2009 Recent Developments In Transportation and Insurance Law  

(formatted copy for printing)

ur firm is pleased to present our annual sum­mary of legal decisions that we feel are of interest to our clients and friends. 

Non- Trucking Coverage 

n separate decisions, two of the federal circuit courts held in 2008 that a leased driver far from home remains in the business of the lessee motor carrier even after completing delivery of his load and while driving to find a place to sleep. 

Auto-Owners Insurance Co. v. Redland Insurance Co., _F.3d _ (6^th Cir.) analyzed a non-trucking policy issued by Redland to R&T Trucking which covered a truck that was under lease to Everhart Trucking, a USDOT-registered motor carrier.  Everhart gave the driver David Gale all of his assignments. 

Everhart’s customers were concentrated in Ohio, Michigan, Illinois and Pennsylvania and the driver became familiar with certain patterns of assignments.  For example, Everhart had an arrangement with US. Steel whereby Everhart would receive $600 for each business day that one of its vehicles was physically at an East Chicago facility whether or not a load was actually tendered.  The East Chicago run was generally given to the company driver who had completed delivery the day before in Western Michigan. 

On the day of the loss Gale was assigned to haul a load of steel from Ohio to Grand Rapids, MI.  The unloading was not completed until around 11p.m., long after Everhart had gone home.  Gale left a message for Everhart that since it was so late he did not want to be dispatched too early the next morning and informing Everhart that he was going to head towards Gary-East of Chicago looking for a place to sleep.  Before he found a motel Everhart apparently dozed off and crashed into another vehicle killing its occupant.  The estate filed suit against Everhart, Gale and the lessor; Auto Owners paid its policy limits to settle the lawsuit, then filed an action for indemnification against Redland.  The District Court granted Redland’s motion for summary judgment and the Sixth Circuit affirmed the judgment.   

The exclusionary language of the Redland non-trucking endorsement was not identical to the standard ISO endorsement, although the key language – which excludes coverage when the covered auto is used “in the business” of the lessee-motor carrier- is identical in the two forms.  The Redland form also explicitly excluded certain other scenarios from coverage.  Thus had there been an explicit dispatch by Everhart for Gale’s next load, or had Gale begun to return to his home (i.e., the place where the truck was regularly garaged) the loss would have fallen within explicit exclusions.  The question for the Sixth Circuit was whether the catch all phrase (as the Court called it) of “in the business” excluded coverage as the driver was headed in the direction of his next presumed, but not confirmed, load and while looking for a place to sleep.   

The Sixth Circuit observed that the driver was not engaged in a “frolic and detour, heading somewhere for his own purposes and no other.”  Rather, after spending the day carrying a load and then waiting hours for it to be unloaded, Gale’s plan, conveyed to the motor carrier in a voice mail left after 11p.m., was to head toward the location of the next day’s expected loading location, find a place to sleep, then call in the morning to received his precise dispatch instructions.  “Whether we choose to characterize the accident as occurring while Gale was driving somewhere to get some sleep (which, as it turns out he tragically needed) or while heading in the direction of [the presumed next assignment] Gale was operating “in the business” of Everhart.  In either case Gale was furthering the commercial interests of Everhart.  The court held that it would reach the some conclusion under Ohio Code §2307.34 which permits the motor carrier’s insurer to recover from the non-trucking insurer “while the operation was engaged in a ‘non-trucking activity.’”  Here Gale was not so engaged, and Auto-Owners was not entitled to recover from Redland. 

Larry Rabinovich and Phil Bramson of our firm represented Redland. 

National Union Fire Insurance Co. of Pittsburgh, PA v. Connecticut Indemnity Co., 52 A.D.3d 274, __ N.Y.S.2d __ (1^st Dep’t 2008). Held that, where “bobtail” exclusion was void as a matter of law, savings clause which limited coverage to statutory minimum was also unenforceable. (Contra, Connecticut Indem. Co. v. Hines, 40 A.d.3d 903, 837 N.Y.S.2d 183 (2d Dep’t 2007)). 

Liberty Mutual Fire Insurance Co. v. Axis Surplus Insurance Co., ___ S.E.2d ___, 2008 WL 4813757 (Ga. Ct. App. Nov. 6, 2008).  Smith, the owner-operator, leased his tractor to Bennett Truck Transport.  Smith customarily garaged his tractor either at Bennett's terminal or at his home.  On the date of loss, he picked up a mobile office trailer from Bennett's terminal, delivered it, and was on his return trip when the accident occurred.  At the time of the loss, Smith's tractor was pulling one of the vehicles which had been used to escort him on his outbound run.  The court had no difficulty finding that, at the time of the accident, Smith's tractor was still being used in Bennett's motor carrier business, since the return trip was in his normal business routine and not for personal reasons.

MCS-90 

s we have reported in the past, the USDOT advised, in October, 2005, that the MCS-90 attaches only when judgment is entered against the named insured. This pronouncement was made in response to several court decisions (e.g., John Deere Ins. Co. v. Nueva, 229 F.3d 853 (9th Cir. 2000)) which held that an MCS-90 requires the issuing insurer to pay a judgment against the driver and, in one case, even against the owner of a trailer which had transferred the vehicle to the named insured.  The great difficulty this line of cases causes to insurers is obvious enough.  The MCS-90 applies even if “the insured” gives no notice of loss to the insurer.  If suit is filed only against the driver, the insured motor carrier, and its insurer, may not even hear of the suit before judgment – a consent judgment, or a default – has been entered against the driver.  If the driver qualifies as an insured under the MCS-90, then the insurer will be required to pay the judgment.  Several cases working their way through the judicial system may offer an opportunity to challenge the Nueva line of cases on the basis of the USDOT comment.  

Among them is McClurg v. Deaton , --- S.E.2d ----, 2008 WL 4963995 (S.C. Ct. App. Nov. 20, 2008).  Ann McClurg was injured in a multi-vehicle accident involving a truck owned by New Prime and driven by its employee Harrell Deaton.  New Prime gave its insurer Zurich timely notice of the loss, and Zurich began its investigation. 

