In 2017, a speeding truck carrying a load of plastic pots slammed into a tractor-trailer parked on the side of an Illinois highway.
A man inside the parked tractor-trailer — Shawn Montgomery — suffered severe injuries, including an amputated leg.
In an ordinary legal scenario, a victim like Montgomery might sue the driver and the driver’s carrier. But Montgomery’s legal pursuit went further. He also sued the freight broker who arranged the load that would eventually cost Montgomery his leg.
Montgomery argued that the freight broker knew, or should have known, that the carrier it chose had a spotty safety record and should have hired a different company rather than put people like Montgomery in harm’s way. The freight broker fought its inclusion in the litigation by citing a federal deregulation law that it claimed bars the use of state negligence laws in transportation-related lawsuits.
The Supreme Court, in a unanimous opinion issued in May, held that the claim could proceed under state law, affirming that freight brokers can face state lawsuits if they are negligent in selecting carriers.
The Supreme Court’s decision places freight brokers under a new and thick layer of potential liability in the course of their work. For freight brokers, an industry that plays matchmaker between shippers and carriers, the decision highlights freight broker exposure and may incentivize more robust carrier vetting, recordkeeping, and proactive monitoring of safety ratings of carriers they work with.
Before the Supreme Court’s ruling in Montgomery v. Carbide Transport II LLC et. al., freight brokers did a certain measure of due diligence on carriers. Still, they largely depended on regulators like the Federal Motor Carrier Safety Administration to judge the fitness of carriers and remove the bad ones from the road.
The responsibility for evaluating and selecting safe carriers now focuses on the steps freight brokers take to determine a carrier’s fitness, and the ruling seeks to standardize broker exposure nationwide.
How the issue came before the Supreme Court
Congress in the 1970s sought to deregulate the transportation industry, starting with airlines. For economic deregulation to work at the federal level, Congress preempted state efforts to regulate the airline industry.
Congress replicated that concept with the Motor Carrier Act of 1980 and, later, the Federal Aviation Administration Authorization Act of 1994 (FAAAA), both of which effectively deregulated the trucking industry.
The FAAAA barred any state law or regulation “related to a price, route, or service” of goods-transporting carriers or brokers.
The freight broker named in the Montgomery case relied on this portion of FAAAA to argue that state common-law claims for negligent hiring were preempted. Otherwise, they reasoned, it would have a significant economic impact on brokers.
But Montgomery argued that economic regulation and safety regulation are not the same thing. So, when Congress passed the FAAAA, it carved safety issues out from a bill that otherwise preempted most state regulations on interstate transportation. In other words, states cannot dictate pricing or routes by carriers or brokers, but they can adopt laws that allow plaintiffs to sue if a carrier has a safety issue and brokers continue to hire them.
Supreme Court Associate Justice Amy Coney Barrett wrote the unanimous opinion for Montgomery in May.
“The Federal Aviation Administration Authorization Act preempts state laws related to the prices, routes, and services of the trucking industry,” she wrote. “But there is an important exception: States retain authority to regulate safety ‘with respect to motor vehicles.’ This case presents the question whether a claim that one company negligently hired another to transport goods falls within that exception. It does.”
What should freight brokers do now?
The Supreme Court did not spell out a test or a standard to determine a carrier’s fitness. So, freight brokers will have to make judgment calls after exploring carrier safety themselves.
That means establishing a uniform protocol for how freight brokers vet and onboard carriers, as well as methods for continuously monitoring their performance over time. Freight brokers should have ways to pivot to other carriers if an existing carrier in their network comes under scrutiny for safety lapses. While freight brokers may consult third-party carrier data to inform their decision-making, they should not rely solely on this data and should verify information independently.
The freight brokerage industry should expect greater legal exposure. Given that plaintiffs’ attorneys know FAAAA preemption no longer applies to safety issues, increased litigation activity becomes more likely.
As such, freight brokers should also expect to see their premiums for contingent freight broker liability go up. While coverage will likely be more expensive, freight brokers would benefit from clear and consistent engagement with their insurance brokers and underwriters. The more a freight broker can communicate the measures they take to evaluate a carrier’s safety record to an underwriter, the better the chances they can avoid a claims denial or coverage under a reservation of rights.
Freight brokers should also watch for shipping customers who attempt to rewrite master service agreements to shift additional liability onto brokers. Freight brokers should consult with experienced insurance brokers and transportation attorneys to review new and changing terms of master service agreements.
The Supreme Court's decision in Montgomery resolved lower court uncertainty about whether freight brokers are exposed to negligent-hiring claims. The decision does not favor freight brokers, but with preparation and transparency, they can navigate the new liability landscape.