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Welcome to Delta Nu Alpha Accident Liability Travels Up the Supply Chain Interactive Webinar Welcome to Delta Nu Alpha Accident Liability Travels Up the Supply Chain Interactive Webinar - February 21, 2008 With Dan Sullivan, Hincks & Conway and Henry E. Seaton, Seaton & Husk, L. P.

CORPORATE SPONSORS! Kings Express Landstar RMCS Apex Capital LP USA Transportation Services, International Champagne CORPORATE SPONSORS! Kings Express Landstar RMCS Apex Capital LP USA Transportation Services, International Champagne Logistics Greatwide Truckload Management

About DNA n n n Fraternity of transportation professionals Open to all with interest About DNA n n n Fraternity of transportation professionals Open to all with interest in education Interdisciplinary – shippers, carriers, third party logisticians and students Traditional chapter format – Milwaukee, Chicago, Rockford, Nashville, Bowling Green, Grand Rapids, Louisville, Le High Valley Student chapters at Western IL University Scholarship program www. deltanualpha. org

Syllabus of Future Webinars Contains Chronic and Acute Industry Problems Format is issue presentation Syllabus of Future Webinars Contains Chronic and Acute Industry Problems Format is issue presentation followed by open question and answer. n Diverse opinions are encouraged. n Goal is to assess issues, impart information and better prepare listeners as knowledgeable professionals in any industry which too frequently ignores day-to-day problems of contracts, claims and operations in favor of “supply chain management. ” n CCPAC accreditation of 3 courses for cargo claims specialists. n

Upcoming Webinar Topics 4/15/2008 5/13/ 2008 6/17/2008 7/15/2008 8/19/2008 9/16/2008 10/21/2008 11/18/2008 Contract Waivers Upcoming Webinar Topics 4/15/2008 5/13/ 2008 6/17/2008 7/15/2008 8/19/2008 9/16/2008 10/21/2008 11/18/2008 Contract Waivers – 50 Reasons to Keep Bill of Lading Terms and Conditions, and Federal Rules Multimodal Cargo Claim Issues – A Prescription for Confusion Contracts of Carriage – A Study of Controversial Provisions Which Divide Shippers, Brokers and Carriers FMCSA Safety Regulations The Scourge of Double Brokering Cargo Claim Mitigation, Adjustment and Salvage Issues INCOTERMS – The Language of the Global Economy Supply Chain Security Issues – Alphabet Soup and New Regulations For more information and to register, go to www. deltanualpha. org Approved for Certified Claims Professional Accreditation Council (CCPAC) Credit (1. 5 CEUs)

What is Vicarious Liability? Indirect legal responsibility (For example – the imputed liability of What is Vicarious Liability? Indirect legal responsibility (For example – the imputed liability of principal for the torts of its agent)

Who are the Targets? Shippers, Brokers, and Carriers who “subcontract” Freefoto. com Who are the Targets? Shippers, Brokers, and Carriers who “subcontract” Freefoto. com

Who are Adversaries? Plaintiff’s bar, looking for deep pockets because carrier has limited assets Who are Adversaries? Plaintiff’s bar, looking for deep pockets because carrier has limited assets

What are Theories? n “Respondeat Superior” – principal/agency law n Joint venture n Negligent What are Theories? n “Respondeat Superior” – principal/agency law n Joint venture n Negligent hiring, negligent entrustment n Statutory duty n Assumption of duties

IN EXAMINING ACCIDENT LIABILITY A BASIC ANALYSIS OF APPLICABLE LEGAL PRINCIPLES IS HELPFUL IN EXAMINING ACCIDENT LIABILITY A BASIC ANALYSIS OF APPLICABLE LEGAL PRINCIPLES IS HELPFUL

WHAT BASIC LAW APPLIES TO ACCIDENT LIABILITY? WHAT BASIC LAW APPLIES TO ACCIDENT LIABILITY?

