(October 2024) - In major accidents involving severe injuries or even death, claimant attorneys join freight brokers to the claim in an attempt to maximize the amount of insurance and assets that will be available to pay a judgment or settlement. By contrast, claimant attorneys with claims involving soft tissue injury or other minor damages often avoid the added challenges and costs of trying to establish liability against the freight broker, because the motor carrier has ample insurance to pay the likely judgment or settlement. This trend is understandable considering that motor carriers' minimum insurance requirements under FMCSA regulations are as low as $750,000 for general freight or $1 million for low hazardous materials, and certain motor carriers' requirements are even lower. In addition, freight brokers often require a motor carrier to have $1 million in liability insurance and to include the freight broker as an additional insured.
But the details of the insurance coverage that a freight broker receives from a motor carrier are not always well-understood by the broker. Such insurance is sometimes limited to the freight broker's vicarious liability arising from the conduct of the motor carrier. The additional insured clause of an insurance policy provision so limited might read “this insurance applies to such additional insured [the freight broker] only as a person or organization liable for your [the motor carrier's] operations and then only to the extent of that liability.” Since that limitation of coverage is not described in the certificate of insurance the freight broker receives from the motor carrier or its insurance agent, it is easy for a freight broker to miss it.
That limitation is important for a freight broker to understand, because claimant attorneys who pursue freight brokers usually pursue two types of liability theories: direct negligence and vicarious liability. Direct negligence claims against a freight broker aim at assigning fault to, for example, the freight broker's hiring/screening process in the selection of a motor carrier. By contrast, a vicarious liability claim aims to tie the freight broker close enough to the motor carrier or its driver to establish a special relationship between the freight broker and motor carrier/driver and thereby make the freight broker responsible for the conduct of the motor carrier and its driver. A limited additional insured clause covers vicarious liability claims, but probably does not cover direct negligence claims in all instances.
When a motor carrier's insurer receives a demand from a freight broker for defense and indemnity protection as an additional insured, insurers sometimes assign the same defense attorney to represent the motor carrier, defendant driver, and the freight broker. But that leaves the freight broker at even greater risk of liability exposure than the limited additional insured provision described above. The motor carrier's insurer might, for example, secure a release and dismissal of the motor carrier and driver, as well as the vicarious liability claims against the freight broker. As a result, the freight broker is left as the lone defendant to face the remaining direct negligence claims. Or, the motor carrier might have no insurance or assets beyond the $1 million in liability insurance in a multiple fatality or other serious injury case. In that instance, a defense lawyer's loyalty to his motor carrier and driver clients is in conflict with his loyalty to the freight broker client. From the motor carrier/driver's perspective, any evidence or argument that can be made to increase the freight broker's direct-negligence liability exposure increases the possibility of a settlement that includes the freight broker's separate insurance or assets to the benefit of the motor carrier/driver. By contrast, the freight broker may see little or no exposure unless the motor carrier/driver chooses to testify to facts tending to implicate the freight broker. Additionally, counsel should always ensure they have the most up-to-date information on any applicable anti-indemnity statutes or case law that may limit one party's right to claim indemnity from another.
In Texas, an insured has the right to independent counsel when “the facts to be adjudicated in the liability lawsuit are the same facts upon which coverage depends.” N. County Mut. Ins. v. Davalos, 140 S.W.3d 685, 689 (Tex. 2004). Because the direct negligence claims against the freight broker are both a liability issue in the lawsuit and a coverage issue under the limited additional insured clause, an insured's right to independent counsel will typically be supported. But note that “a liability insurer is not vicariously responsible for the conduct of an independent attorney it selects to defend an insured.” In re Farmers Tex. Cty. Mut. Ins. Co., 621 S.W.3d 261, 269 (Tex. 2021). Therefore, a freight broker should not assume that it is protected against misconduct by the attorney initially assigned by the motor carrier's insurer to defend the freight broker.
Timing for the freight broker is important. The longer a freight broker waits to retain independent counsel and demand acceptance from the motor carrier's insurer, the greater the risk that the motor carrier and the attorney it shares with the freight broker will set the case on a path that leaves the freight broker worse off. The process of preparing initial pleadings, answering discovery, and even preparing and presenting witnesses for deposition will result in the freight broker's private information being shared with defense counsel and possibly even the motor carrier and driver. While some joint defense efforts can be mutually beneficial to the defense of the freight broker, motor carrier, and driver, leaving everything to be orchestrated by a single attorney forces the freight broker to accept an incomplete defense from an advocate with divided loyalties. Savvy risk managers and in-house legal departments should prepare for this problem well in advance, by notifying the freight broker's separate insurer and legal counsel upon first receipt of a claim or potential claim so a strategy for obtaining independent counsel can be developed before the freight broker is placed at a disadvantage.
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