by Steven W. Block  

Carriers’ insurers may not be named as defendants in cargo lawsuit based on state direct action statute.
Land O’Lakes v. Joslin Trucking, Inc., et al, 2008 WL 5205910 (W.D. Wisc 2008)

Shipper Land O’Lakes filed suit in the Western District of Wisconsin against a couple of motor carriers seeking recovery of the value of a shipment of butter lost in interstate transit.  The shipper named as defendants a couple of Lloyd’s underwriters and Great West Casualty Company – who insured the motor carriers – based on Wisconsin’s direct action statute.  The insurers moved to dismiss the claims against them, and the court obliged.

Wisconsin’s direct action statute, like many others around the country, authorizes direct action against insurers when claims are based on state-law negligence theories.  However, this matter was governed by a preemptive federal statute – Carmack – such that any state law theories would be inapplicable (even if they’d been pleaded, which they hadn’t).  Land O’Lakes urged that the court had “supplemental jurisdiction” over the insurers, but a court can’t supplement jurisdiction based on a preempted cause of action.  The shipper also argued that 49 USC § 13906(a)(4), which authorizes the Secretary of Transportation to require motor carriers to carry insurance for property lost in interstate transit, produced “federal question jurisdiction.”  That argument failed, as shippers aren’t empowered to sue under that statute, and there was no question about whether either carrier actually had insurance.

The only way insurers can be joined in a case like this is by way of a third-party action brought by the insured carriers.  The court gave the carriers ten days to implead their insurers as third-party defendants.  Otherwise, the insurers can sit this one out until the results come in.

Carrier’s parent company may be liable for freight damage outside of Carmack!
Taylor, et al v. Allied Van Lines, et al, 2008 WL 5225809 (D. Ariz. 2008)

A household goods shipper hired Allied Van Lines to haul his stuff from Texas to Arizona.  Something went wrong (the opinion doesn’t tell us what), and the shipper sued Allied and the carrier’s parent company SIRVA, Inc., alleging a host of negligence, fraud, unjust enrichment and other common law theories against both.  The defendants removed the action from state court to the District of Arizona, then brought an FRCP 12(b)(6) motion to dismiss.

Carmack clearly governed the claim against Allied.  The court ruled that the complaint didn’t state a prima facie cause of action because it never asserted that the freight was tendered in good order and condition (an essential element of a Carmack claim).  The complaint did allege delivery in damaged condition, as well as the amount of the loss, but this didn’t paint the full picture.  The shipper urged that it had requested “experienced movers,” but that statement doesn’t equate to an allegation of good order and condition.  Allied is out, but it seems like the complaint’s defects could easily be cured.  Note: other courts have gone the other way with this, finding good order and condition at time of tender to be implicit.

But what about an interstate motor carrier’s parent company?  SIRVA argued that it wasn’t a carrier in this transaction, and Carmack doesn’t impose liability for freight damage on non-carriers.  End of story, right?

Wrong.  The plaintiff shipper’s allegations included such things as consumer fraud, misrepresentation of the “nature of the transaction,” and that defendants – including SIRVA – had lost plaintiff’s property.  Interpreting various other precedents (although none were particularly analogous), the District of Arizona ruled that Carmack’s preemptive effect applied only to carriers, and was not meant to preempt state and common law claims against non-carriers.  It also did not preclude actions against non-carriers for cargo loss.  As the court ruled, “[t]o hold that suit can be maintained against carriers only would impose absolute liability on carriers while granting non-carrier entities de facto immunity for all torts they commit in effecting interstate shipping agreements.”

But the allegations against SIRVA, while the opinion does not present them in detail, likely could only apply to it in a capacity as a “carrier.”  Motor carriers and other transportation entities frequently are part of complex corporate holding structures.  By this court’s analysis, aggrieved shippers easily could circumvent Carmack’s primary goal of a uniform, national liability regime simply by naming as defendants carriers’ parent companies.  This decision could wreak havoc in the motor carrier industry.

Limited liability results from shipper-issued bill of lading with carrier’s tariff-incorporating sticker.
AIM Controls, LLC v. USF Reddaway, Inc., 2008 WL 4925028 (S.D. Tex 2008)

AIM Controls ordered a few electronic motor controllers from Minnesota-based Control Techniques America (“CT”) for delivery to AIM’s customer in Texas.  CT engaged USF Reddaway to make the haul.  CT prepared the bill of lading, but USF Reddaway affixed to it one of those handy-dandy stickers that incorporated the carrier’s NMF 100 tariff.  That tariff, of course, includes a proviso that cargo value must be declared, and may not exceed $25.00/pound, lest the carrier’s liability be limited to peanuts.

The freight arrived damaged, AIM’s customer refused it, and the mess went to the Southern District of Texas.  On USF Reddaway’s motion for summary judgment seeking limitation of liability, the court analyzed whether a shipper could inadvertently incorporate terms in its own bill of lading it has no actual knowledge about.  Citing cases from various circuits, the court found the answer to be yes.

CT obviously knew its own bill of lading didn’t incorporate a tariff.  The court observed that CT therefore negotiated whether or not a tariff would be incorporated, and had the choice to refuse Reddaway’s sticker.  This amounted to CT’s agreement to the carrier’s tariff, which shippers are held to have constructive knowledge about.

