the goods
4242
Examples of Duty to Examples of Duty to Mitigate AbuseMitigate Abuse
Dumping of good foodstuff without Dumping of good foodstuff without inspection due to broken sealsinspection due to broken sealsPicklesPicklesOrange JuiceOrange JuiceCoca-ColaCoca-Cola
Crushing new cars because of Crushing new cars because of bumper damagebumper damage
4343
Salvage/No Duty to MitigateObjectionable Language Acceptable Language
“Neither shipper nor its customers shall have a duty to mitigate damages. In the event of damaged, branded or labeled
goods, shipper’s customer may determine, within its sole discretion,
whether all or part of the shipment may be salvaged and the value of such
salvage.”
Delete and incorporate Service Conditions which contain salvage rules – Bill of Lading also includes
the shipper and consignee common law duty to mitigate unless agreed
to the contrary.
Reasons for ObjectionObjectionable language makes “wrongful rejection” legalConsignor has duty to accept shipment unless its “effectively worthless”Don’t let one broken pallet cost you a truckload“Distress sale” of rejected shipment will produce losses a consignee can avoid by using undamaged product in stream of commerceIssue on-hand notice and get an expert ATA/NITL Section 7(d)-Shipper
and consignee have duty to mitigate
4444
Shipper Load and CountShipper Load and Count New HOS rules have proliferated use of spotted New HOS rules have proliferated use of spotted
trailerstrailers Carrier’s drivers are not there to count freight on or Carrier’s drivers are not there to count freight on or
off trucksoff trucks Bill of Lading Act contemplates “SL&C” and says Bill of Lading Act contemplates “SL&C” and says
carrier is not liable for count or upset due to loading carrier is not liable for count or upset due to loading when:when: Loaded by shipper, unloaded by consigneeLoaded by shipper, unloaded by consignee Phrase “Shipper Load and Count” or similar is on billPhrase “Shipper Load and Count” or similar is on bill
Carrier should not be responsible absent negligence Carrier should not be responsible absent negligence for delivery of spotted trailer with seal intactfor delivery of spotted trailer with seal intact
Many shipper contracts make carrier responsible for Many shipper contracts make carrier responsible for count and warehouse shortage resulting from short count and warehouse shortage resulting from short countscounts
4545
Shipper Load andCount/Concealed Damages
Objectionable Language Acceptable Language
“Carrier will provide spotted trailers for shipper’s convenience in loading and unloading. Notwithstanding the use of spotted equipment carrier will accept
responsibility for the loading and counting of each shipment.”
“Carrier shall not be responsible for shortage on shipments loaded and
counted by consignor where the trailer is received at destination with seals intact.
Failure to indicate “SL+C”, “Subject to shipper load and count” or like notations
on shipping documents shall not be a conclusive determination of carrier liability
when driver is not present during the loading or unloading of shipment.”
Note:Carrier rules circular will address this issueAccept pallet count not individual piece count
ATA/NITL–SL&C is standard/consignee has duty to
accept broker seals
4646
Freight Payment TermsFreight Payment Terms Carriers are general unsecured creditorsCarriers are general unsecured creditors Bankruptcy is rampantBankruptcy is rampant
Goody’s Goody’s Dan RiverDan River Rust BeltRust Belt
3PL won’t guarantee payments3PL won’t guarantee payments Fuel cost of 80Fuel cost of 80¢ per mile must be paid immediately¢ per mile must be paid immediately Shipper increasingly want 45 to 60 day credit Shipper increasingly want 45 to 60 day credit
terms/no interest or penaltyterms/no interest or penalty Most small carriers must factor paying 1.5% to 3% per Most small carriers must factor paying 1.5% to 3% per
month - cost on many exceeds profit marginmonth - cost on many exceeds profit margin Carriers must get paid early and on time to avoid Carriers must get paid early and on time to avoid
“preferences” “preferences” Factors can and will pull the sting if a major shipper Factors can and will pull the sting if a major shipper
goes downgoes down Carriers are the last to get paid by failing shipperCarriers are the last to get paid by failing shipper
4747
No Penalties for Non-Paymentof Freight Charges
Objectionable Language Acceptable Language
“Payment will be made within 60 days receipt of carrier’s invoice including the original delivery receipt to which
no exception is noted – Carrier waives any lien it may have on shipments for
freight charges.”
