Logistics and the Law Double Trouble
A legal expert takes aim at two developments that could spell trouble down the road.
By William J. Augello, Esq. -- Logistics Management, 2/1/2006
The gradual deregulation of all four modes of carriage during the past 28 years has had a significant impact on shippers' transportation costs and operating strategies. Nevertheless, legal and regulatory issues continue to challenge logistics managers, largely because the law is rarely taught in transportation and logistics courses.
Yet transportation law and regulatory matters are still important, as logistics managers are the ones who get blamed when a shipper is sued for unanticipated freight charges. The undercharge fiasco of the '80s and '90s as well as the problems with bankrupt freight-payment companies bear testimony to this statement.
The consequences of such ignorance are costly. That's why shippers should give serious consideration to two recent developments: 1) The U.S. Department of Transportation's attempts to rid itself of its responsibilities for protecting the shipping public; and 2) The decision in Schrammv. Fosterexposing shippers and third parties to being sued for negligently hiring truckers.
FMCSA Proposals Hurt Shippers
The U.S. Department of Transportation (DOT) and its Federal Motor Carrier Safety Administration (FMCSA) took several actions last year that reveal a concerted effort to free themselves from responsibility for everything but motor carrier safety and security. (For a look at how the FMCSA views its mission, see Page 36.)
First came a proposed rulemaking to eliminate all cargo insurance requirements for motor carriers and surface freight forwarders. The FMCSA's justification for this revolutionary proposal was that "These carriers typically have insurance well above the FMCSA limits [$5,000] because their shipper clients generally require it as a condition of doing business."
This statement reflects a lack of understanding of the real value of the BMC-32 Endorsement, theprovision that makes deductibles and exclusions a nullity in a trucker's policy for the first $5,000, or for the first $10,000 of a multiple-vehicle accident.
Virtually every cargo policy ever issued to a motor carrier contains numerous exclusions from liability, such as theft from an unattended vehicle, an unattached vehicle, or a dropped trailer; employee infidelit; or losses due to a fraudulent scheme. Many policies contain exclusions for high-risk commodities such as electronics, prescription drugs, and tobacco. Shippers rarely are told of these exclusions by a carrier's salesperson or management until a loss occurs. Unsophisticated shippers naively believe that if they have a Certificate of Insurance on file for a carrier, they will be paid for any claim that occurs in transit. Due to the presence of deductibles and exclusions, however, in practice insurance covers the carrier for everything except what happens to cause the loss!
Thanks to the existence of the BMC-32 Endorsement, claimants have been able to recover many millions of dollars in transit losses directly from the insurers, rather than chase carriers for these losses in the courts. It is the best legislation and government regulation ever enacted to protect the shipping public, but now the DOT and the FMCSA propose to eliminate it.
Nothing has changed to make this protection unnecessary. Then why is the FMCSA trying to get rid of it? The answer, in this writer's opinion, is that the proponents of this ill-conceived proposal do not understand the regulation or its application in the real world. It is not the $5,000 per-vehicle coverage that is important; it is the fact that claimants can recover up to $5,000 for losses that would otherwise be excluded or deducted from the policy.
It has been this writer's experience that cargo insurers often improperly deny coverage on these small claims in violation of the terms in the BMC-32 Endorsement, knowing that the cost of litigating them will discourage claimants' pursuit in the courts. It is for that reason that the Freight Transportation Consultants Association (FTCA) has suggested enactment of "self-help" legislation governing actions against insurers. The proposal is similar to 49 U.S.C. § 14704, a statute that enables any person who has been damaged by a motor carrier, freight forwarder, or broker as a result of their violation of any provision of the Interstate Commerce Act, or a regulation promulgated thereunder, to sue in the federal courts and recover their attorney fees as a cost of the action.Continued...
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