Additional insured. Brokers and direct shipper customers frequently attempt to require that they be added to your liability insurance policy as what's known as an "additional insured." This is a covert means to gain free insurance from an independent owner-operator or small fleet as well as avoid financial responsibility when or if they cause some kind of bodily injury or property damage.
The practice of demanding being named additional insured has been so common throughout recent history as to go unquestioned in the minds of young brokers and freight agents, and in many cases the owner-operators working with them to keep the trailer full.
Yet one longtime transportation attorney included the additional insured ask as one of his Dirty Dozen (now well more than a dozen, in fact) risk-transfer contract practices that carriers should do all they can to avoid. The attorney recommended carriers respond to shipper or brokers demands by insisting on an insurance policy endorsement that IDs the shipper as additional insured "only to the extent that the liability arose out of the carrier's ongoing operations performed for that insured."
Then: use your rate structure with the shipper or broker to recover any additional insurance premium cost. Many insurance companies won't charge more for the practice directly in premiums, but some charge a nominal flat fee for such additions.
[Related: Beware what you sign with brokers: Freight-payment offsetting of cargo claims a ‘sucker’s game’]
As an alternative, too, independents and small fleets might simply warrant in contract that they hold required insurance and will provide certificates of insurance upon request. Don't be afraid to ask your insurance underwriter for comment, too, upon any additional-insured demand. Not all insurers agree about just what coverage a shipper/broker gets just by being added.
Waivers of subrogation. A lesser-known, but even worse, condition often included in a broker or customer’s agreement or contract is a "waiver of subrogation." Many truckers are completely unaware of the potential adverse consequences of providing a waiver of subrogation to a broker or customer. Subrogation is a legal tool used by an insurance company to recover losses it paid out to an insured (after a claim) from a liable third party, who is responsible for those losses.
Say an owner-operator checks in at a direct customer’s facility and is told to go to a certain dock door. While backed into that door, an overhang falls and damages the trailer. The customer says the driver was backed to the wrong door, that the damage was not their fault and to contact their insurer. The owner-op submits a physical damage claim to his own insurance, yet manages to provide sufficient proof to the insurance company that the failed dock overhang was in fact the one that the shipper sent him to.
With a waiver of subrogation, however, the insurance company cannot force the customer to reimburse them for the settlement of the claim. That claim then becomes a permanent black mark on the owner-op’s insurance history, likely resulting in an increase to future premiums.
Cargo claims offsetting. Much ink has been spilled over the last decade about another of the aforementioned attorney's "Dirty Dozen" risk-transfer practices -- namely “right of offset,” or setoff, language in contracts between carriers and brokers.
Portions of typical offsetting language can be seen here in a contract snapshot.
Such language allows a broker to withhold payment on future loads due to offset cargo claims on a prior load. Essentially, if a carrier agrees in a contract to give the broker the right to offset their payments for cargo claims that arise and aren’t covered by the cargo insurance, the broker is free to deduct the cost of that claim from future loads hauled, to the benefit of the customer making the claim.
The outrageousness of the practice has been driven home time and again in recent years, aided by a mentality among freight middlemen that the shipper customer should be kept happy no matter what it might cost the carrier.
Consider the example of an owner-operator who hauled nearly exclusively for a brokerage notorious for offset language in their contracts. The trucker delivered a load of fresh fruit not exactly known for easy spoilage. It had been in his reefer trailer for a few days on the long transit and was specified for a temperature his reefer in fact maintained.
The receiver had some mild reservations about the fruit at the other end of the load, but also took delivery, noting everything would be OK in the end.
Some time later, however, a cargo claim was filed to the tune of near $30,000. The owner-operator’s insurance company denied the claim, working with evidence from the reefer unit’s download that ambient temperatures in the trailer were maintained as specified.
Several months later, the broker finally decided to pursue a course of exercising their "right of offset," withholding a portion of the owner-operator’s payments for more-recent loads hauled.
Keep in mind: neither the trucker nor his reefer trailer did anything wrong on this particular load, delivered more than six months prior to the offset. The cargo insurance company -- one of the most well-known names in trucking insurance at the time -- also clearly identified the likely source of any product issues to be the shipper who put the fruit in the trailer to begin with.
Right up to the moment the broker began withholding payment from the trucker, both parties held a mutually beneficial, longstanding, quite active relationship with one another. Granted that near $30,000 is a lot of money, for a lot of fruit, and a broker’s relationship with his/her shipper is important to keep.
But is it important enough to claim you’re entitled to $30K worth of free hauling from a one-truck owner-op you’ve been doing business with, without incident otherwise, for years and years on end? Is it important enough to disregard the basic facts of the case to please a big company that wants to hold onto its money at the expense of the truth (not to mention the owner-op)?
As the attorney noted in the 2019 edition of the Overdrive Radio podcast embedded below, offset language in broker agreements any carrier would do well to avoid like the plague.
Read next: Insurance to defend against the downhill threat of post-crash litigation
