The Supreme Court ruled 9-0 on May 14 in Montgomery v. Caribe Transport II (No. 24-1238) that the Federal Aviation Administration Authorization Act (FAAAA) does not preempt state negligent-hiring claims against freight brokers. Justice Barrett, writing for a unanimous Court, held that the FAAAA’s safety exception, which preserves state authority to regulate safety “with respect to motor vehicles,” encompasses claims that a broker failed to exercise ordinary care in selecting a carrier.
The ruling strips the federal preemption defense that brokers have relied on for years to defeat tort suits at the pleading stage. All 28,000 licensed U.S. freight brokers now face potential state-law liability for carrier selection decisions in every jurisdiction.
The underlying facts
Shawn Montgomery suffered severe injuries, including leg amputation, when a tractor-trailer rear-ended his stopped vehicle on Illinois Interstate 70 in December 2017. The truck was operated by Caribe Transport II, which federal regulators had assigned a “conditional” FMCSA safety rating citing deficiencies in driver qualification, hours of service, and crash rates. C.H. Robinson, one of the largest freight brokers in the country, had arranged the shipment under a carrier agreement with Caribe. The Seventh Circuit sided with C.H. Robinson, ruling the claim preempted. The Supreme Court reversed, resolving a circuit split where the Sixth and Ninth Circuits had already allowed similar claims to proceed.
Who it affects
Self-insured freight brokers and third-party logistics providers (3PLs) face the most direct impact. Brokers that lack documented carrier vetting protocols now carry a liability exposure with no historical loss data, forcing actuaries to rely on analogous carrier severity benchmarks to set initial loss picks.
Self-insured fleet operators and shippers also face indirect exposure. Plaintiffs’ attorneys can now name brokers as co-defendants in crash litigation, expanding the pool of solvent targets. That dynamic increases both the probability of suit and the size of negotiated settlements across commercial auto lines.
Justice Kavanaugh’s concurrence, joined by Justice Alito, offered a partial limiting principle: brokers who adopt “reasonable vetting” practices and arrange transportation with reputable carriers “should be able to successfully defend” lawsuits. He also flagged that the $75,000 surety bond minimum for brokers compares poorly with mandatory insurance minimums for carriers, signaling that brokers have been undercapitalized relative to their actual risk profile.
Reserve mechanism: severity and frequency
Adding 28,000 broker defendants to the commercial auto litigation pool widens the severity distribution that has already been climbing. The five-state concentration of nuclear verdicts means exposure is highest where verdict severity is already most acute. For self-insured brokers, the absence of historical loss data means initial expected loss ratios will be estimates built from carrier-side severity benchmarks, with wide confidence intervals.
The longer development tail from adding mid-litigation broker defendants will also widen IBNR estimates for open commercial auto accident years. Excess and umbrella layers for brokerage operations will face upward pricing pressure as underwriters reprice to reflect the removed preemption defense.
What this means for your next review
Ask your actuary whether the commercial auto severity trend needs a loading factor to reflect the addition of broker defendants. For self-insured brokers and 3PLs specifically, request a standalone loss projection for brokerage operations, even if historical loss data is thin. Confirm that carrier vetting protocols are documented and timestamped; under Kavanaugh’s “reasonable care” framework, a paper trail is the difference between a defensible claim and a negligence finding.
Sources
- SCOTUSblog: Court rules freight brokers can face negligent hiring suits under state law
- Supreme Court opinion, Montgomery v. Caribe Transport II, No. 24-1238 (PDF)
- FreightWaves: The Supreme Court just told every freight broker that they can be sued
- Hanson Bridgett: SCOTUS holds FAAAA does not preempt negligent hiring claims
- Bricker Graydon: What brokers, carriers, and shippers should do now