Originally published in the December 2020 edition of DRI’s For The Defense:

The term “Amazon Effect” was coined to describe the impact of a departure from traditional business models in exchange for a new, diverse, and multi-faceted approach.  In the context of consumer goods, it describes the shift from shopping at brick-and-mortar stores to shopping on-line from any number of e-commerce vendors, the largest of which is Amazon.

In the context of trucking litigation, the Amazon Effect describes the expansion of targeted defendants beyond the driver and motor carrier.  The mandatory minimum insurance requirements for motor carriers remains at $750,000 for common carriers, excluding hazardous materials or passengers, as established in the 1980s.  Combined with the MCS-90 endorsement, this was intended to protect the motoring public with an appropriate level of financial responsibility.

However, modern catastrophic injury and wrongful death claims can easily exceed $750,000 many times over.  Most drivers and motor carriers cannot satisfy a multimillion-dollar judgment. Drivers are unlikely to have any significant assets and motor carriers may likewise be judgment proof for any number of reasons.  Many motor carriers are too small, or do not own any equipment or property because they lease everything.  Once the minimum insurance policy limits are exhausted, plaintiffs cast a wide net for additional sources of recovery.  Too often these sources include joint ventures, brokers, shippers, owners/lessors, and even insurance companies.  Whether any of these can be found liable often turns on whether the FMCSR apply to them, how they are defined under the FMCSR, and which state’s common law applies.

The purpose of this article is to identify some of the theories of liability used against non-traditional defendants and defense tactics to thwart those efforts.  While the Federal Motor Carrier Safety Regulations (“FMCSR”) apply nationwide, they do not apply to all potential defendants in all situations, and each state has its own body of law.  Thus, be sure to research your own jurisdiction to determine your best defense.

The Traditional Defendants

FMCSR generally apply to “… all employers, employees, and commercial motor vehicles that transport property or passengers in interstate commerce.”  (FMCSR §390.3.)  If your case does not involve interstate commerce (and your state has not adopted the FMCSR for intrastate commerce) or your truck weighs 10,000 pounds or less, then the FMCSR may not apply to your case.

Under FMCSR §390.5, an Employee is defined as “… any individual, other than an employer, who is employed by an employer and who in the course of his or her employment directly affects commercial motor vehicle safety.  Such term includes a driver of a commercial motor vehicle (including an independent contractor while in the course of operating a commercial motor vehicle), a mechanic, and a freight handler.”

Similarly, an Employer is defined as “… any person engaged in a business affecting interstate commerce who owns or leases a commercial motor vehicle in connection with that business, or assigns employees to operate it, …”

These definitions are extremely important.  Plaintiffs will try to interpret and apply them as broadly as possible to include less obvious defendants and subject them to the standards of care of the FMCSR.  Defense counsel must strictly apply them to limit the application of the FMCSR to only a true driver and motor carrier.

The driver and motor carrier are the traditional defendants to which the FMCSR are applied.  If the driver is a one truck owner/operator with his own motor carrier number operating on his own behalf, the discussion ends and the FMCSR apply.  However, more often than not, the driver is driving for someone else under their motor carrier number.  Whether the FMCSR applied to the employer to hold it vicariously liable for the acts of its driver used to depend on whether the driver was classified as an employee or an independent contractor.  This concern is now a moot point as the FMCSR has eliminated the distinction between employee and independent contractor for purposes of applying the FMCSR standards.  (FMCSR §390.5.)

The question for this article is how to extend liability beyond the driver and vicariously liable motor carrier and whether a person or entity other than the driver or motor carrier can be subjected to the standards of care within the FMCSR.  The focus of this presentation is not the many nuances of driver/motor carrier relationships or, for example, whether the driver was within the scope of his employment at the time of the incident or whether the driver was negligent.  Those are subjects that could occupy multiple separate articles.  For our purposes, we will assume that FMCSR apply to the driver and motor carrier and that the driver is exposed to liability.

Direct Actions against the Motor Carrier

Having established the motor carrier’s vicarious liability for its driver’s conduct, the next question is whether the motor carrier can be sued directly for negligent hiring, training, retention, and supervision.  Although this does not in itself expand the available insurance proceeds, it does open the door for discovery into the motor carrier’s files which might expose other potential defendants.  For example, communications between the motor carrier and broker, equipment owner, or shipper can reveal that these entities exercised more control and direction over the driver than originally thought.  Payroll records might reveal that a driver under one motor carrier number driving leased equipment owned by another motor carrier was being paid directly by the equipment owner.  A court could find a joint venture between these two motor carriers, effectively doubling the amount of available insurance. If nothing else, direct claims against the motor carrier increase the cost of litigation and can create leverage against motor carriers who do not want to expose internal policies and procedures.