Communications between Zurich and plaintiff’s lawyer began a few months after the accident; the attorney sent along a draft complaint naming New Prime and Deaton as defendants, and threatened to file suit unless the case was settled soon.  Settlement discussions followed between October, 2004 and June, 2005, when contact apparently broke off. 

While those negotiations were going on, plaintiff's counsel, without telling Zurich, prepared and filed a lawsuit naming only Deaton as a defendant.  Deaton had left New Prime’s employ shortly after the accident and was not in touch with New Prime.  The suit was served on the South Carolina Department of Motor Vehicles, as permitted by statute which then forwarded the complaint to Deaton in Texas by return receipt mail.  Deaton, thus, apparently received notice of the suit but did not appear and a default judgment was entered against him for $80,000.  Zurich and New Prime were intentionally not told about this action, presumably in the hope that Deaton would default.  

That is precisely what happened.  Zurich (and New Prime) first heard that suit had been filed against Deaton only after the default had been entered.  Zurich tracked down Deaton who executed an affidavit in which he denied that he had received service of the complaint or notice about the damages hearing. Deaton and New Prime (which successfully moved to intervene in the action) moved to court to set aside the default judgment but the trial court denied the motions and let the default stand. 

On appeal the appellate court considered a range of issues including whether the default was obtained by fraud or misrepresentation.  New Prime had intervened because, under the Nueva approach, it has serious direct exposure.  Were Zurich to pay the judgment against Deaton under the MCS-90 endorsement it would then (arguably) have a right to reimbursement from New Prime.  (We say arguably because once the MCS-90 is pushed beyond its intended limits, as by the Nueva decision, a variety of question that never should have arisen need to be confronted.  There is only supposed to be one insured under the MCS-90: the named insured.  Once, though, it is held that there may be multiple insureds we face this dilemma: can an insurer which pays a claim under the MCS-90 for one insured secure the reimbursement to which it is entitled from a different insured?)  In light of this potential exposure to New Prime, the appellate court held that the trial court was wrong in treating New Prime as a non-party.  The trial court should have found that New Prime had the right to receive notice of the lawsuit against Deaton.  The court found that based upon the fact that plaintiff’s attorney had been in touch with both New Prime and Zurich concerning settlement, Zurich and New Prime would reasonably have believed that New Prime would be named as a defendant in any suit, or at least that Zurich and New Prime would received a copy of the complaint of any unit that was filed. 

Rule 60(b) of the South Carolina Rules of Civil Procedure permits a court to relieve a party of judgment entered against it when it finds that the opposing party had been guilty of fraud, misrepresentation or other misconduct (b)(3), or even mistake, inadvertence or surprise (b)(1).  The appellate court also cited to a 1970 decision by the South Carolina Supreme Court in which a defendant’s insurer successfully moved for an order setting aside a default judgment where the insurer was involved in settlement discussions while the plaintiff’s attorney, without notifying the insurer, sued the insured and secured a default.

Here, too, since negotiations were ongoing, and the attorney filed suit without telling New Prime or Zurich, the latter were, in principle, entitled to relief under 60(b)(1) (mistake, surprise), and also “quite possibly under the misrepresentation standard of 60 (b)(3).”  However, the court noted that in order to have the judgment voided, the defendant needs to show that it has a meritorious defense.  The court observed that New Prime had never argued to the trial court that it had a defense.  There was nothing in the record suggesting that the loss arose out of anything but Deaton’s negligence [for which New Prime would be responsible].  New Prime argued on appeal that it had a meritorious defense on the issue of damages.  The court found no evidence that the issue had been raised below and accordingly declined to consider it on appeal in light of the failure to make a prima facie showing of meritorious defense. 

The court seemed disinclined to believe, in any event, that simply pointing out the discrepancy between what the claimant was awarded by the jury ($800,000) and what it had demanded in settlement negotiations ($170,000) was enough to be considered a meritorious defense on damages.  However, it left open the possibly that a trucker or insurer could get a default reopened if they presented evidence suggesting that the award was not in line with the actual injury.  The difficulty that occurs to us is that the trucker or insurer may not have done much or even anything in the way of discovery when the surreptitious default is entered, and may not have much information with which to challenge the award of damages.  It may only have whatever medical documents it received from the claimant’s counsel during the negotiations.  Will that be enough, though, to constitute a “prima facie showing or a meritorious defense?”  That question remains open. 

We are told by attorneys involved in the case that the South Carolina Supreme Court is considering, as we go to press, a grant of certiorari on the basis of the partial dissent by the chief judge of the appellate court, who voted in favor of opening the judgment.  If the judgment stands, the next stop is likely to be an attempt by the claimants to recover from Zurich on the judgment secured against Deaton.  That is likely to turn into a battle on the question of whether an MCS-90 attaches when judgment is entered against a driver, but not against the named insured.  Keep your seatbelt fastened. 

The case of Basha v. Ghalib, 2008 WL 3199464 (Ohio Ct. App. Aug. 7, 2008), reflects, though indirectly, another challenge to the view of the MCS-90 espoused by the Ninth Circuit in Nueva and adopted by Supreme Court of Ohio in Lynch v. Yob, 93 Ohio St.3d 441 (2002).  In Lynch v. Yob, the Ohio court, in determining whether the MCS-90 applied to a judgment against the driver, agreed with Nueva that "finding the driver and owner of the tractor ... to be insureds under the MCS-90 endorsement allows the MCS-90 endorsement to serve the purpose it was expressly designed to serve...."  In Basha v. Ghalib, Basha and Ghalib were co-drivers for motor carrier Daryel Express Trucking.  Basha was injured while a passenger in a tractor-trailer operated by Ghalib.  Basha argued that he was entitled to be compensated pursuant to the MCS-90 endorsement attached to the Canal Insurance Company policy issued to Daryel Express. 

