The Safe Harbor Is Gone:
Freight Brokers and New Negligent-Hiring Exposure

For years, freight brokers had a reliable way out of negligent-hiring lawsuits: federal preemption. The argument was simple. Under the Federal Aviation Administration Authorization Act (FAAAA), federal law preempted state claims that interfered with the price, route, or service of a broker or motor carrier. If a carrier you booked caused a crash, the plaintiff had to fight past a federal wall before they could make you answer for your hiring decisions.

On May 14, the Supreme Court closed that wall. Unanimously.

In Montgomery v. Caribe Transport II, all nine justices agreed: a safety exception built into FAAAA means what it says, and state negligent-hiring claims against freight brokers are not preempted by federal law. Justice Kavanaugh wrote separately to emphasize the narrow scope of the holding -- the ruling allows claims to proceed; it does not establish liability. The case was sent back to lower courts on the merits. But the signal to the industry was not subtle. Every freight broker in the country woke up the morning of May 15 with a different risk profile than they had the morning before.

If your business arranges freight -- if you book carriers, act as a third-party logistics provider (3PL), or arrange transport on behalf of shippers -- the question is no longer whether you can be sued for the carriers you pick. You can. The question is whether your vetting was reasonable, and whether your insurance program was built for the exposure that just became viable nationwide.

Here is the question worth sitting with: if a carrier you booked caused a catastrophic crash tomorrow, could you prove your selection process was reasonable? And if a jury decided it was not, would your coverage respond?

Underwriters are already asking the same question. A unanimous Supreme Court decision does not stay quiet for long. Expect broker liability premiums to move.

What the Court Actually Decided

FAAAA was passed in 1994 to deregulate the trucking industry. Its preemption clause bars states from enacting or enforcing laws related to the price, route, or service of a motor carrier or freight broker. For decades, carriers and brokers leaned on that language to knock out negligent-hiring cases at the threshold -- before discovery ran, before juries saw crash evidence, before expert witnesses testified.

The statute includes a carve-out. The preemption clause does not apply to the safety regulatory authority of a state with respect to motor vehicles. Whether that exception reached freight brokers -- not just carriers -- had divided the federal appeals courts. The Ninth Circuit held in Miller v. C.H. Robinson Worldwide, Inc. (2021) that it does. The Seventh Circuit held the opposite. Montgomery v. Caribe Transport II ended the split.

The Court held that the FAAAA safety exception applies to freight brokers. A state negligent-hiring claim against a broker -- alleging the broker failed to adequately vet the carrier it selected -- is a state exercise of safety regulatory authority. FAAAA does not preempt it. The ruling does not decide who wins at trial. It rules that the case gets to trial.

Justice Kavanaugh's concurrence drew the boundary carefully: courts should not read the ruling as licensing broad new negligence theories unmoored from actual safety regulation. Even with that qualifier, the practical shift is significant. Before May 14, a broker facing a negligent-hiring lawsuit could file a preemption motion and potentially end the case before it started. That option is gone.

The exposure landing in that gap is not theoretical. The federal minimum financial responsibility requirement for a general freight carrier is $750,000. [4] Catastrophic injury verdicts routinely exceed that by an order of magnitude. The American Transportation Research Institute (ATRI) documented an average nuclear verdict -- defined as any verdict over $10 million -- in trucking litigation that has grown significantly each year through their most recent published research. [3] When the preemption defense goes away, that exposure lands on the broker who made the selection. Your commercial insurance program was almost certainly not priced for it.

By forming a captive, your business continues to enjoy the commercial coverage your clients and lenders expect -- while also owning the entity that holds your disciplined-vetting premium, keeping the underwriting profit from your own clean record, and writing policies for exposures the commercial market does not touch.

What You Need to Know About Captive Insurance From 3F

The short version: a captive is an insurance company you own. It augments your existing commercial program -- it does not replace it. Your contingent auto liability, your motor truck cargo coverage, your general liability all stay in place. What the captive adds is coverage beneath and around that program: it can fund your deductible layer so retained losses do not come straight off cash flow, it can provide stop-loss protection above your retention threshold, and it can write policies for specific exposures the commercial market will not touch at all. Your commercial program handles what it handles. The captive handles what it cannot.

Your commercial broker keeps everything they have. Nothing about that relationship changes. You are adding a structure most brokers cannot offer clients on their own. That makes you a more sophisticated, better-capitalized risk to work with -- not a harder one.

You do not operate the captive. 3F Captive Services handles formation, licensing, compliance, reporting, accounting, and claims administration end-to-end. The captive runs in the background of your business. Zero operational change to your company.

Commercial carriers have operated this way for generations. They collect your premium, invest it, keep the return, and pay claims from the pool. A captive puts you on the other side of that equation. When claims come in below what you contributed for the year, the surplus stays in a company your business owns -- not in a carrier's investment portfolio.

There is more than one captive structure, and which one fits depends entirely on your risk profile. 3F will tell you which one makes sense after a review.

Do You Clear the Bar?

Captives are not for every business. Here is a quick scan:

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☐  Your business arranges, brokers, or selects motor carriers for freight.

☐  If sued tomorrow, you could document why you chose that carrier -- and you are confident that documentation would hold up in discovery.

☐  You pay $250,000 or more in annual commercial insurance premiums.

☐  You have three or more years of operating history and a claims record you can point to.

☐  Your carrier vetting process is already disciplined -- operating authority, insurance certificates, safety scores -- and you want to stop subsidizing brokers whose vetting is not.

☐  You want the underwriting profit from your own clean record to stay in your business, not fund a commercial carrier's investment return.

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If most of those apply, a conversation is worth having. If none of them apply, a coverage review will still tell you something useful about what you actually bought.

A word on the legal and regulatory structure: captives are licensed, regulated insurance entities. Section 831(b) of the Internal Revenue Code provides favorable tax treatment for small captive insurers -- it has been in the code for decades and it is a legitimate planning tool when built around real, measurable risk. We say that carefully because the Internal Revenue Service finalized regulations in January 2025 treating certain micro-captive arrangements as listed transactions or transactions of interest. Some operators used captives primarily for tax benefits, with loose connections to actual underwriting. The IRS moved to close that. 3F builds captives around real risk and real compliance. The tax treatment is a feature of a properly structured captive, not the argument for forming one. The argument for forming one just came out of the Supreme Court.

Start With a Coverage Review

Here is a reframe: you are not deciding whether to form a captive today. You are deciding whether to let someone read your policies.

Most freight brokers and third-party logistics providers have never had anyone do that. They have hundreds of pages of insurance documentation -- certificates, endorsements, exclusions -- that govern their exposure in a crash case. Most owners have never opened them. Most would not know what to look for if they did.

A no-cost coverage review from 3F Captive Services is exactly what it sounds like: a plain-language read of what you actually bought. It surfaces coverage gaps, over-insured lines, under-insured exposures, and red flags that could produce a denial when you need the policy most. It also tells you where you are well-covered. Whether or not a captive turns out to be the right answer for your business, you will walk away knowing what you actually have.

The Supreme Court just changed the liability exposure for every freight broker in the country. The preemption defense is gone. What you have left is your vetting record and your insurance program. We can help you understand both.

Start with a no-cost analysis at 3fcaptiveservices.com.

This article is commentary, not legal advice; consult counsel on liability questions.

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