Extension of Liability beyond the Driver and Motor Carrier

After a plaintiff has exhausted her remedies against the driver and motor carrier, she will look for any other person or entity that touched the truck, trailer, driver, and freight.  The plaintiff will try to force these various entities into the employer/employee definitions within the FMCSR.  In conjunction with applying the rigorous standards of care within the FMCSR, your respective jurisdiction may provide additional or concurrent common law avenues for recovery.

Brokers – The FMCSA defines a Broker as “…a person who, for compensation, arranges, or offers to arrange, the transportation of property by an authorized motor carrier.  Motor carriers, or persons who are employees or bona fide agents of carriers, are not brokers within the meaning of this section when they arrange or offer to arrange the transportation of shipments which they are authorized to transport and which they have accepted and legally bound themselves to transport.”  (FMCSA §371.2.)

Thus, the question is whether the target defendant is a broker or a motor carrier under this definition.  Some parties are both a licensed motor carrier and a licensed broker and their acts need to be carefully scrutinized to determine which definition applies to a given factual situation.

Brokers may also be subject to liability as a joint venture with a motor carrier.  Dependent on jurisdiction, courts usually look for a community of interest or common business purpose, right of joint control, and an understanding as to profit sharing.  These facts can be established in contracts, profit sharing agreements, or even sharing of a common office space and employees.

Likewise, your jurisdiction may support negligent hiring claims against a broker.  Generally, the broker can be exposed where it knows or should have known that the motor carrier was woefully unqualified, lacked insurance, or had an abysmal safety record.  A good fact pattern for a plaintiff’s lawyer is a broker who has internal policies to track the safety records of its motor carriers, but then departs from that procedure to expedite a load with the only available motor carrier it can find without checking its history.

Also, claims based on respondeat superior under an agency theory can be successful where the broker exercises an extensive amount of control over the motor carrier.  If the broker is micromanaging the load and the driver, it is at risk for being found to be an employer.

Shippers – The FMCSA defines a Shipper as “…a person who tenders property to a motor carrier or driver of a commercial motor vehicle for transportation in interstate commerce,…”  (FMCSA §390.5.)  In theory, a shipper is relieved of responsibility once the load is in the care, custody, and control of the motor carrier.  However, as with brokers, a key component of liability exposure is control.  A sophisticated shipper might be liable for knowingly hiring a motor carrier with a bad safety record or ignoring signs of obviously poor equipment when it tenders the load.  A creative plaintiff’s counsel might even try to argue that a shipper is responsible for improper loading where the trailer is sealed before the driver picks it up.

Lessors – While motor carriers cannot escape liability by using independent contractors or owner/operators, what about by using leased equipment?  The FMCSR addresses this by requiring a written lease that provides that the “…lessee shall have exclusive possession, control, and use of the equipment for the duration of the lease…” and “…the authorized carrier lessee shall assume complete responsibility for the operation of the equipment for the duration of the lease.”  (FMCSR §376.12.)

Thus, the FMCSR applies to leased vehicles.  Moreover, individual circumstances can arise from the lease that provide even more ammunition for plaintiffs.  The lease agreement may have an indemnification provision that indemnifies the motor carrier.  In those circumstances, the owner may have additional resources for recovery beyond its own assets and insurance.  Another source of recovery is when the tractor and trailer have different owners and different insurance policies.  In the same vein, third party mechanics may be responsible for poor maintenance, or there may be a products liability case against the equipment manufacturer, tire manufacturer, or others.  Finally, a nightmare scenario for any motor carrier is a driver of a leased vehicle who moonlights on his day off and hauls a load for another entity.  In that case, both motor carriers are potentially exposed to liability.

Insurance Companies – Last, but not least, are insurance companies.  An insurance company that vets potential hires for its insured motor carrier and decides whether it will extend coverage to that driver, is exposing itself to liability for negligent hiring.  While I agree that this is a long shot, the same factors that apply to brokers and shippers are at work here.  A party that exercises undue influence or control over the drivers and motor carriers is asking for trouble.

Prevention and Defenses

The number of possible factual situations is overwhelmingly in favor of plaintiffs.  Eventually, the planets will align and an unsuspecting broker or shipper or other party will get caught up in a catastrophic claim.  We all like to minimize risk and the best time to do that is before the accident happens.  Armed with the right knowledge, and with good people, practices, and procedures in place, exposure can be limited.  Even after the accident, steps can still be taken to protect non-traditional defendants.

Clear Definitions – Put it in writing.  At a minimum, the FMCS requires a written agreement specifying your role. “For each agreement to provide transportation or service for which registration is required under this chapter, the registrant shall specify, in writing, the authority under which the person is providing such transportation or service.”  (49 U.S.C. § 13901(c).)  Read and understand the definitions of employer, employee, broker, and shipper as set forth in the FMCSR.  Brokers and shippers are not intended to be exposed to the same liability as drivers and motor carriers.  Problems arise when those lines are blurred through haste, ignorance, or willful intent.  Written agreements are important, but too often one-size-fits-all contracts are recycled over and over with no one really understanding the terms after the parties and price are listed.

