January 12, 2022 | Errors and Omissions
Follow These Tips to Avoid E&O Claims and Protect Your Bottom Line
Most everyone involved in the logistics industry has or will have a claim story to tell. For example, your new hire did everything right on that shipment of auto parts headed to the Greenville BMW plant, except he directed them to Greenville, NC instead of Greenville, SC. That’s delay. That’s a claim. Or maybe you had a heavy project load coming off a ship in Newark and going overland to Syracuse. You told the trucker that the cargo required an airlift, but they sent a regular flatbed, and the whole rig toppled coming around the bend on the George Washington Bridge exit. The error belongs to the carrier, but you selected that carrier. That’s a claim. An import entry writer at your company mistakenly classified professional household organizing equipment as household furniture and made the entry duty free. That’s misclassification of goods, and the financial consequences of that mistake fell on the shoulders of your client. That’s a claim.
Mistakes happen. Damage to cargo, theft, delay, or other unintended incidents that cause financial losses to your clients occur without warning. Sometimes they are preventable. Sometimes they aren’t. Depending on your role, or perceived role, in the logistics transaction, you could be held accountable whether or not you made the error that led to the loss. It’s the cost of doing business.
The good news is that you can minimize these costs, protect your bottom line and preserve client relationships by following basic best practices. There are three specific areas you can focus on to set your company up for success.
Documentation that you issue is essential. You know who you are and what type of service you’re providing. Drafting digital and print documents that accurately reflect those activities is vital to your business. Review your documentation, all paperwork generated in your business transactions, including terms and conditions of service, power of attorney, credit applications, air waybills, bills of lading, delivery orders, warehouse receipts, invoices, and any other written document, including your website pages. Scrub all your written collateral for accuracy. In all cases, be specific about the services you perform.
Terms and Conditions
Terms and conditions are particularly critical documents because they are integral to your service contract. This documentation is where your disclaimers, your limitations of liability, and your notice of indemnification are usually specified. In addition, in your T&Cs, you have the opportunity to include pertinent hold harmless clauses so all parties are informed that losses resulting from specific causes cannot be construed as your fault.
Terms and conditions are most effective when they are kept up to date. For example, the NCBFAA updates its standard terms and conditions language somewhat frequently, and you should be using the most current terms and conditions available. Updates to standard terms and conditions reflect a legal response to real-world cases, and they can protect you from loss. If you haven’t had your terms and conditions of service or carriage or your warehouse terms reviewed any time recently, you should consider doing that to make sure you’re current with the times.
In addition to having accurate and up-to-date terms and conditions, where you reference your terms and conditions plays a vital role in protecting you and helping your defense in case of a claim. Terms and Conditions should be easy to find from your website home screen. Your terms and conditions of services should be on all of your invoices. You can include a link to the terms and conditions posted on your website on an electronic invoice. You can print T&Cs on the reverse side and have the URL to the web page with the terms and conditions available on a physical invoice. You should include or at least reference and provide a link to your terms and conditions in your quotes and your powers of attorney. Any agreement, offering, or formal request is an opportunity to provide your terms and conditions. Even in the signature line of your company emails, you have a chance to link directly to your terms and conditions of service.
All Your Documents Matter
Beyond the subject of T&Cs, it’s essential that your invoice clearly states the services for which you are charging. The invoice needs to match exactly with the type of service you’re performing to avoid misinterpretation in court. The same is true if you issue a domestic bill of lading. Avoid listing yourself as a motor carrier on the bill of lading. This sort of document scrutiny aims not to assume any liability based on the contractual obligations that you set forth. Your marketing, your printed and digital materials, your website – do they all clearly and accurately communicate the services you provide? Would it be apparent to an outsider where your responsibility begins and ends? What is a reasonable expectation and understanding for your customers to have about you? It all matters when you are trying to protect yourself from accusations of professional negligence.
Risk Review Program
We’ve mentioned the importance of having your paperwork reviewed by an attorney. The Risk Review program provides you with that opportunity. Designed to address upfront legal concerns such as proper documentation, regulatory compliance, and operational exposures, Roanoke offers this service in partnership with a select group of transportation attorneys. One of the program’s benefits is that it provides insight into your operation because no two operations necessarily run the same. It analyzes and reviews your business activities, reviews your terms and conditions of service and carriage, warehouse receipts, and access to pertinent reference materials and documents. The end goal is to form a single coherent documentation strategy, align your messaging, and get the best possible language in place for you.
Standardized business processes are not only critical as a means of limiting mistakes with airtight procedures, access to experts, and staff training; they also demonstrate that you are doing your due diligence as a service provider. Depending on the types of service you provide, the processes you need to manage risk will vary, but the critical action to take is to establish, codify, and teach your standard practices. Because of the considerable variance in operations performed across the spectrum of logistics service providers and those working in the supply chain, we can focus on a couple of specific processes related to common negligence claims to illustrate the concepts.