TORT LAW APPLIES NOT CONTRACT LAW UPON WHICH TRANSPORTATION AND SUPPLY CHAIN MANAGEMENT IS TORT LAW APPLIES NOT CONTRACT LAW UPON WHICH TRANSPORTATION AND SUPPLY CHAIN MANAGEMENT IS BASED

UNDER TORT LAW A DUTY IS IMPOSED UPON AN ACTOR (IN MOST CASES) (IN UNDER TORT LAW A DUTY IS IMPOSED UPON AN ACTOR (IN MOST CASES) (IN SOME CASES THERE IS A DUTY NOT TO ACT)

GENERAL DUTY AN ACTOR SHALL NOT INTENTIONALLY OR NEGLIGENTLY HARM ANOTHER GENERAL DUTY AN ACTOR SHALL NOT INTENTIONALLY OR NEGLIGENTLY HARM ANOTHER

NEGLIGENCE = “A FAILURE TO DO SOMETHING WHICH A REASONABLY CAREFUL PERSON WOULD DO, NEGLIGENCE = “A FAILURE TO DO SOMETHING WHICH A REASONABLY CAREFUL PERSON WOULD DO, OR THE DOING OF SOMETHING WHICH A REASONABLY CAREFUL PERSON WOULD NOT DO, UNDER CIRCUMSTANCES SIMILAR TO THOSE SHOWN BY THE EVIDENCE. THE LAW DOES NOT SAY HOW A REASONABLE CAREFUL PERSON WOULD ACT UNDER THESE CIRCUMSTANCES, THAT IS FOR YOU (JURY) TO DECIDE. ” (Jury Instructions)

TORT LIABILITY DOES NOT CARE ABOUT CONTRACT LIMITS TORT LIABILITY SEEKS THE BAD ACTOR TORT LIABILITY DOES NOT CARE ABOUT CONTRACT LIMITS TORT LIABILITY SEEKS THE BAD ACTOR WHO SHOULD PAY FOR HIS/HER ACTIONS

IN A SUPPLY CHAIN WHO IS THE ACTOR? PLAINTIFF LAWYERS WANT PERSON WITH MONEY IN A SUPPLY CHAIN WHO IS THE ACTOR? PLAINTIFF LAWYERS WANT PERSON WITH MONEY TO BE THE ACTOR

HOW DOES A PLAINTIFF GET PEOPLE OTHER THAN THE DRIVER WHO RUNS OVER CHILD HOW DOES A PLAINTIFF GET PEOPLE OTHER THAN THE DRIVER WHO RUNS OVER CHILD AT SCHOOL CROSSWALK TO BE HELD ACCOUNTABLE?

SERVANT: A PERSON WHO IS EMPLOYED BY ANOTHER TO DO WORK UNDER THE CONTROL SERVANT: A PERSON WHO IS EMPLOYED BY ANOTHER TO DO WORK UNDER THE CONTROL AND DIRECTIONS OF THE EMPLOYER” “ “EMPLOYEE: A PERSON WHO WORKS IN THE SERVICE OF ANOTHER. . . [WHERE] THE EMPLOYER HAS THE RIGHT TO CONTROL THE DETAILS OF WORK PERFORMANCE. ” (LAW DICTIONARY)

AGENT “An Agent is a person who, by agreement with another called a principal, AGENT “An Agent is a person who, by agreement with another called a principal, represents the principal in dealings with third persons or transacts business, manages some affair or does some service for the principal, with or without compensation. The Agreement may be oral or written, express or implied. ” (Jury Instructions)

“PARTNER: ONE WHO SHARES OR TAKES PART WITH ANOTHER, ESP. IN VENTURE WITH SHARED “PARTNER: ONE WHO SHARES OR TAKES PART WITH ANOTHER, ESP. IN VENTURE WITH SHARED BENEFITS AND SHARED RISKS. ”

LEGAL CONCEPTS PREMISED ON AGENCY EXTENDING TORT LIABILITY n MASTER SERVANT n PARTNERSHIPS n LEGAL CONCEPTS PREMISED ON AGENCY EXTENDING TORT LIABILITY n MASTER SERVANT n PARTNERSHIPS n JOINT VENTURES n SUPPLY CHAINS WITH SUBAGENTS? ? ?

