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Bits & Pieces

Volume 11, Edition 11

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Volume 11, Edition 11 (posted 11/26/2008)

We hope you all have a pleasant and food filled Thanksgiving holiday.  With the economy in shambles it may be difficult to focus on what is really important but hopefully we all have something and someone to be thankful for.

The election, of course, has dominated the news.  Now that it is over, and we have a President Elect, thoughts are already on January and his anticipated impact on every aspect of life.  President Elect Obama has announced his DOT transition team, which includes Mortimer Downey, former DOT deputy secretary under President Clinton; Jane Garvey, head of the U.S. public-private partnerships at JPMorgan and former official with both the Federal Highway Administration and the Federal Aviation Administration; Michael Huerta, group president of ACS Transportation Solution and a Clinton-era DOT official, John Cullather, the majority staff director for the House Subcommittee on Coast Guard and Maritime Transportation and Carol Carmody, a former member of the National Transportation Safety Board. The overseer of the group is Seth Harris, a professor at New York Law School.

Who will be selected to head the DOT remains a mystery.  The Associated Press reports that Kansas Gov. Kathleen Sebelius, former House Majority Leader Richard Gephardt, former Deputy Transportation Secretary Mortimer Downey and Jane Garvey, the former head of the Federal Aviation Administration and member of the transition team, are all names that have been circulated as possible heads of the DOT.

In other news:

HOURS OF SERVICE
– After a lengthy delay the Federal Motor Carrier Safety Administration has ruled that there will be no change in the Hours of Service rule that has been in place since January 2004. As the rules currently state, a driver must have a minimum 10 consecutive hour rest period, which was increased from 8 consecutive hours, a work day maximum of 14 consecutive hours, which was decreased from 15 non-consecutive work hours per day, a maximum of 11 driving hours, which was increased from a maximum of 10 driving hours.  The rules also permit the resetting of the driver’s weekly hours tally after the driver has remained off duty for 34 consecutive hours or more. The final rule can be viewed here on the FMCSA website.

NAFTA – The Bureau of Transportation Statistics has released its report on the movement of goods between Canada, the U.S. and Mexico.  The value of freight shipments moving between the United States, Canada and Mexico grew at an average annual rate of nearly 8.5 percent per year between 2002 and 2007.  The total value of U.S. freight shipments with Mexico grew 49.5 percent or 8.4 percent annually.  Goods shipped in trade with Canada grew 51.2 percent or 8.6 percent annually. According to the report, trucks carried 61 percent of this freight when measured by value – over $555 billion in value in 2007. Due to different liability rules it is very important to know when your carrier is moving over borders.  Remember that our Premium Service helps target inspections at border crossings in order to give you a red flag that your insured may be moving in and out of the country.  A copy of the report can be viewed here on the BTS website.

In other cross border news, the DOT released the report of the independent panel’s review of the cross-border demonstration program which has been in place the last year. As you may recall, the program was intended to include 100 carriers but ultimately only 29 carriers participated.  The report found that none of participants was involved in a crash and the DOT checked every truck every time. Of the 7,000 driver safety inspections undertaken by the DOT 37, or less than 1 percent, resulted in out-of-service (OOS) violations. A copy of the report can be viewed here on the DOT website.

CARGO THEFT – We often talk about how these occur.  This month we learned of two scams. In New Jersey one man pleaded guilty to the theft of over $1 million in high end goods.  He, working with a co-conspirator who gave up shipping information, used plastic lettering on a truck that imitated the legitimate trucking companies, replaced license plates and used a fake ID at a warehouse. In other news, one broker has advised that it was hoodwinked into releasing various shipments to a “motor carrier” who then absconded with the goods. Of course this was all done over the internet where it is often difficult to verify the carrier’s identity

TRUCKING BANKRUPTCIES – Investment bank Avondale Partners latest report on bankruptcies in the trucking industry indicate that there were 785 trucking company failures in the third quarter, bringing the total so far in 2008 to 2,690. While the third quarter results were lower than the second quarter that does not spell good news for the industry.  The failure rate is almost 50 percent higher than last year’s third quarter.  Some reports indicate that the number was lower this quarter simply because fuel costs lowered and fuel surcharges had not yet been kicked out, generating more revenue for carriers.  Underlying these bankruptcies is the fact that it ultimately means that 127,000 trucks, or 6.5 percent of the nation’s capacity, are off the road.