When arranging transportation, you know it’s essential to properly vet truckers and property brokers (if co-brokering). Doing so will help avoid losses, and it will also strengthen your defense if a claim arises. Consider checking with your trade association for recommended services to help you confirm if motor carriers are appropriately licensed, insured, TSA compliant, and have good safety ratings. However, using these services may not be enough to avoid a claim. For example, choosing a reputable carrier with less than sufficient motor truck cargo insurance to cover the value of the cargo you hired them to move could result in an uncovered cargo loss. Although it might not be considered negligent carrier selection because the carrier met the standard criteria, not verifying their insurance limits could be a negligent operating procedure.
The foremost consideration is: do you have to have a protocol and a process for the truckers’ selection and vetting? Is just anybody in your company able to choose a trucker as the need arises, or is that authority limited to a designated group? Can the carrier be whomever they want? Is there an escalation process if it’s a new trucking company that you haven’t used before? If the shipment is over-weight, over-height, or high value, is it required to use a motor carrier that has experience moving those types of goods? Again, implementing managerial oversight of how this process works can help you establish the due diligence you need.
Classification of Goods
Another common claim type is misclassification of goods. The language in the statute refers to false classifications, but typically these incidents are not due to falsehoods but simply inaccuracies. It is all the same to CBP because improper classification could lead to rate increases. When that happens, importers will be held accountable, and they will likely seek reimbursement from the customs broker.
Here the process needs to be highly inclusive of the client. Ensure that you confirm agreement with the importer of the classification of their goods. It is advisable to have a standard process when handling a complex classification. To ensure consistent tariff filing, everyone should know the designated in-house Harmonized Tariff Schedule (HTS) expert. Ultimately, it would be best to have management oversight to ensure that everyone follows these processes and procedures to limit any misclassification claims.
ERRORS & OMISSIONS INSURANCE
Errors and Omissions insurance should be the last line of defense in your efforts to prevent and mitigate loss due to negligence claims. It is the life preserver that’s there, so you are not underwater for the total cost of a catastrophic loss or an expensive lawsuit. It defends you when you’re being held legally liable for a loss, and it pays legal fees. The costs of a settlement alone can be more than you can comfortably absorb as a company. In addition, legal fees associated with a claim on a significant loss tend to get very high, very fast as well.
Your E&O insurance is there to pay for legal defense and the settlement awarded against you. Many claims of negligence brought against logistics service providers, customs brokers, and others involved in the supply chain don’t have any real merit. E&O insurance will respond to these types of frivolous lawsuits as well. You might know that in no uncertain terms, you are not liable. You have every right to question why you are even a party to such a lawsuit. You can turn to your E&O policy to step in and defend your company in these cases. Some policies offer “first dollar defense,” so those legal fees would be paid dollar one before the policy deductible, limiting your out-of-pocket cost and protecting you from the unexpected
A supplement to Errors and Omissions insurance that Roanoke offers is a product called Regulatory Defense: prepaid consultation and legal assistance that you have on call for an annual cost. When a government agency such as TSA, the FAA, or CBP levy penalties against you, saying you are not in compliance with the laws and regulations administered by the US government, specialist attorneys are there to step in and assist. These allegations have nothing to do with cargo movement or alleged damages, but rather, it is public versus private, government against you. Regulatory Defense can fill this cost gap.
For instance, it could cost anywhere from $4,000 to $10,000 to hire the right attorney to represent you if the government comes against you with a claim. In addition, you might need petitions filed, informal conferences held, legal discussions with the agency in question. Regulatory defense covers this legal cost for you at a fraction of standard attorney fees, and specialized legal teams who understand transportation, logistics, and trade law manage the claim.
While no one can completely eliminate the risk of an Errors and Omissions claim, you can take a few key steps to secure your business and prevent serious loss to you and your company. The first order of business is to make sure your documentation is accurate and up to date. Verify that what you do and where your responsibility begins and ends is clear in your documents. Make sure your terms and conditions, limits of liability, and hold harmless language are referenced often and easy to find. With the right documentation in place, the second step is to nail down your internal processes. You can reduce workplace errors and demonstrate due diligence by providing standardized, written procedures and incorporating employee training with established subject matter experts and escalation strategies in place. Finally when unavoidable errors occur or frivolous lawsuits come your way, your E&O insurance policy is there to respond and pay for legal defense and settlements.
This blog post is provided for informational purposes only and does not constitute legal advice. It should not be construed as an offer to represent you, nor is it intended to create, nor shall the receipt of such information constitute, an attorney-client relationship. Readers are urged to seek professional or legal advice from appropriate parties on all matters mentioned herein.