Approximately $200 Billion of freight is moved through intermediaries (18,000 Brokers and 2,000 Freight Forwarders in the United States) annually. In the insurance space, truck brokerage operations are familiar with Contingent Auto Liability (CAL) and Contingent Cargo (CC). These coverages are typically required in Shipper/Broker Agreements.
The key word in both is Contingent. In brief, when a motor carrier is dispatched by a broker and has an accident, the CAL and CC policies held by a broker are providing secondary coverage / default insurance.
Contingent policies are triggered by two situations:
- The failure of the carrier to indemnify
- The failure of the carrier’s insurer to indemnify
Enter Truck Broker Liability (TBL).
Truck Broker Liability came about due to the need for immediate defense and indemnity irrespective of carrier liability and also protect the interests of their customers, the shippers who frequently are additional insureds. Many contingent coverages provide primary defense irrespective of when coverage is triggered. That said, it is hard to determine in all cases.
Truck Broker Liability is the product of three triggers:
- Sophistication of Shippers – Shippers Council is requiring freight brokers to take on the majority of the risk exposure within the Shipper/Broker Agreement. This is through Additional Insured requirements, waiver of subrogation clauses and indemnification agreements.
- Targeting by Plaintiff Attorneys – As litigation is booming in the trucking industry, Plaintiff Attorneys are naming freight brokers within law suits. Under traditional Contingent Auto Liability, coverage will not trigger until the failure of the Motor Carrier’s primary auto policy. With the majority of large liability claims lasting 3-5 years, it could be years before CAL would respond.
- Freight Brokerage Management – With the increase in liability, 3PL leadership teams are interested in limiting their risk and utilizing best practices to protect their operations.
Under a Truck Broker Liability policy, Primary Defense and Indemnity is triggered when the legal liability has been confirmed. For example, once the brokerage has been named in a law suit, TBL will provide defense coverage.
Truck Broker Liability is typically 10 to 25% higher than Contingent Auto Coverage due to the high cost of defense. However, because of the broader coverage, TBL is only offered to insureds that meet risk acceptability and best practices. To be a candidate for TBL, a Freight Brokerage must exhibit best practices overall in the following areas:
- Operational - What the operation is and how they work
- Contractual - From broker carrier agreements to broker shipper agreements
- Insurance - Insurance required from their carriers and more information than what is on a certificate of insurance
- Carrier Selection - Our partners provide a free risk management snapshot on all carriers. The idea is to prevent claims for negligent hiring, negligent entrustment and vicarious liability
- Control - The insured can never control the carrier or will be legally liable
Freight Brokers should be aware of as many ways to limit risk as possible. There are insurance products available to address and limit some common issues facing 3PL operations, including:
- Broker Errors & Omission
- Contingent Cargo
- Broker Cargo
- Shippers Interest Policies