Volume 11, Edition 10 (posted 10/28/2008)
Over the years we have been asked by many of our customers why there is no central location in which insurers could report that payments have been made on behalf of a motor carrier solely as a result of cargo or auto filings. While report can be made to the FMCSA we understand that they take no action and third parties have no access to that information. In order to assist our subscribers we are considering implementing a program which would allow insurers to report on carriers where filing liability incurred. As our focus is always to make sure that you “Know Your Insured” the information would then be part of our database and underwriters who participate would have access to that information when considering a motor carrier for insurance.
In order to consider whether underwriters would be interested in such a program, we would ask that you e-mail us and let us know your thoughts. If the overall response is receptive we will move forward to design such a program. Please e-mail Jean Gardner, or simply reply to this report.
DRIVER TURNOVER – While the trucking industry has been trying for years to reduce driver turnover, it was the poor economy, and not the industry, which was the catalyst for the recent report on the fall of the turnover rate. The large truckload rate dropped to 85 percent, the lowest since 1998. Large LTL carriers dropped to 103 percent. It was up as high as 136% when freight levels were high in 2004 and 2005.
BANKRUPTCY – We reported a few months ago that bankruptcies were on the rise in the trucking industry and it is expected that the credit crisis will result in even more filings. Gainey Transportation, one of the top 100 carriers in the country, filed bankruptcy this month after its largest bank creditor sought permission to take over the companies operations. Gainey is continuing to operate while in bankruptcy.
NAFTA – For those who are interested, the FMCSA has released the most current list of approved carriers for cross-border operations. The list can be viewed at http://www.fmcsa.dot.gov/cross-border/cross-border-carriers.htm
COMMERCIAL VEHICLE SAFETY ALLIANCE – During the last weekend in October, CVSA and police departments held “Operation Safe Driver”. The program was an enforcement push on truckers and regular vehicles that operate vehicles unsafely. We will report the results next month when they are released.
IDENTITY THEFT – There was an interesting report this month that two individuals had hacked into SAFER and changed carrier contact information so that a shipper did not know who they were dealing this. Apparently these gentlemen did not steal the cargo but instead brokered the loads to other carriers, collected the freight charges and then disappeared with the freight money, allegedly collecting over $500,000. We are seeing more and more cargo loss occurring as a result of identity theft. There may be a need for insurance for that exposure.
INTERMODAL CHASSIS RULES – The industry has been waiting for a few years for the proposed rules changing the responsibility of maintaining chassis to the owner. The FMCSA, after a long delay, has finally sent the proposed rules to the Office of Management and Budget for review. Hopefully this will permit publications of the new regulations by year’s end.
CARGO THEFT REPORTING – The FBI has announced that it is in the process of completing the addition of a new category to Uniform Crime Reporting. Adding cargo theft as a separate category will allow agencies and the private sector to get a better handle on the extent of thefts and where the thefts are occurring. According to at least one insurer who tracked their own data, 52% of cargo thefts occur over the weekend, with nearly three-fourths of those while the cargo is stopped at unsecured locations.
CURRENT CASES:
It is very rare that we see a case involving a cargo and an auto policy. The Western District of Michigan addressed whether a commercial auto policy applied to a cargo loss. While ultimately the court ruled that the commercial auto policy did not provide coverage, it did rule that the commercial auto carrier had a duty to defend until the coverage issues were resolved. The court also addressed the legal issues involving possible estoppel by both the auto and the cargo carrier when reservation of rights letters did not address all coverage issues. When addressing the cargo policy the court permitted the insurer to deny coverage when the insured failed to disclose on the application that it was hauling the cargo in question. The court also held that an option to defend in a cargo policy did not create a duty to defend. It is a long, but interesting opinion addressing many issues which exist in transit losses. (Amerisure Mutual Insurance Co. v. Carey Transportation,, 2008 WL 4382806)
In Illinois the Appellate Court held that the Illinois Vehicle Code applied to commercial truckers. It then determined that a reciprocal coverage provision under a commercial auto policy issued to a trucker violated the code and was void as against public policy. (Zurich American Ins. Co. v. Key Cartage, Inc., 2008 WL 4445122)
