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Bits & Pieces

Volume 14, Edition 6

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Welcome to summer.  I must say that we were all greatly impressed with how smart you all are when we reviewed the submissions to our contest on the meaning of our new logo.  Some of you made it sound even better than what we articulated!  The winning response, as determined by the absolutely subjective decision of the staff here at CAB was submitted by Anthony V. Engel from Chubb. His interpretation:

 “New logo looks great and symbolizes that CAB is the place to take multiple data input sources and streamline them through the CAB to get useful analysis for better decision making. CAB – your one-stop source for everything related to Transportation Risk.”

So many of you were close, but he was the first one, timed by e-mail submission to get to the point.  Anthony has asked us to donate his winning gift certificate to a charity.  His prize is being sent to US War Dogs, an organization helping military animals, www.uswardogs.org. Thank you Anthony for that extra showing of kindness.  Thank you all for contributing. We were actually surprised that we did not get many smart alec remarks, since we personally know so many of you!

Just a reminder to all of our premium subscribers that there is a new tab – the History tab – on the Submission Report™  which will allows you to see the changes made by the carrier on its MCS-150 form as well as the historical ISS-D and BASIC scores.  As part of our commitment to help you truly Know Your Insureds, we have added this enhanced feature to provide deeper insight into the potential risks.

This month we report:

INDEMNIFICATION CLAUSES – Oregon has joined forces with 30 other states to preclude shippers from requiring indemnity from motor carriers for transportation contracts, including incidental and assessorial services which carriers provide, including storage incident to transportation.  The new legislation will impact contracts entered into after May 27, 2011.

U.S. FREIGHT TRANSPORTATION FORECAST TO 2022 – The ATA has released its report on its forecast for trucking and the forecast is for sunny skies!  Trucking continues to dominate freight transport, with 67% of the freight tonnage and 81% of the freight revenue. Overall freight tonnage is expected to grow by 24% by 2022, with trucking share of tonnage increasing to 70% and revenues up slightly to 81.4%.

OPERATIONAL COSTS OF TRUCKING – The ATRI has released its updated report on the operational costs of trucking. The average cost per mile actually went down in 2009 and 2010 from the high in 2008.  The average cost in 2010 was $1.49 per mile.  Fuel and driver costs continue to lead the cost analysis, making up over 58% of a trucker’s cost.  With fuel costs rising substantially we would expect the cost to be even higher as the year goes on in 2011

DRIVER TURNOVER – We remind underwriters to verify that carriers are utilizing the pre-employment screening services.  Driver turnover is on the upswing as the market gets tighter and drivers begin moving around again, so extra recognition should be given to the fact that insureds will likely be employing new drivers over the year.  Large truckload carriers report an annualized rate of 75% on turnover following the first quarter of 2011, quite a jump from last year. Smaller truckload fleets have risen to 50%, their highest turnover rate since 2008. LTL carriers continue to fair well on driver turn over. I wonder why?

SURVEYS – This is the month for survey reports.  Transport Capital has released it survey results and concluded that while freight volume will go up, carriers are still maintaining existing plans for increasing capacity slowly, hedging their bets to insure that the volume will still be there.  90% of carriers report that freight charges will increase to shippers in the coming year, which will increase revenue to carriers. ACT North American Commercial Vehicle Outlook report was also released this month.  It reports that demand for Class 8 vehicles is on the rise and expected to increase throughout the year and into 2012.

FIGHTING FRAUD IN TRANSPORTATION ACT – New legislation: The “Fighting Fraud in Transportation Act” has been proposed to help combat the growing identity theft and fraud in brokerage operations.  The new legislation is designed to increase the broker surety bond requirement from $10,000 to $100,000 and expand that bond requirement to freight forwarders. It will also increase requirements and disclosures for any person or company seeking to obtain broker or freight forwarder authority and establish significant penalties for violations of broker regulations, including unlimited liability for freight charges for conducting brokerage activities without a license or bond. Finally, it will establish strict guidelines for companies that provide brokers with surety bonds and for the process of administering bonds. Those guidelines will impact insurers who usually issue the bonds.

FMCSA PULLS PLUG ON EXTENSIONS FOR UNSAFE OPERATIONS – The Federal Motor Carrier Safety Administration has ended its practice of granting 10-day extensions to trucking companies that file appeals when they receive orders to cease operations following an unsatisfactory safety rating.  This comes after yet another fatal bus crash by a bus company that was operating under the extension after FMCSA declared it unsafe more than 45 days earlier.  Under current regulations, any carrier that receives an unsafe rating must cease operations 60 days after its officials receive a formal notification. For bus operators or hazardous materials motor carriers, the grace period is only 45 days.  According to the DOT 55 carriers have been ordered out of service since fiscal 2011 began on Oct. 1.

