One of the key obligations owed by a Freight Forwarder is to exercise due diligence and care in the performance of instructions provided by the client, including in the selection of motor carriers. Failing to properly vet motor carriers can result in claims for breach of contract and/or negligence where same resulted in loss or damage.
In order to extricate oneself from litigation when faced with these claims, or in order to avoid being roped into litigation altogether, a Freight Forwarder should be able to show that it met or exceeded its contractual obligations pertaining to the selection of a motor carrier, and that it met the standard of care owed in the circumstances. A Freight Forwarder will have a strong defence in this regard where it can show that:
1. Its contractual obligations set out in its agreement with its client were clear and adhered to;
2. Its contract with the offending motor carrier included clear terms concerning the carrier’s legitimacy, prohibitions on double-brokering, safety ratings, and insurance coverage;
3. It had a set of policies and procedures in place for vetting and monitoring its motor carriers that met or exceeded its contractual obligations and the industry standards; and
4. These policies and procedures were followed in the given case.
To meet the above criteria so as to enjoy the strongest defence possible, it is recommended that Freight Forwarders prepare a written check list or similar policy record that sets out the steps it takes in vetting motor carriers (with these steps reflecting its contractual obligations and the industry standard for same). It is also recommended that it establish a process for monitoring vetted carriers to ensure ongoing compliance with the vetting criteria.
This “vetting list” must be followed uniformly by those conducting the vetting, and should be revised accordingly where contractual obligations or industry standards change. Committing to the due diligence process set out in the vetting list is ultimately just as important as creating one. Finally, it is critical to maintain proof of this due diligence by creating an organized record-keeping system.
The vetting list should contain specific minimum core steps, but may also include additional precautionary measures that are considered “above and beyond”. In addition to supporting the argument that one has exceeded the standard of care owed in the circumstances, these added steps will help Freight Forwarders avoid the pitfalls of accidentally using illegitimate, unreliable, or underinsured motor carriers. Same may also be used as a marketing tool for new clients (a robust list of protective steps can be attractive to prospective customers). Of course, these goals should be measured against the risks that arise with an impossibly long list of vetting requirements, which if not consistently followed could support an argument that the standard of care established by the Freight Forwarder itself was not adhered to, indicating possible negligence. At the end of the day, the vetting list must realistically work with the operations of the specific Freight Forwarder, and should also be appropriate tailored to its unique needs or services provided. The end of this article includes a suggested list of vetting steps to take in Canada as well as the United States, where applicable.
Determining the Standard of Care
In assessing whether the terms of a contract were breached or the standard of care was met in specific circumstances, the Court will consider what steps a Freight Forwarder would have taken in the circumstances to competently perform its vetting with due care and skill. Typically, this exercise is undertaken having regard to statutory codifications (if codified), industry standards, and precedent case authorities where expert evidence has been adduced, weighed, and considered.
Unfortunately, the Canadian courts have yet to contemplate the standard of care owed by Freight Forwarders in vetting motor carriers. Given the absence of statutory codification, and in light of the lack of Canadian case law to compare and consider, all we can do is look to industry standards and case law from other jurisdictions. Per cases in the United States (discussed below), it is settled law that Freight Forwarders and load brokers are required to use reasonable care in selecting their truck drivers. At a minimum, they must check the safety statistics and evaluations of the carriers through the Federal Motor Carrier Safety Administration (the “FMCSA”) databases, inquire whether the carriers have proper insurance and registration, and maintain internal records of the persons it contracts with to ensure compliance. Essentially, Freight Forwarders owe a duty to take reasonable steps to investigate the competency of the motor carriers. The U.S. courts have made it clear that the financial condition of the carrier, its licensing, the adequacy of its insurance, and the status of its registration, are all matters relevant to competency in trucking cases. This duty does not end once a carrier has been vetted, but is ongoing.
Therefore, it is recommended that industry standards be regularly canvassed (look to resources from recognized Associations, other comparable Freight Forwarders’ vetting policies, and published papers on the topic), and that updated searches of Canadian and foreign case law be undertaken.
