This started out as a very quiet month in the industry.  Most of us are focusing on summer and allowing things to quiet down. Then we got to the end of the month and there were a few very significant events which should not slip quietly by.  So before you head to the beach we report the following:

DEMISE OF THE BMC-32 ENDORSEMENT – To the surprise of many in the insurance and transportation industry the FMCSA has decided to do away with mandatory financial responsibility for cargo insurance for many carriers – the BMC-32 endorsement is going away.  The FMCSA has issued its final rule, effective March, 2011, that certain motor carriers operating in interstate commerce will no longer be required to have an endorsement in place in order to operate.  The shipping industry was directed by the FMCSA to protect itself by insuring that the carriers with whom they did business are adequately insured.  Household goods carriers and household good freight forwarders will continue to be subject to the filing requirement.  It is currently unknown what effect the existing filings will have, and whether insurers will be required to cancel all filings and remove the endorsement from existing policies.  We will certainly keep you posted as we learn more about this significant development. A copy of the final rulemaking can be viewed here.

SUPREME COURT CARGO DECISION – The issue of whether an inland carrier can reap the benefits of an international through bills of lading has been the subject of tremendous litigation over the years.  In a rare case, the Supreme Court of the United States has issued an opinion on the issue, putting to rest many of the questions.  In the particular case decided by the high court, the shipment moved under a through bill of lading which required that suit against the parties be commenced in a foreign jurisdiction.  The court rejected the plaintiff’s position that the Carmack Amendment applied to the inland transportation and that the foreign selection clause was a violation of the rights and remedies afforded under Carmack.  This decision has serious consequences for shippers and carriers as it would appear that forum selection clauses, and clauses extending limitations of liability to inland carriers will not be subject to attack any longer. It is interesting that the dissent to this opinion was led by the newest Justice, Sonya Sotomayor.  As you may recall Justice Sotomayor hails from the 2nd Circuit here in New York. The Second Circuit was the court which led the attack on these clauses under the Carmack Amendment. You can read the whole decision here (Kawaski Kisen Kaisha v. Regal Beloit).

BROKER LEGISLATION – This month the Motor Carrier Protection Act was introduced in the Senate. The Act is designed to change the requirements for brokers operating in interstate commerce.  The proposed legislation will increase the broker bond from $10,000 to $100,000, impose stricter requirements for entities seeking broker or forwarder authority and increase penalties for violations of broker regulations.

DRIVER LOGS – In response to attack by the ATA, the FMCSA has indicated that it will reduce the paperwork which a carrier is required to maintain in order to verify driver logs.  Carriers will no longer be required to maintain driver call-in records, IRP receipts, IFTA receipts, trip permits, cash advance receipts and driver fax reports.  Carriers that use electronic communications equipment will have even less paper to maintain. The final rule on these records is expected shortly.

TORT LIABILITY COSTS – PRI has released its report on the worst states for tort liability costs.  New Jersey, New York and Florida lead the pack of the worst, while Alaska, Hawaii and North Carolina lead the way for the best of states. A complete copy of the report, which details the tort laws and costs in the various states can be viewed here.

FORTUNE 500 – Seventeen transportation and logistics companies were on the list of the Fortune 500 this year.  While that sounds good, the reality is that the transportation group did not perform well and saw deeper declines than other industries.  Almost all of the reported transportation companies saw earned profits shrink while non transportation companies, as a whole, saw an increase in profitability.  Most carriers, with high costs, are not able to make the substantial operating cuts that many other corporate entities have done in this market. In other economic news, trailer sales appear to be up. According to ACT Research Co., May commercial trailer net orders were up 59% .

CSA 2010 – The FMCSA is attempting to clear that air about the many rumors afloat concerning the implementation of the CSA 2010, including what it can and can not do and when it will happen. They have released a bulletin “Just the Facts” which can be viewed here. They have also advised the current time line for implementation of the program.  That time line is as follows:

Summer 2010

• June 30 – The operational model (op-model) test will end.
• July – The four “50/50” test states – Colorado, Georgia, Missouri and New Jersey – will join the five 100 percent test states in implementing the program.
• August – Motor carriers will be able to see an assessment of their violations based on the new Carrier Safety Measurement System (CSMS) which will replace SafeStat later in 2010.

