Delta Nu Alpha - June 26, 2008 Henry E. Seaton, Esq. Seaton & Husk, LP transportationlaw

11

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

33

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

44

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.

55

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


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

1919

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.

2020

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)

2222

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


“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

2424

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.

2626

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.

2727

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.

2929

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

3131

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

3232

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.

3333

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

3434

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

3636

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!

3737

Time to Take a BreakTime to Take a Break

3838

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

3939

Right of Offset


“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


“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


“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


“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


“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


“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

Delta Nu Alpha - June 26, 2008 Henry E. Seaton, Esq. Seaton & Husk, LP transportationlaw

Documents

Transcript of Delta Nu Alpha - June 26, 2008 Henry E. Seaton, Esq. Seaton & Husk, LP transportationlaw