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Our firm is pleased to present our annual summary of legal decisions that we feel are of interest to our clients and friends.  All of the cases referred to, and several others of interest, are available on the firm website sfl-legal.com.

The Supreme Court of Vermont adopted what we view as a reasonable interpretation of the MCS-90 endorsement in holding that the endorsement did not impact on the priority of coverage in Fireman’s Fund Ins. Co. v. CNA Ins. Co., ___ A.2d. ___. CNA insured P&C, the owner of a tractor. P&C’s employee was driving the tractor with an attached milk tank pup trailer leased from AMI. AMI was insured by Fireman’s Fund. The issue before the court was the order of priority of the policies.

It was not disputed that CNA’s coverage was primary; CNA, though, argued that Fireman’s Fund’s policy was also primary and that the two policies were to be pro-rated. The court compared the two policies’ "other insurance" clauses and found that they were reconcilable. The CNA policy provided primary coverage for the tractor and trailer, while the Fireman’s Fund policy, which included a fleetcover endorsement, provided for excess coverage. In passing, the court noted that "other insurance" clauses are not construed against the insurer. Only provisions which may benefit the insured are read, in the event of ambiguity, against the insurer. The principle does not apply to disputes between insurers.

CNA’s alternative argument was that the Fireman’s Fund policy was co-primary because of the MCS-90 endorsement attached thereto. Fireman’s Fund made three separate arguments: its second argument was that the MCS-90 had no applicability to the loss in question which involved the transportation of milk, an exempt commodity; the third argument noted that the transportation was purely intrastate and, for that reason the MCS-90 did not apply. The court did not reach these two arguments.

Instead, the court focused on the first argument: the MCS-90 does not apply to disputes between insurers. The MCS-90 endorsement exists to ensure that injured members of the public will be able to seek recovery from a reputable insurer once they have won a judgment against a motor carrier. However, the MCS-90 is completely irrelevant in determining the priority of coverages; that is determined by state law (the language of the policies or, in some states, statutory mandate.) The court accepted this reasoning which, it noted, constituted the majority view of the circuits. To be sure, the court was troubled by the fact, which has misled at least one other court, that Fireman’s Fund checked the box in the MCS-90 which provides that the policy "to which this endorsement is attached provides primary . . . insurance." The court ultimately discounted the significance of the fact that the primary box was checked. The only alternative was the excess box which describes an umbrella type policy and, therefore, was not an appropriate choice.

In fact, the "primary" and "excess" boxes derive from the D.O.T.’s 1981 decision to permit aggregation of limits by two or more insurers. (The D.O.T. had been told that the insurance industry could not provide the mandated coverage without aggregation –– in retrospect this may have been an overreaction by the industry to the higher limits imposed by the D.O.T. following passage of the 1980 Motor Carrier Act.) There was never any intent to imply that the insurer which provided the first layer of the MCS-90 was a primary insurer vis-à-vis insurers that issued policies to other insureds. The Vermont Supreme Court did not apparently unearth the history, but it arrived at the correct conclusion.

The court in Thompson v. Harco Nat Ins. Co., 120 S.W. 3d 511, held that the MCS-90 did not apply to a shipment that was being transported intrastate. As we pointed out in previous years, this remains a controversial issue. Many decisions have held that if the vehicle is ever used in interstate commerce the MCS-90 applies.

In Elmore v. Kelly, __ So. 2d __ (Dec. 15), the Louisiana Court of Appeals held that the third party tort victim had no right of action against a truck company’s insurance agent for alleged failure to procure insurance for the trucker in the amount required by law. The agent’s duty ran to the company, not the claimant. In any event, the court held that since the rig was not for-hire, but was being used to haul scrap metal interstate in the trucker’s own business, 49 C.F.R §387.9 did not apply and the required limits were only $300,000 pursuant to state law.

