A Freight Insurance Underwriter on What the Supreme Court Ruling Actually Changed

AirFreight.com: Welcome back, everyone, to another exciting edition of On Air with AirFreight.com. I'm the host, Kevin Carpenter, and I love to talk about logistics. Today we're going to talk about one of those subjects everybody in freight knows is important, but almost nobody really wants to talk about until something goes wrong, of course. And that, of course, is risk, liability, insurance. Joining me today is Brian Dreher, Vice President of Transportation at Brown and Brown. Brian, welcome to the show.

Brian Dreher: Hi. How are you, Kevin?

AirFreight.com: Man, getting better by the second.

Brian Dreher: Doing good, doing good. Just, you know, staying busy. It's been an interesting last few months.

AirFreight.com: The world is — our world is changing and your world is changing.

Brian Dreher: Yes.

AirFreight.com: You know, that's the epicenter of the change. Just to set the stage here, I'm on the operations side. I've been in the operations of expedited freight for almost 20 years — it'll be 20 years in two months. So I'm pretty knowledgeable about how to dispatch a load and how to find a good driver and how to coordinate pickups and deliveries, how to communicate with customers. I'm not that knowledgeable on insurance. So this conversation has potential to be interesting for people that are at a lower level like me when it comes to this subject. And you're an expert on the subject, so I'm very happy that you're with us today. Thank you for joining us.

Brian Dreher: Yeah, that's very good. And I'd say that you're similar to most. Obviously insurance is something that you care about, but you really don't have to think about it too much until something goes wrong or renewal comes. So it's important to have these conversations. Thank you.

AirFreight.com: Yeah, and another thing about insurance is it's a fixed cost that comes with any business, and it's very pesky. It's a barrier to entry for many people that want to go into business, especially in the freight world. And one thing that we see in the expedited world, and I'm sure all across freight, is corners being cut on the insurance side of things to lower that fixed cost, simply so a company can survive. Is that fair to say?

Brian Dreher: Yeah, absolutely. I'd say you certainly see a lot of that with new risks — so, new companies coming in. And this is any space, but especially transportation. And sometimes, Kev, that might be just because their options are limited. They can't get on one of those premier programs because they don't have a loss history yet. Where the bigger concern is when you have established companies — whether it be a motor carrier that you decide to hire and they're taking shortcuts on insurance. That puts you in a tough spot, because they're actively making a choice to have a lesser product, or they're being forced to a lesser product because of loss history that you may not know about.

AirFreight.com: Sure. And for them it's a matter of being in business or not being in business, right? So, I'm on the broker side. AirFreight.com is a premium broker — we specialize in last minute, time critical, mission critical, high stakes. So we're not doing a ton of volume, and that's definitely something that works in our favor on this side of things. We make sure we do it right. We make sure to have a very strict vetting process with our carriers. And so I guess my first question for you is: a company that is doing everything right, like AirFreight.com — and by the way, I think it's fair to say that factually, because you're our underwriter, so you've seen our processes — but a company like us, what is the number one thing that we should be looking out for from our carriers, as far as red flags or corners being cut or just risks on that end of things?

Brian Dreher: Yeah, I would say at this point, the old days of hiring carriers that have any auto policies — that's just too difficult to find now. That would have been my advice to you two years ago. Now, I think the focus has shifted, because most of these insurance companies are going to be scheduled auto or scheduled driver. So it's important that you're verifying that the specific driver that's been assigned to said load is scheduled on that policy. And one of the ways that you could do that — and this goes for the vehicles as well — is ask the insurance agent to list that on the certificate, in the description of operations box. That's one of the simplest ways that I think you can avoid running into a situation where there's not going to be any coverage because their cousin who has a CDL but isn't on the policy yet, just started at the company, is moving your load, gets into an accident, and the insurance is going to deny that claim because he's not on the policy. So I think that's one of the easier ways. I don't know how you implement that though, so this is where you can educate me as well.

AirFreight.com: Well, I think we're on the right track. So when you say ask them to list that, you're talking about the actual schedule of vehicles and/or drivers. I have not seen scheduled drivers yet. I have seen scheduled vehicles.

Brian Dreher: Right. Well, it does exist. Vehicles obviously is probably a little more common, but there are scheduled driver policies. So if you can avoid those, avoid those too. But as you and I are talking, some of these things sometimes you just can't. You have to move this load and you have to take that chance. If you're going to take that chance, just verify that this stuff is all in place, that these guys are covered.

