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Bits & Pieces

Volume 11, Edition 6

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Welcome to another summer and another edition of the Bits and Pieces of the trucking industry.  Summer is here and the news is short. Virtually every report and news article focuses on gas prices.  We all recognize that there is no need to report on this crisis as emerging news.  Consider the impact on your own wallet and magnify it a hundredfold and you will know what the trucking industry is focusing on.


In other news we report:

DRIVER TURNOVER – At least one thing in the industry moved in the right direction this quarter.  Driver turnover at large truckload carriers (more than $30 million in revenue) declined to 103%, the lowest rate in 5 years.  Small truckload carriers also saw a small decrease, down to 80%.  Unfortunately, if the economy picks up the rate is anticipated to rise again.  Basically if it is not one thing it is another!


LOGISTICS SPENDING
–  One study has concluded that costs for logistics have risen to their highest number, in part as transportation costs, including fuel, skyrocket.  Costs reached $1.4 trillion, or 10.1% of gross domestic product. Trucking accounts for 77% of that number

CVSA SAFETY CHECK –  We reported last month that the CVSA would be undertaking its safety check early this month.  Preliminary reports indicate that the motor carrier’s were not as bad as prior years. There was a 23.9-percent out-of-service rate for U.S. and Canadian inspections (Mexico is not yet known).  67,931 inspections were conducted during the event. The most common equipment violation was brakes which composed 52.6 percent.  5.3 percent of drivers were placed out of service, 55.6 percent for hours-of-service violations. All of the numbers were lower then in prior years.

WEIGHT LIMITS –  A bill has been introduced which would allow trailers weights to be increased with the price of diesel, specifically allowing 100,000 pounds when the diesel price is over $3.50. The bill is titled the Commercial Truck Fuel Savings Demonstration Act of 2008.

NAFTA – While Mexican carriers continue to seek damages for the refusal of the U.S. to open the borders, the FMCSA has indicated that the low participation in its pilot program may require it to extend the one year program.  Although the program anticipated 100 carriers, as its approaches its termination, only 21 Mexican carriers, with 62 trucks, and 9 U.S. carriers with 50 trucks have been involved in the program.  Litigation over the program continues and court rulings are expected soon.

EMERGENCY DRUG TEST REGULATION –  The DOT issued an emergency rule which would allow carriers to notify state agencies if a driver fails to refuses a drug test. 

WAREHOUSE OPERATIONS –  Understanding all of your insured’s operations is critical to insuring that the proper coverage is purchased.  Many trucking operations have expanded into providing additional logistics services.  A recent study released by Armstrong & Associates indicates that U.S. commercial warehousing is at $37.5 billion. There are 8,000 commercial warehouses with 1.3 billion square feet of space.  Commercial warehousing is one-third of total U.S. warehousing and many truckers have taken on that additional exposure. 


CURRENT CASES:

In the District Court in New Jersey a longshoreman was injured in an accident with a tractor which was pulling a container and chassis. The longshoreman obtained a large judgment and brought suit against the insurer of the chassis asserting coverage under the policy and the MCS-90.  The policy contained an arbitration provision which mandated  all disputes under the policy be arbitrated in London, England. The court enforced the arbitration provision finding that even the US plaintiff had to arbitrate his MCS-90 claim in London England. (Szczepanik v. Through Transport Mut. Ins. Ass’n, Ltd., 2008 WL 2166193)

In the Middle District in Georgia Progressive Insurance issued a policy to a trucker in Florida.  The plaintiff sought to recover under an MCS-90 which was not on the policy nor requested by the insurer.  The application indicated the insured’s radius of operation as 300 miles, which would have permitted the insured to operate in Georgia. The insured did not request the policy contain an MCS-90 endorsement.  The court, relying on another decision in which our own Ira Lipsius testified as the expert, Brewer v. Maynard, 2007 WL 2119250, held the mere possibility that Miller may have occasionally traveled out of state after the inception of the policy was insufficient to create MCS-90 coverage where no request was made by the insured to add the endorsement to the policy. (Waters v. Miller 2008 WL 2357752)

