A Freight Broker’s Role in Cargo Claims

Semi-truck-cargo-damage-highwayCargo claims are never fun. Properly filing one can be both confusing and frustrating. This is especially true when working with a freight broker to move your freight. Since freight brokerages aren’t trucking companies, many shippers simply don’t know where to turn for compensation on an over, short, and/or damaged (OS&D) load. 

Too often, relationships are compromised and budgets are over-extended due to OS&D cargo mishaps. For the companies that face these issues, confusion over who to turn to for reimbursement only exacerbates the problem. 

That said, the transportation industry has some very specific guidelines for how cargo claims should be handled between a shipper, their broker, and the carrier on their load. 

Here at ATS Logistics, we’ve been operating as a brokerage since 1989, so we have a firm understanding of the role a broker should play in cargo claims. It’s time to share what we know with you. 

Below, we’ll outline:

At its conclusion, we hope to leave you with a better understanding of how cargo claims work, who you should expect to pay for damages, and what you can do to remove some pain from the claims process. Let’s get started. 

What is a Cargo Claim?

A cargo claim — also called a freight claim — is a legal demand for compensation presented by a shipper or consignee to the motor carrier that transported its freight. Usually, these claims are filed if, upon arrival, a shipment is found to be over in total quantity, short in total quantity, and/or damaged in some way. 

Companies have a minimum of nine months after delivery to file a cargo claim and gain compensation for any damages. 

Although there are many types of claims that shippers can file — including auto liability and property damage — cargo claims are by far the most common. 

Who is Liable For Cargo Claims?

According to the Carmack Amendment — the 1906 update to the Interstate Commerce Act, passed in 1877 and applied to motor carriers in 1935 — the carrier is generally liable for cargo claims, not the broker.

Instead, the liability for cargo damage falls on the party directly responsible for transporting the shipment, i.e. the carrier. By default, these individuals are closest to the product at all stages — loading, transportation and unloading — and are responsible for ensuring its condition. 

To help customers and carriers avoid unnecessary liability risk and keep everyone on the same page, each shipment utilizes a bill of lading (BOL). When used correctly, all issues with a shipment — whether it’s shortages or damages — should be recorded on its BOL and signed by each party present. 

Doing so gives documented proof about whether the cargo did or didn’t arrive in the same manner that it left the shipper

Sometimes, though, things slip through the cracks and an OS&D shipment is delivered with a “clean” BOL.  A “clean” BOL  means that no shortages, overages, or damages were marked on the BOL and it appears that everything delivered according to plan.  

In these instances, a cargo claim becomes much more difficult as the responsible party isn’t immediately evident. That said, more often than not, should a damaged shipment arrive with a “clean” BOL, the carrier is still the party held liable.

The Carmack Amendment, however, outlines five specific exceptions to this rule. If proven to be true, each of these exceptions removes the burden of cargo liability from the carrier. Let’s talk a bit about each of them. 


The Five Exceptions of a Cargo Claim According to The Carmack Amendment

To successfully avoid paying a claim, a motor carrier must prove their negligence wasn’t the reason for damaged cargo. Though the burden of proof falls on their shoulders, here are five legitimate ways — outlined by the Carmack Amendment — that a carrier can prove their innocence:

  1. An Act of God
  2. An Act of War
  3. An Act or Default of Shipper
  4. Public Authority
  5. The Inherent Vice or Nature of the Goods Transported

Carmack Amendment Exception #1: An Act of God

This defense is applied when a motor carrier can prove that cargo damage occurred due to a natural disaster or phenomenon out of their control. For example, if a tornado hits a trailer, flash flooding damages a product, or a lightning strike hits the cargo. 

Any event that happens so rapidly that the carrier couldn’t have been expected to take protective action, falls under this rule. 

Carmack Amendment Exception #2: An Act of War

If damage results from an interaction with hostile military forces, the carrier isn’t held responsible for cargo claims. Although this doesn’t apply to things like organized crime, this exception can be utilized in times of war or following an act of terror. 