In Nolar Industries Ltd. v Freight Transportation Assn, 2005 CanLII 38584, the Ontario Superior Court held that the liability of a Freight Forwarder (load broker) is analogous to that of a travel agent in the performance of services by another. Essentially, if a person agrees to perform some service or work, he cannot escape contractual liability by delegating a performance to another. But if his contract is only to provide or arrange for the performance of services then he has fulfilled his contract if he has exercised due care in the selection of a competent contractor.
On the basis of agency principles, a Freight Forwarder will be liable for the incompetence of a carrier if the selection of this carrier formed part of the expectation placed upon it in the circumstances. As noted above, unfortunately, there are no cases on this precise point in Canada, although the tort of “negligent hire” has been generally addressed. Given the lack of case law in Canada, other jurisdictions should be considered.
Schramm v Foster, 341 F. Supp 2d 536 (2004) (“Scharmm”) is a frequently quoted case in the United States on this issue. In Schramm the plaintiffs brought a claim seeking damages for personal injury arising from a motor vehicle accident. The accident occurred when a truck driver, while speeding, failed to stop or yield to the right of way of the plaintiffs when leaving a highway. The plaintiffs named the negligent truck driver, his employer, and the broker that arranged for the shipment of the load that was being transported as defendants to the action. Of note, the carrier agreement between the employer and the broker contained a term that the employer had a “Satisfactory” safety rating by the FMCSA when the two parties knew it did not at the time of entering into the contract (the employer was too new for a rating at the time).
The broker in Schramm brought a motion for summary judgment dismissing the claims against it. While the court held that the broker was not liable as an employer of the truck driver as alleged by the plaintiffs, it held that there was merit to the claim of negligent hiring and that same would not be disposed of summarily. The court accepted that the law in Maryland provided that an employer may be held liable for negligently selecting, instructing or supervising a contractor. The court held that by proclaiming itself as a “third party logistics company” providing “one point of contact” service to its shipper clients, the broker was required by law to use reasonable care in selecting the truckers it maintained in its stable of carriers.
With respect to what that duty ought to include, the court concluded that the duty must include, at least: “(1) to check the safety statistics and evaluations of the carriers with whom it contracts available on the SafeStat database maintained by FMSCA, and (2) to maintain internal records of the persons with whom it contracts to assure that they are not manipulating their business practices in order to avoid unsatisfactory SafeStat ratings.”
The court held that it was clear by the contractual term requiring a set safety rating that the broker knew safety competencies were important. The court stated at p 553:
While it is true, as Robinson asserts, that generally the breach of a contractual duty does not give rise to a tort claim by a third party, see Brady v. Ralph M. Parsons Co., 327 Md. 275, 282, 609 A.2d 297, 300 (1992), by their very nature contract carrier agreements involve the public interest. Where, as here, one party (Robinson) knows from information provided to it by the other (Groff Brothers) that the latter is in breach of a contractual provision whose very purpose is to protect the safety of innocent third parties, a duty of inquiry necessarily is implied. Likewise, although as Robinson points out, the SafeStat website contains a disclaimer page and although, as Robinson also points out, Groff Brothers did not have an unsatisfactory SafeStat score, its rating was a marginal one. This too implies a duty of further inquiry, and from the existing record it can be inferred that Robinson should have been reasonably alerted to the fact that Groff Brother’s provenance was suspicious. Its predecessor, RG Transportation, had experienced a safety performance problem which prompted the formation of Groff Brothers.
Puckrein v ATI Transport, Inc, 186 NJ 563 (2005) (“Puckrein”) is another oft cited case in the United States. Puckrein is an appeal from the appellate court upholding a summary judgment decision. In Puckrein, people were killed and others injured when their vehicle was struck by an unregistered and uninsured tractor-trailer owned by a transport corporation. The driver was issued several summonses as a result of the accident, including for reckless driving, operation of an unsafe vehicle, and operation of an uninsured vehicle. The owner of the tractor-trailer received summonses too, and both were charged (but not convicted) with manslaughter.