AirFreight.com: Sure thing. And to make sure we're clear — scheduled, that's an industry term when it comes to insurance. Scheduled has nothing to do with timing. It means that insurance is applicable to a specific set of vehicles and/or drivers. So if it's scheduled vehicles, it's that insurance is applicable to a specific set of vehicles, obviously, right?

Brian Dreher: Yes. So the covered vehicles or drivers are listed on the policy. Do you remember back — any auto? I know some companies still do have it, some of the larger, more established. That doesn't tell the whole story, but what that basically means is that built into that carrier's policy is at least some level of time frame where they could add a new vehicle and not have to call the insurance company to add it. It gives them thirty to ninety days, in some cases even longer, to actually just buy vehicles and run them on the road right away and have coverage.

AirFreight.com: Yeah. And that any auto, that's one of the other options. When you're looking at the insurance certificate, that's right there next to scheduled auto. So most of the time these days, like you said, when you're looking at one of those insurance certificates, it's going to be marked scheduled auto. And as a broker, to cover your bases, you want to see that schedule. You want to see those VIN numbers that are covered, because then you have the ability, when you're dispatching a shipment, to say which one of these vehicles is running this shipment. And that's probably an industry best practice when it comes to the broker side of things, right?

Brian Dreher: Yes. And as you're verifying these things, you're getting COIs — if you're utilizing a third party service, however you're going about it — when you're looking at that certificate and in that auto section, just like you said, there's those boxes that are checked. If you see scheduled, you need to verify that, if it is a scheduled driver for example, that that driver picking up the vehicle is on the policy. And then same thing with the auto and the actual vehicle itself. The VIN numbers will be listed. You can get them listed on the certificate too. It's an extra step, but yeah.

AirFreight.com: Got it. Well, it is, but this is just where we're at these days, I think. It's a new step to say, hey, which one of these vans is handling this shipment, which one of your trucks is handling this shipment? I want the VIN number. But okay, so I guess my question is, this is probably still a gray area right now in the wake of this major Supreme Court decision. We've talked about it on On Air several times. What is it — Karibe versus... help me out.

Brian Dreher: C.H. Robinson.

AirFreight.com: Karibe versus C.H. Robinson. And the outcome, in a nutshell, is that brokers are no longer immune to being liable when something goes wrong, especially if they were negligent in the hiring process of which carrier they chose to handle said shipment. Somebody gets in a car accident, somebody dies, and now you have a potential nuclear verdict — what we call a nuclear verdict. How do you define a nuclear verdict?

Brian Dreher: It's a good question. I would say anything upwards of five million, but I'm sure that there's a specific number for that depending on the insurance company you talk to. To me though, I would argue that nuclear to most freight brokers would be anything above a million, just because that's your base auto limit, right? So most freight brokers are carrying — especially now, that you really should get it — a contingent auto or a freight broker auto liability, truck broker liability. Really the name of the policy isn't as relevant as what's written in the policy. But those are a million. So if you have excess layers, that's great. But again, ideally any loss, you wouldn't want to eclipse that. Once it eclipses that, you are looking at, in my opinion, a nuclear verdict, even though it might not technically fall into the insurance definition of it.

AirFreight.com: Yeah, my initial thought when I heard it was that's probably the end of your company. Like, a nuclear verdict means that's probably the end of that business, in my opinion. So everybody wants to avoid that. Everybody wants to reassess — well, I don't know if everybody wants to. I can tell you that AirFreight.com does. We want to reassess our current procedures, and we want to make sure that — not just from a financial standpoint, but as a freight broker, I know that there's five to ten shipments in progress right now with drivers on the road with the general public. And those were at my discretion. I'm the one that set those in motion to some extent. I don't want to live with the fact that I cut a corner and somebody died because of that. I definitely don't want to live with that. So there's the moral aspect, but now with this Supreme Court decision, that brings the financial more in line with that. This is just basic logic, in my opinion.

Brian Dreher: There's always been a gray area and ambiguity with regards to what a freight broker's liable or not liable for. But I guess with this recent case, it's no longer a federal issue. What could happen before — which I'm sure you're probably familiar with at this point, we've all talked about this topic so much — but if a freight broker and their attorneys were able to get these cases to federal court, they would have this preemption that would basically get them out of most of these claims, right? In most cases it'd be some sort of settlement. But even that protection there, that federal preemption, that's no longer, as we know. So now it's up to the states. And you have fifty states — 48 in the lower — that are going to have different interpretations of what reasonable care is, because that's really the key that came out of this decision: the freight broker has to exhibit evidence of reasonable care in hiring the motor carrier. So the burden of proof is on the freight broker. And you have to have strict vetting procedures with your motor carriers, and certainly can't hire conditional carriers, like in the case of this Karibe situation — I guess they were alleged that they were conditional. So I guess my whole point here is that it's not as if you were totally protected before. You still had to do the right thing. It's just now you really have to do the right thing.