CURRENT CASES:

It is so important to review the terms of any settlement release and make sure you are protecting your insured from any other claims.  This time it worked to the benefit of the trucker.  The Missouri Court of Appeals held that as there was no mutual release, an injured plaintiff who settled with a trucking company was not released from a third party claim brought by the trucking company seeking indemnity for injuries to another party.  (Vidacak v. Oklahoma Farmers Mutual Ins Co., 2007 WL 4648242)

As you may be aware, Wisconsin is one of the few states that permits a plaintiff to bring a direct action against an insurer, before obtaining a judgment against the insured.  This month the Western District of Wisconsin addressed two questions on that subject.  The court first held that where the policy contained a duty to defend the insurer would not be permitted to stay the main action pending a determination of its duty to defend.  More interesting however was the fact that the court indicated that a direct action might not be successful against an insurer when the action against the motor carrier was a claim under the Carmack Amendment, as that was a claim under Federal and not State law.  (Land O’ Lake v. Joslin Trucking, 2008 WL 4756647)

It is extremely important in evaluating any case to have as much information as you can on your insured and the underlying action.  Our premium service places that information at your fingertips.  In an action in the Western District of Louisiana the court admitted evidence that a motor carrier’s accident had been classified by the motor carrier as “preventable” under the federal regulations, something that could be a damming fact before a jury. You need to know that information about your particular accident, as well as other accidents involving your insured in order to make reasoned decisions on underwriting and claims.  (Brossette v. Swift Transportation, 2008 WL 4809631)

Prior driver history was also an issue in an action in the Southern District of Texas.  The court held that a claim for gross negligence and exemplary damages could proceed where there was evidence that the motor carrier had made a decision to terminate a driver because of his many accidents and violations and then dispatched him for one last trip, which of course resulted in the accident. The court also left open plaintiff’s claims for spoliation where the motor carrier destroyed driver and equipment records, in the normal course of operations, after the accident occurred.  (Montemayor v. Heartland Transportation, 200 WL 4777004)

Heads up to anyone interested.  The 10th Circuit has granted an insurer’s request for a rehearing en banc.  In Empire Fire & Marine Ins. Co. V. Guaranty National Ins. Co, the court held that the MCS-90 only negates limiting provisions in the policy, making the policy primary.  The court has agreed to address this issue further and has also requested that the DOT consider whether to file an amicus brief.  (Carolina Casualty Insurance Co. v. Yeates, 545 F.3d 915)

A Michigan Federal Court limited the rights of a claimant under the MCS-90. The plaintiff had obtained a default judgment against the motor carrier. The court held while the default judgment permitted the plaintiff to recover from the motor carrier it would not automatically permit recovery under the endorsement.  The court held that as a default judgment did not establish that the loss arose from the negligence of the motor carrier, plaintiff was still required to prove its case before recovery against the insurer. (Hawthorne v. Lincoln General Insurance Co., 2008 WL 4822044)

Collecting against a motor carrier is often not as easy as you think.  The Eastern District of Michigan held that the fact that a bill of lading was signed without exception by the carrier was insufficient to establish that the goods, which were in double sealed boxes, were in good order and condition and also that the plaintiff could not establish that the damage occurred during transit.  (Travelers Indemnity Company of Ct. v. Central Transport, 2008 WL 4793403)

For some reason these last few months have seen a rise in detailed decisions on default judgments.  In the District of New Jersey the court considered a default judgment by a subrogating insurer against a warehouse and logistics company for failure to deliver goods.  While the court granted the default it would not enter judgment for the plaintiff as the plaintiff had failed to submit the proper documentation, including the checks and a copy of the policy. Interestingly the court appears to be considering plaintiffs request for actual damages and $500,000 in punitive damages because of the defendant’s failure to take any steps to secure the cargo from theft.  (One Beacon Insurance Co. v. Enchante Accessories, 2008 Wl 4822200)

The Northern District of California upheld a forum selection clause in a UPS Supply Chain Forwarders receipt.  Plaintiff’s action would be dismissed if it did not seek to transfer the action to the appropriate forum.  (Yotrio International, LLC v. LNT Merchandising Co., 2008 WL 4820810)

