Lloyds Syndicates, et al. v. Horizon Air Services, Inc., 2010 WL 2545608 (D. Mass. 2010)
The National Motor Freight Classification Association (“NMFCA”) has long protected its smorgasbord of detailed freight varieties and schedules known as the National Motor Freight Classification (“NMFC”). Shippers, carriers and other players who are NMFCA members may designate their freight in shipping documentation by NMFC codes which are grouped and organized based on commodity characteristics. The NMFC is a handy-dandy tool that can simplify freight charge calculation, but NMFCA holds the IP rights to it, and has won a number of court battles against non-NMFCA members who’ve tried to use it.
But is an unauthorized citation to an NMFC commodity classification not for freight charge purposes, but as a valid declaration of value for purposes of limited liability, effective? The District of Massachusetts recently took a look at that question when shipper Hologic booked a load of x-ray machines with motor carrier Horizon Air Services (here, operating trucks). Neither is an NMFCA member. Hologic, in keeping with longstanding practice with Horizon, left the space on Horizon’s bill of lading for declared value blank, notwithstanding a notation that Horizon’s liability would be limited to $100 if no value was declared. However, Hologic inserted in the bill of lading the NMFC codes for x-ray machines with values below $30.00. When the cargo was damaged en route, Hologic’s subrogated insurer brought suit against Horizon to recover some 173 grand.
Horizon defended the claim by asserting its liability was limited, and urging that no valid cargo value declaration was supplied. In other words, Horizon believed it had undertaken all required steps to limit its liability, i.e., offering its shipper two alternative levels of liability, one of which could be accepted by declaration of cargo value. The court agreed, rejecting the NMFC designations as a valid declaration of cargo value. Put simply, the NMFC “has no application for such carriers and transportation companies that do not participate.” The fact that Hologic never inserted declared values, and didn’t pay the higher freight charge associated with unlimited liability, supported the conclusion that Horizon’s exposure was capped at a hundred bucks.
Royal Sun Alliance Ins. Co. v. National Consolidation Services, LLC 2010 WL 2483987 (D.N.J. 2010)
It’s just not always clear, even when NMFC standardized terms and conditions are involved. The District of New Jersey recently concluded there was a triable issue of material fact as to whether a freight forwarder may limit its liability when the choice between two alternative freight rates – a Carmack prerequisite for limitation of liability – is presented in an incorporated rate schedule. Here, the question was whether the rate schedule was in place at times material.
Forwarder National Consolidation Services (“NCS”) had a contract with medical supply shipper LifeScan, pursuant to which NCS booked an interstate load of diabetes testing kits with a value exceeding 4.2 million bucks with motor carrier Roadco. The cargo was stolen en route, and LifeScan’s subrogated insurer brought suit against NCS.
NCS sought to limit its liability to relative chump change. It had issued to LifeScan a pricing list for its services which incorporated NCS’s tariff and was based on cargo varieties and values. The tariff stated that cargo with an invoice value exceeding $10.00/pound would be considered to have a value of $10.00/pound, and that NCS’s liability would be limited to the lesser of $10.00/pound or $100,000 total. The lost cargo weighed 12,685 pounds, producing, as the court noted, an actual value of $340.39/pound.
The bills of lading, which LifeScan prepared, listed NMFC freight classification numbers. The pricing list included rates for cargo that differed from what the NMFC classifications would provide. They also contained a space for the shipper to declare specific cargo values for circumstances when freight rates were based on values, which LifeScan left blank. NCS argued that LifeScan had a “meaningful opportunity” to negotiate the freight rate stated in the bills of lading, which incorporated NCS’s tariff (which included limitation of liability), which incorporated the maximum valuation rates of the NMFC classification.
Confused? Apparently, so was the court. It denied NCS’s motion for summary judgment on limitation of liability, finding issues of material fact as to whether this billing and documentation methodology constitutes a reasonable opportunity to choose between two freight rates. The opinion doesn’t discuss what questions of fact remain.