In Hartford Cas. Ins. Co. v. Smith, 603 S.E.2d 298, the Georgia Court of Appeals held that where the policy and the Georgia Form E filing denote different named insureds, it was the version contained in the filing that controlled even when the issue before the court involved interpretation of policy terms.

The insured limousine company was granted a certificate of public convenience and necessity by the Georgia Public Service Commission after Hartford sent a Form E filing to the state. The policy scheduled one vehicle. At the time of the accident James Nathaniel, principal of the insured, was operating a pick-up truck titled in his name and insured on a personal lines policy issued by Allstate. The use of the pickup was connected, albeit indirectly, with the limousine company’s business. The court noted that while the policy was issued to Nathaniel d/b/a JRJ Limousine, the Form E was filed in the name of 3N Enterprises, Inc. d/b/a JRJ Limousine.

Hartford pointed out that the policy excluded coverage for vehicles owned by the named insured and not listed on the policy. Hartford argued that since Nathaniel was the named insured, owned the vehicle and had not listed it, the pick-up did not constitute a covered auto. Hartford insisted that it had simply erred when it filled out the name of the insured on the filing.

The court, though, concluded that Hartford was bound by its error; it was estopped from arguing that 3N Enterprises was not the named insured. Accordingly, the court concluded that the pick-up truck qualified as a non-owned auto (since it was not owned by 3N) and coverage attached.

Hartford also argued that Nathaniel failed to give prompt notice of the loss. The court apparently agreed with Hartford that this waived coverage under the policy (thus, in truth, making it irrelevant whether the pick-up constituted a covered auto or not!). However, Hartford was obligated to pay the judgment under the Form E filing. The obligation imposed by the filing applied even though the insured was not transporting people for hire. The court, though, did not indicate whether there is any limit to the scope of the Form E. Presumably there needs to be some connection between the use being made of the vehicle at the time of the loss and the operations of the insured motor carrier. The court did not specify that this was the case, but we would argue that this is what the court meant. We are not surprised, though, that the court found that use of a service vehicle implicated the filing.

The District Court in Canal Insurance Co. v. Underwriters at Lloyd's London, 333 F. Supp.2d 352 (E.D. Pa.) considered an interesting variation on the theme of the interaction of non-trucking policies and regular business auto policies; here, one person controlled both insured entities. Canal issued its business auto policy to an individual, a Mr. Singh, and added Singh's motor carrier operation, known as BIR, as an insured. Underwriters insured Mr. Singh as well, under a non-trucking policy; Singh, however, was not wearing his BIR hat when he purchased the Underwriters policy. Instead, the court concluded, the latter policy was issued to Singh in the guise of a leasing company. Singh, apparently, leased his fleet, including the accident vehicle, to BIR. Singh had decided to sell the tractor and purchase a new one, and assigned a driver to take the tractor to a dealership in Chester, Pennsylvania. Singh, now wearing his BIR hat, instructed the driver to attach a trailer to the tractor in case a load became available. If one did, the driver would haul it to destination with the newly purchased tractor.

The Underwriters policy included coverage when the covered auto was "engaged in Business Use, such as proceeding to any location, pursuant to the request, direction, control and/or dispatch, of any person or entity other than the Insured." Business use was defined to include any use of the auto that promotes the business purposes of the insured. The court concluded that since the loss contributed to the growth and prosperity of the leasing company, Underwriters provided no coverage. Ironically, Canal, which insured the motor carrier, had to foot the bill for activity primarily intended to benefit the leasing company. The result may have been different under the ISO non-trucking form.

The growing sophistication of logistics operations presents the courts with the challenge of analyzing the potential liability of these entities with the limited tools set out in the existing case law. In Schramm v. Foster, 341 F. Supp.2d 536 (D. Md.), Jasper Products asked C.H. Robinson, the logistics giant, to arrange for the transportation of a load of soy milk in interstate commerce. Robinson had an ongoing contract of carriage with Groff Brother, a motor carrier. Groff dispatched its employee Foster to haul the shipment. Foster was driving in excess of the D.O.T.'s maximum driving hours and negligently contributed to an accident with a pick-up truck.

