Third Party Liability Issues Facing Customs Brokers & Freight Forwarders

1. Third Party LiabilityIssues Facing Customs Brokers & Freight Forwarders Presented by: Michael S. Brown Sr. Vice President - Sales Avalon Risk Management, Inc. CCBFA – September 27, 2007

2. Death & Bodily Injury ExposureDomestic Auto Liability

3. Death & Bodily Injury Exposure- Basis of Liability • Domestic Auto Liability - Liability arising out of the hiring of motor carriers and local truckers - Negligent selection risk

4. Death & Bodily Injury Exposure-Real World Claims Situations • Schramm v. Foster (CH Robinson) • Puckrein v. ATI Transport (recent increase in shipper requests for indemnifications in contracts)

5. Death & Bodily Injury Exposure-Protecting Your Company • Seek additional Insured Status on sub-contractor’s liability policies • Indemnities (in both directions)- Beware of indemnifying shippers - Seek indemnities from carriers • Inspect scope of your GL policy - Review Auto Exclusion • Use Caution when referring to “Partners” • Verify carrier safety ratings at www.safersys.org • Consider adding Contingent Auto Liability Coverage to your E&O policy.

6. Contingent Auto Liability • Coverage protects Transportation Brokers & Surface Freight Forwarders when they are held liable for death, bodily injury and/or property damage liability as a result of their hiring of truckers. • Requires that you be licensed as Broker or Forwarder by DOT (licensure creates need for surety bond (Broker) or cargo liability insurance filing (Forwarder))

7. Death & Bodily Injury ExposureForeign Liability

8. Death & Bodily Injury Exposure- Basis of Liability • Foreign Exposure - Individual(s) killed or injured overseas as a result of your negligence

9. Death & Bodily Injury Exposure-Real World Claims Situations • Worker killed while stripping container of chemicals • Damage to vessel caused by loose cargo in container

11. M/V Hanjin Pennsylvania

12. Hyundai Fortune

13. Death & Bodily Injury Exposure-Protecting Your Company • Seek additional Insured Status on packing/crating sub-contractor’s liability policies • Indemnities (in both directions) - Beware of indemnifying shippers - Seek indemnities from packers/craters • Inspect scope of your General Liability policy - Coverage Territory - Consider Export Package Policy • Consider adding 3rd Party Liability Coverage to your E&O policy

14. Third Party Liability • Third party liability coverage protects you from claims brought by entities other than your customers (third parties) as a result of death, bodily injury, or property damage. • Coverage is not widely available. • Similar coverage is usually afforded by business package policy but typically with territorial limitations and sometimes transportation exclusions. • 3rd Party Liability coverage often excludes claims for events that occur in the US as General Liability insurance typically covers this.

15. Death & Bodily Injury ExposureIncidental Product Liability

16. Death & Bodily Injury Exposure- Basis of Liability • Incidental Product Liability - Liability arising out of Customs Brokerage activities and the perceived “importation of cargo”

17. Death & Bodily Injury Exposure-Real World Claims Situations • Broker enters gumball manufacturing machine on behalf of importer • 3 years later, worker loses hand while operating machine • Importer of record no longer in business • Broker is sued

18. Death & Bodily Injury Exposure-Protecting Your Company • Ensure that your General Liability Insurer is familiar with international trade • Never act as importer of record • Be careful of indemnifying importers

19. Workers’ Compensation Exposure

20. Workers’ Compensation Exposure- Basis of Liability • Premium Exposure- Liability for payment of premiums on un-insured individuals - For truckers, Payroll is assumed to be 1/3 of “Cost of Hire” • Claims Exposure - Liability for payment of Workers’ Compensation claims

21. Workers’ Compensation Exposure-Real World Claims Situations • Forwarder in NE charged $35,000 in premium for use of uninsured local cartage companies - Exposure identified in Payables Ledger during physical audit • Claim against Broker/Forwarder for uninsured contractor falling off of office roof

25. Workers’ Compensation Exposure-Protecting Your Company • Certificates from all Sub-Contractors • System of Managing Certificates • Beware of excluded individuals

26. Assuming Contractual Liability

27. Contractual Liability • Cargo legal liability policy covers typical transportation documents/contracts of carriage provided that they were accepted by underwriters during application process. This usually includes HAWB, NVOCC bill of lading, warehouse receipt, Terms & Conditions, etc. • Increasingly, our clients’ customers ask them to enter into contracts before commencing business dealings. • Contracts usually override or modify T&Cs • Less frequently, amend conditions of carriage

28. Contractual Liability • Most E&O / Cargo Liability policies exclude liability assumed under contract (except for the “normal” contracts that were approved at the time of application) unless specifically agreed by underwriters. • Contractual liability endorsement maintains coverage for these contracts by specifically listing special customer contracts that underwriters have approved (usually in exchange for additional premium). Signing a contract without this coverage could jeopardize your company.

29. Contractual Liability An Important Policy Exclusion Distinction All liability assumed by contract is excluded vs. The contract will notvoid the existing coverage under the policy but will not extend it eitherRead Your Policy!

30. Contractual Liability When contractual coverage is added back to the E&O policy and a special contract is covered: • Underwriters often don’t cover every aspect of contract - Many contracts are too broad covering areas not contemplated by E&O/Cargo Liability coverage • Typical method is not to broaden coverage but to cover increased cargo liability and agree that signing contract will not void policy • In addition to your insurer, it is important to have your attorney review contracts

31. Contract Tips • Create procedures for contract execution detailing an approval process • Negotiate (as a rule) • Try to start with NCBFAA Terms & Conditions and increase limit of liability • Attempt to avoid adding clients as additional insureds to your policies - Not appropriate on cargo & cargo liability policies (Loss Payee is more correct) - Splits your limit

32. Questions?

33. Thank You Presented by: Michael S. Brown Sr. Vice President - Sales Avalon Risk Management, Inc. 888-750-5677 mbrown@avalonrisk.com