Lessons from the Heyl Logistics Case – How Brokers Can Prevent a Similar Situation from Happening to Them

John Anderson Contracts, Judgments, Transportation

In our last newsletter we summarized a recent jury verdict that imposed a $1.68 million punitive damage award against Heyl Logistics, a broker. Heyl was found liable  for hiring an unauthorized and unqualified carrier.  We received many comments in response. One response simply asked the following question:  “So what can be done to prevent this from happening to other brokers?”

The quick and short answer the question is to properly qualify your carriers. This applies to both shippers and brokers who hire carriers and, in addition, applies to carriers who hire other carriers on occasion. However, what does it mean to properly qualify your carriers?

One approach suggested by some transportation attorneys is to rely solely on the FMCSA/USDOT’s determination. That is, if a carrier’s motor carrier operating authority is “active,”  the required proof of insurance is on file, and the carrier does not have an “unsatisfactory” safety rating or has otherwise been placed  out of service, then the carrier is authorized and qualified. This approach takes the position that the FMCSA/USDOT is solely responsible for determining if a carrier is authorized and qualified to operate; and, further, that only the FMCSA/USDOT has the complete knowledge of the facts to make that determination since the information made public is incomplete.

The opposite approach is for shippers, brokers and other users of motor carriers to make their own determination whether a carrier is authorized and qualified based on the incomplete information that is available to the public. Under this approach, a shipper, broker or other user sets its own standards and requirements.

The Transportation Intermediaries Association  (“TIA”) issued its updated “Carrier Selection Framework” at its Convention last month. The TIA does not set out a checklist, but rather sets out factors a shipper, broker or other user may want to consider. This is made clear by TIA’s statement that “The Framework is not designed, not intended, and not recommended to be a checklist, or a characterization or summary of industry standards, nor a collection of ‘minimum’ thresholds for the selection of motor carriers. In fact, not a single company or individual on the Committee performs, recommends performing, intends to perform, or can justify the application of all the tasks and/or areas suggested for possible review …”  (TIA Framework, p. 5).

What the TIA does recommend is that each user “draft written carrier selection protocols and follow them consistently and also maintain appropriate records as proof of adherence to one’s own internal protocols. If you deviate from your company’s stated procedures, it is wise to keep notes as to why you did.” (TIA Framework, pp 15 & 17).

After making the disclaimer and recommendation set out above, TIA then lists a substantial number of factors that a user may want to consider in qualifying a carrier. The factors the TIA Framework lists are in an abbreviated format below:

  • Verify that the carrier has a DOT number and an MC number on file and active with the FMCSA.
  • Verify that the carrier has a BOC-3 filing with the FMCSA.
  • Verify that the carrier’s licensing and insurance filing is current with the FMCSA.
  • Verify the carrier’s Safety Rating.
  • Do not knowingly use carriers with an “Unsatisfactory” Safety Rating.
  • Use specifically designed contracts, suggesting the TIA’s model contracts or contracts designed by an experienced transportation attorney.
  • Obtain a copy of the motor carrier’s insurance certificate(s) from the motor carrier’s insurance agent directly, and not from the motor carrier.
  • If you are a TIA member, verify to see if there are any reports on file with TIA concerning unethical, fraudulent, or other disputes or incidents against a carrier.
  • Contact the carrier’s business, customer and bank references.
  • If the carrier is new, attempt to check the principal’s history, request a copy of the carrier’s new entrant safety audit results, and/or find out if the carrier has a written safety policy  and someone responsible for safety.
  • Check with the carrier’s home state Secretary of State office to confirm its name and status.
  • Research the carrier history with the FMCSA, especially whether there have been revocation proceedings in the past.
  • Develop an in-house set of metrics to measure the performance of a carrier.
  • If a carrier has a “Conditional” Safety Rating, obtain a copy of the carrier’s written plan submitted to the FMCSA for improving its rating to “Satisfactory”;  ask the carrier if it has filed a formal request for a safety rating upgrade and, if it has, get a copy; and possibly obtain a copy of the Compliance Review (“CR”) so you can review the types of violations cited.

It is extremely noteworthy that the TIA Framework does not list CSA Basic scores.  In this regard, the Framework states as follows:

“It has been, and remains, TIA’s consistent position that the FMCSA Safety Rating alone determines a motor carrier’s fitness for use, and should always take precedence over, and clearly outweigh, any single score, or collection of scores, or data set, including CSA’s SMS or BASIC scores.” (TIA Framework, p. 13).

If you use motor carriers, you need to have a written plan setting out how you are going to qualify a motor carrier. That plan then needs to be strictly applied in every instance. This is critical. Failure to do so exposes your business to liability for any and all damages and injuries caused by an unauthorized and/or unqualified carrier you hire.