WHAT IS CRITICAL ELEMENT TO FIND A PRINCIPAL ($$ MONEY BAGS $$) OF AN WHAT IS CRITICAL ELEMENT TO FIND A PRINCIPAL ($$ MONEY BAGS $$) OF AN AGENT? SHIPPER BROKER/3 PL CARRIER LEASING CO DRIVER ACCIDENT

“CONTROL” “CONTROL”

CONTROL = Direction and Management on how it gets done/or/legal responsibility for getting it CONTROL = Direction and Management on how it gets done/or/legal responsibility for getting it done NO CONTROL= Independent Actor (Contractor) Sole Concern = Result

SUPPLY CHAIN CONCERNED WITH MOVING GOOD BY CONTRACTS THAT ESTABLISH DUTY FOR EACH FUNCTION SUPPLY CHAIN CONCERNED WITH MOVING GOOD BY CONTRACTS THAT ESTABLISH DUTY FOR EACH FUNCTION

SUPPLY CHAIN USES UNIQUE CONTRACT “BAILMENT CONTRACT” PLAINTIFF’S LAWYER SEES CHAIN OF ACTORS BECAUSE SUPPLY CHAIN USES UNIQUE CONTRACT “BAILMENT CONTRACT” PLAINTIFF’S LAWYER SEES CHAIN OF ACTORS BECAUSE BAILMENT TRACES ACTORS RELATIONSHIP TO GOODS THAT MOVE IN SUPPLY CHAIN UNDER BAILMENT CONTRACT

HISTORICALLY NO MIXTURE OF DUTIES IN SUPPLY CHAIN CONTRACT USED = BILL OF LADING HISTORICALLY NO MIXTURE OF DUTIES IN SUPPLY CHAIN CONTRACT USED = BILL OF LADING DUTY UPSTREAM = TENDER OF GOODS W/DESTINATION DUTY OF CARRIER = SOLE PARTY CONTROLLING” 1. RECEIPT 2. TRANSPORTATION 3. DELIVERY

MODERN SUPPLY CHAIN, ESPECIALLY W/COMPUTERS 1. 2. 3. 4. J. I. T. – SHIPPER MODERN SUPPLY CHAIN, ESPECIALLY W/COMPUTERS 1. 2. 3. 4. J. I. T. – SHIPPER DIRECTS (CONTROLS? ) EXACT P/U – DELIVERY NONCARRIER A. Acts for Shipper (Agent)? B. Acts for Carrier (Agent)? C. Controls Freight (Principal)? D. Controls Carrier (Principal)? CONTROL = Actual facts or Substance as not bound by Contract/or/Contract Duties Assumed EXAMPLE = Bill of Lading showing 3 PL/Broker as Carrier to protect routing (California Chicken Hauler)

REPRESENTATIVE SUPPLY CHAIN INTERLOCKS TRANSFERRING CONTROL FUNCTIONS Assumption of control by contract (Esp. B. REPRESENTATIVE SUPPLY CHAIN INTERLOCKS TRANSFERRING CONTROL FUNCTIONS Assumption of control by contract (Esp. B. O. L. ) 2. Holding out to perform or control 3. Holding out to secure qualified performer 4. Representing as a Partnership or Joint Venture 5. Control of Dispatch vs. Passive Tracing 6. Directly using Driver as Agent or Actor 7. Placarding Service as Actor 8. Control of Securement 9. Offering and Directing HAZ MAT 10. Selection methodologies (Cheap Rate w/unfit Carrier) 1.

