We hope you are finding our new web page design easy to navigate and we would love to hear about any comments or suggestions which you may have. As part of CAB’s commitment to help you adapt to changes in the industry, we are considering modifications to our financial request form that we send to the motor carriers such as whether we should request additional information on operations, including security and protection devices used by the motor carrier. While we undertake this project we look for your comments on what you would find relevant to assist your underwriting process. Please send any of those comments to me by clicking here or to Shuie by clicking here.
Just a reminder – the IMUA has released the registration package for the upcoming annual meeting. You can view the registration package at www.imua.org. There will be transportation related sessions which should be of great interest to underwriters and claims alike. I look forward to seeing you there.
I don’t know about you, but I am done with winter. Here in New York we are digging out from yet another snow storm. Spring cannot come soon enough. Hopefully you can read this report and not be out shoveling like we are. This month we report.
SLEEP APNEA – There was an interesting report this month on the impact of sleep apnea on trucking. According to one study by the FMCSA, 26% of drivers suffer from some form of sleep apnea. The disorder can cause reduction in reflex response and cognitive and motor skills while operating a vehicle. Drivers who are diagnosed with this disorder are required to be disqualified until the diagnosis is ruled out or treated successfully.
CARGO THEFT – The Wall Street Journal reported that over 5 days in January, a truck load of consumer electronics, a truck load of paper and a truckload of chairs were stolen. Accordingly to FreightWatch, $487 million in goods were stolen in 2009, a 67% increase over the last year. That involved 859 truckloads of goods. That is a lot of cargo being taken. With economic conditions still not good, cargo theft is likely to continue to rise, with professionals and amateurs taking a stab at the crime. Rest stop thefts are reportedly the largest group so pay attention to where your carrier is operating and whether he will need to park trailers at rest stops.
DELAY EXPOSURE – As those in the cargo industry know, Wal-Mart has long led the way in imposing requirements on how, when and where its product will move through the country. If a Wal-Mart imposed obligation ultimately works that obligations then begins to be imposed by many shippers. It is now reported that Wal-Mart has implemented penalties for shipments which are not delivered within its required deadline, which allows for a 4 day window for delivery. While most cargo policies exclude damages caused by delay, this is an additional exposure to a motor carrier which needs to be considered.
TRUCKING BANKRUPTCIES – Avondale Partners has released its report on the 4th quarter study of trucking bankruptcies. 445 fleets failed in the 4th quarter. A total of 21,010 trucks came off the road, more than double what was lost in 2008. Avondale indicates that they do not expect the first quarter of this year to be any better as fleets which fought hard to stay afloat are simply losing the momentum needed to stay alive.
FINANCIAL TRUCKING REPORTS – Most of the large carriers who publicly report earnings reported a drop in earnings. On a positive note, the reports indicated that revenue per tractor or miles operated per tractor actually increased. Unfortunately, rates continue to fall which is, as noted above, impacting every carrier’s financial stability. Hopefully as the industry shrinks and capacity is reduced bargaining power on rates will shift in favor of the carrier.
TWIC CARDS – For those of you unfamiliar with this term, a TWIC is a transportation worker identification credential card. Over 1.5 billion have been issued thus far and the number is growing. The card, which is issued by the TSA, verifies the driver and is required in many pier and airport trucking operations. It is taking on added use as shippers seek to require those cards as evidence of a driver’s identity when picking up a shipment. Is this information which an underwriter would consider in evaluating the motor carrier’s exposure? Presumably, the more drivers who have been vetted by the TSA the less likelihood there is of cargo theft by drivers and the ever increasing imposter losses. We would like your thoughts.
TERRORIST USE OF VEHICLES – The Department of Homeland Security has released its report on the potential threat that terrorists will use vehicles which are transporting hazardous materials as weapons. A copy of the report can be viewed here. As a companion report, they also released a report on techniques for tracking and security for these high risk targets. That report can be viewed here. As expected gas and propane carriers have the greatest exposure.