On its face, the MCS-90 "does not apply to injury to or death of the insured's employees while engaged in the course of their employment...."  Basha argued that, since he was not an employee of Ghalib, this exclusion was inapplicable and he was still entitled to collect under the MCS-90 for his claim against his co-driver.  The Ohio appellate court, however, rejected this argument, and found that the only relevant "insured" in the context of the exclusion in the MCS-90 was the named insured motor carrier.  The court came to this conclusion by citing 49 C.F.R. § 387.5, which defines "insured" as "the motor carrier named in the policy of insurance, surety bond, endorsement, or notice of cancellation, and also the fiduciary of such motor carrier."  Arguably, however, this holding flies in the face of Lynch v. Yob, which held that "insured" under an MCS-90 also includes a driver for the named insured motor carrier. 

Issues regarding the scope of mandatory insurance for motor carriers also arise where a policy is issued to a motor carrier with liability limits that are less than the statutory minimums, but where that policy is not intended to satisfy the financial responsibility requirements, if any, imposed on the motor carrier as a condition of operating authority.  We have noticed a trend by counsel for plaintiffs injured in accidents with trucks to argue that the insurance policy issued covering the truck should be rewritten to comply with federal or state motor carrier law and related financial responsibility requirements.  Progressive Insurance Company successfully fought off a variation of such an attempt in Waters v. Miller __ F. Supp. 2d __, 2008 WL 2357752 (M.D. Ga. June 5, 2008).  

The case arose out of a collision between a passenger car operated by Bobby Waters and a tractor-trailer rig being driven by Mel Miller.  Miller was insured under a liability policy issued by Progressive.  Miller, though, failed to make his premium payments and Progressive cancelled the policy. 

The accident occurred two and a half months after the cancellation.  Waters sued Miller and Progressive under Georgia’s direct action statute (Progressive removed the case to federal court) alleging that Progressive’s policy remained in effect because it had failed to notify the Florida Department of Highway Safety that it was canceling the policy.  That turned out to be correct; of course, Progressive had never informed the department that it had issued a policy in the first place.

Waters argued, alternatively, that he was entitled to coverage under the MCS-90 endorsement.  This, too, encountered a small technical problem.  Progressive had not issued an MCS-90, nor had it made a federal filing.  Water, though, insisted that Progressive should have made a filing since Progressive knew, or should have known, that Miller needed to comply with the USDOT financial security requirements, and that Progressive, therefore, had the obligation to ensure Miller's compliance.  Waters pointed to the fact that the policy permitted use within a three hundred mile radius of the terminal in Keystone Heights, FL. 

The court rejected Waters’ argument and declined to reform the policy to include an MCS-90.  Citing to the 2003 Dupont decision by the Fifth Circuit (discussed in these pages in January, 2004), and several other decisions, the court concluded that it is the responsibility of the motor carrier, not the insurer, to comply with the financial responsibility requirements.  The insurer has no duty to advise the motor carrier about those requirements, and should not face greater exposure than is required by the terms of the policy, merely because the insured did not ask for the correct coverage. 

The court went on to address the claim by Waters that Progressive should have realized that the insured was engaged in interstate commence in light of the permitted radius of use which extended into neighboring states.  Here the court, citing a Progressive representative, found that the radius may have signaled that interstate commence was possible, but not more than that.  The court concluded that, ‘[i]n light of the foregoing authorities, the mere possibility that Miller may have traveled out of state at some point after the inception of the policy is insufficient to warrant the type of burden–shifting that Plaintiff urges.”  The question that remains is whether, in a scenario in which the insurer could be said to have actual or constructive knowledge that an insured that did not request a filing (or that purchased less than $750,000) of coverage was engaged in interstate commerce, the court could indeed reform the policy to include an MCS-90 or higher limits.   

The district court in the parish of Jefferson, LA, also concluded that the duty to obtain the appropriate amount of coverage rests with the motor carrier and not the insurer.  Terrebonne v. Babb (Case 637-863, Div. “D”, 24^th Judicial District Court).  Interstate Indemnity insured Econo Waste, an Atlanta-based carrier, under a policy with liability limits of $100,000.  The company’s vehicle was operating in Louisiana doing some post-Katrina work.  Plaintiff argued that the policy should be reformed to meet the USDOT required limits of $750,000.  The court, though, held that the vehicle was not engaged in interstate commerce (even though it had crossed state lines to get into Louisiana) and that, in any event, securing mandated insurance is the responsibility of the motor carrier, not the insurer.  Larry Rabinovich and Phil Bramson of our firm worked on the matter in conjunction with George Hall and Pablo Gonzalez of the Phelps Dunbar firm, on behalf of Interstate. 

An interesting MCS-90 case to watch in 2009 will be Carolina Casualty Insurance Company v Yeates which the Tenth Circuit has agreed to hear en banc (that is by the full court).  The case arises out of a 2003 accident in which the Yeates couple suffered a head-on collision with a livestock truck owned by Bingham Livestock. State Farm had issued an auto liability policy to Bingham, with limits of $750,000, which scheduled the truck involved in the accident.  State Farm paid its limits to the Yeates.  Bingham was also covered under what the court called a general liability policy issued by Carolina.  (Presumably this was a policy with multiple coverages including auto liability coverage, but one can not be certain from the description).  While no coverage was provided for the livestock truck under the Carolina policy, Carolina had attached an MCS-90 to its policy.  

Carolina argued that its MCS-90 exposure was not triggered since the limits required for Bingham by USDOT ($750,000) had already been paid by State Farm.  Both the District Court (District of Utah) and, in its initial opinion, the Tenth Circuit, rejected Carolina's argument in light of the decision in Empire Fire & Marine Ins. Co. v. Guaranty National Ins. Co., 868 F.2d 357 (10^th Cir. 1989). 