AirFreight.com: Got it. And the key term being there is reasonable care. And obviously that's a very gray term until we see some judgments come down and we see some trials happen where the specifics of exactly what a broker did and what measures the broker took to mitigate issues would come into play. So I guess what I'm asking is, where does reasonable care end? At what point do we need to ask them for a picture of the van? Do we need to ask them for live video? How deep do we need to go as brokers to make sure that everything's above board? Because one of the biggest facets of our industry, one of the biggest components, is trust, obviously. We're dispatching loads to carriers that we use regularly. We have relationships with these carriers. So is it enough to just say, hey, which one of these vans is handling it, and then take them at their word, and that's that?

Brian Dreher: To answer your question — and again, I realize that not all of these things can be done. We're talking about major changes that would need to happen to do this, and it would delay processes and stuff like that. But to answer your question, that is one thing. And at least asking the shipper to do that — and that's up to them then to do it. But if it's in your written procedures to them, your written instructions to them, sorry — you tell them that they need to verify that the particular driver and/or vehicle is accurate prior to loading. Which I think they should, especially in this environment. If they don't do it, then that's on them. You told them that they need to do that. You listed that. You put it in an email. You put it in your contract. And I mean, you're not there. So again, if you list that out and let's just say something bad happens and there's a court case, at least you can say, well, hey, I requested that they verify this. I didn't know that this fraudster was picking up this load. They loaded this stuff. We told them it was going to be XYZ van and driver. So we all share in this liability, and they're not immune to these suits either. Almost all of these suits involving freight brokers also list the shippers along with them.

AirFreight.com: Right. Yeah, and I know that when it comes to things like Hazmat, that is the responsibility of the shipper to make sure that the truck, the driver that's handling it has proper certifications, that it's properly placarded, so on and so forth. So it makes sense that this side of it would also come into play for the shipper. That's definitely something that is interesting though. And I think that would be a surprise to many brokers out there — especially in the expedited side of things, where you're getting a call and you're getting a van in for pickup, usually a cargo van or a sprinter van, within ninety minutes from the time the original order came in.

Brian Dreher: Right. Things are moving quickly.

AirFreight.com: But I can definitely see the importance of covering that side of things, at least in your communications with the shipper, to say, hey, here's your responsibilities in this transaction. And I think that's just kind of the new world we're entering right now, where this becomes of paramount importance.

Brian Dreher: Right.

AirFreight.com: On that note, Brian, let's talk about where this market is going. Let's talk about, in the wake of this Supreme Court decision — I think we've already seen one quote unquote nuclear judgment come down, and there's a couple more in the pipeline. Tell me where we're going.

Brian Dreher: Yeah, so there's a couple things. The first thing that we all should be wary of is there's accidents that happen every day, right? And a lot involving motor carriers. And most of the motor carriers on the road are being hired by freight brokers, large and small. And I think in the past it was less enticing for an attorney, a plaintiff attorney, to pursue a freight broker. That's no longer the case. So I think that — and again, I hope that this doesn't happen, because I don't think it's good really for anybody — but I do feel that there are going to be some old suits. I actually know of a few that have come back to light that are going to be recirculated. And they're going to say, wait a minute, all right, before the statute of limitations is up, we're going to bring this freight broker back into this suit involving this bodily injury, property damage, whatever, because now we think we have a better fighting chance. So the challenge with that is, okay, so now you have a suit. I truly feel, Kevin, that most freight brokers — just based on my experience, I've been doing this for about 11 years — I'd say ninety-nine percent of my clients do the right thing all the time. So I don't worry as much about nuclear verdicts as I do the costs that are going to go into actually defending that. There's going to be more swings at the plate, if you will, from plaintiff attorneys, and it costs money to defend yourself.