Fall/Winter 2010

• SafeStat will be replaced by the CSMS. It will be available to the public, including shippers and insurance companies.
• FMCSA/States will prioritize enforcement using the CSMS.
• FMCSA will begin to issue warning letters to carriers with deficient BASICs.
• Roadside inspectors will use the CSMS results to identify carriers for inspection.

Winter 2010

• Safety fitness determination notice of proposed rulemaking (NPRM) is scheduled to be released.

2011

• Enforcement staff will be trained, and new interventions will be implemented state-by-state.

CURRENT CASES [Auto | Cargo | Miscellanious]

AUTO

Determining employment status for liability purposes took different turns in different courts this month.  In the Court of Appeals in Michigan the court held that a driver who was working for a company which was under lease to a regulated carrier was the employee of the regulated carrier for the purpose of PIP benefits.  The court utilized the economic reality test to reach that conclusion, despite recognizing that the driver was not paid by the carrier and the carrier did not even own the vehicle.   (Home-Owners Insurance Co. v. Beydoun, 2010 WL 2384926)

The Northern District of Texas upheld the application of the employee exclusion in an auto liability policy.  The court held that even if the party was a temporary employee he was still a statutory employee under federal trucking regulations and therefore the exclusion applied.  (Canal Indemnity Ins. Co. v. Texcom Transportation, 2010 WL 2301007)

The employee exclusion was also being considered in a declaratory judgment action in the Southern District of Alabama.  The Court, in this motion, accepted jurisdiction over the declaratory judgment action, even with a pending state court proceeding on the underlying loss.  The court also held that a default against the insured would not impact the rights of the injured party to litigate the coverage issues.  (Progressive Specialty Ins Co. v. E&K Trucking, Inc., 2010 WL 2383971)

In another Southern state, the Court of Appeals of Georgia held that a trucking company was not entitled to a directed verdict arising from an accident involving a driver who may have been operating for the trucker.  The court held that the plaintiff could proceed on alternative theories of vicarious liability and federal statutory employment.  The court also held that the doctrine of comparative fault did not apply to a claim based upon derivative liability.  (PN Express v. Zegel, 2010 2179786)

The Appellate Division in New Jersey held that a self-insured trucking company was required by New Jersey financial responsibility laws to insure a consignee who was sued for injuries during the unloading of the motor carrier’s truck.  The court held that the trucker, who was self-insured under FMCSA requirements, was still required to comply with the state’s compulsory insurance requirements and was deemed an insurer when sending its trucks into the state.  (Baker v. J.J. Deluca Co., Inc., 2010 WL 2557734)

Federal Express was unsuccessful in its efforts to obtain bifurcation of a claim for punitive damages.  The District Court in Montana held that while Fed Ex could not be liable for negligent hiring when it had accepted vicarious liability, the factors supporting negligent hiring could be introduced to establish a claim for punitive damages.  Having those facts heard in the action for direct liability would not prejudice Federal Express. (Parrick v. Federal Express, 2010 WL 2178570)

A plaintiff was unsuccessful in his attempt to recover from a trucking company for injuries suffered when the plaintiff turned into the trucker’s lane when the trucker was attempting to pass the plaintiff.  The court held that the plaintiff was more than 50% negligent, even with a statute which arguably prohibited the truck driver from passing at the point of impact.  (Lake v. Langley Trucking, 2010 WL 2292910)

The Supreme Court of Mississippi held that an insurer did not waive its right to appeal a coverage determination when it entered into an agreement to limit recovery and have the coverage issue litigated in the trial court.  The court held that a waiver of the right to appeal the trial court decision must be explicit.  The court also held that the auto exclusion in a general liability policy did not apply to a claim for negligent training.  However where injuries arising from the operation of the vehicle was excluded, but negligent hiring was not, the plaintiff was required to establish that the negligent hiring was a substantial cause of the loss in order to recover.  (Cherokee Insurance Co. v. Babin, 2010 WL 2305855)