Empire had presented a primary/excess dispute between insurers of two motor carriers; the Empire policy covered the accident vehicle (it had been issued to the lessor) and, by its terms, provided primary coverage.  The Guaranty policy issued to the lessee motor carrier did not cover the accident vehicle but included an MCS-90.  The issue before the Tenth Circuit was how to apportion the loss between the two policies.  

As background for the Empire court’s 1989 analysis it is important to note that in a series of cases in the early 1970’s the Tenth Circuit had held that the MCS-90 always provides primary coverage and must be exhausted before any other policy could be reached. 

In 1975 the decision by the United States Supreme Court in Transamerica Freight Lines, Inc. v. Brada Miller Freight Sys., Inc., 423 U.S. 28, essentially rejected the Tenth Circuit’s decision on the MCS-90, and in the years that followed various other circuit courts ruled that the MCS-90 was quite irrelevant in resolving coverage disputes between two or more insurers.  In 1987, a Kansas District Court in American Gen. Fire & Cas. Co. v. T.I.E., 660 F. Supp. 557 suggested a modification of the Tenth Circuit’s view – what the MCS-90 does, the District Court suggested, was to negate any ‘limiting provisions” (meaning exclusions, but also any excess language).  That meant that the policy to which the MCS-90 was attached was a primary policy; however there could be other primary policies as well.

Two years later, when Empire reached the Tenth Circuit, the court pretended that there were three views in the existing case law about how to treat the MCS-90, but there were really only two: the majority view of the other circuits, or the Tenth Circuit view as modified by the Kansas District Court.  The Tenth Circuit opted for the modification of its approach, declining to join the majority view.  

For twenty years, as the Yeates case pointed out, the Tenth Circuit reiterated its holding that an MCS-90 amends any policy to which it has been attached into a primary policy.  However, other policies can also provide primary coverage if that is what their terms provide. That, presumably, leads to a pro-ration between the insurers.  We will follow the further appeal of Yeates with interest, to see if the Tenth Circuit is now prepared to adopt a more mainstream view of the MCS-90. 

Real Legacy Assurance Co. v. Santori Trucking, Inc., 560 F. Supp.2d 143 (D.P.R. 2008).  Policy included pollution exclusion and MCS-90 endorsement.  Insurer paid $1,322,134.44 to settle environmental restoration claims against insured, and sought reimbursement.  Court held that plain language of MCS-90 supported reimbursement where policy provided no coverage, but limited reimbursement to policy’s $1,000,000 limit.  (Not clear from opinion if MCS-90 provided different limit.) 

Szcepanik v. Through Transport Mutual Insurance Association, Ltd., 2008 WL 2166193 (D.N.J. May 21, 2008).  Plaintiffs settled claims against defendant insureds and took assignment of insureds’ rights against excess insurer.  Held:  plaintiffs were bound, to same extent as named insureds, by provisions requiring arbitration of all coverage disputes in London, England.  Result not affected by inclusion of MCS-90 endorsement in policy, since endorsement merely controlled liability of insurer but not forum for determining that liability. 

Hawthorne v. Lincoln General Insurance Co., 2008 WL 4822044 (E.D. Mich. Nov. 4, 2008). Claimant obtained a default judgment against insured motor carrier, and then sought to collect under the MCS-90.  Insurer brought coverage action.  Claimant argued that discovery into the accident itself, rather than coverage issues, was irrelevant, since default judgment established that motor carrier was negligent.  Court, however, held that default judgment only meant that motor carrier itself could not contest negligence.  Insurer was free to litigate issue of motor carrier's negligence, since MCS-90 only applied to judgment for damages arising out of negligence. 

Luizzi v. Pro Transport, Inc., __ F. Supp.2d __, 2008 WL 525433 (E.D.N.Y. Feb. 26, 2008).  Since neither the insurer nor its agent could produce a Form 3800 certified mail receipt, the court found insufficient evidence to show that notice of cancellation had been sent to the insured 35 days prior to the effective date of cancellation, as required by 49 C.F.R. § 387.3(b)(1).  The court was not persuaded by fact that the Federal Motor Carrier Safety Administration website showed the policy as having been canceled prior to the date of loss, or that the FMCSA had accepted the insurer's request to cancel the policy, as this was not conclusive evidence of the date on which notice of cancellation was sent to the insured. 

Canal Insurance Co. v. Lincoln General Insurance Co., 2008 WL 3103270 (W.D. Wash. Aug. 4, 2008).  Canal issued a policy to the motor carrier/lessee, which did not cover the tractor-trailer involved in the loss but which included an MCS-90 endorsement.  The Lincoln General policy issued to the tractor owner/lessor covered the vehicle, but did not include an MCS-90 endorsement.  The court adopted the majority view that the MCS-90 has no effect on allocation of priority among insurers, and held that the Lincoln General policy provided primary coverage for the loss. 

Lyons v. Lancer Insurance Co., 2008 WL 4525542 (S.D.N.Y. Sept. 30, 2008).  The district court held that prior state court litigation over whether the policy provided coverage under its basic terms, did not preclude (under theories of res judicata or collateral estoppel) subsequent litigation over whether the claimants were entitled to recover under the policy's MCS-90 endorsement.  The court noted that the question of exposure under the MCS-90 was independent from the question of coverage under the policy, and that the MCS-90 was not triggered until there was a judgment for damages in favor of the claimants.

Mandatory Liability Coverage 

OIDA Risk Retention Group, Inc. v. Williams, ___ F. Supp.2d ___, 2008 WL 835430 (N.D. Tex. Mar. 25, 2008).  Court held that Texas mandatory coverage law rendered unenforceable exclusion which barred coverage for injury to person occupying covered auto.  Having voided exclusion, court found further that insurer was exposed up to its policy limits, rather than statutory minimum.

Severability of Interests 

ECURA Supreme Insurance Co. v. M.S.M., 755 N.W.2d 320 (Minn. Ct. App. 2008).  Exclusion in homeowers for bodily injury resulting from the criminal act of “any insured” barred coverage for claim against parents for negligent supervision of minor who assaulted neighbor.  Court found that “severability of interests” clause did not create ambiguity in exclusion.