AVOIDING EXPOSURE 1. 2. 3. 4. 5. 6. Realize you cannot contract away Tort AVOIDING EXPOSURE 1. 2. 3. 4. 5. 6. Realize you cannot contract away Tort exposure Realize you can contract Tort exposure Reality is a holding out – Substance not Salesmanship A. A Representation can be good for Sales -We are Partners with our Carrier! B. A Representation can impose a duty in Tort Actions can provide Tort exposure Fitness – Financial (insurance) and operational – is critical Contracting Protection helps but only after the fact A. Indemnity B. Insurance

WHY IS THIS SUBJECT IMPORTANT? Risk is biggest variable cost in Supply Chain 2. WHY IS THIS SUBJECT IMPORTANT? Risk is biggest variable cost in Supply Chain 2. The amount of risk in Tort is not rational 3. Risk will expand in the Supply Chain until there is enough case precedent to allow stability 1.

The Role of the Intermediary Broker or Carrier? What difference does it make? The Role of the Intermediary Broker or Carrier? What difference does it make?

Broker n By definition, a “Broker” is an “arranger” “other than a carrier” – Broker n By definition, a “Broker” is an “arranger” “other than a carrier” – Broker does not have BI and PD insurance and is not liable for third party claims or cargo loss – Like a real estate agent, stock broker or insurance broker, not responsible for goods, services or property it sells

Carrier n A carrier has “no delegated safety obligations for equipment it operates” and Carrier n A carrier has “no delegated safety obligations for equipment it operates” and shouldn’t be liable for operations of subcontractors but: – Plaintiff’s bar does not understand misrepresents – Joint venture, respondeat superior, “state law doctrines” – California example – Convenience “interlining”, concurrences are difficult to explain when door-to-door subcontracting is involved

– Bills of lading with deep pocket carrier names on it causes plaintiff’s bar – Bills of lading with deep pocket carrier names on it causes plaintiff’s bar to salivate – Opens door on punitives – plaintiff’s bar can use brokering carrier’s own safety procedure against it § Speed controls § Equipment maintenance § Driver qualification § Log audit - Qualcom

Best Practices n n n Retain excess capacity through broker affiliates Get intermediary’s name Best Practices n n n Retain excess capacity through broker affiliates Get intermediary’s name off Bill of Lading as carrier Do not assume carrier duties in shipper/broker contracts Warrant retention of properly “licensed, authorized and insured motor carriers with satisfactory or equivalent safety rating Use contingent liability and contingent cargo insurance to persuade shippers Eschew “arising out of” indemnification/accepting indemnity for vicarious liability imputed on shipper because of broker’s desire to retain a particular carrier (e. g. Illinois dray case)

How to Avoid Scourge of “Double Brokerage” n Plague on transactional brokerage n Arises How to Avoid Scourge of “Double Brokerage” n Plague on transactional brokerage n Arises when the “one you hire” without approval hires “another” and – An accident occurs – The actual service provider is not paid – An uninsured cargo damage on theft occurs n Importance of ensuring correct carrier is named on Bill of Lading and that name on door matches the name on the Bill of Lading

A DIFFERENT POINT OF VIEW ON BROKER LIABILITY IN LIGHT OF JONES V. D’SOUZA A DIFFERENT POINT OF VIEW ON BROKER LIABILITY IN LIGHT OF JONES V. D’SOUZA Henry E. Seaton, Esq. A string of C. H. Robinson cases starting in 2001 with a wrongful death lawsuit brought in Illinois, and including Schramm v. Foster, , 2004 U. S. Dist. Lexis 16875 (D. Md. August 23, 2004), and now Jones v. D'Souza, 2007 U. S. Dist. LEXIS 66993 (W. D. Va. 2007) have had a chilling effect on transportation brokerage. Applying state law, courts have allowed juries to consider Robinson's liability for the negligent acts or omissions of truck drivers hired by its carriers under "negligent hiring, " "vicarious liability, " and "master-servant" or respondeat superior theories. Ignored, in part I believe because of C. H. Robinson's method of operation, is the statutory definition of a property broker, the preemptive scheme of federal regulation, and any understanding of the traditional role of the shipper and broker as members of the traveling and shipping public. By Federal Statute and Regulations only a motor carrier has a non-delegable duty to exercise dominion and control over the equipment and driver it employs, including owner-operators it "retains" as independent contractors. See 49 C. F. R. § 382 through 396, 376 et al.