“Freight charges are due within 30 days of receipt of invoice and
certified copy of the delivery receipt (via fax, mail or EDI). Freight
charges not paid within 45 days are subject to interest and collection
fees (see Carrier’s Rules Circular).”
NoteCarrier can ill afford to provide interest free loansCollection remedies must be incorporated into contract or by reference in Rules Circular and be referenced on each invoice (49 CFR 377)
ATA/NITL Section 3(a)-Interest but no penalties
ATA Broker
4848
Homer Provisions/ArbitrationObjectionable Language Acceptable Language
“Carrier consents to exclusive jurisdiction and venue in
shipper’s/broker’s hometown of Hilo, HI. The laws of the State of HI will
apply. All disputes will be subject to binding arbitration at shipper’s election
before the arbiter of its choice at its home town.”
“General principles of federal transportation law, jurisdiction and venue state apply. Subject to the
approval of carrier’s cargo insurer, cargo claims not paid within 120 days may be subject to binding arbitration
initiated by either party before the arbitration services of the Trans.
Lawyers Assoc.”Note
:Federal law not state law should applyShippers choice of venue is often irrelevant to dispute, just a difficult place to sueArbitration or ADR (Alternative Dispute Resolution) is in both parties’ interest and expedited arbitration or mediation is to be preferred.
ATA/NITL Section 22-General principles of federal transportation law/ADR is
voluntary
4949
Integration Clauses
Objectionable Language Acceptable Language
“This contract contains each and every term of the agreement
between shipper/broker and carrier and no provision of any carrier published tariff or rule applies.
This contract may only be modified by a signed written
amendment.”
“The terms and conditions of the Standard Truckload Bill of Lading and
Carrier’s Rules Circular (www.carriers.com) shall apply. This contract otherwise includes all of the terms and conditions of
the agreement between the parties and may be modified only by a
signed written agreement.”
Note: Be sure the Bill of Lading and your Service Terms and Conditions are incorporated by reference and are not excluded.
ATA/NITL – has integration/must incorporate rules tariff and standard
BOL
5050
Carrier Recourse to ConsignorCarrier Recourse to Consignor The majority rules is the broker is agent of shipper and The majority rules is the broker is agent of shipper and
carrier has bill of lading recourse to shipper if (1) carrier is carrier has bill of lading recourse to shipper if (1) carrier is not paid and (2) carrier has not surrendered recourse for not paid and (2) carrier has not surrendered recourse for signing Section 7 or waiving recourse.signing Section 7 or waiving recourse.
See See Contship Container Lines, Inc. v. Howard Industries, Contship Container Lines, Inc. v. Howard Industries, Inc.Inc., 309 F.3d 910 (6th Cir. 2002); , 309 F.3d 910 (6th Cir. 2002); Hawkspere Shipping Hawkspere Shipping Company, Ltd. v. Intamex, S.A.Company, Ltd. v. Intamex, S.A., 330 F.3d 225 (4th Cir. , 330 F.3d 225 (4th Cir. 2003); 2003); National Shipping Co. Of Saudi Arabia v. Omni LinesNational Shipping Co. Of Saudi Arabia v. Omni Lines, , 106 F.3d 1544 (11th Cir. 1997); 106 F.3d 1544 (11th Cir. 1997); Exel Transp. Servs. v. CSX Exel Transp. Servs. v. CSX Lines L.L.C.Lines L.L.C., 280 F. Supp. 2d 617 (D. Tex. 2003); , 280 F. Supp. 2d 617 (D. Tex. 2003); Oak Oak Harbor Freight Lines, Inc. v. Sears Roebuck & Co.Harbor Freight Lines, Inc. v. Sears Roebuck & Co., 513 F.3d , 513 F.3d 949 (9th Cir. 2008)949 (9th Cir. 2008)
75% of collection cases involve broker non-payment75% of collection cases involve broker non-payment
Scourge of double brokerage to be covered in AugustScourge of double brokerage to be covered in August
Major fault line between carrier and broker industryMajor fault line between carrier and broker industry
5151
Nonrecourse Provision (in Broker Contracts)The Major Issue – Separating Carriers and Brokers
Objectionable Language Acceptable Language
“Carrier authorizes Broker to invoice shipper for freight charges as agent on behalf of carrier. Payment of freight charges to broker shall
relieve shipper of any liability to the Carrier for non-payment of charges…Broker shall be
agent for Carrier for collection of freight charges.”