Robinson does not own transportation equipment; instead it has brokerage contracts with 20,000 licensed motor carriers. Robinson markets itself as providing "one point of contact" service to shippers. In the event of cargo damage, Robinson writes the shipper a check directly. Robinson also promises to insulate the shipper in the event of an action for bodily injury in three ways: 1) Robinson only works with carriers who have the D.O.T. –– required insurance coverage; 2) in the event of an accident, the carrier indemnifies both the shipper and Robinson; 3) if coverage exceeds the motor carrier's insurance limits, Robinson's insurer will pay the remainder of the loss. The contract between Robinson and Groff insisted that Groff was an independent carrier and Groff was responsible for operating the transportation equipment and paying the salary of Foster, the driver. There was no evidence that Robinson controlled Foster's performance.

In light of these factors, the court concluded that Robinson was not vicariously liable for Foster's negligence. The court was not impressed by the fact that Foster called Robinson directly to receive dispatch information, nor by the requirement that Foster call Robinson periodically to provide updates on his progress. Nor was Robinson liable for negligent entrustment of the vehicle to Foster, since the truck was provided by Groff. Finally, the court denied that Robinson was liable as the motor carrier under federal law. Even though Robinson was an authorized carrier and could have hauled the shipment itself, the shipper understood that Robinson's role was a broker for this transportation. It was true that the bill of lading identified Robinson as the carrier, but the court found that to be an error. There was no evidence that Robinson solicited the load for its own carrier business, and the shipper's employees testified that they understood that Robinson was acting as a broker. The court did permit the case to go forward on plaintiff's claim against Robinson for negligent hiring. The Court's closing comments suggest some level of discomfort with the current state of the law as it relates to logistics companies.

In recent years nearly all states have adopted the view that an insurer can properly deny coverage for late notice only if it can establish that it was prejudiced by the insured’s delay in providing notice. One of the last holdouts was New York where traditionally no assertion of prejudice has been required (although, in a separate line of cases, New York courts have insisted that the declination is valid as to third party claimants only if the claimant knew or should have known the identity of the tortfeasor’s insurer and also failed to provide notice to that insurer).

In a 2002 decision New York’s Court of Appeals (the state’s highest court) may have hinted in a footnote that the question should be re-examined, and several courts around the state have gone so far as to hold that the insurer was not justified in denying coverage absent prejudice. In Great Canal Realty Corp. v. Seneca Ins. Co, 2004 WL 2952794, (the decision is apparently not being officially reported) two of the five judges on the intermediate appellate court panel voted to affirm the trial court’s denial of the insurer’s motion to dismiss on the basis that the insurer had offered no proof of prejudice. Two other judges dissented, holding that until and unless the Court of Appeals decides that the "no-prejudice" standard is no longer good law, it remains the operative rule in New York. The fifth judge agreed with the trial court’s decision on the basis that the claim may have been made on a timely basis under the circumstances.

Until the Court of Appeals rules on the issue insurers may well feel uncomfortable relying upon a late notice declination in New York absent colorable evidence of prejudice. In close cases a declaratory judgment action may provide cover.

Imre v. Lake States Ins. Co., 803 N.E.2d 1126 (Ind. App.) - the court held that the insured was not entitled to recover both uninsured and underinsured motorist coverage on the same claim.

Butzberger v. Foster, 151 Wash.2d 396 - The Supreme Court of Washington abandoned the "vehicle orientation" test utilized by some courts to determine whether an insured is entitled to UM coverage; instead, the court concluded that even if the UM coverage form does not contain the phrase "use of" or "using" a vehicle, the test for determining whether UM coverage applied would be the traditional factors applied when analyzing liability coverage as to whether the vehicle was being used. (Contrast, Petika v. Transcontinental Ins. Co., 855 A.2d 85 (Pa. Super.) which upheld the vehicle - oriented test).

