Risk Management for Freight Brokerage.

1. Freight Brokerage
RISK MANAGMENT
April 2019

2. Freight Broker Structure
• A freight brokerage or independent freight broker is an entity that is
responsible for facilitating the movement of a freight by
contract/agreement using a quality motor carrier.
• The responsibilities of a freight broker are not limited to connecting
motor carriers with shippers. They must communicate with both
parties it represents, as well as, track the load and verify it’s pickup
and delivery.
• Practically speaking, a freight broker is a transportation
intermediary. They are neither a shipper nor an asset-owning motor
carrier, but they play an integral role in the movement of cargo.
• Brokers provide a valuable service to both motor carriers and
shippers. They help qualified motor carriers find loads. They help
shippers find reliable motor carriers that they might not have
otherwise known about.

3. What Is A Freight Broker
CFR: Title 49: Transportation - PART 371 - Brokers of Property
• Broker means a person who, for compensation, arranges, or offers to
arrange, the transportation of property by an authorized motor
carrier. Motor carriers, or persons who are employees or bona fide
agents of carriers, are not brokers within the meaning of this section
when they arrange or offer to arrange the transportation of
shipments which they are authorized to transport and which they
have accepted and legally bound themselves to transport.
A freight broker:
• Serves as a liaison between another an organization that needs
shipping services and an authorized motor carrier.
• plays an important role in the movement of cargo
• doesn't function as a shipper or a carrier.
• connects a shipper with a carrier willing to transport the items at an
acceptable price.

4. MAP 21
The Moving Ahead for Progress in the 21st Century Act (MAP-21) took
effect in 2012, increasing requirements and penalties as they relate to
operating as a freight broker.
Changes in effect from MAP-21 include the following:
• Brokers must register with FMCSA, and by definition may only
arrange, but not perform, transportation of freight on both an
interstate and intrastate basis.
• An increase in the surety bond from $10,000 to $75,000.
• Brokers must have an officer (not just an employee) that has
three years of brokering experience and exhibits knowledge of
brokering practices, rules, and regulations.

5. Liability and Litigation
Over the years there has been considerable litigation involving freight
brokers. When there is an issue with a trucking company, it is not
uncommon for all related parties involved in the shipment be joined
into the litigation, even if the broker didn’t “touch” the shipment.
• Sperl v. C.H. Robinson (2009). Plaintiffs awarded $23.7 million because the truck
driver and her employer had the minimum applicable insurance coverage,
leaving the broker for the load responsible.
• Hoffman v. Crane (2012). Plaintiffs awarded $27.7 million. In this case, the
plaintiffs argued that the motor carrier, logistics provider, and shipper acted as a
joint venture and were jointly and severally liable.
• In 2017 JB Hunt’s brokerage operation contributed to a $6.3 million
settlement for the role in hiring a motor carrier involved in a fatal accident.
Even though you are not hauling the freight, as a broker you are
exposed to Vicarious Liability and liabilities associated with Negligent
Hiring.

6. Carrier/Broker Agreement
The carrier/broker agreement outlines the terms under which a
broker will work with a motor carrier. It’s designed to address your
relationship with that carrier. When writing the carrier/broker
agreement, make sure to include:
• The carrier’s motor carrier (MC) or license number, full corporate name and
address.
• If you'll be working with this carrier on a contract basis, state that the freight
and rates will be negotiated for each shipment.
• State that the carrier is liable for any damage or loss to the freight that occurs
while the carrier transports it.
• Note that the carrier is solely responsible for any personal injury or damage
to third parties that occurs while the freight is in the carrier’s possession.
• State when the carrier will receive payment and what the carrier must
provide before you will pay (such as bills of lading).

7. Risk Control
There are best practices you can follow to protect your brokerage
operation:
• Keep written procedures for all brokerage employees to follow and a written
agreement with all motor carriers used to haul freight for your brokerage.
• Ensure the motor carrier’s liability and cargo limits are appropriate for the haul
and value of the cargo. When a broker is contracting a load to a motor carrier, it
is recommended that you know the specific exclusions that are on the motor
carrier’s policy. Exclusions can relate to specific commodities an/or to specific
causes of loss.
• Secure coverages such as Contingent Cargo, Contingent Liability, and Errors &
Omission that are tailored for a brokerage operation.
• Have a current Certificate of Insurance with each motor carrier you engage,
naming the brokerage as additional insured and provide a 30-day cancellation
notice on file for every carrier.
• Do not name the brokerage on the Bill of Lading under “Motor Carrier”.

8. Risk Control
Best practices continued:
• Allow the motor carrier to direct their activities during transit of a load.
• Do not impose fines for delivery issues.
• Check FMCSA’s SAFER system to check the motor carrier’ s Out of Service scores
and Safety rating prior to releasing a load.
• Do not allow the motor carrier to double broker loads.

9. Coverages
FMCSA Property Broker Bond (BMC-84)
The Federal Motor Carrier Safety Administration (FMCSA), a division
of the United States Department of Transportation, requires that
freight brokers have a surety bond in effect for $75,000. The broker
license shall remain valid or effective only as long as a surety bond
remains in effect and shall ensure the financial responsibility of the
freight broker.
Errors & Omissions Insurance
Errors & Omissions insurance responds to the legal liability for
financial loss (not limited to the value of the cargo) incurred by a
freight broker’s client arising from negligence, error or omission in the
normal course of providing domestic freight broker services.

10. Coverages
Freight Broker’s Auto Liability Coverage
Commonly referred to as Contingent Auto Liability, this coverage
allows you to respond to defense and damage payments associated
with being named party to a law suit including a third party motor
carrier’s fatality or injury accident. With judgments in the millions of
dollars, this represents the greatest financial risk to freight brokerage
companies. Your freight broker Auto Liability Policy provides for a Duty
to Defend. It will provide defense, pay defense costs, as well as, any
attributable damages or support settlement up to the policy limits.
Freight Broker’s Excess Auto Liability Coverage
This coverage sits on top of your primary freight broker Auto Liability
policy.

11. Coverages
Broad Form Contingent Cargo Insurance
This insurance is required when a freight broker agrees to assume
responsibility for cargo loss or damage that a motor carrier fails to
pay. Whenever you sign a contract with a client (shipper), it should be
reviewed to determine if it is expanding the freight broker’s liability
assumed under your D.O.T. Domestic Freight Broker authority. These
contracts often contain indemnity clauses which require the freight
broker to assume responsibility for a cargo claim should the trucker
fail to pay for loss or damage associated with the freight. This
coverage is available for shipments involving most commodities.
However, certain high risk cargo exposures (liquor, tobacco, high
valued electronics, cell phones, copper and other non-ferrous metals)
often require Broad Form Cargo Coverage.

12. Coverages
Freight Broker Contingent Cargo Legal Defense Coverage
This coverage is designed to respond to the “legal” liability incurred
under law by a domestic freight broker. There are often Freight
Liability extensions which cover other financial perils that are present
beyond liability to the cargo. These might include a freight broker’s
liability for pollution cleanup expense or fines arising from a breach of
law or regulation relating to the movement of freight.
Domestic Shipper’s Interest Cargo Insurance
While it is the motor carrier who bears responsibility for loss of
and/or damage to the shippers goods, many carriers limit their liability
for freight in their care, custody and control. Your agreements with
shippers may require selecting an “All Risk” cargo insurance policy
designed to protect the shippers’ goods when situations arise where
the motor carriers’ policy does not cover the full loss.