No similar duty is imposed upon a shipper or broker. A broker is defined No similar duty is imposed upon a shipper or broker. A broker is defined as a party who "arranges for transportation for compensation" and is not "a motor carrier. " A clear distinction is brought between an instrumentality of transportation which has a direct and non-delegable obligation for safety, and a property broker which does not. Although "economic regulation" was stripped from the statutes from 1980 through 1995, interstate trucking remained a highly federally regulated public utility from a safety point of view. The Federal Motor Carriers Safety Administration, as a successor to the ICC, assumed without amendment, safety oversight over the operation of commercial motor vehicles and those statutes and regulations including enforcement thereof has been extended through to the states under the MCSAP program. The liability of a shipper or a broker or the negligent acts or omissions of a carrier they hire, accordingly should be prescribed and defined in accordance with their federal duties and obligations under the statutes and not by the inapplicable vagaries of state law.

Applying state law analogies, the Courts in the C. H. Robinson cases missed the Applying state law analogies, the Courts in the C. H. Robinson cases missed the role of the broker in the transportation context. The broker does its duty when it retains an authorized carrier. See 49 C. F. R. 371. To be authorized, a carrier in turn must have authority which is granted and maintained only to an entity determined fit by the Federal Motor Carriers Safety Administration. To be fit, a carrier must (1) have insurance in sufficient amounts to protect the traveling public and (2) to have not been judged unsatisfactory by the Federal Motor Carrier Safety Administration. The Agency in turn employs a sophisticated system for determining and placing out-of-service carriers which it determines by roadside inspections and safety audits to be out of compliance. As an entity arranging for transportation, a broker is not a service provider and the doctrine of respondeat superior does not and should not apply. Having made reasonable inquiry to determine that a carrier remains licensed, insured and authorized, a broker should not be required to second guess the FMCSA's determination of fitness. Correctly seen, a property broker acts like a real estate broker or stock broker, owing to the principals a duty of due diligence but in the absence of its own negligence, is not vicariously liable for the acts or omissions of either party or for the negligent performance by the service provider of a contract service. A stockbroker who sells corporate stock is not required to inspect the corporate governance of listed companies before making recommendations. Similarly, a travel agent is not responsible to passengers for misplaced luggage or flight interruption by the airlines whose tickets they sell.

If, in a regulated industry like trucking the Federal Government is going to establish If, in a regulated industry like trucking the Federal Government is going to establish a comprehensive system for telling the public who is safe to operate, then shippers and brokers alike should be allowed to rely upon the Government's determination, and unless they assume broader duties, contribute to the accident in some way other than making common use of the proffered service, they should not be subject to liability under inapplicable state law theories. By last count, there well over 500, 000 carriers determined by the FMCSA to be safe to operate in interstate commerce. No standard other than the Federal standard can or should be applicable when determining the suitability of a service provider by the shipping public, or the broker, its agent. The broker does its duty when it makes a diligent effort to ensure the actual service provider is licensed and authorized by the FMCSA to provide services as a for-hire carrier. Congress has preempted state law application for brokers as well as carriers. See 49 U. S. C. '14501(b). The Courts need to understand this, even as the trial lawyers try to obscure the issues and the broker's role. Published in In Transit Magazine from the Transportation Loss Prevention & Security Association, 11/2007 Please see www. transportationlaw. net to view/print a copy of this article

Son of Schramm n n n Joe’s Trucking and Joe’s Brokerage becomes “Joe’s” Plaintiff’s Son of Schramm n n n Joe’s Trucking and Joe’s Brokerage becomes “Joe’s” Plaintiff’s misuse of Safe. Stat – what are its limits? The Hours of Service and circadian rhythm Broker complicity in “requiring or permitting” Misconceptions about “unrated carriers” A different point of view (Handout)

So how far is far enough for checking out a small carrier? For the So how far is far enough for checking out a small carrier? For the occasional transaction? For the “dedicated” service provider? Mock audits?

DISCUSSION/Q&A DISCUSSION/Q&A