Stevens v. Fireman’s Fund Ins. Co., 375 F. 3d 464 (6th Cir.) - (applying Florida law). The court held that trucker’s general liability policy was inapplicable to claim that trucker had negligently dispatched its driver who was over hours; any such negligent dispatch was inextricably linked with use of an auto.

LIMITED LIABILITY

In Emerson Electric Supply Co. v. Estes Express Lines Corp., 2324 F. Supp. 2d 713 (W.D. Pa), the court refused to enforce a motor carrier’s tariff limitation of liability because the tariff did not provide for a choice of rates. The pro-sticker attached to the shipper’s bill of lading by the pick-up driver stated that the carrier’s rules tariff applied to the shipment. The tariff terms, which were available on the carrier’s website, provided that uncrated new machinery was released to a value not exceeding $.10 per pound, and that the shipment would not be accepted if the shipper designated a greater value. The court reasoned that "the requirement that a carrier must provide the shipper with a fair opportunity to choose between two or more levels of liability derives from common law," and concluded that the Interstate Commerce Commission Termination Act did not alter the common law rule. The court correctly observed that prior to ICCTA, the Carmack Amendment provided that the Interstate Commerce Commission could require carriers whose tariffs limited liability to offer a full-value alternative, and that this statutory language was deleted by ICCTA. The court said that the elimination of the ability of the ICC to require a full-value rate did not eliminate the common law requirement that there be at least two options. As we observed in this column last year, it makes no sense to require a choice of rates unless one of the choices is full value. Since the courts agree that a full-value choice is required, no practical purpose is served by offering only a limited choice of limited values.

In Bullocks Express Transportation, Inc. v. XL Specialty Insurance Company, 2004 WL 1748934 (D. Utah), the bill of lading, consistent with the carrier’s tariff, provided for a released value of $5 a pound if no value was declared on the bill of lading. However, the parties had previously entered into a contract for LTL shipments which limited the liability of the carrier to $5 a pound, and further provided that the carrier would be liable for full value if the loss was caused by "severe negligence" as defined in the agreement. Although there was a question of fact as to whether the LTL agreement was meant to apply to a truckload shipment, the court held that regardless of the intent of the parties, the tariff would prevail over the contract, and that, in any event, the "severe negligence" provision could not be enforced because it is prohibited by the Carmack Amendment. The court reasoned that the Carmack Amendment pre-empted recovery for negligence and required that the tariff, which the shipper was deemed to have knowledge of, would govern the transaction.

Frankly, none of this makes much sense, and this decision may stand as an example of the difficulties of litigating limitation of liability issues. To begin with, the decision makes no reference to 49 U.S.C. §14101(b), which presumably would permit the parties to enter into a contract "to provide specified services under specified rates and conditions." There would appear to be no good reason why the parties could not contract under §14101(b) to limit liability subject to an exclusion for severe, or any other kind of negligence. Pre-emption is not an issue insofar as the remedy would not be in tort, but under the contract. A contract which sets negligence as a standard for liability provides for a contractual, not a tort, remedy. Curiously, the court notes that at oral argument, counsel for the carrier stated that it would not have accepted the shipment if the shipper had declared full value. The court failed to recognize that this would void the tariff limitation inasmuch as the carrier would not have in fact offered a choice of liability levels.

In Atlantic Mutual Insurance Company v. Yasutomi Warehousing and Distribution, Inc., 326 F.Supp.2d 1123 (U.S.D.C.C.D.CA, 2004), the court enforced a limitation of liability established by "course of dealing." The parties had previously completed many shipments in which the carrier issued bills of lading which on their face limited liability to "$50.00 per shipment or 50 cents per L.B. Excess valuation charges will be 10 cents per $100.00 valuation." The bill of lading for the lost shipment was "misplaced." Correctly, we suggest, the court held that the parties had entered into a §14101(b) agreement which was established by the prior dealings in the absence of the actual bill of lading. The court also stated that the fact that the shipper had its own insurance established that it was aware of the limitation of liability and that it chose to not declare a value.