CURRENT CASES

CARGO

Forum selection clauses continue to be a subject of litigation with multinational transportation an everyday occurrence.  The Western District of Washington held that if the selection of a forum, in this case Germany, would ultimately limit the rights afforded to a shipper under COGSA then the court would not mandate the transfer of the case to Germany as the selected forum in the bill of lading.  (Y-Tex Corporation v. Schenker, 2011 WL 2292351)

Household goods cases often see pro se plaintiffs who are unfamiliar with how these cases need to be addressed. The Eastern District of California dismissed a pro se plaintiff’s complaint, with leave to amend, when the plaintiff alleged that her goods were being wrongfully withheld by the carrier for additional monies.  The court held that the plaintiff had to allege that the goods were given to the carrier and also held that the plaintiff must show that she had at least paid the amount of the binding estimate before proceeding.  (Isupov v. American Relocation Moving Specialist, 2011 WL 2038686)

A broker was prohibited from asserting a negligence claim against a motor carrier under the Carmack Amendment.  However, the court declined to determine whether a breach of contract claim under the broker/carrier agreement, which required indemnity, would be similarly preempted.  (Eagle Transportation v. Scott, 2011 WL 2214812)

In the Northern District of Iowa the court addressed the question of the applicability of provisions in a warehouse agreement which required indemnity for all loss for goods, even after flooding, holding such provisions to be valid for claims for the property.  Of particular interest was the fact that the court held that there was a question of fact concerning whether the requirement that the warehouseman have a legal liability policy which covered “all risk” was even possible.  Ultimately the court held questions of fact all of the way around.  (Hormel Foods Corp. v. Crystal Distribution Services, 2011 WL 2118718)

The Court of Appeals in Texas held that when a carrier does not provide for a statute of limitations in the bill of lading the court will look to the closest relevant state statute.  In this case they held that a statute of limitations was procedural and applied the Texas 2 year statute and not the 6 year New Jersey statute.  The court also refused to permit the Carmack claim to proceed under the theory that a complaint was timely filed when the initial complaint sought to enforce a settlement agreement for the transportation loss. The court held that the transactions were not enough to allow “relation back”.  (Daybreak Express v. Lexington Ins Co., 2011 WL 2043029)

AUTO/MISCI must note this month that there were no cases dealing directly with the liability of a motor carrier.  However, there were a number of cases dealing with relevant insurance issues and other related litigation matters which bear reporting and consideration by both cargo and auto underwriters.

The Supreme Court in Arkansas made one insurer unhappy this month. When a bus company was involved in an accident, not through its own fault, it sought recovery under multiple portions of its policy, including underinsured motorist.  The court held that the failure of the insurer to properly identify the meaning a CSL (combined single limit) rendered the policy ambiguous and subjected the insurer. Other limiting language in the policy was also insufficient to put the insured on notice that its coverage was limited, overall to a million dollars. (Philadelphia Indem. Ins. Co. v. Austin, 2011 ARK 283)

Many types of insurance policies, including both auto and cargo, have provisions which address the legality of the operations of the insured.  In a policy which provided coverage for occupational accidents the Supreme Court of Nebraska held that a policy provision which provided that coverage was not afforded when the driver was operating without a CDL may not always be enforced.  The court held that that the provision was actually a condition subsequent to the attachment of coverage and as such required a showing that the breach caused or contributed to the loss.  The simple fact that he was operating illegally was not enough.  (DeVese v. Transguard Ins Co. of America, 2011 WL 2420797)

Pay attention to discovery deadlines.  One trucking company found out the hard way in an action against an insurer for failure to provide proper auto liability insurance as required by federal regulations.  The insured produced an expert report after discovery closed  which claimed that the insurer’s underwriting process was inadequate to insure that proper coverage was provided.  Although the court had in fact extended discovery, it was extended only to one party. Do not assume that any discovery extends to everyone.  (Cuevas v. Chrysler Corp., 2011 WL 2410343)

In a different action a driver repeatedly failed to appear for depositions in a personal injury action in which he struck plaintiff with his dump truck. The Court of Appeals in Oregon imposed the sanction of striking every defense that was raised by the defendant, a harsh result which will likely result in full liability against the driver, and possibly a greater claim payment by an insurer. (Burdette v. Miller, 2011 WL 2342585)

Gasoline and fuel carriers often have additional insurance requirements because of the nature of the cargo that they carry.  The application of a “claims made” pollution liability policy was considered this month in the Eastern District in Pennsylvania.  The court considered what constituted a claim to the motor carrier and when the motor carrier knew or should have known of the potential for a claim for environmental clean-up.  The court also reminds us that when a binder is issued which is contingent upon a signed application the insurer’s sole remedy is to cancel the policy if it is not provided.  Until that action is taken the policy remains in place – a warning to follow up on what you ask for.  Finally the court addressed the issue of the required intent for misrepresentation when an insured failed to disclose, on the renewal application, that there was possible occurrence which might give rise to a claim.  (Penn Tank Lines v. Liberty Surplus Insurance Co., 2011 WL 2117949)

What part of an insurance file can you withhold during a litigation?  The District Court in Kansas considered efforts by a subrogating insurer to withhold its adjuster reports.  The Court addressed in detail what is needed for an insurer to withhold reports based upon attorney client privilege or anticipation of litigation. Adjuster reports which direct the insurer to obtain legal counsel will not be privileged under attorney client privilege.  In addition, simple investigation will not necessarily fall within the “anticipation of litigation privilege.  (ACE USA v. Union Pacific Railroad Co., 2011 WL 2199820)

Have a safe and happy 4th of July.

© 2019 Central Analysis Bureau