An early look at how the logistics industry may change after a Supreme Court ruling 

Last week, the U.S. Supreme Court ruled that federal law does not protect freight brokers from state law negligence claims.  

The ruling is expected to expand liability exposure for logistics companies. 

The court ruled 9-0 in Montgomery v. Caribe Transport II, LLC, that the Federal Aviation Administration Authorization Act’s “safety exception” preserves states’ authority to allow lawsuits that allege brokers negligently selected unsafe carriers.  

The case resulted from a serious crash involving a Caribe Transport truck. The plaintiff, Shawn Montgomery, who was injured in the crash, sued several companies including C.H. Robinson Worldwide. 

The ruling reverses a 7th Circuit decision that had barred such claims, and now it goes back to that court.  

Background on the case can be found here: 

SCOTUS rules 9-0 against brokers in Montgomery case – FreightWaves 

Supreme Court Says Freight Brokers Can Face Negligence Claims 

Blue Book interviewed several people at the Marsh McLennan, an insurance brokerage firm and Blue Book vendor partner, about what the ruling may mean to transportation companies and the broader logistics industry. 

Adam Murphy, Fleet Safety Consultant, said the logistics industry has been monitoring the case and the ruling was not unexpected. 

He said it will likely increase costs and place a higher value on safety and accountability. 

“In the short term, this will create a nominal shift in the economics of logistics,” Murphy said. “It will take months or even years for contracts and ratings to adjust, given the new terms and pricing structures, and as complex business relationships adapt to those bound terms.” 

“We believe this will lead to higher costs due to both increased compliance oversight and a more robust vetting process, as well as the cost of insurance for those brokers, freight forwarders, and 3PLs (third-party logistics firms) as they now have a higher level of liability associated with placing loads,” said Dan Galos, Vice President – Property & Casualty.  

“Further, some insurance carriers may cease to cover this risk entirely, leading to capacity contraction and further premium increases, while others may begin to exclude or limit coverage if insureds do not perform certain vetting procedures.” 

Paul Haas, Vice President – Property & Casualty, said the ruling should affect all levels of the logistics industry. 

“We do not anticipate any individual sector being impacted more acutely than another, as this ruling impacts third-party liability claims and is not directly tied to load volume,” Haas said. 

Murphy said the ruling should lead to increased transparency around safety performance, risk mitigation, and insurance coverage.  

“Third-party logistics companies will need to create deeper relationships with their biggest motor carrier partners,” Murphy said.  

“The top part of the marketplace will see greater alignment and a larger volume of business transactions. The economics of pricing and profitability will impact smaller businesses at a greater impact due to economies of scale, likely experiencing an even more transactional relationship with their partners and less wiggle room when it comes to meeting the 3PL’s compliance metrics and pricing.” 

“This ruling sets a grounding point for how brokered freight transactions should be handled as it applies to safety and accountability,” he said, “not how pricing and contract structure should be assessed at this time.” 

What is unknown, Murphy said, is how cases below the Supreme Court will be handled, so we don’t know what compliance standards and safety metrics will emerge. 

He advises that companies can take several steps in the meantime:  

• Take time to speak to your trusted advisors in the industry in legal/compliance, insurance/risk management, safety, vendors, and largest clients; 

• Do an internal review of your current controls and make sure you’re meeting your own standards – compliance, contracts, standard terms, and conditions agreements; 

• Evaluate what changes should be made and run a business forecast on how that affects your motor carrier pools; 

• Understand that the full picture has not been released, and changes will need to be made as this case resolves itself as evidence is released.