A primary/excess case was considered in the Eastern District of California. The court held, initially, that whether a trailer was a leased or rented vehicle for the purpose of California Code 11580.9(b) was a question of fact necessitating a trial on the issue. The court did, however apply one insurer’s sub-limits for undeclared drivers. The court focused on the insurer’s obligation to conspicuously advise the insured of the sub-limit and went page by page through the wording used by the insurer. It shows how important it is to make sure that there is consistency in terminology throughout a policy. (Great West Casualty Co. v. General Fire & Casualty Co,, 2008 WL 4490749)
California rejected an argument that a corporation officer’s use of her private vehicle when commuting to work should be covered under a commercial auto policy. The court held that an insured could not reasonably expect coverage for that vehicle while denying that she used the vehicle regularly for company business or that she was required to use the vehicle. (Lincoln General Ins. Co. v. Gateway Sec. Services, Inc., 2008 WL 4472932)
The United States District Court in Kansas concluded that an insurer’s summary form, which indicated the acceptance or rejection of UM coverage, was insufficient to support rejection under Kansas statutory requirements. Kansas requires certain terminology for rejection of the UM coverage and the summary form did not adequately reflect an acceptance of rejection of the coverage. (Stemple v, Zurich American Insurance Co., 2008 WL 4491414)
A shipper’s effort to be indemnified by a motor carrier was defeated in an action in the Court of Appeals in Tennessee. The court held that a contract which requires the motor carrier to indemnify the shipper did not extend to actions arising from the shipper’s negligence. The court also addressed the various ways in which an insurer can add a shipper as an additional insured. (Georgia-Pacific, LLC v. Swift Transportation Corp., 2008 WL 4380885)
An air carrier was unsuccessful in denying a claim because it was not properly filed The Southern District of New York held that while the carrier’s tariff required that a claim be filed it did not define what constituted a claim. The court held that the federal cargo claim regulations did not apply to the manner in which a claim was filed as the transportation was by air. (St. Paul Fire & Marine v. Delta Air Lines, 2008 WL 4547202)
The cargo claim regulations were also a subject of interest in the Court of Appeals in Tennessee. The court held that the regulations do not set forth a time limit in which claim must be filed. The action sought damages against a motor carrier for the delay in delivery of a shipment and the court also considered the type of damages which would be reasonably foreseeable in the event of a delay. (Premier Graphics v. Western Express, Inc. 2008 WL 4415773)
In Florida a named driver endorsement received limited support by the court. While the court rejected the endorsement’s application to any statutorily required insurance, it did uphold its application to all other aspects of coverage. The insurer’s argument that a named driver endorsement was a usual policy exclusion, which would have permitted it to be applied to even the minimum financial requirements, was defeated. (Freeburg v. Transportation Casualty Insurance, 2008 WL 4489069)
Pre-emption. Need we say more? It was upheld once again in the Western District of North Carolina. (Ricci v. Superior Moving & Storage, 2008 WL 4539673) The same result occurred in the Western District of New York. In that action the court also reminded the plaintiff that an action could be transferred to federal court when the cargo claim was only for $10,000. (Fyke Trading, USA v. New England Motor Freight,, 2008 WL 4443222)
A driver’s prior bad driving record was not admissible in an action in the Southern District in Mississippi. Where the complaint asserted only a negligence claim against the driver and a vicarious liability claim against the motor carrier, the driver’s prior record was not relevant to the events underlying the accident. (Horridge v. Keystone Lines, 2008 WL 4514310)
A direct action against an insurer failed in Oklahoma this month. While Oklahoma permits a direct action against a motor carrier’s insurer the statute extends only to carriers who are licensed and regulated by the state. Single State registration was not sufficient to support a direct action under Oklahoma law. (Green v. Ace American Insurance Co., 2008 WL 4372871)
Is a plaintiff permitted to bring an action under the MCS-90 when it has already lost a declaratory judgment action seeking recovery under the motor carrier’s policy? The insurer sought a ruling that the underlying action resolved all claims, including any claim under the endorsement. The court rejected the insurer’s position, holding that the court’s decision on the declaratory judgment action was not sufficiently clear on whether it considered and rejected the endorsement as a means of recovery. (Lyons v. Lancer Insurance Co., 2008 WL 4525542)
The Missouri Court of Appeals would not permit an action against a motor carrier when the accident occurred in Illinois. The court held that the plaintiff was required to establish that the motor carrier had sufficient contacts with the state and the action must arise from actions under the long arm statute. (Specialized Transport, Inc. v. Dowd, 2008 WL 4355380)
Many inland marine and physical damage policies have valuation clauses which permit an insurer to elect to repair or replace the covered property. The question is always raised whether repair included diminished value. There is a conflict in the states as to whether it does. This month the Oregon courts confirmed that under their rules if the vehicle can not be restored to pre-loss condition, and there is a diminished value, “repair” will include that diminished value. (Gonzalez v. Farmers Insurance Company, 2008 WL 4661612)
