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From the Transportation Newsletter.

In the realm of high value freight and cargo loss, brokers and carriers continue to litigate who is responsible for knowing the value of a shipment and obtaining appropriate insurance coverage. In Complete Distribution Services, Inc. v. All States Transport LLC, 2014 WL8333372 (D. Or. 2014), the Court again examined this question. In that case, Complete Distribution Services, Inc. (“CDS”), a broker, arranged for transportation of shipments with All States Transport LLC (“All States”). After a cargo loss occurred, CDS settled with its customer, the shipper, and then pursued recovery from All States. All States asserted an affirmative defense to the broker’s claim based on negligence. Specifically, All States argued that CDS had a duty to determine the value of the shipments for which it had arranged transportation and to inform All States whether those values exceeded its cargo insurance limits. Having failed to do so, All States argued that CDS had caused it to accept shipments that exceeded its insurance coverage and that CDS must bear some responsibility and liability for damages arising from the cargo loss.

The Court rejected this argument. It noted that, “In general, courts have not imposed a legal duty on transportation brokers to hire carriers with specific insurance coverage.” 2014 WL8333372 at *7. Even where such a duty was imposed on brokers, “The obligation arose from a contract; courts have not recognized a general tort duty to hire carriers with specified insurance coverage.” Id. Thus, the Court struck the affirmative defense, finding that there was no case law “establishing or recognizing a duty on the part of a broker to ensure that a carrier has adequate insurance to cover potential losses or damages to the cargo.” Id. For the same reasons, the Court struck defendant’s counterclaim for negligence, holding that the broker had no duty to inform the carrier of the value of the shipment in order to obtain a certain level of insurance.

This holding has lessons for both brokers and carriers. First and foremost, the Court recognized that the parties can control who is responsible for informing the other of the value of the shipment and of any necessary insurance in contracts they agree to. Therefore, brokers and carriers should both look to include language in their contracts defining who has responsibility to address value and necessary insurance. Second, carriers must take steps to be aware of the value of freight that they are hauling and obtain appropriate insurance. In the absence of a contract to the contrary, they are unlikely to find recourse against a broker where they have failed to adequately protect themselves. Lastly, brokers should be aware that in the absence of a contract they would not be generally liable to a carrier or precluded from pursuing a carrier for a cargo loss where they have not informed the carrier of the value of the freight.