How to Put the Brakes on Accelerating Contract Liability Risk
Motor vehicle liability has expanded in recent years for freight brokers, motor carriers, direct shippers and third-party logistics providers. As a result, many shippers are amending liability provisions in their contracts to shift the onus on brokers and fleet carriers in order to minimize their own risk.
The number of large trucks involved in fatal crashes is up 33% since 2011,1 and the average payout for nuclear verdicts increased nearly 1,000% in the last decade, from $2.3 million to $22.3 million.2
These trends leave transportation companies at greater risk of bankruptcy or dissolution from a nuclear verdict than ever before. Understanding the exposures and obligations in contracts is crucial to managing risk and makes contract due diligence imperative.
With transportation contracts often averaging more than 50 pages of terms and conditions, AI technology solutions are now available to help fleet carriers and freight brokers quickly review these contracts and identify areas where they may be exposing themselves to unnecessary risk.
While quickly and thoroughly reviewing lengthy contracts is likely here to stay, carriers and brokers can take these steps to maintain control of their risk:
- Focus on high-value opportunities. Small revenue contracts may not be worth the risk. Consider the cost of a legal review of the contractual liability risk and how that will affect potential earnings from the contract.
- Understand your local and state contractual liability regulations and limits. Especially with businesses that cross state lines, contracts should adhere to the state of jurisdiction’s coverage limits. For example, a contract coming to a Florida-based carrier from California would need to consider the Florida tort reform signed into law in March 2023.3
- Procure the right-sized coverage. Shippers are requiring higher than available excess liability limits. Carriers and brokers should consult with their insurance broker regarding insurance options and account for the increased cost to secure appropriate coverage or the exposure if self-insuring. Remember the relationship between risk and revenue!
- Take advantage of AI in the contract review process. AI solutions are now available to review transportation contracts and can quickly flag coverage limits or other risk-related contract provisions and present the information in layman’s terms. An AI-enabled contract review solution can also help identify key commercial terms, such as set off and payment terms, that may ultimately impact your cash flow.