The Do’s and Don’ts of Insurance for Freight Brokers

Running a freight brokerage is one of the most exciting jobs in the country – it’s a complex, interesting industry full of opportunity that’s essential to the worldwide economy. 

Alongside the allure of brokering freight is the necessity of smart business practices, like insuring your business. Admittedly, talking about brokerage insurance is less exciting than talking about the benefits of owning your own business, but it’s essential to protect your profits. 

We can make it easier for you. 

Below, you’ll find basic guidelines experts at DAT have put together to help you. These are our do’s and don’t of freight brokerage. But before we forge ahead, be sure to speak with your own insurance agent, and it wouldn’t hurt to speak to your accountant and attorney as well. The advice below are general guidelines, not meant to be hard and fast rules. 

DO – Property and general liability: If you own or lease property, you can buy property insurance. It’s usually best to package it with general liability insurance for your premises and operations. Ask your insurance agent for coverage recommendations and quotes.

DO – Vicarious auto liability and umbrella: Brokers need vicarious auto liability insurance. If you are named in a lawsuit, your insurer will be in a position to defend you. If you are found liable, vicarious auto liability will cover you. Be very careful to review the terms and conditions, though – policies vary widely. Some provide very little coverage and others provide broad protections. You can also buy an umbrella policy, which will allow you to increase your liability limits. Umbrellas are available in $1 million dollar increments.

DO – Workers’ compensation: If you have employees you’re required to have workers’ compensation insurance. And make sure your carrier partners are insured, too. We’ve seen brokers pursued by drivers for workers’ comp benefits because the carrier wasn’t covered. If your partners don’t have workers’ compensation insurance, consider getting a written statement regarding their lack of insurance and keep it on file.

DO – Contingent cargo: You don’t know what the carrier’s policy covers and doesn’t cover, so your contingent cargo can help bridge the gap. Policies differ, though, so pay special attention to the basis of coverage. Is it legal liability? As a broker you are not legally liable for cargo loss and damage claims. Check all the policy details with your insurance agent and your attorney as needed, before you sign.

DO – Errors and omissions (E&O): Some claims are not covered under any other policy. For example, if a broker gives the wrong information to a carrier by mistake, the broker could be considered negligent. That type of claim can be covered by E&O insurance. Note that E&O coverage will not pay for (1) bodily injury or (2) property damage. However, if the E&O is a part of your contingent cargo policy, cargo damage may be covered.

DON’T – Excess auto liability: Freight brokers ask us all the time whether they can buy auto liability coverage to bridge the gap between the shipper’s requirement and the carrier’s limits. For example, let’s say the shipper wants $2 million in auto liability but the carrier has only $1 million. Our advice? Don’t even think about it. A broker can’t buy insurance for the benefit of the carrier or the shipper. Each company can only insure its own liability exposure. It’s your job to find carriers who fulfill the shipper’s insurance requirements. 

DON’T – Named as additional insured by carrier: There are four kinds of carrier policies, but only one where you can be named as “additional insured.”

  1. Auto liability. It’s not necessary to be an additional insured. The MCS-90 endorsement and the omnibus insuring agreement on all interstate carriers’ liability policies automatically include the broker and the shipper as insureds.
  2. General liability (GL). Additional insured status is important for GL in other industries, but there are very few GL claims in transportation, and getting named on all carriers’ policies will be a huge challenge. 
  3. Cargo insurance. Cargo insurance covers the carrier’s legal liability as a transporter of freight. A broker does not transport freight, so there is no benefit. 
  4. Workers’ comp: It is impossible in all states for any company to be an additional insured on another company’s workers’ compensation policy.

DON’T – Carrier-supplied insurance certificates: We recommend brokers verify the carriers’ certificates of insurance, but do not rely on a copy from the carrier. The carrier can send you an outdated certificate and there’s no way that you’d know. Go directly to the insurance agent or subscribe to an electronic certificate service such as DAT’s CarrierWatch®. 

DON’T – Relying on the FMCSA for insurance data: On the FMCSA site, you can verify the status of a carrier’s liability insurance, along with the policy’s effective date and whether it’s about to be canceled. Insurance companies will post cancellations on the FMCSA website for their protection. Reinstatement data are not as reliable. On cargo insurance, however, you get little or no information, because carriers are no longer required to file evidence of cargo insurance. For complete insurance data, go directly to the insurance agent or subscribe to a carrier validation and monitoring service such as CarrierWatch.

DON’T – Incomplete carrier qualification: Develop a carrier qualification procedure – I recommend the TIA framework as a guideline – and follow it every time you choose a carrier. Keep written records. The worst thing you can do is to have a procedure and then not follow it. If there is a negligence claim, it is tough to defend your company when your own people don’t follow an established procedure.

DAT helps brokers grow, scale, and succeed. How can we help you? Find out more at dat.com/brokers.

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