CURRENT CASES
CARGO
Preemption was big this month. You would think by now that the issue would be laid to rest. This time the District Court in Massachusetts held that a shipper’s claim that freight charges were excessive and a violation of state law was subject to the provisions of the Carmack Amendment and therefore must be brought within the time frame of the statute. The court also dismissed a claim for infliction of emotional distress caused by the carrier’s efforts to properly collect fees. (United Van Lines v. Anthony, 2010 WL 436456)
The Middle District of Georgia held that even a third party beneficiary to a bill of lading is subject to the preemptive effect of Carmack. In addition, where the shipper sends a prohibited item, and it is lost, the shipper is unable to recover from the carrier. (Rykard v. FedEx Ground Package System, Inc., 2010 WL 554698)
In the Eastern District of Michigan the court allowed a plaintiff an opportunity to amend its complaint to avoid the pre-emptive effect by Carmack where the plaintiff sought to distinguish the time that the goods were in storage from the interstate transport. The issue would ultimately be determined on whether the storage contemplated ultimate delivery out to an interstate location. The court also held that the case would not be remanded as jurisdiction was present when the case was properly removed under Carmack. (Starling v. Grosse Point Moving Co., 2010 WL 457114)
The Southern District of California confirmed that the Carmack Amendment did not preempt a claim against a broker. However as the plaintiff had alleged only that the broker was operating as a carrier it could not assert non-Carmack claim. The court also held that an apportionment claim against another carrier did not permit recovery of attorney’s fees. (FNS, Inc. v. Bowerman Trucking, Inc., 2010 WL 532421)
The Central District was thinking along the same lines as the Southern District of California. The court held that Carmack preempts a fraud claim that a carrier failed to procure promised insurance. (Shabani v. Classic Design Servs, 2010 WL 446084)
A carrier’s effort to avoid liability for consequential damages failed in the Southern District of Florida. The court held that where the motor carrier was aware that there would be substantial costs incurred if a shipment was not timely delivered it was irrelevant that they could not have expected to be involved in an accident. The issue of notice did not run to the issue of whether the accident would occur but rather only whether the carrier knew that there would be a loss. (American Home Assurance Company v. RAP Trucking, 2010 WL 547479)
Although the reasons why a broker would be held liable for the cargo loss was unclear, the District Court in Maryland held that any attempt by the broker to limit its liability would require evidence that the terms and conditions of service which contained the limitation were specifically provided to the shipper. The court also held that even evidence that 3 or 4 prior invoices had contained copies of the terms would be insufficient to establish a course of action. (JHF Vista USA v. John S. Connor, Inc., 2010 WL 481327)
AUTO
What is the effect of the exclusion for loss arising out of the use of an auto when the insured actually performs its business operations inside the truck? The Fifth Circuit Court of Appeals held that an accident which occurred during mobile shredding operations performed inside the truck would not arise from the use of an auto and coverage would be available under the general liability policy. (Muller v. A-1 Mobile Shredding, 2010 WL 446512)
The 11th Circuit held that failure to use lights or reflective triangles to mark a truck parked on the road after dark was sufficient to establish negligence per se and that a violation of the statute did not have to be intentional to rise to the level of negligence per se. The court also made other evidentiary rulings, including permitting the admission of evidence that the driver was previously convicted of transporting illegal aliens. (McPherson v. Rowe, 2010 WL 528480)
California courts were busy with trucking cases this month. The 6th District Court of Appeals addressed the meaning of hired car coverage. This month they determined that a carrier would not be held to have hired the vehicle operated by a subhauler engaged by the carrier’s subhauler. The insurer for those parties was not denied in its attempt to make the subcontractor’s policy primary. (American International Underwriters Ins. Co. v. American Guarantee & Liability Insurance Co., 2010 WL 311003)