As you know, the scope of the MCS-90 extends to payment for damages for pollution and environmental restoration, even if otherwise excluded by the policy. In the District Court in Puerto Rico the insurer paid $1,322,132.44 to comply with an order from the Puerto Rico Environmental Quality Board to clean up the spill and sought reimbursement from the insured. The insured disputed the demand for reimbursement claiming that the insurer had not been presented with a judgment before payment. The court found the insurer was entitled to reimbursement, but, that reimbursement was limited $ 1,000,000 as the MCS-90 endorsement required Royal to pay only up to the policy limit-$1,000,000.00 per occurrence. (Real Legacy Assur. Co. v. Santori Trucking, Inc., 2008 WL 2376470  2008)

Even the Guaranty Fund is not exempt from the impact of the MCS-90.  In Louisiana a plaintiff sought recovery against the Louisiana Insurance Guarantee Association for a claim which it had against Reliance Insurance Company under its MCS-90 endorsement. The Court held that the action could proceed and that the Guarantee Association was also subject to the state direct action provisions.  (Rideau v. Edwards, 2008 WL 2186325)

Indiana, as well as a number of other states, by statute, determines the priority of policies where there is an accident covered by multiple polices. In a case which was argued and briefed by Ira S. Lipsius, President of Central Analysis Bureau and a partner in Schindel Farman, Lipsius, Gardner and Rabinovich, LLP, a shipper contracted with a trucker to haul freight using the trucker’s tractor and the shipper’s trailer. The trucker had a primary policy and numerous excess policies.  The shipper also had coverage for the trailer. The shipper claimed, based upon the shipping contract, as well as other documents, and an Indiana statute which provided that the terms of the policies are ignored and insurers are bound by the contracts entered into by insureds, that the all of the trucker’s insurance, primary and excess, had to be exhausted  before its policy was exposed.  The Indiana appellate court found the statute did not apply to excess policies. (Old Republic Ins. Co. v. RLI Ins. Co., 2008 WL 2313375)

The Court of Appeals in Indiana also addressed the obligations of a timber business to pay for a fatal accident caused when a truck driver hauling logs collided with another vehicle.  Although the driver hauled loads almost exclusively for the timber company, and had even placed their logo on his truck, the court determined that the trucker was an independent contractor and relieved the timber company of liability for the loss.  (Walker v, Martin, 887 N.E.2d 125)  A similar decision was reached in the Western District of Kentucky where recovery was sought against a shipper when a carrier’s driver dropped a pallet on the plaintiff. While the court held that the trucker was an independent contractor it still allowed a claim to proceed against the shipper on the basis that the shipper may have given the driver apparent authority to act on its behalf.  (Crunk v. Dean Milk Co., 2008 WL 2473662)

The question of who bears the responsibility for damages caused by improper loading was considered by the court in Michigan this month. The trucker driver sought damages from the shipper when a box, loaded by the shipper, fell and injured the driver. The court held that the shipper had the duty to stack the cargo in the proper manner once it undertook to load the shipment.  The case was remanded, however, as there were questions as to whether that duty had been breached where the driver subsequently moved the boxes around during later stops.  (Lobdell v. Masterbrand Cabinets, 2008 WL 2224094)

In the 5th Circuit Court of Appeals, the court interpreting Wisconsin law, found the mechanical device exclusion (the standard ISO policy excludes “Bodily injury” or “property damage” resulting from the movement of property by a mechanical device (other than a hand truck) unless the device is attached to the covered “auto”)  was not enforceable. The court further found, remanding the matter for trial, that where the shipper moved the trucker’s trailer between its own facilities in order to load the trailer for the long-haul and mixed freight that would not be ultimately carried by the trucker on the long-haul, the shipper would not be covered by the insurer of the trailer, as a result of the commingling of freight,  if it was not using the trailer in accordance within the scope of the permission granted. (Gulf Underwriters Ins. Co. v. Great West Cas. Co., 2008 WL 2150022)

New York courts have found the ISO non-trucking use (“bob-tail”) endorsement  violates public policy.  The court found that despite a “savings clause” in the policy which provides coverage up to the minimum amounts the financial responsibility law requires, in the event the exclusion is held invalid, the court voided the endorsement up to full policy limits. The decision also addressed an additional issue of concern to insurers regarding late report of claim. New York is a no-prejudice state, an insurer need not prove prejudice in order to deny coverage for the insured’s failure to promptly report a claim.  The appellate court remanded the trial court’s determination that a five month delay in reporting the claim was late as a matter of law. The court held that if there was a good faith belief in non-liability the insured could be excused for the late reporting. (National Union Fire Ins. Co. of Pittsburgh, PA v. Connecticut Indem. Co. 2008 WL 2342121 (N.Y.A.D. 1 Dept.))