The background of the case is as follows: A company named BFI-NY contracted with the City to collect and haul waste. BFI-NY in term contracted with independent carriers to transport the waste. BFI-NY contracted the transportation of the glass residue in this case to a carting corporation. Pursuant to this contract, the carting corporation would provide all necessary equipment complying with all federal, state, and local laws, rules, regulations, permits, and licenses. The contract stipulated that the carting corporation would not subcontract out its work without the approval of BFI-NY. However, the carting corporation assigned its responsibilities to the transport corporation who owned the tractor-trailer. When the tractor trailer arrived to pick up the cargo, BFI-NY assumed it was the carting corporation’s truck, and did not inspect its insurance documents or take any other investigative steps.
The court concluded that BFI-NY had a duty to use reasonable care in the hiring of its independent truckers, including a duty to make inquiries into the trucker’s ability to travel legally on the highways. It found that the facts alleged were sufficient to establish BFI-NY’s liability for negligent hiring, and over turned the summary judgment decision of the lower courts (trial and appellate). The Court clarified that insurance, registration, and poor financial condition are in fact competency issues. The court stated:
… Ordinarily, one who hires an independent contractor is not liable for the negligent acts of the contractor in the performance of the contract. There are, however, exceptions to this general rule: where the principal retains control of the manner and means of the work; where the principal engages an incompetent contractor; and where the activity constitutes a nuisance. Only the second exception is at issue here.
To prevail against the principal on a claim of hiring an incompetent contractor, a plaintiff must show that the contractor was incompetent or unskilled to perform the job for which he or she was hired; that the harm that resulted arose out of the incompetence; and that the principal knew or should have known of the incompetence…
..the very job that BFI-NY hired World Carting/ATI to do was to haul waste and recyclables across state lines. Unlike Mavrikidis transportation was not peripheral to the BFI-NY/World Carting contract, it was the contract. Had that been the case in Mavrikidis, we have no doubt that the result would have been different. Clearly, under our law, the hauler’s basic competency included, at a minimum, a valid driver’s license, a valid registration certificate, and a valid liability insurance identification card. N.J.S.A. 39:3-29. Without those, the hauler has no right to be on the road at all. Ibid. BFI-NY’s own witnesses agreed with that conclusion.
The allegations in this case strike at the heart of the competency issue in a trucking case. Unlike the claims in Mavrikidis licensing, registration, and insurance are, under our law, the sine qua non to the transport of goods on the roadways. Registration, concomitant to inspection, method of insuring the safety of vehicles that place the public at risk and insurance is the guarantee that innocent victims of errant truckers will be compensated. Thus, the core question here is not whether World Carting was competent to transport BFI-NY’s loads upon the public highways–it was not. The question is whether BFI-NY violated its duty to use reasonable care in selecting a trucker and whether it knew or should have known of World Carting’s incompetence.
…a principal who hires a contractor to paint or pave or install electrical outlets need not inquire whether its pick-up trucks are inspected and insured. Likewise, a casual shipper of goods has a right to assume that the carrier is not conducting business in violation of the law. On the contrary, a company whose core purpose is the collection and transportation of materials on the highways, has a duty to use reasonable care in the hiring of an independent trucker including a duty to make an inquiry into that trucker’s ability to travel legally on the highways. At a minimum, BFI-NY was required to inquire whether its haulers had proper insurance and registration because without those items the hauler had no right to be on the road. Just as BFI-NY itself could not have transported products in unregistered and uninsured trucks, it was not free to engage an independent contractor that did so.
Even if it could be proved that BFI-NY made reasonable inquiry of World Carting at the time of its original retention, its duty did not end there. See Friedman, supra, 78 A.L.R.3d at 920 (explaining that although originally unaware that contractor was incompetent, employer who acquires knowledge of incompetence thereafter may be liable for inaction)… By April 1998, World Carting’s insurance certificate, on file with BFI-NY, had expired. Despite its continuing duty to inquire, BFI-NY never did so although it continued to allow World Carting’s trucks to transport its glass residue. In other words, at a point after the original retention but before plaintiffs’ accident, BFI-NY should have known that World Carting had become incompetent to transport its products.
