broker loss and damage claims

Transportation brokers frequently find themselves in tough spots. They are put there by their shippers who sometimes seemingly believe that they are entitled to transportation services that are risk free. The scenario is pretty simple and transparent: cargo gets damaged, and the shipper basically sends a message to the broker to cover the shipper's loss, even though the broker did not own the transportation equipment and had no control over the carrier's operations. The shipper knows that it can probably get another broker who will agree to cover its losses, the broker knows that, and so the broker makes good on the loss, through a selection of various methods.

The broker typically has a contract with the carrier. If the cargo is damaged, the broker will claim that the carrier has breached its agreement with the broker. The carrier may or may not agree, which is an important point to get clarified. Frequently the more important question concerns whether the carrier has the wherewithal to pay the damage. Carriers have cargo insurance to cover loss and damage claims, but their insurance companies will frequently deny the claim based upon one or more of the numerous exceptions to coverage contained in the insurance policy.

So you've got a shipper waiting to get paid or otherwise compensated by the broker, and a broker which is waiting to get paid by the carrier, and a carrier which is waiting to get its insurance company to accept and pay the claim. That's why brokers hire carriers who have cargo insurance damage.

The brokers frequently blink first. They make arrangements with the shipper to cover the loss, even though there is no commitment from the carrier or the carrier's insurance company to cover the loss. So now the broker is extended out on a loss which may not get paid unless the broker pursues a legal claim against the carrier.

The broker may have a couple of options. We need to first keep in mind that it was the shipper, not the broker, which suffered the loss. The broker did not have an ownership interest in the cargo. The payment by the broker to the shipper is voluntary, in relation to the carrier. That is, there was no court judgment or order requiring the payment. The broker paid the shipper in order to keep the shipper's business. So as far as the carrier, or the carrier's insurance company, is concerned, the broker has no basis, no foundation, to demand payment from the carrier or the carrier's insurance company.

In order to get that basis, what is referred to as standing by the courts, the broker would need to get an assignment from the shipper of the claim. With the assignment in hand (at least one court has dismissed a lawsuit where the assignment occurred after filing of the lawsuit), the broker can go forward with the claim. The broker may want to get an assurance from the shipper that the shipper will cooperate with the prosecution of the claim, e.g. making employees available for depositions, trial, that sort of thing. This would be construed as a Carmack claim, which may end up in federal court, the pros and cons of which were discussed in a prior post.

Another option the broker may have would be to file a breach of contract claim against the carrier. Whether or not this option is available depends upon the terms of the contract. There would be no federal court jurisdiction for claims less than $75,000, or for some claims over that amount as well. The broker may still need the assistance of the shipper to prosecute the claim.

There are always exceptions and qualifiers, but the foregoing provides a general overview of some of the nuances of brokers dealing with shippers, assignments and carriers.