Transportation Industry Newsletter - Fall 2016

TRANSPORTATION INDUSTRY NEWS Fa l l

2016

NMFTA Shakes Up Bills of Lading 4 Teaming Up to Crack Down 5 The Road Ahead & Making Tracks — Team Updates 6 Team Directory 7

THE “POWER ONLY” PROBLEM

HOW LENDING YOUR TRAILERS CAN BE LENDING YOUR INSURANCE ROB MOSELEY | rob.moseley@smithmoorelaw.com It is funny how there are unintended consequences to every action.

When the Federal Motor Carrier Safety Administration began tightening regulations on hours of service, the beneficiary was the trailer manufacturing industry. Truckers responded to hours of service restrictions by trying to make the loading and unloading process more efficient through the means of a “dropped trailer.” Dropped trailers allow the shipper to load the trailer (or the consignee to unload the trailer) at a time that is convenient for them, without a driver having to sit and await the conclusion of the process. The extension of the dropped trailer was the “power only” concept. Power only involves the logistics provider dropping a number of trailers at a particular location without knowledge or foresight as to who would actually pick the trailers up.

When a trailer is ready to be picked up, the logistics provider decides whether to move that trailer with its own equipment or broker the load out to another carrier. This means that there is always a possibility that any particular trailer would be hauled by a carrier other than the logistics provider. The dropped trailer model has greatly increased the number of trailers owned by motor carriers from 1 per power unit to almost 4 trailers per power unit, but that is a story for another day.

The power only program has brought to the forefront the issue of insurance coverage for all those extra trailers that are being pulled by carriers other than the owner of the trailer. The owner of the trailer should clearly understand that its own insurance, including excess coverages, may ride the roads with that trailer. In other words, the trailer owner can find its risk management program in play for the actions of the driver who is in possession of the trailer.

BU S I NE S S AU TO P OLI C Y This is especially evident by trailer owners who are insured under a “business auto” policy. The business auto policy presents the broadest of borrowed trailer coverages.

The business auto policy defines “insured” as follows: 1. Who is An Insured The following are “insureds”:

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a. You for any covered “auto.” b. Anyone else while using with your permission a covered “auto” you own, hire or borrow except: (1) The owner or anyone else from whom you hire or borrow a covered “auto”. This exception does not apply if the covered “auto” is a “trailer” connected to a covered “auto” you own.

(2) Your “employee” if the covered “auto” is owned by that “employee” or a member of his or her household.

(3) Someone using a covered “auto” while he or she is working in a business of selling, servicing, repairing, parking or storing “autos” unless that business is yours.

(4) Anyone other than your “employees”, partners (if you are a partnership), members (if you are a limited liability company), or a lessee or borrower or any of their “employees”, while moving property to or from a covered “auto”.

(5) A partner (if you are a partnership), or a member (if you are a limited liability company) for a covered “auto” owned by him or her or a member of his or her household. c. Anyone liable for the conduct of an “insured” described above but only to the extent of that liability.

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For example, a grocery store that also operates trucks might be a good match for the business auto policy.

M OTOR C ARRI E R FORM On the other hand, the motor carrier form is the policy of choice for most for-hire motor carriers. The motor carrier form defines “insured” with a slightly different approach than the business auto policy: 1. Who Is An Insured The following are “insureds”: a. You for any covered “auto.” b. Anyone else while using with your permission a covered “auto” you own, hire or borrow except: (1) The owner, or any “employee”, agent or driver of the owner, or anyone else from whom you hire or borrow a covered “auto.”

(2) Your “employee” or agent if the covered “auto” is owned by that “employee” or agent or a member of his or her household.

(3) Someone using a covered “auto” while he or she is working in a business of selling, servicing, repairing, parking or storing “autos” unless that business is yours.

The crucial language here is in Section 1b, which extends coverage to anyone “using with your permission a covered auto.’” Because trailers are “autos” under the policy, this means that anyone the owner lends a trailer to becomes an insured under the owner’s policy as they use the trailer with permission. Thus, the business auto form provides almost unlimited coverage for the user of the trailer. This coverage would extend to any “follow form” excess policies in place as well. As a result, the use of a trailer exposes the entire tower of coverage for the actions of a driver who the owner of the trailer has never met.

(4) Anyone other than your “employees”, partners (if you are a partnership), members (if you are a limited liability company), a lessee or borrower of a covered “auto” or any of their “employees”, while moving property to or from a covered “auto.”

The business auto form is primarily in use by non-motor carrier entities.

c. The owner or anyone else from whom you hire or borrow a

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(5) A partner (if you are a partnership), or member (if you are a limited liability company) for a covered “auto” owned by him or her or a member of his or her household.

covered “auto” that is a “trailer” while the “trailer” is connected to another covered “auto” that is a power unit, or, if not connected, is being used exclusively in your business. d. The lessor of a covered “auto” that is not a “trailer” or any “employee”, agent or driver of the lessor while the “auto” is leased to you under a written agreement if the written agreement between the lessor and you does not require the lessor to hold you harmless and then only when the leased “auto” is used in your business as a “motor carrier” for hire. e. Anyone liable for the conduct of an “insured” described above but only to the extent of that liability.

However, none of the following is an “insured”: (1) Any “motor carrier” for hire or his or her agents or “employees,” other than you and your “employees”: a. If the “motor carrier” is subject to motor carrier insurance requirements and meets them by a means other than “auto” liability insurance. b. If the “motor carrier” is not insured for hired “autos” under an “auto” liability insurance form that insures on a primary basis the owners of the “autos” and their agents and “employees” while the “autos” are leased to that “motor carrier” and used in his or her business.

