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Changes Affecting the Bonding and Regulation of Property Brokers and

Surface Freight ForwardersA Timely Update

Presented by:Colleen Clarke and Matt Zehner

Roanoke Underwriting, a division of Roanoke Insurance Group Inc.

About Us

Colleen Clarke, Vice President, Surety for Roanoke Underwriting, a division of Roanoke Insurance Group, Inc.

Colleen focuses on the review and analysis of CBP policy including new issues from the perspective of the surety underwriting group as well as the client services team. She manages Roanoke’s independent agent unit for bonds. Ms. Clarke is a past appointee of the CBP Commercial Operations Advisory Committee (COAC) where she still participates. She serves as co-chair of the Surety Account Subcommittee within the Trade Support Network (TSN) and works closely with CBP as a representative on the Customs/Surety Executive Committee (C/SEC).

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About Us

Matt Zehner, Vice President, Surety Information & Communication for Roanoke Insurance Group Inc.

Matt has worked in the international trade segment of the insurance field since 1990 and has held upper management positions in both agency and insurance company operations. Mr. Zehner’s work in Roanoke’s surety product line includes monitoring current events for changes in the legal and regulatory environment and working closely with federal agencies and industry trade associations concerning changes impacting the international trade industry and its surety products. He is a frequent presenter for a number of organizations nationally and internationally.

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• Overview of MAP-21 changes affecting logistics intermediaries

• Overview of MAP-21 changes affecting handling of claims against bonds/trusts

• Planning for the changes– What is new since February’s presentation

What We Will Cover

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MAP-21 and Brokers/FFs

• In general – new registration requirements• All who broker motor freight or perform surface freight forwarding –

including IACs and motor carriers – will have to register as brokers or freight forwarders with FMCSA

• Each category of authority will have a unique registration number assigned by FMCSA

• Those already with authority will need to register within 4 years• Must renew registration every 5 years• Brokers and FFs must hire a qualified officer (3 years or more

experience)5

MAP-21 and Brokers/FFs

• Big Penalties • $10,000 per violation – can be imposed against “officers,

directors and principals” when illegal brokerage occurs• Effective Dates

• Many provisions effective October 1, 2012• Bonding provisions effective October 1, 2013• All rulemaking must be complete by October 1, 2013

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Now vs. New

Authority Now New (by Oct 1, 2013)

Property BrokerHHG Property Broker

$10,000 Bond/Trust$25,000 Bond/Trust

$75,000 Bond/TrustOne bond good for both authorities

Freight Forwarder Cargo Insurance(at the FMCSA’s discretion)

Cargo Insurance(still at the FMCSA’s discretion)

Insurance for BI/PD Insurance for BI/PD

No Bond/Trust $75,000 Bond/Trust

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Definitions

• Broker – a person other than a motor carrier, or an employee or agent of a motor carrier, that as a principal or agent sells, offers for sale, negotiates for, or holds itself out by solicitation, advertisement or otherwise as selling, providing, or arranging for, transportation by a motor carrier for compensation.

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Definitions

• Freight forwarder – a person holding itself out to the general public (other than as a pipeline, rail motor, or water carrier) to provide transportation of property for compensation in the ordinary course of its business:– Assembles and consolidates shipments (or provides for it); and– Performs break bulk and distribution of the shipments (or provides

for it); and– Assumes responsibility for the transportation from the place of

receipt to the place of destination; and– Uses for any part of the transportation a motor carrier

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Carriers Brokering Freight(MAP-21, §32915)

Effective October 1, 2012• Carriers may not arrange transportation (by another

carrier) without appropriate broker or freight forwarder authority

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Unlawful Brokerage (New Law)(MAP-21, §32919)

Effective October 1, 2012• Carriers (including IACs) who broker freight need Broker Authority

(and a $10,000 bond/trust until the increase goes into effect)• Consequences: Civil penalties and private causes of action

– Up to $10,000 penalty, and– Liable to injured party for all valid claims incurred without regard to

amount, and– Liability is joint and several for the entity and its individual officers,

directors and principals11

Unlawful Brokerage (New Law)(MAP-21, §32919)

• Exceptions to Unlawful Brokerage Regulation– NVOCC/Ocean FF performing specific and limited functions

– Through ocean b/l covering inland movement– Customs brokers performing specific and limited functions

– Arranging for ITs, IEs and T&Es– A transaction involving “customs business”

– IACs performing specific and limited functions– Engaged in activities as an air carrier as defined in 49 U.S.C.

§40102(2) or in activities defined in §40102(3)

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Broker / FF Bonds(MAP-21, §32918)

• Available to pay claims arising from a failure to pay freight charges to the carrier

• Amount increases to $75,000• Provision for various ways to provide the $75,000:

• Surety Bond (BMC-84) or Trust Fund (BMC-85)• Forms’ language will have minor changes, should be available by Oct 1, 2013

• “Group Surety Bond” and “Other Financial Security”• Will be subject of future rulemaking notice and comment.

