‘Nuclear’ verdict on CHRW liability brings fresh headaches to freight brokers

Photo: © Piotr Trojanowski 3PL stocks have fallen in the wake of a ‘nuclear’ verdict by a Texas jury on brokerage CH Robinson (CHRW) and trucking firm Lupus Superior. Coming after the US Supreme Court’s ruling in May that a freight broker can be held liable in the event of an accident caused by a trucker hired by the brokerage, the verdict is seen as a harbinger of more litigation against brokers, higher insurance costs, and further decimation of the trucker pool. The case concerned an accident in Mississippi in 2021, which killed the driver of a Lupus Superior truck and three other people, and injured two more. The jury split fault for the incident three ways: 45% blame on the driver; 32% on the trucking firm; and 23% on CHRW and issued a $604m advisory verdict º yet to be certified by the presiding judge. Besides the damages, the verdict raises several red flags for freight brokers. CHRW had argued that Lupus Superior had a ‘satisfactory’ rating from the Federal Motor Carrier Safety Administration (DMCSA) when it was hired for the job, and said brokers had to rely on FMCSA ratings as they are unable to vet every carrier to a similar standard. However, the jury dismissed this argument. This puts brokers on unstable ground in the event of litigation following an accident involving a hired trucker, noted Satish Jindel, founder and president of SJ Consulting. And this predicament narrows the pool of truckers brokers are likely to use, as they will be more inclined to avoid those for which they have little or no records. Smaller trucking outfits will struggle to find new customers, and some will be forced out of the industry, which will further decimate the available capacity, he said. He added, however, that this would not affect the ability to move freight in the US. There would be enough capacity, but it will be more expensive, at a time when shippers face increased costs on multiple fronts. The, will now include elevated insurance premiums for brokers and truckers, several observers have pointed out. Another red flag for brokers was the jury’s argument that the driver was “operating the vehicle in the furtherance of a mission for the benefit of CH Robinson” – which could be interpreted that a trucking firm’s driver is effectively an employee of the broker that hired the carrier. Both this interpretation and the uncertainty about carrier safety assessment are likely to come into play in looming court cases involving truckers causing accidents, and Mr Jindel is certain that there will be more such trials. “Plaintiffs’ lawyers always look for a deeper pocket and go after more parties,” he commented. Financial services firm TD Cowen produced a report on the Texas case, and its authors share Mr Jindel’s view. “Many pending court cases were waiting for the SCOTUS [Supreme Court of the US] ruling for more clarity, and are now moving forward in the courts,” they pointed out, adding that the situation was “a new reality many brokers will now live with” and that “investors need to assess the risks of more nuclear verdicts in the future”. Mr Jindel thinks the impact on brokers will vary depending on their size, with mid-sized firms facing the biggest threat. Small brokers would likely shut down and re-open under a new brand, while large ones have deep enough pockets to bear the cost of litigation, he said. The day after the news of the Texas verdict, CHRW shares fell 9.25%, while those of RXO and Landstar lost 7.1% and 3.68%, respectively. CHRW has said that it will appeal the verdict if it stands. In addition, its chief legal officer, Dorothy Capers, also wants action in Washington. She said: “The extreme nature of this verdict means it is even more imperative that Congress and the federal government act with urgency to establish clear and proper accountabilities across the transportation industry that enhance highway safety and support the uninterrupted flow of goods across the United States.” Mr Jindel thinks the American Trucking Associations should mount a lobbying campaign in Washington to get rid of punitive damages. He questioned their benefit and argued that they would get baked into prices. Moreover, their elimination would probably make it easier for companies to settle a lawsuit out of court and avoid a trial and associated costs, he added.