Baker, et al. v. J.J. Deluca Co., Inc., et al., 2010 WL 2557734 (N.J. Super.A.D. 2010)
Here’s a decision that shows us how federal regulation of a subject that is generally state administered produces unexpected and, at least arguably, inequitable results. The Federal Motor Carrier Safety Administration of the U.S. Department of Transportation (“FMCSA”) requires all motor carriers licensed for interstate transportation to demonstrate financial responsibility, which usually is satisfied by procurement of adequate insurance. However, larger carriers with adequate means may self insure.
Motor carrier Celadon Trucking Services is such a self-insured carrier. It’s an Indiana company with operations throughout the country, including in New Jersey. It delivered a load of construction materials to a contractor, whose employee was injured offloading the truck. The employee sued in New Jersey state court the general contractor, Deluca, which impleaded the supplier as a third-party defendant, which in turn impleaded Celadon and the cargo’s manufacturer as fourth-party defendants. The defendants all cross-claimed against Celadon, alleging it bore a duty to defend them in the action pursuant to New Jersey state law.
Like most states, New Jersey has a statute requiring anyone operating a motor vehicle within the Garden State to hold insurance coverage. This so-called “Deemer Statute” is applicable to anyone who “uses” the vehicle. Unloading a trailer constitutes “use” under Deemer’s interpretation. Because a self-insured entity steps into the shoes of an actual insurer for purposes of required insurance, the trial court, and later the New Jersey court of appeals, ruled that Celadon, a self-proclaimed self-insured, had to defend the other defendants. This is because New Jersey deems any insurer that covers an out-of-state vehicle operating within the state to have contracted to provide coverage for claims within its borders.
Celadon argued that FMCSA coverage is designed for specified purposes only, and is subject to federally preemptive applications, but the court disagreed. The purposes for which Celadon obtained its self-insured status aren’t limited to those which prompted it to do so. What’s not analyzed is whether Celadon, as a self-insured entity for FMCSA purposes, would have to defend other defendants under FMCSA regs. Probably not (the opinion doesn’t tell us enough about the nature of the accident or claim). Had Celadon been a smaller carrier covered by FMCSA-adequate insurance, would its policy necessarily have included coverage for its co-defendants under these circumstances? Probably not. In any event, Caledon didn’t contemplate exposure of this nature when electing to self insure. Other larger carriers should take heed.
Canal Indemnity Ins. Co. v. Texcom Transportation, LLC, et al., 2010 WL 2301007 (N.D. Tex. 2010)
Again, FMCSA regs require all interstate motor carriers to demonstrate financial responsibility for bodily injury and property damage liability, which is usually accomplished by procurement of motor carrier insurance coverage. That requirement, and those insurance coverages, are designed and intended to protect the public at large. The insurance companies have crafted their policies accordingly, carefully excluding coverage for other liabilities (although carriers typically can purchase additional insurance for other varieties of mishap).
So what happens when two independent-contractor drivers are in a cab, one off duty and asleep in the berth, and the one at the wheel, find their rig at the bottom of a river due to driver error? The Northern District of Texas recently explored that issue in the context of an insurer, Canal Indemnity, which sought summary judgment as to coverage. The sleeping driver sued insured motor carrier Texcom Transportation, which sought coverage under its BIPD insurance provided by Canal. The policy excluded liability for injuries to employees, but Texcom and the injured driver claimed that, hey, the latter wasn’t an employee. He was just a contractor.
The court didn’t buy it. The Motor Carrier Safety Act eliminated the distinction between employees and independent contractors when it comes to motor carrier liability. The elimination of that distinction was to impose master-servant liability on carriers whose owner operator drivers are involved in accidents, but there’s no basis to disregard Congress’s intentions just because another issue arises. Canal is off the hook.
Underwriters at Lloyds, et al. v. FedEx Truckload Brokerage, Inc., et al., 2010 WL 2681224 (S.D. Fla. 2010)
The judge in this case must’ve felt like he was answering one of those law school exam questions that encompasses an unbelievably broad set of issues within a fact pattern designed to cover all topics taught in an entire semester. But in today’s daisy-chain world of trucking logistics, this scenario isn’t far fetched, and the implications of the various agreements and relationships it addresses are instructive. It’s just that there are so many!
