B

e extremely wary

before entering into a master transportation agreement with a shipper (and/or a consignee) or even a load broker. Likewise, load brokers should be cognizant of the fact that they are generally not held liable for damage or loss to cargo unless they have signed a contract to that effect. 

Inter alia, the following questions should be investigated before signing any contract: 

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  • What terms and conditions does the contract stipulate regarding the nature and extent of liability for the contracting parties?

  • Do the liability provisions in the contract hold the contracting parties liable for more than their usual statutory legal liability?

  • What is the jurisdiction clause in the contract?

  • Are there any hold harmless and indemnification clauses about third party injuries or damages in the contract?

  • What kind of Insurance requirements have been stipulated in the contract?

  • Does the contract comment on the needs and requirements of preparing bills of lading?

  • Does the contract stipulate withholding freight payments from prior shipments in case a cargo claim is not settled?

  • Is sufficient insurance coverage available and are the insurers aware of the stipulations in the contract that could hold them liable beyond the legally determined boundaries of statutory liability?

  • Can the contract be considered unfair and unconscionable by law?

The biggest concern for any motor truck carrier or any load broker while entering a transportation contract with a shipper, consignee, or a load broker comes from the stipulations and provisions that make the entities liable for amounts beyond the legally stipulated statutory liability.

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The insurers could only afford to cover any legally incurred liability by respecting the relevant legislative regulations. For any contractually assumed liability, the insurers cannot provide any indemnification unless the contract is endorsed by the underwriting department. For instance, there may be a contract where a motor truck carrier has assumed liability and agreed to pay the sales price on any cargo loss. This contract could jeopardize the carrier’s position while making a claim with their liability insurers. This is because unless specifically endorsed by the underwriters, the amount of claim considered by the insurers will be limited to the invoice value (or cost price in certain cases) subject to the relevant legislative regulations. Thus, the carrier may be out of pocket for a huge sum. A carrier that is unable to afford paying this difference may be forced to file for bankruptcy.

 

Stipulations in the contract could also provide for applying legislative regulations that hold carriers liable for the full shipment value, or its market value, irrespective of the legal statutory regulations applicable to the shipment(s). The most common example for this is a contract effected in Canada that brings the shipments under the ambit of Carmack Amendment, irrespective of where the shipment originates. Not only a contract but a bill of lading issued by the shipper in Canada could also be issued on a standard format used by the shippers in the USA, subjecting the shipment to the Carmack Amendment. Be extremely cautious before signing any such bill of lading, though the Insurers will have to abide by the signed BOL in such a case. This is because the liability assumed by signing the BOL will be considered legally prescribed under the contract of carriage (the relevant legal regulation being the Carmack Amendment) and will, therefore, fall under the purview of the standard insuring agreement of a motor truck cargo legal liability policy.

 

Another example is the contracts that sometimes stipulate withholding freight payments. Legally, no shipper/consignee and/or load broker could withhold freight payments on prior shipments for an unsettled cargo loss unless there is a stipulation to that effect under the contract. A cargo claim could be defended if an insurer wishes to defend the claim. However, since the contract stipulates withholding freight payments, the carrier incurs a loss and insurers are unable to settle the claim because it is defensible. Thus, consult a subject matter expert before entering into those transportation contracts.

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