Real Life Claim Examples After the Food Safety Modernization Act And How To Address Issues in Contracts

As reported this month in Overdrive Magazine, trucking companies that ship food are facing burdensome contracts and unintended consequences from the Food Modernization and Safety Act (FMSA). While it’s important that your drivers understand FDA regulations if transporting food items, its’ also critical that you review contracts before signing them to ensure you have not agreed to terms that may result in out-of-pocket expenses to your company.

Below is a recent rejected load claim example that was the result of new shipper contract that:

A broker hired our client to ship a load of carrots from California to a distribution center in the Midwest. The load was picked up from an agricultural distribution facility and loaded into the trailer by an agent of the shipper into the trailer. The trailer was sealed, and the driver proceeded on the three day drive to the Midwest distribution center. Upon arriving, the seal on the trailer was verified to have intact. However, the shipper rejected the entire load due to some mold on some of the carrots. The download for the reefer unit showed that the temperature had always been within the acceptable range for carrots. However, due to an onerous shipper and broker contract, the shipper demanded that the motor carrier pay for the entire rejected load, as they believed the carrots had become contaminated while in the course of transit. The broker, in turn, threatened to sue the motor carrier for damages.

The motor carrier’s insurance company fought the claim, as there was no proof of damage caused by the motor carrier, nor was there proof that there was any damage the majority of the carrots. Furthermore, the shipper had the carrots destroyed within 24 hours of delivery and did not allow the insurance adjuster to inspect the load. The result was a prolonged legal battle between the shipper, broker, trucking company, and insurance company. Ultimately, the claim was settled between all parties to avoid expensive litigation, but our client was not paid for the load, and they were out of their cargo deductible.

As this example illustrates, an onerous shipper contract resulted in the motor carrier losing several thousands of dollars, not to mention a lot of headaches. No one could prove that the motor carrier had been negligent, and without the ability to inspect the load, the insurance company was left in a weakened position to combat an unfair contract. There are multiple large agriculture and food shippers that have adopted very stringent language into their contracts, and in turn, their brokers have adopted similar language.

So how can a motor carrier prevent expensive and burdensome claims that may arise out of the FMSA?

  • Review shipper contracts with a transportation attorney. Have a list of “no go” language to reference when reviewing contracts in-house.
  • Contact your insurance professional to verify if you have coverage to back up your contracts.
  • Establish sign off authority within your organization to ensure employees are not signing contracts that will haunt you later.
  • Familiarize yourself with FDA Regulations

As always, the trucking insurance professionals at The Daniel & Henry Company are here to help you understand what measures you can take to reduce risk and insurance costs. Please contact us today if you have any questions about FSMA issues or any other transportation insurance and risk management matter.

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