The Supreme Court issued its decision in Montgomery v. Caribe Transport II, LLC, just over two months ago, and since then, there have been many different views on what the Court decided and what its impact will be. While the decision addressed a rather narrow question, it highlighted an area of liability exposure for those hiring carriers that will likely have widespread reverberations. As the courts continue to develop the contours of broker liability, especially in the area of negligent hiring, one can anticipate a tightening broker liability insurance market and increased underwriting scrutiny of carrier selection protocols.

To be clear, the Supreme Court did not set the standard for reasonable care in selecting a carrier. That continues to be developed by the courts on a case-by-case and state-by-state basis. By rejecting the applicability of a federal preemption defense to negligent hiring claims, the Supreme Court has drawn more attention to considerations that will affect the entire transportation ecosystem of shipper-broker-carrier interactions.

Given that most carriers today have $1 million or more in auto liability insurance, plaintiffs look to brokers (and shippers) for deeper or extra pockets in accident cases where the claimed damages exceed the carrier’s insurance. This will continue to occur more frequently, and to help protect against such claims, brokers may seek to obtain liability insurance. Contingent auto liability coverage, which some brokers obtain under the belief that it provides adequate coverage, typically only provides coverage when the carrier’s insurance is not available and does not provide coverage for negligent hiring claims. As more brokers attempt to secure truck broker liability insurance, some insurers are reassessing their participation in that market, and those remaining are continuing to strengthen their underwriting standards. This will lead to a tightening market with concomitant cost increases that escalate, not unlike the carrier insurance market.

The Court’s decision may increase demand for broker services from shippers. Shippers that contract directly with carriers may, like brokers, be liable for negligent hiring of carriers with which they contract. In most instances, the shipper becomes a step removed from the selection of the carrier if it makes use of a broker. The Firm anticipates shippers may continue to seek to impose their own carrier vetting standards on brokers.  As such, brokers will need to guard against assuming any vetting obligations they are not able to satisfy. To be sure, shippers and insurers will be focusing more attention on a broker’s carrier selection protocols. For shippers, they will seek to establish that they were reasonable in selecting the particular broker.

The Montgomery decision highlighted potential liability exposure for brokers, but it bears reminding that liability is not a foregone conclusion. With a reasonable carrier vetting policy and practices to match, the broker may have acted reasonably in contracting with a carrier even if that carrier is involved in an accident. Further, the concurring opinion noted that whether the broker’s selection of a carrier proximately caused the claimant’s injuries will be an issue in each case. In the aftermath of Montgomery, there have been several federal court decisions reinforcing that the FAAAA does provide a preemption defense against claims related to cargo theft or loss as opposed to personal injury; though there have been a few decisions finding the safety exception still applies. Brokers and shippers should be reviewing how they select carriers they contract with and keep abreast of developments in the law.