Oversight and Control – If you are not subject to the statutory duties created by the FMCSR, avoid acts that create a common law duty in your jurisdiction.  We tend to think of the bad actors who intentionally manipulate the system as the ones who are exposed.  However, it is equally possible to act with the best of intentions and create liability where none existed before.  Some brokers, for example, take this to the extreme and refuse to do any due diligence regarding the carriers they hire.  Others perform extensive background checks, but then do a favor for a longstanding shipper client and let an unsafe carrier slip through.  Likewise, if you are a broker under one name and a motor carrier under another name, do not mix your business.  Do not share office space, employees, websites, email suffixes, and, most importantly, profit.  Keep the entities separate.

Litigation Options – After the fact, there are still quite a few options depending on your jurisdiction.  In California, for example, a motor carrier/employer that admits vicarious liability for its driver/employee cannot be sued for direct claims of negligent hiring, retention, supervision, and training.  (Diaz v. Carcamo (2011) 51 Cal.4th 1148.)  While you can still litigate the driver’s liability, the motor carrier will not be exposed to endless discovery regarding company policies and practices.

Various jurisdictions are also evaluating whether the Federal Aviation Authorization Act of 1994 preempts common law claims against shippers and brokers.  A version of this argument was used in California to obtain a ruling staying enforcement of Assembly Bill 5 against owner/operators until pending litigation is resolved.  Assembly Bill 5 is the “gig worker” bill which effectively makes all workers employees unless the employer can pass the tests set forth in Dynamex Operations West, Inc. v. Sup. Ct. (2018) Cal.5th 903 and S.G. Borello & Sons, Inc. v. Dep’t. of Indus. Relations (Borello) (1989) 48 Cal.3d 341.

Navigating the ever-changing and myriad state and federal rules, and facing plaintiffs’ expanding net for more sources of recovery, defendants have sought to minimize their risk through indemnity agreements and insurance.  The transportation industry has taken a page out of the construction industry’s book and looked for ways to transfer risk from the upstream entities, like a general contractor or shipper, to downstream entities, like a subcontractor or motor carrier.  For example, a shipper might try to absolve itself of any risk of liability by making a motor carrier sign an indemnity agreement where the motor carrier promises to indemnify the shipper for any claims, losses, damages, or costs arising out of the shipment.  This risk transfer mechanism was easily abused early on with indemnity agreements promising to hold an indemnitee harmless regardless of whether the indemnitee’s own negligence caused or contributed to the loss (broad form indemnification).  To counter this, most states have now enacted anti-indemnity statutes which, to varying degrees, prevent a party from getting indemnity for a loss caused by their own negligence.  Although the overall concept is the same, the execution from state to state can have subtle variances.  Moreover, to make things more complicated, this patchwork of laws is potentially subject to federal preemption (49 U.S.C. 14501.)  Faced with a complex multi-party transportation case, find and analyze every written agreement and its small print, including equipment leases.

Of course, no mention of risk transfer would be complete without identifying insurance issues.  Beyond the MCS-90 endorsement and basic coverage questions, there is the additional insured endorsement.  As a litigator, you will want to follow your search and review of the written lease agreements and shipping documents with a search and review for their insurance requirements, and then the actual policy and endorsement.  An additional insured endorsement can have a powerful effect on litigation and even circumvent an anti-indemnity statute’s purpose by forcing another insurance company to pay for your own negligence.  Often more importantly than covering a loss, the additional insured endorsement provides a defense.  In construction litigation, it is not uncommon for a relatively minor subcontractor with almost no liability exposure to be held hostage in a large multi-party case because its additional insured endorsement in favor of the general contractor is paying a significant portion of the defense fees and costs.  Thus, by knowing the relationships and reviewing the insurance policies in a transportation case, both the plaintiff’s lawyer and defense counsel can find new sources of recovery and obtain leverage towards resolution.

Conclusion

The Amazon Effect can be minimized if understood and anticipated.  It seems like every claim that comes in today is a policy limits claim.  Most are not warranted.  However, some are and then you should be evaluating who else involved with the incident is potentially liable.  If you represent one of these non-traditional defendants, prepare your investigation and discovery with a focus on the FMCSR definitions and amount of control exercised by your client.  Obtain every document that possibly defines the role of the party, determine whether there is an indemnity agreement, and analyze the insurance requirements and actual policies.  Finally, know your local jurisdiction’s common law on negligence, joint ventures, agency, and vicarious liability.  With this knowledge in hand, you can minimize the Amazon Effect.