Carmack Amendment Exception #3: An Act or Default of Shipper

Proving that damage was caused by the shipper's negligence, removes the burden of paying cargo claims from the carrier. Examples of this include if the product was poorly packaged, loaded improperly or if —according to the BOL — the goods were OS&D when they left the shipper.  

Carmack Amendment Exception #4: Public Authority

If the government, or a governmental policy, is the reason for cargo damage, this exception applies. Examples include road closures, product recalls and quarantines. 

Carmack Amendment Exception #5: The Inherent Vice or Nature of Goods Transported

Some types of freight are, by their very nature, subject to decay, defects and diseases that quickly damage their quality beyond what’s manageable. Examples of these commodities include vegetables, cheeses, fruits and livestock which need consistent attention to preserve during transit.

Proving that a product's inherent vice and not simply carrier negligence was the reason for the damage, can be difficult. Especially if proper handling and transport instructions were outlined in a signed contract. 

How Does a Brokered Carrier Pay Cargo Claims?

The majority of cargo claims — provided none of these exceptions apply — are paid by the carrier charged with moving the OS&D commodity. 

As such, good freight brokers must ensure that every carrier in their network has the level of insurance needed to haul each shipment. 

To do this, freight brokers make certain that carriers hold $100,000 of cargo insurance — at a minimum. And, for the majority of shipments, this amount of coverage is sufficient to amend any potential mishaps. 

Should a load require more than $100,000 of insurance, it’s a carrier’s responsibility to bridge this gap. By purchasing an insurance rider — a short-term addition to their policy — carriers can cover their liabilities on higher value loads. 

Good freight brokers hold a high level of knowledge on carrier insurance requirements and the process of securing a rider. And, when needed, these brokers are able to lend their expertise to ensure that all necessary coverage is secured.

Related: How Should a Freight Broker Monitor the Safety of Its Carriers?

When is a Freight Brokerage Responsible for Cargo Claims?

Your freight brokerage is only charged with paying a cargo claim if they’ve opted into this responsibility contractually. In these instances — when a broker has assumed cargo liability in a shipper-broker contract — the full responsibility of these claims lands on this brokerage. 

To pay the cargo claims they owe, good freight brokers maintain two types of insurance:

  1. Freight Brokerage Operations Coverage
  2. Contingent Cargo Insurance

Related to paying claims, these insurance types have different applications. That said, should a cargo claim arise, holding these policies helps brokers make their customers whole. 


What is Freight Brokerage Operations Coverage?

For a freight brokerage that opts into freight claim liability risk, for whatever reason, freight brokerage operations coverage helps them follow through on this commitment. 

Although operations coverage — also called general liability coverage —is offered in varying degrees, brokerages purchase it to cover their business in times of incident. 

Operations coverage isn’t solely designed for use with cargo claims, but instead, offers more blanketed protection for brokers. That said, if you have a contract with a brokerage that places cargo liability into their court, expect to receive payment from their operations coverage. 

What is Contingent Cargo Insurance?

Unlike operations coverage, freight brokers aren’t legally required to carry contingent cargo insurance. This insurance, meant to pay the expense of a legitimate cargo claim not covered by a carrier’s policy, provides an added layer of insulation for many shippers. 

The level of coverage contingent cargo insurance offers brokers usually mirrors that of a carrier’s policy. Even though the majority of cargo claims paid by a brokerage will come from their operations coverage, holding contingent cargo insurance is a valuable addition to a broker’s service offerings.

How Can You Make Your Claim Go as Smooth as Possible?

Sure, your freight brokerage may not be responsible for paying your cargo claim. But that doesn’t mean they’ll simply wash their hands of the problem and move on. 

Although some brokers might take this route and leave their customers hanging, the best companies never would. Instead, a great freight broker will continue to facilitate your claim until the Motor Carrier’s insurance makes its final decision and concludes it.

