A unanimous U.S. Supreme Court ruling in Montgomery v. Caribe Transport II is poised to reshape the freight and logistics industry, exposing transportation brokers to greater legal liability when they hire carriers involved in serious crashes.

The May decision allows state-law negligent hiring claims against brokers to proceed, rejecting a long-standing argument that federal law shields intermediaries from such lawsuits.

Industry leaders say the decision could lead to stricter carrier vetting standards, higher insurance costs and increased scrutiny of safety records before loads are assigned.

While supporters argue the decision will improve highway safety by holding brokers accountable for selecting unsafe carriers, critics warn it could increase operating costs and legal exposure throughout the supply chain, potentially affecting freight rates and transportation capacity nationwide.

In early May, Supreme Court justices ruled unanimously in favor of Shawn Montgomery, whose parked vehicle was hit by a speeding truck driver on an Illinois highway in 2017. He wants to sue C.H. Robinson, one of the country’s largest freight brokers, over its role in putting the driver on the road despite what he called “serious red flags.”

The decision does not mean Montgomery will necessarily win the lawsuit, which the company is contesting. However, the ruling opens the door to increased liability for freight brokers.

Montgomery’s lawyers say the driver had been cited for careless driving in another crash months earlier and the carrier he worked for was involved with at least three crashes in a span of about five months. The lawsuit argues C.H. Robinson should share liability because it hired the carrier despite those problems.

The Transportation Intermediaries Association, an industry group, said the decision was “deeply disappointing.”

“This is like asking travel agents to evaluate the safety of a given airline despite the fact that the airline has been licensed to fly by the federal government,” the association’s president and CEO Chris Burroughs said. “We are working with our members to assess potential next steps to mitigate the consequences of the Supreme Court’s decision.”

Montgomery’s appeal was backed by more than two dozen states, which claim a win for him would help bolster safety in an industry that moves billions of tons of goods across billions of miles every year.

The company argued the suit, filed under state law, must be tossed out because brokers rely on the federal government to regulate carriers and federal law trumps state law.

In an opinion by Justice Amy Coney Barrett, the Supreme Court disagreed. The justices found Montgomery’s claims can move forward because they fall under an exception for safety regulations.

The decision could increase insurance costs for freight brokers that eventually “cascade through the economy” and result in higher prices for consumers, Justice Brett Kavanaugh wrote in concurrence.

The ruling does not impose automatic liability. It opens the door for plaintiffs to challenge how brokers vet and select carriers in state courts nationwide.

According to Kristy Knichel, CEO of transportation and logistics provider Knichel Logistics in Cranberry Township, companies such as hers have to come up with their own carrier vetting process. Knichel Logistics arranges shipping on trains and trucks throughout the United States, Mexico and Canada.

“We have used a system called Highway for the last three years,” Knichel said. “We go into that system and there are guidelines that we follow that they have given us, but we also pick our own. We see how many accidents they have had, any violations and any inspections failed. There are certain scores we go by that help us.”

The Highway system lets them know about carrier driving records. Knichel said she will still use a carrier if it has one accident — depending on the nature of it — but two accidents and beyond is where she draws the line.

But other companies might not.

“The unfortunate thing is there are a lot of brokers out there with over 20,000,” Knichel said. “There are mom-and-pop places that get a Motor Carrier number and book freight. When there are a lot of brokers out there, they have people booking freight utilizing carriers that don’t have a good rating because they were cheaper and/or easier to book. I can tell you at my company that would not happen because we have rules and regulations that we put in place.”

The Supreme Court decision does not worry Knichel too much because she feels her company already follows proper procedures.

She thinks it will help get bad truck drivers off the road. However, with fewer drivers available, shipping costs could go up as a result, as well as insurance costs for companies like Knichel’s.

“A company my size can’t pay out a claim like C.H. Robinson could,” Knichel said. “We do anticipate this is going to potentially cost companies and the industry in general more money. I feel like it shouldn’t be on our plate. The government needs to do a better job of vetting these carriers and letting us, as companies, know who is safe and who is not, because if they deem these carriers safe based on whatever standards, then I don’t think you will see as many of these issues.”

Pointing to potentially how many bad truck drivers are on the road, Knichel mentioned the industry recently had its annual “blitz week,” also known as the Commercial Vehicle Safety Alliance International Roadcheck event. It’s a 72-hour commercial motor vehicle inspection blitz across North America.

Knichel said law enforcement is out and aggressively looking for trucks, pulling them over and making sure they stop at weigh stations to verify their safety.

“It is the most challenging week to book freight because a lot of carriers park their trucks because they know they will get flagged,” Knichel said. “It’s messed up and there needs to be more accountability.”

Knichel said following the decision, she would like to see the government set industry standards as to what a safe carrier is and isn’t.

Greg Burns, chairman and CEO of PLS Logistics Services in Cranberry Township, said instead of the government stepping in and being in the “what is safe and what is not safe,” he would like Congress to simply pass a law saying brokers cannot be held liable.

Burns called the Supreme Court’s decision a “terrible ruling,” saying that brokers don’t have any skin in the game.

“Generally, brokers — whether its real estate or brokering corn — they are the middleman and not the underlying owner of the assets,” Burns said. “I am not a lawyer. I just think it is fundamentally a wrong ruling that the guy brokering is responsible for the underlying asset that is being brokered.”

Burns said PLS Logistics is a non-asset-based logistics company or, in simple terms, a truck broker.

Brokers such as PLS and Knichel Logistics don’t own assets such as trucks; carriers do, and they, not brokers, hire and train truck drivers.

“(Carriers) control drug testing and all these things and we have none of that,” Burns said. “I don’t want to throw the trucking industry under the bus. As in any industry, there are good and bad actors, but carriers are closer to the situation. They are in the best position to know what their training program is. That is what a trucking company does.”

Like Knichel, Burns also thinks freight costs and insurance costs will go up for brokers. He also thinks smaller mom-and-pop carriers with small amounts of capital will not be able to compete, thus driving some industry consolidation in the process.

These smaller carriers often don’t have the money to take on accident lawsuits. It’s another reason Burns thinks this ruling came to fruition, because the brokers are often the ones with the deep pockets.

“I think it is a terrible ruling, but the industry will adjust like it always has,” Burns added. “Without freight, the world stops, so I am confident it will adjust to whatever comes down the pike.”

No regulatory changes at the state and federal level have taken place as of yet, but industry agencies are making their opinions known.

The Transportation Intermediaries Association said it has filed a Petition for Rulemaking with the Federal Motor Carrier Safety Administration, calling for the establishment of a federal Motor Carrier Safety Selection Standard.

The International Brotherhood of Teamsters, one of North America’s largest labor organizations representing about 1.2 to 1.3 million workers, applauded the Supreme Court’s decision, saying it makes it clear the Federal Aviation Administration Authorization Act does not shield companies from safety-related lawsuits because they outsource transportation work.

The organization said it thinks the ruling could empower states and local governments to take action against unsafe delivery practices, particularly in last-mile delivery.

This article first appeared in the July edition of Butler County Business Matters.