The Freight Broker’s 2024 Business Plan
If you’re a freight brokerage executive whose firm pulled in $25 million or more last year, you may have a target on your back.
As 2024 unfolds and you’re shaping your business plans, focusing on growth, maintaining margins, and expansion, there’s a subtle but significant concern looming. A predatory trend is making its way across the country, possibly heading to your door, aiming to exploit the $11 million insurance gap that your thriving business likely carries.
Imagine receiving notification that a driver hauling one of your shipments has been involved in a disastrous highway accident, making you a co-defendant in a multimillion-dollar lawsuit.
Limited Insurance Coverage
However, if you assume that 100% of this risk is transferred to your insurance carrier, unfortunately, you are mistaken. The coverage provided by your insurer is limited, set, and often insufficient. Shakedown lawsuits, as highlighted by Roadblock, a report from the US Chamber of Commerce, are on the rise nationwide, presenting implications that might not be immediately apparent.
As your company’s routes and shipment volumes increase, leading to more trucks on the road, the inevitability of highway collisions, possibly with multiple fatalities, rises. Complicating matters is the expansion of your reach.
Judicial Hellholes
Several states, labeled as “judicial hellholes” by the American Tort Reform Foundation (ATRF), including Georgia, Florida, New York, Pennsylvania, Illinois, Louisiana, and California, pose legal challenges. If you conduct business in these regions, be aware that the legal landscape may be unfavorable, making fighting a case an uphill battle. How exposed are you and your business?
Are you prepared for the potential fallout in these judicial hellholes?
The role of a freight broker, who neither owns the truck nor hires the driver, doesn’t provide the detachment from liability it once did. According to Roadblock:
- 92 percent of motor carriers, with 10 or fewer trucks, are small businesses, leading plaintiffs’ attorneys to seek recovery from other sources, including freight brokers.
- A review of verdicts against freight brokers from 2015-2021 averaged $12,528,663, with a median verdict of $4,126,000.
So, as a CEO, are you prepared to write that 8-figure check in 2024?
Questions like “Don’t we have enough reserves set aside to make this go away?” or “Why didn’t our 2024 budgeting have a line item for this?” are important, but it’s crucial to address them proactively.
Assuming your insurance company will cover it because you pay your premiums is a risky presumption. This is not your personal car insurance; it’s an entirely different realm. Even if your coverage comes to around $2 million, it may be outdated, leaving a substantial gap if faced with a lawsuit. Consider this scenario: an initial demand of $15 million negotiated down to $7.5 million. Despite your negotiation skills, there’s still a significant difference between what your insurance company will cover and what’s expected from your own resources.
Be Prepared
Are you aware of the uninsured risk you carry? If your answer is “I don’t know,” you’re unprepared. If it’s anything under 8 figures, you may be deluded. In your fiscal calculations, why hasn’t this been considered?
While insurance companies are aware of the issue, little is being done to address it. It’s on you to protect yourself, your business, and those dear to you.
Are You Prepared?
Consider including a litigation/claim/uninsured risk reserve in your budgeting concerns. It’s not just a supplement to your insurance; it provides peace of mind in the meantime.
If caught unprepared for a payout, plaintiffs’ lawyers will leave no stone unturned, exposing vulnerabilities and blind spots while you lack means of defense. The best-case scenario involves a major disruption to your business; the worst-case might force you to close your doors forever.
Your hard-built enterprise isn’t the only thing at stake; your employees, who have become like family through your company’s struggles, are now at risk of losing their livelihoods. Too many businesspeople find themselves chronically underinsured, lacking sufficient cash reserves for a legal ambush of this magnitude.
So, what are sufficient cash reserves? While there’s no one-size-fits-all solution, understanding and addressing this risk is crucial. As Sun Tzu said in The Art of War, the battle is won or lost in preparation.
Schedule a call with Commerce Law Partners today to ensure you are well-prepared.
