Court Rules Insurer Can't Sue Broker in Fraudulent Carrier Case

GlobalTranz Enterprises Inc.

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In a victory for freight brokers, a federal appeals court has ruled that an insurance company may not pursue a claim against a transportation broker after that broker unknowingly hired a fraudulent motor carrier who vanished with a shipper’s load.

The decision this month by the Miami-based U.S. Court of Appeals for the 11th Circuit rejected an argument by an insurance company that a federal exemption provision of the Federal Aviation Administration Authorization Act allows Florida negligence claims against a transportation broker based on the broker’s selection of a motor carrier.

“The decision was really good news for the brokerage industry, for sure,” said Chris Burroughs, vice president of government affairs for the Transportation Intermediaries Association. “The court found that [broker] Landstar Ranger Inc. was not negligent in their selection based on the FAAAA.”

Burroughs noted, however, that the 11th Circuit’s ruling creates a split after the U.S. Court of Appeals for the 9th Circuit ruled that freight broker C.H. Robinson Worldwide Inc. could be sued in a similar case involving an accident. Last year, the U.S. Supreme Court declined to review a personal injury suit alleging that Robinson was negligent in connection with a serious injury from an accident in 2016 involving a carrier it hired.

“What this [11th Circuit] court decision holds is that — whoever the party is — that a claim against a broker for negligent selection of a motor carrier is pre-empted by the FAAAA,” said Prasad Sharma, a partner in the transportation law firm of Scopelitis, Garvin, Light, Hanson & Feary.

Clarity for both cases could come from the U.S. Supreme Court if either of the parties seeks an appeal, Sharma said.

This has been definitely a great win for trucking transportation.

Rob Moseley

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The 11th Circuit decision revolved around a case in which Tessco Technologies Inc. hired Landstar Ranger Inc. as a transportation broker to secure a carrier for delivery of a load for Tessco across state lines. Landstar mistakenly turned the shipment over to a thief posing as a legitimate Landstar registered carrier. The fraudulent operator ran off with Tessco’s shipment.

Tessco’s insurer, Aspen American Insurance Co., sued Landstar, claiming Landstar was negligent under Florida law in its selection of the carrier.

“In this appeal from a [lower federal court] dismissal for failure to state a claim, we accept these factual allegations as true and construe them in the light most favorable to Aspen,” the appeals court wrote. “Landstar selected L&P Transportation LLC to transport Tessco’s shipment. L&P was a Landstar-registered carrier, and its online profile included detailed company information.”

But Landstar did not follow its usual carrier-verification protocols when dispatching Tessco’s shipment, according to the appeals court. “When it came time for Landstar to turn the shipment over to L&P for transport, Landstar received a call from someone named ‘James’ claiming to represent L&P and attempting to collect the scheduled shipment. Despite noticing discrepancies between the company information provided by ‘James’ and that listed for L&P in Landstar’s system, Landstar dispatched Tessco’s shipment to James.”

“Unsurprisingly, James was a fraud, and he stole Tessco’s cargo,” the court said.

In its district court litigation and its appeal to the 11th Circuit, Aspen alleged that Landstar breached its duty as a transportation broker to retain a reputable motor carrier to transport Tessco’s shipment by “ignoring its own protocols and the information readily available in its system” and was thus either “grossly negligent” or “negligent” in its selection of the carrier, according to court documents.

“What the court is saying is that you can’t go after the broker for this, because this type of claim is pre-empted,” said Rob Moseley, a trucking attorney and founding partner of the Greenville, S.C.-based Moseley Marcinak Law Group. “If the federal government wants to weigh in on it, so be it. But states can’t regulate interstate commerce. There is a remedy, it’s just that it’s hard to find the crook. The whole thing comes down to eighth-grade civics in terms of what states can do, and can’t do.”

Moseley added, “This has been definitely a great win for trucking transportation. Most of the loads are brokered to small carriers and any carrier that takes brokered loads. The brokers have been getting sued for negligently hiring carriers, and the risk management for brokerage is reeling over how to deal with these cases. Basically, the cases say that the broker has to do the FMCSA’s job for them — that we have to figure out who should be on the road, and who shouldn’t.”