Hired or Non-Owned Auto 

helter Mutual Insurance Co. v. Sage, ___ S.W.3d ___, 2008 WL 2649589 (Mo. Ct. App. July 8, 2008).  Dustin, Harold and Travis were involved in a joint farming venture.  Harold’s homeowner’s policy provided coverage for “bodily injury or property damage arising out of farming operations that are conducted on the residence premises,” but excluded coverage for “bodily injury or property damage arising out of the ownership, maintenance, use or entrustment of … any land motor vehicle, other than a recreational motor vehicle, owned or operated by or rented or loaned to an insured.”   Court held that policy unambiguously excluded coverage for accident involving Dustin’s truck that was transporting farm equipment from farm to grazing area on Harold’s property. 

Travis was also insured under an auto policy which provided coverage for damages resulting from an accident “which is caused by the ownership or use of the described auto or a non-owned auto.”  “Non-owned auto” was defined as “any auto, being used or occupied with permission….”  Court held that non-owned auto coverage only applied to use by named insured Travis of vehicle he did not own. 

Phillips v. Enterprise Transportation Service Co., ___ So.2d ___, 2008 WL 2894497 (Miss. Ct. App. July 29, 2008).  NTC hired Enterprise as a independent contractor to provide transportation services using Enterprise’s own vehicles and drivers.  Court held that NTC’s insurers provided no “hired auto” coverage for accident involving Enterprise vehicle.

Loading or Unloading 

anal Insurance Co. v. Cook, ___ F. Supp.2d ___, 2008 WL 2718355 (M.D. Ala. July 14, 2008).  Policy provided coverage for loading and unloading of an “owned automobile,” defined to include “any mobile home while singularly attached to a scheduled tractor.”  Mobile home, which had been transported by scheduled tractor but was no longer attached at time of accident, collapsed on plaintiff during setup.  Held:  Negligence in failing to inspect site where mobile home was to be unloaded constituted negligence in unloading, and was therefore potentially covered under policy. 

Hensley v. National Freight Transportation, Inc., ___ S.E.2d ___, 2008 WL 4876994 (N.C. Ct. App. Nov. 4, 2008).  Divided court found that there was a material question of fact as to whether shipper retained sufficient responsibility for loading cargo as to be held liable when cargo fell off motor carrier’s trailer, causing collision with motorcycle.  Minority would have held that motor carrier had sole liability, absent evidence of defect in loading which was not obvious to motor carrier’s driver.

Duty to Defend 

arolina Casualty Co. v. Estate of Studer, ___ F. Supp.2d ___, 2008 WL 2077994 (S.D. Ind. May 14, 2008).  Court held that insurer’s duty to defend insured in bodily injury action terminated where (1) insurer brought separate interpleader action, (2) insurer fully surrendered policy limit into interpleader court, (3) insurer conceded that insured’s covered liability exceeded policy limits, and (4) insurer continued to defend insured’s pending decision of interpleader court.

Bad Faith 

ortner v. Grange Mutual Casualty Co., ___ S.E.2d ___, 2008 WL 4334613 (Ga. Ct. App. Sept. 24, 2008).  Court held that insurer was insulated from bad faith claim by having tendered its $50,000 policy limit, even though $750,000 contribution from second insurer was demanded by plaintiff to settle claim.  Dissent argued that there was a question as to whether first insurer’s conditions of complete release for insured was reasonable under the circumstances. 

Ann Taylor, Inc. v. Heritage Insurance Services, Inc., ___ S.W.3d ___, 2008 WL 2696735 (Ky. Ct. App. July 11, 2008).  Fact that standard certificate of insurance did not describe attended vehicle exclusion contained in the policy did not support certificate holder’s negligent misrepresentation claim against insurer; disclaimer language in certificate made it clear that holder’s reliance on certificate was not reasonable.

UM/UIM 

rogressive Northwestern Insurance Co. v. Weed Warrior Services, ___ F Supp.2d ___, 2008 WL 5134074 (D.N.M. Dec. 5, 2008).  Having conceded in its briefs that plaintiff was an insured for purposes of UM/UIM coverage, insurer was estopped from challenging status as insured.  Court found further, however, that selection of UM/UIM coverage at $100,000, less than policy’s liability limit of $1,000,000, did not require separate written rejection of UM/UIM coverage to be effective.  Plaintiff’s potential recovery of $100,000 in UM/UIM benefits was offset by same amount received from tortfeasor. 

Faragon v. American Home Insurance Co., ___ N.Y.S.2d ___, 2008 WL 2278093 (App. Div. June 5, 2008).  Where plaintiff had completely unloaded equipment from insured tractor-trailer, and had spent 10-15 minutes instructing customer on use of equipment, plaintiff was not “occupying” tractor-trailer when struck by hit-and-run driver, within meaning of supplemental uninsured/underinsured motorist policy covering tractor-trailer.

State Farm Mutual Automobile Insurance Co. v. Dowdy, ___ P.3d ___, 2008 WL 4367538 (Alaska Sept. 26, 2008).  Parents who suffered emotional distress when viewing daughter’s dead body at hospital following motor vehicle accident were not injured “in the same accident” as daughter, and were not entitled to recover under underinsured motorist (“UIM”) policy which provided coverage for daughter’s injuries. 

Hebert v. Clarendon American Insurance Co., 984 So.2d 952 (La. Ct. App. 2008).  Two school busses, both operated by employees of same school board in scope of their employment, collided.  One driver was injured, and sought benefits under UM policy issued to school.  UM policy limited coverage to amounts insured was legally entitled to collect from uninsured tortfeasor.  Since tortfeasor was fellow employee, injured party was barred under exclusive remedy provisions of workers compensation law from recovering against him. Court held that driver could not collect under UM policy issued to school. 