By leveraging their relationship with your carrier, and offering advice where necessary, a broker’s expertise can make a real impact on how smoothly your claims process goes. 

In the interest of giving you the tools you need to succeed, let’s discuss four things that will help you get the most from your next freight claim. 

1. Properly Notate Your Bill of Lading (BOL)

A shipment’s bill of lading couldn’t be more important to the claims process. It’s very difficult to prove where damage to a shipment occurred without written documentation to back it up. The BOL is this documentation. 

Every time freight changes hands — from shipper to carrier and from carrier to consignee — its condition should be written down along with the signatures of all parties present. 

If your product isn’t damaged when it leaves your warehouse but arrives at your receiver in poor condition, this should be noted. If you load less product than the stipulated amount, be sure to jot this down on the BOL to prevent confusion on the back-end. 

Whatever it may be, the more information you record on the BOL, the better. You’ll find that doing so will make filing your cargo claim much easier. 

2. File a Claim as Soon as You Can

As it currently sits, cargo claims can be filed up to nine months after a shipment is delivered.

This isn’t to say that you should wait until the last moment to file yours. 

To promote a smooth claims process, it is best to get the ball rolling as soon as you can. Work with your broker to get the contact information for the carrier on your load and take action quickly. This helps to avoid issues that may pop up as time goes on such as lost paperwork or missing information. 

3. Hold Onto Damaged Cargo For Insurance Purposes

Sometimes a consignee will reject the receipt of cargo when it's damaged or believed to be damaged. Though it may seem easier, disposing of these products, no matter their condition, is not recommended in these situations.

The owner of these goods has a duty to reduce these claims, either through repair or another form of salvage.

So, for a better chance at a successful freight claim — a claim that will often require investigation by an insurance company — it’s important that you hold onto this cargo. Using these products as physical evidence, coupled with a properly noted bill of lading, will make your claim go as smoothly as possible. 

Additionally, keeping these goods under your watch and utilizing them to your advantage can expedite this process – ensuring you’re awarded in a timely manner.

4. File The Claim With The Carrier Responsible for Transportation First

In most cases, the carrier responsible for moving your freight will be responsible for paying your claim. Covering freight claims is the reason they hold cargo liability insurance to begin with. 

As such, your carrier should be the first party you reach toward to fulfill your cargo claim.

Even though a good brokerage holds insurance for these purposes as well — and will take steps to make everything right for you — filing your claim with the liable party first will expedite this process. 

5. Cooperate at All Steps of The Process

Do everything you can to cooperate with insurance adjusters, fill out all forms and file all necessary documents. As tedious as it may seem, promoting a smooth claims process can often come down to how well you cooperate. 

If you’re looking for a $50,000 payment, make sure you have an invoice ready to prove the value of the product in question. Failing to cooperate throughout this process will do nothing but draw it out unnecessarily. 

Pick the Right Freight Brokerage

At the end of the day, your freight brokerage should be dedicated to helping you succeed. Although filing a cargo claim isn’t easy, selecting the right partner to lean on through this process will help substantially. 

To help you do this, download The Freight Brokerage Selection Checklist and let these 26 questions work for you when sourcing for your next partner. 

Brokerage Selection Checklist Social Graphic2

You don’t want to be left out to dry by an unworthy freight brokerage partner. Your goals, your timelines and your budget matter greatly, use this tool to find a brokerage who recognizes your worth. 

Tags: Cargo Insurance, Freight Brokerage

Mark Andres

Written by Mark Andres

Mark has been with ATS Logistics, in various roles, since January 2006. Starting as a regional carrier representative, Mark's work ethic and leadership excellence helped him rise through ATS Logistics' ranks where he was promoted first to operations manager and then to operations director thereafter — a position he's held for over five years now. Although Mark enjoys many parts of his job, witnessing and contributing to the growth and development of ATS Logistics' employees tops the list as he strives to help each new hire reach their full potential as a member of the ATS Logistics family.

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