“As agent for its customer, broker shall transmit freight charges to Carriers in
accordance with the federal regulations applicable to property brokers (49 CFR 371). Carrier will abstain from invoicing shipper for payment until all methods of collection from
broker have been exhausted.”
Objectionable provision cuts off Carrier’s recourse to shipper and consignee under Bill of Lading in the event of non-paymentAcceptable provisions makes broker the agent of the shipper who hires it, preserves recourse
The Differences
Note: More helpful language is incorporated by reference into the Carrier’s Service Conditions
MAJOR UNRESOLVED ISSUE – AFFECTS CONSTRUCTIVE TRUST
TIA ATA
5252
Objectionable language can bar you from responding to an unsolicited offer to bid on a shipper’s traffic
Objectionable language can preclude you from handling unrelated traffic lanes for Corporate 500 shippers without paying a commission
The Differences
Back Solicitation Provision
5353
Back Solicitation Provision
Objectionable Language Acceptable Language
“Carrier recognizes broker as its exclusive agent with respect to any
customer for whom it provides service under this agreement. Broker agrees to pay broker liquidated damages 20% of the revenue it receives for shipments
handled for such shippers without broker’s expressed authorization and for
a period for two years following termination of this agreement.”
None -OR-
“Carrier will not back solicit Broker with respect to traffic first tendered to Carrier
by Broker for a period of one year following termination of this agreement. As liquidated damages, Carrier agrees to pay Broker a 10% commission for shipments handled in violation of this
covenant for a period of one year following cancellation of this agreement.”
TIA
5454
Broker Required to Accept Broker Required to Accept Contract as “Carrier”Contract as “Carrier”
Increasingly major shippers insist Increasingly major shippers insist brokers sign their shipper/carrier brokers sign their shipper/carrier contracts with little or contracts with little or nono changes. changes.
Often the only change is in the Often the only change is in the recitals saying that the broker holds recitals saying that the broker holds a license and bond.a license and bond.
5555
It is virtually impossible to redline a 30 page It is virtually impossible to redline a 30 page carrier contract to sort out the role of the carrier contract to sort out the role of the broker as an “arranger” not a “provider”.broker as an “arranger” not a “provider”.
Result in “an open trap” for broker liability Result in “an open trap” for broker liability for cargo loss, third party liability, for cargo loss, third party liability, notnot covered by insurance and “negligent hiring” covered by insurance and “negligent hiring” or contractor/subcontractor employment or contractor/subcontractor employment issuesissues
Shipper/3PLs will say, “Sign as is, everybody Shipper/3PLs will say, “Sign as is, everybody else does” - Broker regulations make this else does” - Broker regulations make this misrepresentation a regulatory violationmisrepresentation a regulatory violation
5656
The Lessons of The Lessons of Schramm v. Schramm v. FosterFoster
and and Jones v. CH RobinsonJones v. CH Robinson
Don’t assume carrier’s responsibility or Don’t assume carrier’s responsibility or safety warrantiessafety warranties
Courts do not understand role of 3PLs – Courts do not understand role of 3PLs – neither to government appointees. See neither to government appointees. See Jones v. C.H. Robinson Worldwide, Inc.Jones v. C.H. Robinson Worldwide, Inc., , 2008 U.S. Dist. LEXIS 45325 (W.D. Va. 2008 U.S. Dist. LEXIS 45325 (W.D. Va. June 10, 2008) June 10, 2008)
5757
SolutionSolution Use a wraparound logistics agreement Use a wraparound logistics agreement
identifying broker as “arranger” who will use identifying broker as “arranger” who will use “licensed, authorized and insured carriers” - “licensed, authorized and insured carriers” - contingent liability and contingent cargocontingent liability and contingent cargo
Attach Shipper/Carrier Contract as Appendix Attach Shipper/Carrier Contract as Appendix A, represent that broker will endeavor to A, represent that broker will endeavor to retain a carrier to meet needs set forth retain a carrier to meet needs set forth thereintherein
Modify Appendix A in wraparound as neededModify Appendix A in wraparound as needed Require name of actual carrier on bill of Require name of actual carrier on bill of
lading and be careful not to misrepresent lading and be careful not to misrepresent status of ARRANGER on bill of ladingstatus of ARRANGER on bill of lading
5858
QuestionsQuestions