In Great American Insurance Co. v. Freeman, ___ S.E.2d ___, 2008 WL 4004669 (N.C. Ct. App. Sept. 2, 2008), the applicable law required that UIM coverage be provided under a fleet policy unless rejected in writing by the named insured.  The form used in this case had places for the insured to check off whether it was selecting or rejecting various levels of UIM coverage; all spaces were left blank.  In the absence of an express written rejection, the court found that UIM coverage would be implied.  Moreover, since the insured did not specify on the form which vehicles would be "covered autos" for UIM purposes, the court implied coverage for "any auto," the same policy definition of "covered autos" for liability coverage purposes.  Notably, the policy had been issued with a more restrictive definition of "covered autos" for UIM coverage purposes, but the court found the absence of an express written selection by the insured of more limited coverage to be determinative.

Care, Custody or Control 

merisure Mutual Insurance Co. v. Carey Transportation, Inc., ___ F. Supp.2d ___, 2008 WL 4382806 (W.D. Mich. Sept. 26, 2008).  The court held that the cargo sealed inside a shipper's trailer was in the "care, custody or control" of the motor carrier and its driver because (1) it was expressly entrusted to the driver and its fate depended directly on his driving; and (2) the cargo was necessary to the motor carrier's work, because the shipper hired the motor carrier specifically to deliver the cargo to destination in a safe and timely fashion.  The court rejected the motor carrier's arguments that the exclusion is ambiguous, that the exclusion violated Michigan public policy (finding no persuasive evidence that the Michigan Supreme Court would so hold), and that the exclusion violated federal public policy expressed in the Carmack Amendment (since the motor carrier remained liable for damage to the cargo, regardless of whether it was insured against such liability). 

The federal District Court’s initial ruling in Barry Concrete, Inc. v. Martin Marietta Materials, Inc., 531  F.Supp. 2d 766 ( M.D. La), was greeted with head scratching and alarm in the industry because the court held that the “care, custody and control” exclusion of a truckers liability policy did not apply since the cargo was not owned by the motor carrier . The case involved the contamination of a shipment of concrete by the remnants of a consignment of sugar that had previously been delivered in the trailer and which were not properly cleaned out in between loads. Before the problem was noticed the concrete was poured; since it failed to harden properly the concrete company was required to remove and replace the concrete slab and foundation. Western World issued both a cargo policy and a truckers policy to the motor carrier  Wilson Trucking. The court concluded that the cargo policy did not apply because it specifically excluded contamination. Western World argued that it  had no coverage under truckers policy in light of the care, custody and control exclusion. Relying on several Louisiana decisions on care, custody and control in the context of a general liability policy, the court initially ruled that exclusion applied only in two circumstances: 1. where the  insured is a contractor, subcontractor or repair center doing work on personal or real property; or 2. where the insured has a proprietary interest in the property. Since Wilson had no interest in the cargo but only the right to collect a fee for its services, the court concluded that the care, custody or control exclusion did not apply. 

On reconsideration, the court recognized that the language and intent of the care, custody and control exclusion is different in a commercial auto policy than it is in a general liability policy. A trucking company hauling property indeed has care, custody and control over the cargo and accordingly its insurer may deny coverage for loss of or damage to the cargo on that basis. Larry Rabinovich and Phil Bramson of our firm assisted Western World in the reconsideration motion.

Arising Out of Use of a Motor Vehicle 

here are numerous cases across the country addressing whether injuries from an accidental discharge of a firearm which is inside a motor vehicle are covered under an auto liability policy.  The Supreme Court of South Dakota, in a 3-2 decision, adopted an expansive view of coverage in North Star Mutual Insurance Co. v. Peterson, ___ N.W.2d ___, 2008 WL 2009844 (S.D. May 7, 2008).  In that case, a rifle had been stowed in a pickup truck after a deer hunting expedition.  The next morning, the hunters drove out to the hunting ground in the same pickup truck.  Returning from the morning's hunt, they threw their wet clothes into the truck, landing on the rifle.  That afternoon, as they boarded the truck and prepared to go out hunting once again, one of the hunters noticed that the rifle was pointing at another passenger's leg.  As he attempted to reposition it, the gun discharged, the bullet striking the passenger's ankle. 

In finding coverage under the auto policy covering the pickup, the court found that transporting hunters and guns is a foreseeable and inherent use of a pickup truck.  Accordingly, when a pickup is being used in a hunting expedition where guns are being transported, the accidental discharge of the firearm is causally connected to the vehicle's use.  The dissent argued that there was no "auto accident," as required by the policy language, where the passengers were merely sitting in a parked truck and the vehicle was not actually being used on a hunting expedition at the time the rifle discharged.

Statutory Priority of Coverage 

 number of states have statutes which establish priority of coverage among various auto liability policies which all provide coverage for the same vehicle in the same loss, regardless of the "other insurance" language in the policies themselves.  (E.g., California Insurance Code § 11580.9; Arizona Revised Statutes section 20-1123.01(B)).  Indiana Code § 27-8-9-9 provides that, under certain circumstances, the terms of a vehicle lease, placing the primary burden of liability insurance on either the lessee or the lessor, may control over the "other insurance" clauses in their respective policies. 

In Old Republic Insurance Co. v. RLI Insurance Co., 887 N.E.2d 1003 (Ind. Ct. App.  2008), RLI issued a policy to a motor carrier, Quickway Express, which provided primary coverage for vehicles leased to the motor carrier and used in its business.  RLI, as well as ISOP and First Specialty, also issued excess/umbrella policies to Quickway.  Old Republic issued a policy to Kroger, the owner of a trailer transported by Quickway at the time of the loss.  The "other insurance" clause of the Old Republic policy provided that coverage was excess for a trailer connected to a power unit not owned by Kroger. 