The Louisiana Court of Appeals upheld an award of punitive damages against a carrier who permitted a driver to operate without undertaking an adequate investigation of his driving record and known drug use.  The court did reduce the exemplary damages as excessive in this wrongful death action. The court also held that settlement with the primary insurer was not admissible at the trial.  (Tingle v. American Home Assurance Co., 2010 WL 2178805)

The impact of an indemnity agreement between a carrier and a shipper was considered by the Western District of Pennsylvania.  In this case a trucking company driver sued the shipper alleging negligence in causing his injuries when the cargo was not properly loaded or packed.  Although the shipper was not specifically named in the contract that the motor carrier had with a related company, its inclusion as a division of the related company was enough to trigger the indemnity.  In addition the court held that an agreement to defend and indemnify for claims by the trucker’s employee was sufficient to waive the worker’s compensation defense.  (MI Windows & Doors v. Southeastern Freight Lines, 2010 WL 2218179)

MISC.

The obligations of a primary insurer to disclose the existence of an excess policy during settlement discussions is apparently the subject of an action pending in Texas. In this decision the court was considering what documents were subject to discovery when the plaintiff sought damages against the insurer based upon a wrongful settlement. For most of the relevant documentation requested the court held that the insurer was correct in objecting to the production of the documents.   The case details the standards for production of these claim records.  (In re Harco Nat. Ins. Co., 2010 WL 2555629)

The Supreme Court in Wisconsin has extended the tort of bad faith to include claims by an insured which is required to pay its full deductible when there was a reasonable chance of settling below the deductible.  The court held that the trucking company, which had a high deductible for its liability coverage, has a cognizable bad faith claim when the insurer has control over settlement of a third-party claim and engaged in bad faith conduct toward the insured, even though the judgment does not exceed the policy limits. (Roehl Transport, Inc. v. Liberty Mut. Ins. Co., 2010 WL 2486808)

We do not see many cases on the broker bond, which is currently $10,000 (see story above about proposed increase to $100,000). This month the District of Columbia Circuit Court of Appeals confirmed that the $10,000 face value of the bond applies to all claims combined, rather than $10,000 on each claim.  (RLI Ins. Co. v. All Star Transp. Inc., 2010 WL 2487534)

Mary Carter agreements, which assist a settling defendant in capping its exposure and allowing suit against an insurer or other third party, are tricky and careful consideration to each word must be undertaken by all sides.  The District Court in Oregon considered such an agreement when the plaintiff attempted to argue an interpretation of the agreement which was contrary to the negotiations of the parties.  The court rejected the argument and held that the plaintiff was acting inequitably by attempting to exploit a clerical error to avoid its obligations under the agreement. (Nieman v. Interstate Distributor Co., 2010 WL 2539719)

CARGO

COGSA requires suit within one year of delivery.  When does delivery occur?  The Southern District if Florida accepted the 5th Circuit rule that delivery is complete when the goods are placed in the custody of a party entitled to receive them. The court rejected the contrary view that delivery is complete when the consignee is notified that they are available and has a reasonable opportunity to inspect.  (CH Robinson v. Compania Libre De Navegacion, 2010 WL 2427430)

The Middle District of Florida dismissed a cause of action against a broker for negligent entrustment of cargo to a motor carrier who damaged the shipment. The court concluded that such a cause of action contravenes the preemptive effect of Carmack.  The action for damages was to be solely against the trucking company.  (Multiflex Systems v. Reed Transport, 2010 WL 2363337)

A household goods claimant is entitled to attorney’s fees in certain circumstances.  In order to recover those fees the claimant must be able to specifically allege that a claim was filed within 120 days and the claimant was not advised of the option of arbitration rather than litigation.  The cause of action for fees is subject to dismissal without those allegations.  (Straley v. Thomas Logistics, 2010 WL 2231566)

A plaintiff’s effort to defeat a motor carrier’s limitation of liability was slowed this month in New Jersey. The District Court held that there were questions of fact as to the applicability of a freight pricing list which was given to the plaintiff and which referenced the carrier’s tariff and denied summary judgment to the plaintiff. The tariff, of course, contained the limitation of liability.  (Royal Sun Alliance Ins., PLC v. National Consolidation Services LLC, 2010 WL 2483987)