The Court of Appeals in Georgia held that a non-trucking use policy had no application to an accident where the driver was returning from a delivery. The court held that the driver was still operating under his normal work pattern.  In this dispute between two insurers the court refused to alter the insurer’s obligation by consideration of the lease terms.  (Liberty Mutual Fire Ins. Co. v. Axis Surplus Insurance Co., 2008 WL 4813575)

Preemption doctrine upheld, again.  This time in the Northern District of Illinois.  That is all there is to say about that!  (Korer v. Danita Corp., 2008 WL 4822210)

Similarly upheld in the District Court in Connecticut. This case also addressed the carrier’s limitation of liability, holding that the carrier had adequately communicated the limitation to the shipper.   (Design X Manufacturing, Inc. v. ABF Freight Systems, 2008 WL 4820781)

While the primary duty to load cargo rests with the carrier, a shipper will not always be able to avoid its own liability for contributing to improper loading. In the Court of Appeals in North Carolina the court held that this issue of whether the shipper was a contributing factor to the improper loading was a question of fact to be resolved by a jury, even where there was ample evidence of the driver’s control over the loading. (Hensley v. National Freight Transportation, Inc., 2008 WL 4876994)

The Southern District of Texas considered how a motor carrier could limit its liability. The motor placed a sticker on a shipper prepared bill of lading which referenced the carrier’s tariff, which was then signed by the shipper.  The court also held that it was acceptable that the motor carrier permitted at least two levels of liability, neither of which was full value.  (AIM Controls, LLC v. USF Reddaway, Inc., 2008 WIL 4925028)

Is it valuation or it is insurance?  Those of you who handle cargo claims know that this is a critical question to many courts, as the answer seriously impacts the analysis of the motor carrier’s liability.  In an interesting case a plaintiff sought a class action against UPS contending that the bundling of ground parcel shipping with a maximum value of $00 was really a requirement that the shipper purchase insurance for $100 with the service and violated the Sherman Act. The court rejected the argument that this was insurance, providing various support for the difference between insurance and valuation, something a claims staff might want to keep handy.  (Thermal Technologies v. UPS, 2008 WL 4838681)

The validity of a release and indemnity agreement in a lease between a motor carrier and its owner-operator which addressed accidents involving other owner-operators under lease to the motor carrier was considered by the Supreme Court in Georgia. The court upheld the provision holding that the driver was not a protected party under the Federal Motor Carrier Act and the provision would not violate Georgia public policy.  (Coleman v. B-H Transfer Co. v. Dixon Trucking Co., 2008 WL 4762077)

The continuing question of whether parties to a through bill of lading can reap the benefit of a COGSA limitation was considered, once again, in the Second Circuit.  This time the court evaluated whether a party who provides the ocean portion of the international journey or is part of making the domestic rail transport must comply with the Carmack Amendment in order to invoke the COGSA limitation when the damage occurs during the domestic transit.  The court permitted the defendants, which did not include the actual rail carrier, to invoke the benefits of the bill of lading, concluding that those parties were not “rail carriers” as defined in the Carmack Amendment and therefore had no obligation to comply with the requirements to limit liability. The court also held that misdelivery was not a deviation which would void a limitation.  (Rexroth Hydraudyne v. Ocean World Lines, Inc. 2008 WL 4810069) (Thanks to Bon Todd at Great West for passing this along – we welcome all relevant recent cases you find!) 

The District Court of Appeals in Florida held that a Florida statute which capped a rental car company’s vicarious liability for the acts of a vehicle operator was preempted by the Graves Amendment.  The Amendment, enacted by Congress in 2005 prohibited the imposition of liability on a rental company in the absence of its own affirmative negligence.  The court held that the Florida statute was not a financial responsibility law so as to be exempt from the effect of the Amendment.   (Vargas v. Enterprise Leasing Co., 2008 WL 4756388)

The Court of Appeals in Louisiana held that notice of cancellation to the Louisiana Public Service Commission was not required in order to properly cancel a carrier’s insurance policy.  In the case at hand the insurer’s initial filing of the Form E had been rejected because the insured had failed to comply with certain regulations. Where there was no Form E, the insurer was permitted to cancel without giving the required notice to the LPSC.  (Phillips v, New Hampshire Insurance Co., 2008 WL 4792496) 

Enjoy the holiday break.

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