The parties agreed that RLI's primary policy provided coverage ahead of Old Republic's policy.  Old Republic, however, argued that, pursuant to Indiana Code § 27-8-9-9, its coverage should be excess over the excess/umbrella policies issued by RLI, ISOP and First Specialty.  The court, however, held that the statute only affects priority between primary policies with competing "other insurance" clauses, and does not apply to true umbrella policies.  (In so holding, the Indiana appellate court cited to its own earlier decision in Monroe Guaranty Insurance Co. v. Langreck, 816 N.E.2d 485 (Ind. Ct. App. 2004), construing an analogous statute.)  (Ira Lipsius and Peter Andrews of our firm worked with Mary K. Reeder, Esq. of Riley Bennett & Egloff on behalf of RLI, and are continuing to do so now that the matter has been accepted for review by the Supreme Court of Indiana.)

Miscellaneous 

han v. Coggins, 2008 WL 4441941 (5^th Cir. Oct. 2, 2008).  Accident reconstruction expert’s testimony that accident was caused by tractor-trailer driver’s failure to account for “off-tracking” was properly excluded, since evidence showed that plaintiff was struck by tractor wheels and not by “off-tracking” trailer. 

Estate of Beavers v. Knapp, ___ N.E.2d ___, 2008 WL 1886307 (Ohio Ct. App. Apr. 29, 2008).  Appellate court upheld jury award of punitive damages based on fact that truck driver, seeing plaintiff motorcyclist fall and slide towards truck, did not attempt to stop but accelerated and fled accident scene, running over plaintiff in the process.  (Upon continuing to make his delivery, driver also asked shipper to record earlier arrival time, in order to create alibi.)  Court found that evidence of property damage of approximately $5,000, as well as evidence of scrapes and abrasions, was sufficient to support a survivor’s action for personal injury, which is a necessary predicate for punitive damages claim (punitive damages not awardable in connection with wrongful death claim).  Trucking company, however, was not vicariously liable for punitive damages awarded against driver, absent evidence that company authorized, participated in, or ratified driver’s actions. 

Owner-Operator Independent Drivers Association, Inc. v. Landstar System Inc., ___ F.3d ___, 2008 WL 4058042 (11^th Cir. Sept. 3, 2008).  Court held that federal truth in lending laws required motor carrier to disclose banking fee charges and to document charge back items in leases with owner-operators.  Required disclosures included confidential pricing information on communication services provided by vendor under contract with motor carrier. 

Father & Sons & A Daughter Too v. Transportation Services Authority of Nevada, ___ P.3d ___, 2008 WL 1912430 (Nev. May 1, 2008).  Company which provided referral services to public to facilitate intrastate transportation of household goods qualified as fully regulated common motor carrier under Nevada law, even though company itself did not physically transport goods.  Company referred customers to individual loaders/packers only after customers rented moving vehicle from entity under common ownership with referral company. 

Karney v. Leonard Transportation Corp., 561 F. Supp.2d 260 (D. Conn. 2008).  Court held, under Connecticut law, that a trucker had a duty to plaintiff motorist to install a rear bumper its truck, with which it was safe for the plaintiff to collide. 

Schlegel v. Song, ___ F. Supp.2d ___, 2008 WL 1799761 (N.D. Ohio Apr. 22, 2008).  Song, the driver involved in the subject loss, worked for motor carrier Top One Trucking.  Top One was the latest in a series of trucking companies owned by the same individuals, which had over time amassed thousands of violations of USDOT safety regulations, including hiring drivers who could not speak English, maintaining a high accident rate, failing to keep accurate log books, and hiring drivers without proper background checks or driver applications.  The court held that evidence of the prior violations by Top One and the earlier entities was admissible to show that the driver and/or the motor carrier had acted with reckless disregard in the present case, and that an award of punitive damages was therefore appropriate. 

See also Montemayor v. Heartland Transportation, 2008 WL 4777004 (S.D. Tex.).  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. 

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 Hensley v. National Freight Transportation, Inc., 2008 WL 4876994 (N.C. Ct. App.), 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. 

American Home Assurance Co. v, First Specialty Ins. Corp., 2008 WL 4602060 (Mass. Ct. App.) 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.

Limitation of Liability (Cargo)

here were at least eight reported decisions in 2008 in federal courts (most of them in the Southern District of New York) dealing with the application of the terms of the Carriage of Goods By Sea Act (COGSA) to inland transportation as part of through ocean shipments from portal to portal.  The usual issue is whether the liability of the inland trucker is limited by the $500 per package limitation of liability provision contained in the through ocean bill of lading.  The 2004 decision of the United States Supreme Court in Norfolk Southern Railway Co. v. Kirby, 543 U.S. 14, held that COGSA terms would apply to inland transportation performed as part of the ocean carriage where the through ocean bill of lading extended the protection to agents of the ocean carrier in a so-called “Himalaya Clause.”  The trouble began with the 2006 decision of the United States Court of Appeals for the Second Circuit in Sompo Japan Insurance Co. v. Union Pacific Railroad Co., 456 F.3d 54, which held that the federal statute governing the liability of carriers in interstate commerce, the Carmack Amendment, applied to the inland carriage.  Accordingly, the Court held that the inland carrier’s liability would not be limited unless it complied with the standards applied under the Carmack Amendment, specifically, that the inland carrier gave the shipper specific notice of the limitation and offered the shipper an opportunity to choose a rate for a higher amount of liability. In many cases this is impossible because the inland carrier does not issue a bill of lading when it receives an ocean container at a port and has no contact with the shipper.  The cases decided in 2008 create a free for all which has resulted with conflicting decisions.  In other words, it is now very complicated to determine if the inland carrier’s liability is limited or not. 

For a flavor of the depth of the controversy, one might contrast the Southern District decisions in Royal & Sun Alliance Insurance PLC v. Ocean World Lines, 2008 WL 3854556, with Sompo Japan Insurance Company of America v. Yang Ming Marine Transport Corp. 2008 WL 4330058.  In the Ocean World case, the Court held that the Second Circuit Sompo decision was contradictory to the Supreme Court Kirby decision, so it followed an Eleventh Circuit decision holding that Carmack principles did not apply.  On the other hand, in the Yang Ming case, the Court specifically disgreed with the Ocean World decision and held that the Second Circuit case governed to require Carmack compliance.   

