When freight loss occurs and the loss exceeds the limits of the motor carrier's cargo coverage, the motor carrier and the transportation broker typically wind up at odds over who was responsible for determining the value of the shipment for insurance purposes. Until recently, no published opinion has squarely addressed the issue. Finally, there is some clarity as to the scope of a broker's duties to a carrier with respect to cargo value, courtesy of Complete Distrib. Servs. v. All States Transp., No. 3:13-cv-00800-SI, 2015 U.S. Dist. LEXIS 37379 (D. Ore. Mar. 25, 2015).
Complete Distribution Services, Inc. ("CDS"), a broker, arranged for All States Transport, LLC ("AST"), an FMCSA-registered motor carrier, to transport two shipments of vitamins and nutritional supplements from Washington to Florida. AST picked up both shipments and, without informing either CDS or the shipper, combined both into one trailer. The following day, the trailer was involved in an accident in Oregon, damaging both shipments in the combined amount of $169,844.47. CDS paid the shipper for the loss, took an assignment of the claims, and brought suit against AST to recover the value of the cargo. In its responsive pleading, AST included both an affirmative defense and counterclaim against CDS for negligence in failing to inform AST of the value of the cargo. CDS moved to strike this affirmative defense and to dismiss the corresponding counterclaim (among others). The federal magistrate judge issued his Findings and Recommendations ("F&R") in favor of CDS on these issues, reasoning that CDS did not have a duty to advise of the value of the cargo. The magistrate judge relied on case law holding that a broker has no duty to hire a carrier with sufficient insurance to cover the value of the cargo (see KLS Air Express, Inc. v. Cheetah Transp. LLC, 2007 WL 2428294 (E.D. Cal. 2007) and Chubb Group of Insurance Companies v. H.A. Transportation Systems, Inc., 243 F.Supp.2d 1064 (C.D. Cal. 2002)). AST objected to this portion of the F&R, and the district judge undertook a de novo review of the issue.
AST asserted that the magistrate judge's decision was erroneous because KLS Air and Chubb Group do not address the issue of whether a broker has a duty merely to inform the carrier of the value of the cargo. While the district court acknowledged that KLS Air and Chubb Group did not constitute direct precedent, they nonetheless were relevant and persuasive for the proposition that the duties imposed on brokers are limited and few (i.e., "limited to arranging for transportation with a reputable carrier."). In addition to noting that AST cited no case law in support of the duty it sought to impose on CDS, the district judge also found AST's reasoning unpersuasive, stating as follows:
A carrier seeking to limit its liability may ascertain the value of a load itself, either by asking the broker or by asking the shipper directly. If a carrier accepts a load without so doing, it may not later shift to the broker the responsibility for an underinsured loss.
Id. at *8 (emphasis added). Accordingly, the district court declined to impose on transportation brokers a duty to inform carriers of the value of the load; the court affirmed the F&R reasoning and conclusion, and struck AST's negligence defense and dismissed its corresponding counterclaim. Id.at *9.
The District Court, however, did not resolve all disputes between AST and CDS. Among these were AST's claim that CDS assumed an implied contractual duty to notify it of the value of the load. Still, for those who have long been citing KLS Air and Chubb Group in support of the limited scope of a broker's inherent obligations in arranging for the transportation of freight, Complete Distrib. Servs. is a valuable addition and makes clear that it is the obligation of the carrier—not the broker—to make cargo valuation determinations for insurance purposes.
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