Brian Dreher: Okay, well now, like you said, no one cares about insurance until you need it. Now that's when insurance comes in. So if you think about it, at the average — and again, it depends on the size of a client — but I just don't think that there's enough premium in the auto, the contingent autos of the world, contingent auto, freight broker liability, truck broker liability, to account for the amount, the volume of responses that they're going to have to provide, the attorneys that they're going to have to pay to defend you. I do like freight brokers' chances in court, because I work with a lot of them and I think that most of them are doing the right things. But somebody has to defend you, and it's going to be the insurance company who's paying the attorneys to do that. And that's not free. So what does that mean? I think, over the course of time, you're just going to have to see more premium in this space. No one wants to hear it, but I just—

AirFreight.com: More premium. Hold on, let me translate. Rates are going to go up.

Brian Dreher: Yeah, sorry. That's just a long way of me saying I think rates are going to go up. So I know that they already are, but I don't think that it's going to slow down, I guess is my point. There's always that knee jerk reaction, right? So we have insurance companies right now, some of which have tried to double premium right away. I don't think that in the end that's actually going to be the worst thing — that that's completely wrong, I guess is my point. It might get there. Everyone might get there eventually, through just trial and error. But it remains to be seen. We'll see what happens. So far it hasn't been too bad.

AirFreight.com: Well, I'll throw this out there for our listeners. We had John Elliott, who's the founder of Load One, on a couple weeks ago. We came to the same conclusion: the freight recession's over, rates are going up. So what you're talking about is the insurance premiums, which is one of the largest fixed costs that any business has. So it only stands to reason that the product that that business is going to sell is going to go up as well. So this is just another contributing factor. And I think, not to get too broad here, but we're seeing prices go up on everything. I've been to the grocery store. No matter what you tell me, I can see that the prices are going up. So I can't say this is surprising news, long story short, Brian.

Brian Dreher: Yeah, I mean, gosh, I could talk all day about grocery prices and just going to a restaurant. It's crazy now. But again, I think rates were going to go up anyways, but now you add this piece in there and it's not going to really do anyone any favors. But I do feel that in the past it was fine, because they had this federal preemption. Just that thought of, hey, if this goes to federal court, I'm going to get nowhere — I think that would hold plaintiff attorneys at bay more so in the past. But now, I just think they might see it as more worthwhile to pursue a freight broker.

AirFreight.com: Well yeah, now there's another defendant they can throw in the lawsuit quite easily at this point.

Brian Dreher: Right, right.

AirFreight.com: And why wouldn't they? As a plaintiff attorney, why wouldn't you do that? That's kind of the name of the game. So yeah, for the listeners out there, this is the second big indicator that we've seen that freight rates aren't going down anytime soon. So put that in your notes section and remember that as we move forward here, everyone. And Brian, this was very informative and very helpful. I appreciate this. Before I let you go, we would like to run our guests through something called the On Air Gauntlet. And this is just going to be three very easy rapid fire questions. Not even freight related. Just trying to have a little fun here before we wrap up. All right, so here we go. You ready to go through the On Air Gauntlet, Brian?

Brian Dreher: Let's do it.

AirFreight.com: All right. Question one. You get one meal for the rest of your life. What is it?

Brian Dreher: It's tough. Well, it'd have to be something of substance, you know? So you have to get some nutrients in there. I would probably go tacos, because you could do a lot of different things with them. If you make me get specific, it would have to be a mix of tacos. But not just the traditional cilantro and onion. I'd have to have some lettuce, cheese, tomatoes, just so I can get some vegetables.

AirFreight.com: I love the way you analyzed that. You did it like a true insurance underwriter. Second question. What is a completely useless skill that you're oddly good at?

Brian Dreher: Pretty good at darts. And I don't know that that's ever going to get me anywhere in life, and I'm clearly not a pro, but I can really work the darts.

AirFreight.com: You could hustle some money. All right, last question. You have an unexpected three day vacation. No obligations. Where are you going?

Brian Dreher: Good question. Three days, that's the thing. So you don't have a lot of time. So you have to kind of go somewhere you can get to quickly.

AirFreight.com: Yep. It's not Hawaii. And where are you coming from there, Brian?

Brian Dreher: I'm coming from Chicago. So a lot of options.

AirFreight.com: Okay, well you got options then. You're kind of in the middle there.

Brian Dreher: Middle of the country. It depends on the time of year. I'm the worst with this. So all around, if it's just any random time, it's probably Florida. So really anywhere along the coast in Florida. Just because no matter the time of year, you got a good shot.

AirFreight.com: Right. Brian Dreher, thank you for being On Air with AirFreight.com.

Brian Dreher: Thank you, Kevin. I appreciate it.