In Great American Insurance Co. v. TA Operating Corp., 2008 WL 5335317      (SDNY, 2008), a contract between the shipper and the carrier limited the carrier’s liability.  In order to avoid the contractual limitation, the shipper also sued the operator of the truck stop from which the loaded vehicle was stolen.  The truck stop operator cross claimed against the motor carrier for contribution as a joint-tortfeasor.  Denying summary judgment motions, the court held that a jury could find that the truck stop breached a duty to protect the cargo on trucks in its facility and that, although the shipper could not sue the carrier in tort, the carrier could be found liable for contribution as a joint tortfeasor.  This suggests that a contractual limitation of liability may be avoided if the loss was caused by the negligence of the carrier and another party.  The shipper also sought to avoid the contractual limitation of liability by application of the “material deviation doctrine.”  The court held that the material deviation doctrine would apply to void the limitation of liability if the jury determined that  the trucker made a “separate risk-related  promise” to take specific steps to protect the cargo. 

In AIM Controls v. USF Reddaway, 2008 WIL 4925028, a federal court in Texas held that a sticker placed by the trucker on the shipper’s bill of lading form, which stated that the trucker’s rules tariff applied to all shipments, would satisfy the trucker’s obligation to notify the shipper of the limitation of liability contained in the tariff. 

Finally, in Byrnes v. Billion BMW, Inc., 2008 WL 4131509, the carrier needlessly stipulated that its contractual limitation of liability would be voided by a jury finding that the loss was caused by the carrier’s gross negligence.  We are not aware of any case where a contractual limitation was voided for gross negligence.

Goods in Transit 

wo cases decided in 2008 dealt with the issues of when transportation begins and when it ends. 

In Sompo Japan Insurance Company of America, Inc. v. VIP Transport, Inc., a federal court in California denied the shipper’s motion to remand the action to the state court on the grounds that the goods were in the course of interstate commerce at the time of the loss.  The property was damaged in the course of being loaded on to the carrier’s vehicle.  The shipper contended that the carrier started to move the cargo prior to receiving a release from the shipper.  The court found that the bill of lading indicated otherwise, and that the carrier did not require any further instruction to load the property and transport it.  Under these circumstances, the court found transportation had begun.  

In Advantage Freight Network v. Sanchez, 2008 WL 4183987, the carrier tendered delivery of the goods at the location specified in the bill of lading.  The consignee, unable to accept the goods, instructed the carrier to make delivery at a later date.  The goods were stolen while being held by the motor carrier.  A federal court in California held that the carrier did not qualify as a motor carrier under the Carmack Amendment from the time that the consignee refused delivery and would be liable only as a bailee if the theft was caused by carrier negligence.

Prima Facie Case 

t is generally thought that a carrier’s bill of lading acknowledging receipt of the shipper’s goods in “apparent good order” satisfies the shipper’s obligation to establish the condition of the goods at origin. In Fraser-Nash v. Atlas Van Lines, 2008 WL 346381, a Texas federal court held that the usual bill of lading acknowledgment does not establish the good condition of the goods where the goods were pre-packed and unavailable for carrier inspection.  The court held that a shipper of household goods failed to state a prima facie case because it presented no independent evidence of the condition of the goods packed by the shipper. 

The same principles were applied to establish the contents of goods shipped in a sealed container in Limited Brands v. Flying Cargo, 2008 WL 859013. In that case, the goods consisted of apparel shipped by the manufacturer, so condition did not appear to be an issue.  The court held that the plaintiff failed to establish by “direct” evidence what was actually packed into the container. 

The shipper in Center v. Roadway Express, Inc., 2008 WL 3824782, had to show the good condition of goods which had been stored in a warehouse for eight years prior to shipment.  A federal court in Massachusetts held that testimony by the owner that the goods were in good condition when put into storage, and testimony by the warehouse operator that the goods were in good condition when delivered to the trucker were sufficient to present issues for a jury to decide.

Warehouse 

here were a few interesting warehouse cases last year. In Sasol Wax Americas, Inc. v. Hayes/Dockside, Inc., 2008 WL 2067007, a Louisiana federal court held that a sophisticated storage customer was bound by the warehouse receipt conditions to make claims within 60 days and sue within 9 months of the loss.  The warehouse was flooded and its roof damaged by Hurricane Katrina.  The decision does not discuss why the warehouseman would be liable at all for such a loss. 

In Continental v. TKT, Inc. 2008 WL 2766078) paint products were destroyed in a warehouse fire.  The cause and origin of the fire could not be determined. An Illinois federal court held that the warehouseman was liable for the loss because it could not overcome the presumption of negligence created by the customer’s showing that the bailed goods were damaged in the warehouse. The burden was on the warehouseman to show that it was free from fault.  

n Williams v, Smith Avenue Moving Co., 2008 WL 4642990, the owner of the warehouse building locked out the warehouse operator and removed plaintiffs’ stored property, allegedly in error. The warehouseman rebutted the presumption of negligence by explaining how the loss occurred.  However, the federal court in Massachusetts held that the warehouse operator was negligent in failing to prevent the building owner from accessing and removing plaintiffs’ property.  To be sure, the operator asserted a cross claim against the landlord.

 Transportation Seminar 

chindel, Farman, Lipsius, Gardner & Rabinovich and CAB will hold their twenty-second Annual Transportation Seminar in the New York City area on April 27 & 28.  Registration is limited and we have been over-subscribed in the past. We suggest that you submit your application by March 1. For applications or additional information please call Blima Levine  at (212) 563-1710, Ext. 217.  Information and an application are also available on our web site.

Central Analysis Bureau's "Resumé - 2008 Motor Carrier Industry"

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