A limitation of liability based on prior practice, where no bill of lading was issued at pick-up, was also enforced under state law in Rational Software Corp. v. Sterling Corp., 311 F.Supp.2d 203 (D.Mass. 2004).

OTHER CARGO CASES OF INTEREST

In connection with the appeal taken from the decision of the District Court that the BMC-32 Endorsement applies to contract carriage in M. Fortunoff of Westbury Co., v. Peerless, 260 F.Supp.2d 524 (E.D.N.Y., 2003), the panel of judges who heard oral argument asked the Federal Motor Carrier Safety Administration to file an amicus brief. The brief which they filed in mid-December takes the position that the BMC-32 Endorsement does not apply to a carrier’s contract carrier operations when the carrier is registered as both a contract carrier and a common carrier. The brief also reports that the USDOT expects to issue a proposed rule with respect to unified carrier registrations in February, 2005.

The Seventh Circuit rule that the requirement of a written claim to a motor carrier is satisfied by the carrier’s mere awareness of the loss was followed by the court in Mitsui Sumitomo Insurance Co. Ltd., v. Watkins Motor Lines, Inc., 2004 WL 2325421 (N.D. Ill.) On the other hand, in S&H Hardware & Supply Co., 2004 WL 1551730 (E.D. Pa.), the court, citing authorities in the First, Second and Fifth Circuits, held that "the filing of a written claim within the prescribed time period is a strict condition precedent to the filing of a lawsuit." The court dismissed an action on a claim which the motor carrier had investigated because a written claim was not presented to the motor carrier within nine months. Pennsylvania is in the Third Circuit. Similarly, in Siemens Power Transmission & Distribution, Inc. v. Norfolk Southern Railway Company, 336 F.Supp.2d 1201 (M.D. Fla. 2004), a District Court in Florida, noting that the Sixth, Seventh and Ninth Circuits apply a "substantial compliance" rule, and that the First, Second and Fifth Circuits apply a "strict compliance" rule, observed that the Eleventh Circuit (which includes Florida) had not taken a position. The court fell in with the strict constructionists and dismissed the plaintiff’s action on the grounds that the claim did not seek a determinable amount of money. This proves, again, that you have to be in the right place at the right time to win.

Attempts by plaintiffs to use violations of federal safety regulations to establish cargo claims were unsuccessful in Lustig v. Brown, 2004 WL 1244147 (N.D. Ill. 2004), and in Castine Energy Construction, Inc., v. T.T. Dunphy, 861 A2d. 671, 2004 ME 129 (Maine, 2004). In Lustig, which involved transit damage to a yacht, the federal court in Illinois dismissed causes of action which alleged violations of federal regulations relating to highway transportation on the grounds that the regulations do not provide for a private right of action. The court did not say if these claims would also be barred by the Carmack Amendment. In Castine, the loss was caused by the failure of cross bars which the shipper had welded to assist in the loading of the cargo. The driver ran his chains through the cross bars, which the shipper claimed were not intended to be used to secure the load. Apparently, the method of chaining violated federal safety regulations. The court rejected the shipper’s contention that the violation constituted negligence per se. Noting that the carrier was responsible to secure the cargo, the shipper requested a jury instruction that the shipper had no duty to advise the carrier that the cross bars were not intended to secure the cargo in transit. Affirming the trial court’s decision not to give the instruction, the Supreme Judicial Court of Maine stated that had the defect been latent (which would be a question of fact), the shipper may have had an obligation to warn the carrier not to use the cross bars to secure the load.

Central Analysis Bureau's "Resumé - 2004 Motor Carrier Industry"

Copyright 2005, Schindel, Farman, Lipsius, Gardiner & Rabinovich LLP