An Appeals Court in Massachusetts held that a commercial auto policy and not a general liability policy applied to an injury sustained during the loading of a truck. The auto insurer argued that the loss arose from the fact that the terminal operator allowed the use of faulty equipment during the loading process. The court held that there was a sufficient causal connection with the vehicle to trigger coverage under the auto policy. (American Home Assurance Co. v, First Specialty Ins. Corp., 2008 WL 4602060)
A shipper was not liable for the death of a truck driver when an 816 pound piece of equipment that was being unloaded from a trailer fell on him. The Appellate Court in Michigan held that the primary duty for loading and unloading was on the motor carrier and as the facts established that the driver was actively involved in the unloading process the shipper would not be liable for defects in the process. (Neill v Steel Master Transfer, 2008 WL 4649020)
Sometimes you have to wonder about the story behind the case. In the Northern District of New York the court addressed the obligations of a storage facility and the landlord when the plaintiff’s goods were sold without notice to the plaintiff after various exchanges in the ownership of the facility due to family deaths. The court held that the warehouse failed to exercise reasonable care over the goods, but the warehouse and its operators were not liable for conversion when it was the landlord who sold the goods. The court also held that the landlord’s defense that he thought the goods belonged to his mother would not defeat the claim of conversion. (Williams v, Smith Avenue Moving Co., 2008 WL 4642990)
Default judgments are generally not interesting to comment upon. However this month the District of New Jersey, in awarding a default judgment against a motor carrier specifically addressed the damages which were recoverable. For a shipment which was non-delivered the court gave the plaintiff the selling price of goods which were pre-sold and the insured value for the goods which were not pre-sold, increasing the landed cost by the 20% given under the first party policy. Prejudgment interest was also awarded. (St. Paul Fire & Marine Ins. Co. v. AVH Trucking, LLC, 2008 WL 4601771)
Attorney’s fees are recoverable in household goods cases where the statutory requirements of a claim within 120 days are complied with. In the Middle District of Florida a plaintiff attempted to impose a requirement that that motor carriers inform the customer of the 120 day requirement or pay attorney’s fees as long as the claim was filed within nine months. The court rejected the argument. (Ewanchew v. Bekins Van Lines, LLC, 2008 WL 4642614)
In the Middle District of Louisiana the court held that the structural failure of a trailer was not a mechanical failure under that exclusion in the policy. The court also held that poor road surface, i.e. potholes could have caused the trailer to break. (Integrated Forestry Services v. Canal Indemnity Company, 2008 WL 4682575)
Efforts to obtain punitive damages against a trucking company were defeated in the District Court in Maryland. While the motor carrier had failed to properly maintain the vehicle, as the brakes were inoperable, the court held that the actions of the carrier were not sufficiently egregious to warrant the high standards for punitive damages. (Ben-Joseph v. Mt. Airy Auto Transporters, LLC, 2008 WL 4680569)
We all see cargo claims where the shipper rejects a shipment without complete testing of all of the items. Unfortunately in the Eastern District of Michigan the court held that the plaintiff had met its prima facie case for recovery when two shipments of automotive parts were involved in an over turn. The court held that the sampling of the product done by the adjuster for the plaintiff, as well as photos which showed some damage to the items was sufficient to establish that all of the items were damaged. It should also be noted that the court held that the fact that the shipper’s customer was entitled to, and did, reject the shipment as non-conforming, was enough to establish the damage to the cargo. (Zurich North American v. Triple Crown Services, 2008 WL 4643864)
Is a dump truck a piece of mobile equipment so that an accident involving that truck is covered under a general liability policy? Despite the plaintiff’s best efforts to put the truck into the mobile equipment definition in the policy, the court held that the dump truck was an auto and granted judgment to the insurer. (United Farm Family Mutual Ins Co. v. Pearce, 2008 WL 4615795)
A motor carrier’s intentional redelivery of milk which it knew was contaminated, and which was then intermixed with other product, was denied a defense by its insurers. The court held that underlying complaint specifically alleged intentional acts, thereby concluding that there was no accidental occurrence triggered under the policy. When addressing the cargo policy the court also held that the actions of the insured fell within the dishonest or criminal act and held that a policy which contains a right to defend does not impose a duty to defend. (United National Insurance Co. v. St. Paul Reinsurance Co., 2008 WL 4670780)
Happy Halloween and don’t forget to vote!