Evaluating fatal truck accidents is a often a difficult analysis for insurers and with statutory obligations to effect prompt settlement of claims, insurers face serious exposure if they breach these responsibilities.  In the Superior Court in Massachusetts the court considered the obligations of a primary and excess insurer in failing to promptly try to settle a fatal accident. The court found, in a detailed analysis of the steps taken by each insurer, that the excess insurer failed to settle the claim promptly after a final judgment was entered, resulting in a large additional award to the plaintiff which was then trebled as a punitive measure to the insurer.  (Rhodes v. AIG Domestic Claims, Inc. 2008 WL 2357015)

Will they ever learn?  A plaintiff’s efforts to avoid Carmack preemption failed in the Western District of Oklahoma. The court gave short attention to plaintiff’s arguments that all of the other cases missed the point.  (Potts v. OK Transfer & Storage, Inc. 2008 WL 2404758)

The Eastern District of Pennsylvania would not permit a direct action against the insurer of a carrier who damaged the plaintiff’s goods. The plaintiff, a service member, sought the right to pursue the motor carrier’s insurer directly under the government bill of lading.  (Baugh v Reliance Insurance Co., 2008 WL 2456704)

Another motor carrier was successful in determining what jurisdiction would decide a limitation of liability case. The motor carrier made a preemptive strike against the cargo owner’s insurers and filed a declaratory judgment action seeking to enforce its limitation of liability. Efforts by the insurers to move the action to a jurisdiction which might be more responsive to arguments against the limitation failed.  (Annett Holdings v. Certain Underwriters at Lloyds, 2008 WL 2415299)

Evaluating the result of vehicle and driver inspections which a motor carrier has been subjected to is something an insurer needs to consider even after a loss occurred.  In an action in the District Court in Utah the court held, among other things, that prior vehicle violations during inspections could be used as evidence that a motor carrier might be subject to punitive damages for failing to comply with certain safety regulations.  (Clark v. Wilkin, 2008 WL 2405042).  CAB, with a premium subscription service, can provide you with all of the detail on the inspections, something to be considered by all claims departments in evaluating liability in any loss

We like to report on cases involving experts in the transportation industry, as it is good to know who is out there testifying. In an action in district court in Oklahoma the court addressed the testimony of Cecil Lane, who was proffered as an expert on motor carrier standards and regulations.  The decision precluded certain testimony of Mr. Lane.  (Wofford v. Bonilla, 2008 WL 2368726)

C.H. Robinson was back in court defending a claim that it was liable for an accident involving a trucker operating under a C.H. Robinson contract. While the court held that C.H. Robinson would not be vicariously liable for the actions of the trucker it spent considerable time evaluating the obligations of C.H. Robinson to check the safety rating and Safestat scores of  the motor carrier and ultimately allowed an action against C.H. Robinson to proceed.  Speaking of experts, CH Robinson produced Annette Sandberg, former head of the FMCSA as their expert.  (Jones v. C.H. Robinson, 2008 WL 2350898)

Defending without a reservation of rights is a risk which can impact coverage questions. In an action in Arizona, the Appellate Court held that a general liability insurer who defended for 10 months without a reservation of rights that the claim against its insured arose out of the use of an auto could be precluded from later denying coverage if prejudice was established.  The initial triggering claim was a claim against the insured only as a negligent broker and later changed to assert carrier status.  (Penn-America Ins Co. v. Sanchez, 2008 WL 2426760)

In the cargo claim world the fight over the impact of  Kirby and Sompo continue.  Once again the question was raised as to whether the liability of an inland carrier operating under an ocean bill of lading was required to comply with the Carmack Amendment in order to limit its liability or seek enforcement of suit clauses. The District Court in New York concluded that the two decisions were not inconsistent and determined that inland carriers would still have to meet Carmack requirements in order to reap the benefits of provisions in an ocean bill of lading.  (Swiss National Insurance Co. v. Blue Anchor Line, 2008 WL 2434124)

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