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SFAA Continues Work on Implementation of Freight Forwarder and Property Broker Bond

Monday, May 13, 2013  

SFAA continues to work on the issues with the revised bond requirements for property brokers and freight forwarders under the new highway reauthorization law (MAP-21), which were enacted in 2012. The bond amount has been increased from $10,000 to $75,000. The new law requires the provider of security to pay claims upon the following alternative occurrences: (1) the broker consents to the payment, (2) the broker does not respond after notice and the surety determines that the claim is valid or (3) when the claim cannot be resolved and it is reduced to a judgment. The provision does not contemplate instances when the broker objects to paying a claim that the surety has determined is valid. Sureties are obligated to pay valid claims even when the bond principal objects. Sureties also would be required to "respond” within 30 days. Because of the three party nature of claims, sureties may not be able to make a final determination on every claim in that time frame. While the legislation has a process for prorating the bond amount when it is insufficient to pay claims in the event of insolvency, that process also should apply when the broker is solvent and it should be clear that surety is discharged when the bond amount is exhausted. In any action against a surety to recover a claim, the prevailing party shall be entitled to recover costs and attorneys’ fees, but it is unclear whether or not such that attorneys’ fees and costs are part of the bond amount.

Earlier this year, SFAA wrote to the Federal Motor Carrier Safety Administration (FMCSA) to inquire about the changes that would be needed in the existing regulations regarding the bonding provisions for property brokers and freight forwarders in MAP-21. The law requires the increased bond to be in place by October 1, 2013. FMCSA recently responded to our inquiry, and informed use that it is in the process of implementing the requirement, noting that more information will be available in the coming months. SFAA also inquired about the procedures for replacing the bond and whether the existing bond would be cancelled and replaced by the new bond, or whether the existing bond could be revised through a rider or endorsement. FMCSA responded that a rider or endorsement would be accepted to comply with the new requirements so long as the full limits of liability for $75,000 is on file with the FMCSA. SFAA also commented on the above-described claims provisions and noted the difficulties sureties may have with the process, specifically with the consent requirements for the broker and the freight forwarder, the recovery of attorney’s fees and other costs in claims against a surety, and the discharge of the surety’s liability if the bond penalty is exhausted. FMCSA responded that the claims provisions, among other issues in implementing MAP-21, are under consideration for being addressed through the rulemaking process.

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