Shipper First International Computer of America (“FICA”) engaged FedEx Truckload Brokerage to arrange transport of a cargo of computer equipment from Fremont, California to Miami. Through a largely unexplained series of brokerage and forwarding agreements between several intermediaries, FICA’s load ended up with motor carrier Central Oregon Truck Company (“COTC”), whose driver, Juan Gaban, issued a clean bill of lading naming COTC as the “carrier.” The load was stolen en route.
In response to FICA’s lawsuit in the Southern District of Florida seeking recovery of some 168 grand, COTC and the two intermediaries who defended the claim (one didn’t, and Mr. Gaban defaulted as well) filed a complex series of cross motions for summary judgment. Who gets to pay for this?
FedEx claimed it shouldn’t have to, as its “Freight Brokerage Contract,” the self-proclaimed “sole governing document with respect to the brokerage of the cargo …” disavows any liability for freight loss.
FedEx also had contracts with the two carriers involved. The first was a “Broker-Carrier Agreement” with motor carrier B2B Transportation Services, which it alleged its employee entered into without authorization. The Broker-Carrier Agreement placed full responsibility for cargo loss/damage on the carrier. The second was a “Freight Brokerage Contract and Authorization,” which purports to be subject to the terms of the Broker-Carrier Agreement. The lengthy opinion rambles through the court’s treatment of the motions for summary judgment in, well, a summary fashion that’s tough to summarize briefly. But here goes:
FICA’s motion requested a declaratory judgment to the effect that it had proven a prima facie case under Carmack, i.e., that it had tendered its cargo in good order and condition; received it back damaged; and suffered damages consequently. That makes conceptual sense, but as the court pointed out, the law just doesn’t recognize an established prima facie Carmack case as the proper subject of a dispositive motion. Motion denied.
FICA’s claims against FedEx were in the latter’s capacity as a broker, and therefore weren’t based on Carmack. Rather, they were contractual, and therefore implicated the common law “Economic Loss Rule” as adopted and applied by Florida. The Economic Loss Rule provides that when disputing parties have a contract, the claimant is precluded from seeking recovery of purely economic damages based on tort theories (such as negligence, intentional acts, etc.). Rather, its rights and remedies are limited to the contract’s terms. FedEx moved to dismiss FICA’s tort claims, and succeeded in demonstrating that the shipper’s rights and remedies, if any, are spelled out exclusively in the contract. That part of FedEx’s motion was granted.
Now that it was established FICA could proceed only in contract, just what terms of the contract did FedEx breach? FedEx sought to dismiss the remainder of FICA’s claim arguing that the contract didn’t impose any obligations on the broker at all. But if a contract doesn’t require anything from a party, it’s inherently ambiguous, and therefore subject to factual interpretation not properly adjudicated on summary judgment. Motion denied.
In its dispositive motion, B2B tried the “I’m a broker, too” argument, i.e., that it co-brokered the load with FedEx, never acted as a carrier and, hell, isn’t even licensed as a carrier to being with. On that basis, urged B2B, FICA’s Carmack claim against it should be dismissed. However, the court agreed with FICA that B2B agreed to act as a carrier, and factual issues remained as to whether it did act as one. And consistent with other case law, not being licensed to operate trucks doesn’t mean you didn’t do so and aren’t liable as a carrier. Motion denied.
B2B did manage to escape FICA’s bailment allegations, asserting that the shipper had no evidence B2B ever possessed the cargo. No established possession, no bailment. Similarly, FICA couldn’t show it had any contractual agreement directly with B2B, so its breach of contract claims were dismissed. Motions on those two issues were granted. B2B didn’t do so well trying to dismiss FICA’s common law negligence claim on the ground of Carmack preemption; if it ultimately is demonstrated not to be a carrier (as it urged), then it still could be liable in tort as a broker (ain’t alternative pleading wonderful?). It didn’t fare any better trying to get out based on its contract being executed by an unauthorized employee, as a triable issue of fact remained as to whether the employee had apparent authority, which is the standard.
COTC tried to escape by arguing that FICA hadn’t conclusively proved it tendered the cargo in good order and condition. That didn’t work, as the summary judgment standard doesn’t require conclusive proof. Enough was on the record for a reasonable trier of fact to go the other way. Motion denied.
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