The Appellate Division in New Jersey permitted an action to proceed against a wholesaler for personal injuries caused by a motor carrier hauling the product. The court held that there was a reasonable factual argument that the wholesaler could be found to have controlled the actions of the carrier or that it might have a contractual duty to insure that it was hiring competent motor carriers. That raises an interesting issue as more supply chain suppliers have contracts with their customers which obligate them to verify the competency of truckers. (Chinn v. Mark Transportation, Inc., 2010 WL 374958)
While a consignee would not be considered a statutory employer of a trucking company’s driver under federal motor carrier safety rules, that does not preclude a holding that they are a statutory employer for the purposes of worker’s compensation. In the District Court in Kentucky the court held that as the consignee had hired the motor carrier to perform work which was a regular part of its business it would be entitled to the benefit of the exclusivity of the worker’s compensation regulations. (Black v. Dixie Consumer Products, LLC, 2010 WL 497668)
MISCELLANEOUS
The Supreme Court of Alabama tackled the issue of whether regulation of an intra-state motor carrier tow operation would be subject to preemption by federal statutes. In an action brought by a towed vehicle owner against a tow company, the court held that state claim relating to price, route and services would be preempted. While there was an exemption to preemption for nonconsensual tow services that exemption would not apply to claims relating to the service and auction of a vehicle. See Wetherspoon v. Tillery Body Shop, 2010 WL 532317
In another tow case the District Court in Louisiana held that it could exercise jurisdiction over the fight with the tow company over excessive tow and storage charges when there was a related action by the shipper against the motor carrier for payment for the cargo which was being held by the tow company. The court consolidated the cases so that all of the players were in the same place. (Northside Towing, LLC v. Almaguer Wholesale, 2010 WL 467535)
Although the only connection with the state of Illinois was the residence of the plaintiff, the court held that plaintiff would not be forced to litigate an accident against a trucker in California, the site of the accident. The court held that the limited miles that the carrier had traveled through the state of Illinois was sufficient to confer jurisdiction and that it would be unfair to force plaintiff to litigate in California when the trucker would have a better ability to travel to the jurisdiction and incur the expenses to do so. (Caretta v. May Trucking Co., 2010 WL 456754)
An effort to get issues resolved quickly before the Appellate Court failed in Texas this month. An action involving the issue of whether an insurer was liable under the MCS-90 for a judgment rendered against a carrier who may have procured the policy fraudulently was dismissed because the lower court did not address all of the pending claims in its decision. In addition to those critical issues, the insurer had also sought attorney’s fees and fraud damages from the trucker. Since the court never addressed those damages, the appeal was dismissed. (Old American County Mutual Fire Ins. Co. v. F.C.O.R.P., 2010 WL 311682)
Parties to contracts need to seriously consider the impact of forum selection clauses in contracts that they sign. This is not simply a boilerplate provision. This month it worked against a transportation broker. The broker had a contract with a shipper to provide services. The contract incorporated the shipper’s general terms for the supply of services which contained a forum selection clause. The broker’s case for fees was dismissed when it sought to recovery from the shipper in its own backyard instead of the shipper’s place of business. (Total Quality Logistics v. Cavendish Farms, Inc., 2010 WL 348316)
We like to report on cases involving inland marine insurance as many cargo underwriters also underwrite other lines of business and we do not see many cases addressing that coverage. The Court of Appeals in North Carolina addressed the definition of flood coverage under a contractor’s equipment policy. The policy, which provided specified peril coverage, including flood, was held not to apply to a loss which occurred when equipment was stuck in mud and water from a retention pond seeped around the equipment. With a clear policy definition of what constituted a flood, the court would not extend the definition to include that event. Clarity in the policy was the key to a successful conclusion for the insurer. (North Carolina Concrete Finishers v. North Carolina Farm Bureau Mutual Insurance Co., 2010 WL 348406)
Have a great month and a happy St. Patty’s Day! See you next month.