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What Happens October 1, 2013?

• FMCSA should have language of BMC-84 and BMC-85 approved by OMB.• Expected by September, 2013

• Sureties and Trust Administrators will have the month of October to “re-file” bonds/trusts.

• This reaffirms the limit is at least $75,000• Any filing prior to October 1 is deemed to be at the existing limits ($10,000/$25,000)

• On November 1, FMCSA will search database for noncompliant Brokers and FFs (those without a valid bond/trust filing on or after October 1).

• Allows for a month for sureties/trust administrators to make filings• FMCSA will send letters about noncompliance and will begin proceedings to revoke

authority.

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What Happens October 1, 2013?(cont.)

• System will be down for a few hours so that programming changes can be implemented.

• No filings for the new bond will be accepted prior to October 1.• Filings prior to October 1 will be considered to be using the current

language of the BMC-84/85.• Filings on/after October 1 will be considered to be using the new language

of the BMC-84/85.• FMCSA will give at least 30 days for the industry to get new filings in

place before enforcement will begin.• The system allows backdating of effective dates.

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What Happens October 1, 2013?(cont.)

• Terminating/Replacing Bonds or Trusts• Thirty days of notice is required to terminate a bond.• A “replacement” filing of a bond or trust automatically causes the existing

filing (of a bond or trust) to terminate immediately prior to the effective date of the new filing.

• Replacing can be done on little to no advance notice.• Without consent of existing surety/trust administrator.

• Can a rider change the language of the BMC-84/85?• “How sureties manage their policies is up to them.” – From the FMCSA.• Sureties should decide on their own whether to use a rider or to

terminate/replace.

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Plan Now for October

• Get underwriting approval sooner than later• Must have accurate address:

• Advise clients to review the accuracy of their business information (name/address) in the FMCSA’s online system.

• Changes need to be made online by the broker/forwarder.• Access to make changes requires a PIN (probably issued years ago).• Obtaining a new PIN involves manual intervention by FMCSA staff and

can take several business days.

Who knows if there’ll be a wave of requestsas October approaches?????

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Property Broker Bond: Surety’s View

• MAP-21 has formalized many claims handling practices – added new obligations on the surety (and trust provider)• Details will be subject of future rulemaking notice and comment.

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• Sureties / trust providers:– Respond to claimants within 30 days.– If claim is to be denied, set forth in writing the grounds.– In a suit against surety/trust provider, loser pays attorney fees.– No deduction of costs before paying claims.– For trusts: the use of assets readily available to pay claims without

resort to personal guarantees or collection of pledged accounts receivables.

• FMCSA– Post notice of any termination of financial security– Immediate suspension of registration if amount of security falls

below minimum ($75,000)

Claims Handling(MAP-21, §32918)

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Here’s one that should have rulemaking clarification — 49 USC §13906(b)(6) (similar language for freight forwarder)

(6) PAYMENT OF CLAIMS IN CASES OF FINANCIAL FAILURE OR INSOLVENCY. If a broker registered under this chapter experiences financial failure or insolvency, the surety provider of the broker shalla) submit a notice to cancel the financial security to the Administrator in accordance

with paragraph (4);b) publicly advertise for claims for 60 days beginning on the date of publication by

the Secretary of the notice to cancel the financial security; andc) pay, not later than 30 days after the expiration of the 60-day period for submission

of claimsi. all uncontested claims received during such period; orii. a pro rata share of such claims if the total amount of such claims exceeds the financial

security available____________________________Insolvency: (from Black’s Law Dictionary [http://thelawdictionary.org/insolvency/]) : …Inability to pay one’s debts; lack of means to pay one’s debts…

Claims Handling(MAP-21, §32918)

Claims Handling(MAP-21, §32918)

49 USC §13906(b)(7) contains: (similar language for freight forwarder)

• A provision for civil actions and penalties against bond/trust providers– Penalty not to exceed $10,000– Lose eligibility to provide bonds/trusts for 3 years if found to

have violated any law or regulation on handling claims

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Summary

• Is your client subject to FMCSA regulation?– Is it a property broker? A freight forwarder? A carrier? Maybe it is

more than one, depending on how business is conducted.– Understand the definitions and rules, and be prepared to discuss

with your clients

• Bond or Trust Fund?– If bond, encourage the client to begin preparations for underwriting

requirements– If a Trust Fund, the client needs to prepare to increase his security

backing the trust 22

Questions

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Thanks

We hope that you found this webinar productive, practical and useful! Thank you for your time and attention.

Roanoke is here to help you!To learn more about Roanoke’s result-driven insurance and surety

solutions for global trade and transportation, contact us today at

1-800-ROANOKEwww.roanoketrade.com | info@roanoketrade.com

Colleen.Clarke@RoanokeTrade.com | Matt.Zehner@RoanokeTrade.com

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