According to a white paper jointly published in 2016 by the Transportation Intermediaries Association (the “TIA”) and the Canadian International Freight Forwarders Association (the “CIFFA”), entitled “Doing Business as a Freight Broker in Canada” (the “Doing Business Paper”), a poll of industry participants noted that the scope of the duty of a Freight Forwarder requires it to:
- Ensure that the carrier being dispatched is licenced to perform the transportation service requested; and
- If advised of the value by the consignor or consignee, ensuring that the motor carrier has sufficient road haulers liability insurance to cover the value of the goods being carried.
The Doing Business Paper also provides a helpful non-exhaustive list of considerations when working with new motor carriers:
- Call the published phone number for the carrier. Is it different than the number contact person has provided? If so, ask the carrier to explain the difference.
- Be leery of the “we are moving offices; so we are using personal cell phones for the time being” explanation. Check if the number(s) are landlines or cell phones. Prepaid cell phones can easily be obtained with cash and no credit check.
- Verify DOT and MC numbers for the United States.
- Check the internet, the relevant provincial transportation authority (such as the Ministry of Transportation in Ontario or FMCSA) for a different number / address for carrier. Use that number to contact the carrier.
- Call the head office of the carrier to ensure that the person you are speaking with represents the carrier.
- Do not solely accept insurance documents from the carrier, or limit yourself to contacting insurance individuals whose contact information is provided by the carrier. Follow up with the insurance agent.
- Look for gaps in carrier authority history
- Require the operative bill of lading to identify the attending carrier, with number to call if “anyone else attends to receive the cargo.”
- Advise the shipper of who the carrier will be at the point of pick-up, and ask the shipper to check the identification of the carrier. If they are not comfortable, then they should not release cargo.
- Fraudulent carriers tend to offer lower rates to move freight. If the freight rate looks too good to be true, it very well may be.
- Check company addresses using Google Maps or a similar service. Verify that it exists.
- If you are using a load board, confirm membership and verify contact names and phone numbers. If you do not see the company on there, or the numbers do not match, contact the load board officials.
- Review the paperwork you receive from a carrier to ensure its validity. Check that the documents are clear and that there are no variations in font types or any other obvious signs of tampering.
- If a company claims that they are a secondary office of a US-based company (or other large company), call the primary office to confirm the phone numbers and location of the secondary office. If it is a US-based carrier, ensure you receive their Canadian authorities.
- Talk to your shippers. Ensure they write down the license plate of both the tractor and trailer and possibly the driver’s license when a carrier arrives to pick up a shipment. Ensure they do not simply write down the name from the door of the truck.
- Ask for carrier references and check them. Ensure you know who the references are and that they are legitimate companies. (In other words, the broker might not just rely on the standard “Carrier Information Package” of pre-selected documents).
- If you have been a victim of fraud or theft, report it.
The TIA further offers its members resources such as the Carrier Selection Framework and the Framework to Combat Fraud which may inform the industry standards. Some of the considerations set out in the Carrier Selection Framework include:
- Verify that the carrier’s DOT and MC numbers are active with the FMCSA;
- Verify the carrier’s BOC-3 filing with the FMCSA;
- Verify that the carrier’s licensing and insurance filings are current with the FMCSA;
- Verify the carrier’s Safety Rating (do not not knowingly use carriers with an “unsatisfactory” Safety Rating;);
- For carrier’s with a “Conditional” Safety Rating asking for a copy of the carrier’s plan submitted to the FMCSA for improving their rating and asking the carrier if it has filed a formal request for a safety rating upgrade;
- Obtain copies of the carrier’s insurance certificates directly from the insurance agent- ensure that the certificate lists your company as certificate holder and that the limits meet the minimum federal and state requirements;
- Check for reports of unethical, fraudulent, or other incidents against a carrier by googling the motor carrier or using other online services; and
- Review the carrier’s operating authority history on FMCSA’s website.