Claim against carrier for stolen cargo is subject to Carmack.
Advantage Transportation, Inc. v. Freeways Express, LLC, 2008 WL 5062672 (N.D. Tex 2008)

Here’s a short but sweet opinion confirming that freight stolen by a third party in interstate transit is still subject to Carmack.  Shipper MTD Products hired freight forwarder Advantage to arrange shipment from Ohio to Texas of a cargo of lawn mowers.  Advantage placed the load with carrier Freeways Express, whose driver parked the trailer in a repair yard en route.  The load disappeared.  Advantage paid off MTD and sued Freeways Express in the Northern District of Texas.

Advantage moved for summary judgment, and Freeways Express apparently didn’t bother to oppose the motion.  Noting that even an unopposed motion for summary judgment must be considered and cannot be granted automatically, the court went through a standard Carmack analysis.  Advantage had demonstrated its burden of proof (without rebuttal) that the cargo was tendered in good order and condition, and was not delivered at all.  Citing authority from 1948 and 1850 (that’s right!), the court ruled that the loss’ occurrence through theft while on Freeways Express’ watch did not alter the Carmack analysis.  Damages also being established and uncontested, summary judgment was granted.

Placards on a bobtail tractor produce irrebuttable presumption that motor carrier lessor’s insurance provides accident coverage.
Cincinnati Insurance Co., et al v. Stacey, et al, 2008 WL 5329989 (Ohio App. 12 Dist. 2008)

Motor carrier Sewell Motor Express operates largely through leases with owner operators, including one with Mr. Stacey.  Sewell carries bodily injury and property damage coverage with insurer Cincinnati Insurance Co. (“CIC”), which covers the leased vehicles.  Stacey has his own insurance from certain Lloyd’s underwriters to cover times when he operates his tractor outside of the Sewell lease.

On his way to work one morning (bobtail), Sewell struck a motorcyclist.  Sewell and CIC filed a declaratory judgment action seeking determinations they had no duty to defend or indemnify Stacey against the motorcyclist’s claims because, hey, he wasn’t on Sewell’s clock at the time of the accident.  Sewell and his insurer fired the reciprocal position back at CIC and Sewell, and all parties filed motions for summary judgment before the Clinton County Court of Common Pleas in Ohio.

Affirming most of that court’s ruling, the Ohio Court of Appeals ruled in favor of Stacey and his insurer.  CIC and Sewell are liable for any damages in the motorcyclist’s forthcoming lawsuit.  Under a Ohio decision which (per this court’s observation) represents the nation’s “majority view,” the fact that Stacey's rig bore Sewell’s placards creates an “irrebuttable presumption” that he’s operating for Sewell, even if he’s trailerless.  This approach is designed to protect the public at large, avoiding a potentially lengthy struggle between multiple parties about who’s on for what.

CIC urged that other case law has produced the opposite conclusion when an innocent player’s rights are not at issue.  Here, the injured motorcyclist wasn’t a party to the lawsuit.  We just had a couple insurers jockeying for position regarding coverage.  The court rejected that contention, finding that the insurers filed this suit in contemplation of underlying liability litigation.  The court also spurned CIC’s contention that rewrites of federal regulations suggested primary motor carrier coverage wasn’t needed for this kind of circumstance.

But what about indemnification?  Even though CIC is on the hook for primary coverage and would have to pay the claimant, shouldn’t it be able to recover from Lloyd’s sums that it pays out to a claimant?  Here again, the court sided with Stacey and his insurer, and said no.  Stacey was an insured under the CIC policy even for non-business uses, and the Stacey-Sewell lease agreement provided that Sewell is responsible for the costs of liability “for the protection of the public as required by applicable laws and regulations.”  The court noted there may be some overlap in coverage, but “applicable law” requires the motor carrier to have coverage for these circumstances.  Stacey and Lloyd’s walk.

While there is support for this conclusion, it at least appears to be at odds with the intentions and understandings of all involved players.  It also has little or nothing to do with the protection of the public at large.

Shipper who participates in freight loading may be liable for accidents.
Hensley v. National Freight Transportation, Inc., et al, 668 S.E.2d 349 (NC Ct.Apps. 2008)

Shipper Allvac engaged motor carrier National Freight to haul a load of palletized zirconium coils within the Tar Heel State.  A National Freight driver backed his flatbed up to Allvac’s dock, and directed Allvac as to the pallets’ positioning on the flatbed.  While on the road, a pallet fell from the trailer, killing a motorcycle passenger.

The deceased’s estate sued all involved, including Allvac, in North Carolina state court.  The trial court summarily dismissed the claim against the shipper.  The court of appeals reversed, finding issues of fact about who was responsible for the cargo loading.

This case reviews and summarizes federal regulations and precedents regarding liability for improper cargo stowage.  Basically, the motor carrier is liable if it loads the freight, or if the shipper loads the freight improperly in a way discernible to the carrier.  If the shipper loads the freight with “concealed” or “latent defects,” then the shipper is liable.  In this instance, the court ruled it was not clear from evidence who did the loading, such that this analysis could not be undertaken on summary judgment.  A compelling dissent pointed out that the carrier bears an obligation under state and federal law to secure the load, and the carrier’s undisputed activity in directing how the cargo should be situated on the flatbed was sufficient to warrant summary judgment.