The above list is not exhaustive, and only members of TIA can access the full Framework.
Suggested Vetting Steps In Canada:
Based on the foregoing, it is suggested that the following steps ought to be adopted in part or in full to defend against breach of contract/negligence claims for not exercising due diligence in the selection of motor carriers.
1. Never trust the internet carrier booking websites, and instead always try to hire from a list of preferred carriers that you know and have an ongoing relationship with.
2. Fraudulent carriers tend to offer lower rates to move freight. If the freight rate looks too good to be true, it very well may be.
3. If you are using a load board, confirm membership and verify contact names and phone numbers.
4. If possible, negotiate head contracts with preferred carriers that extend through a period of time as opposed to a load by load booking arrangement. Those head contracts should deal with limitation of liability, liability, indemnity and insurance issues as between your company and the contracting motor carrier. If possible, have those preferred carriers add your company as an additional named insured on their policies.
5. Always request insurance certificates and Policy Declarations pages, and then actually contact the insurance agent to determine whether you are dealing with a legitimate entity.
6. Do basic internet searches on the company and driver to find office addresses, websites and phone numbers, compare the names and contact information with the names and contact information you are provided with, and make calls to the office to ask about your contact at that company and the operator.
7. Check company addresses using Google Maps or a similar service. Verify that they exist.
8. Be leery of the “we are moving offices; so we are using personal cell phones for the time being” explanation. Check if the number(s) are landlines or cell phones. Prepaid cell phones can easily be obtained with cash and no credit check.
9. Call the head office of the carrier to ensure that the person you are speaking with represents the carrier.
10. If a company claims that they are a secondary office of a US-based company (or other large company), call the primary office to confirm the phone numbers and location of the secondary office. If it is a US-based carrier, ensure you receive their Canadian authorities.
11. Complete a corporate search to see that the company you are dealing with is a registered company, and then compare the name and office contact information on the company search with your internet searches and the information you were provided with.
12. Ask for driver information, a copy of the operator’s driver’s license and a Driver’s abstract (which will provide some information respecting driving history, etc).
13. Request Proof of Workers Compensation, e.g. clearance certificate.
14. Request ‘CTPAT-Carrier Questionnaire’, Service References (and follow up with each reference provided).
15. Request their Provincial Carrier Profile (Canadian Safety Performance).
16. Request their Current Operating Authorities, and look for gaps in carrier authority history.
17. Check the internet, the relevant provincial transportation authority (such as the Ministry of Transportation in Ontario or FMCSA) for a different number / address for carrier. Use that number to contact the carrier.
18. Review the paperwork you receive from a carrier to ensure its validity. Check that the documents are clear and that there are no variations in font types or any other obvious signs of tampering.
19. Advise the shipper of who the carrier will be at the point of pick-up, and ask the shipper to check the identification of the carrier. If they are not comfortable, then they should not release cargo.
20. Ask the shipper to write down the license plate of both the tractor and trailer and possibly the driver’s license when a carrier arrives to pick up a shipment. Ensure they do not simply write down the name from the door of the truck.
Suggested Cross-Border/The United States Steps: (to add to the above)
1. Verify that the carrier’s DOT and MC numbers are active on FMCSA website; if only Conditional and/or Marginal score (or an “Alert” under CSA), call carrier for explanation;
2. Verify the carrier’s BOC-3 filing;
3. Verify the carrier’s Safety Rating on FMCSA’s website;
4. Review carrier’s operating authority history of FMCSA’s website (has it ever been revoked? Why?);
5. Review SafeStat (CSA) Scores;
6. Review carrier history regarding how long in business;
7. Check for reports of unethical, fraudulent, or other incidents;
8. Review driver history or request the same;
9. Obtain Certificate of Insurance from insurance agent and not carrier; cross check Certificate of Insurance (be sure to google insurance agency in order to verify the correct contact information and speak with the agent directly and do not rely on information regarding the carrier’s insurance that is posted on the load board) ; and
10. Verify that the carrier’s licensing and insurance filings are current.
 The governing legal principles for general agency relationships are central to the analysis.