However, Paragraph (1) above does not apply if you have leased an “auto” to the for-hire “motor carrier” under a written lease agreement in which you have held that “motor carrier” harmless.

The motor carrier form is a slight improvement over the business auto form in that there are at least some limitations on the extension of coverage to trailer users. After Section 1(e), there is a “however” section. This eliminates as insureds several classes of motor carriers.

First, 1(a) eliminates as an insured any motor carrier that self-insures.

The particular exclusion is somewhat ambiguous in that it identifies a motor carrier who meets its insurance requirements by “a means other than ’auto’ liability insurance.” This would seem to say that a fronting policy would not eliminate a motor carrier from consideration as an insured. However, it would seem that a true self-insured under the Federal Motor Carrier Safety Administration (“FMCSA”) regulations would be excluded.

The next type of motor carrier that would be excluded as an insured in the permissive use of a trailer would be a motor carrier who is not insured for hired autos under section 1(b). This seems to be an attempt by the Insurance Services Office (“ISO”), the author of the policies, to include some sort of fairness concept in the extension of coverage to users of trailers. In other words, if the user of the trailer provides hired auto coverage, then the trailer owner would be an insured under the trailer user’s policy. This means that if the trailer user’s policy provides coverage for the trailer owner, the ISO form would seem to extend coverage to the trailer user, but if the trailer user’s policy does not extend to hired autos, then the motor carrier form would not extend coverage to the trailer user.

The result of this is that, because most small carriers would not be eligible for hired auto coverage, they would, consequently, be excluded under the motor carrier form. Most larger carriers that are insured on a premium audit basis rather than a scheduled auto basis would, as a result, be eligible for this coverage.

Unfortunately, the analysis does not end there. There is a “however” to the “however.” Following Section 1(b) of the “however” clause, there is another “however” clause that says that the exclusion from the definition of “insured” does not apply if the named insured has leased an auto to a for-hire motor carrier under a written lease agreement in which the named insured has agreed to hold the motor carrier using the vehicle harmless. This should be a non-issue given that it would be extremely rare for the lessor of a vehicle to agree to hold the user of a vehicle harmless. In fact, the opposite is the typical scenario. In other words, it is normally the user of the vehicle agreeing to hold the owner harmless, not the other way around. Therefore, the exception to the exception would not be generally applicable.

CONC LU S I ON The “power only predicament” is seen in a number of cases in which the trailer owner’s coverage was extended to an unintended beneficiary— the user of the trailer. For example, in Stan Koch and Sons v. Great West Casualty Co., 517 F.3d 1032 (8th Cir. 2008), the court dealt with this very issue. At that time, Great West had a policy form that had very broad extensions of coverage to trailer users. The court held that the trailer was a covered auto under the Stan Koch and Sons policy and that the permissive user was an insured under the Stan Koch policy.

The only consolation is that the trailer owner’s coverage exceeds that of the permissive user.

As a side note, Great West has changed its policy language so that they no longer provide the broad coverage to the unintended beneficiary of the trailer user. Great West Casualty Co. v. Robbins, 2016 WL 4366769 (7th Cir. 2016). (Case No. 1:15-cv-1181). In that case, Great West’s trailer coverage was found not to extend to the permissive user of a trailer.

In conclusion, motor carriers and others who lend their trailers to other entities, including other motor carriers, should exercise vigilance lest their risk management structure be extended to the benefit of permissive users. Best practices would involve the trailer owner entering into a solid trailer interchange agreement with anyone pulling those trailers. Additionally, for anyone with a sizeable exposure to lending trailers to others should consider adding an endorsement to the business auto policy or motor carrier form that restricts coverage provided to the permissive user of a trailer. There may be state law limitations on the ability to completely exclude a trailer, since most state financial responsibility laws consider a trailer to be an auto that requires insurance. However, such endorsements can be carefully drawn to carve out state law requirements. It has been the experience of the author that insurance underwriters have been reluctant to write, or even entertain discussions about, such endorsements. One thing is sure, however, the power only predicament will only continue to become more prominent.

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NMFTA SHAKES UP BILLS OF LADING FREDRIC MARCINAK | fredric.marcinak@smithmoorelaw.com

The National Motor Freight Traffic Association (“NMFTA”) recently shook up the shipper-broker-carrier world by issuing major changes to the uniform straight bill of lading, which it publishes in the National Motor Freight Classification (“NMFC”), NMF 100-AP, Item 365. Because nearly every major less-than-truckload (“LTL”) carrier and some truckload carriers are members of the NMFTA, the amendments to the Uniform Bill of Lading could have a major impact on transactions between shippers and carriers, including liability for cargo claims. Generally, unless a contract is already in place between the shipper and the carrier (or broker and carrier) that excludes application of the NMFC, the NMFC’s terms, including those of the Uniform Bill of Lading, will apply to the transaction between the shipper (or broker) and carrier.

Several changes the NMFC made have the potential to have a major impact in cargo claims litigation. First, the NMFC changed Section 1.(a) to assign cargo liability to the “carrier shown as transporting the property” instead of the “carrier or party in possession.” This change has the potential to shift cargo liability in certain circumstances. For example, a carrier that brokers or interlines freight to another carrier for transportation might be shown “as transporting the property” on the bill of lading, rendering it liable under the new language of Section 1.(a). Conversely,

the carrier actually in possession of the property, but who is not listed as the carrier on the bill of lading, may be able to avoid liability. Interestingly, if the bill of lading is left blank as to the carrier, would anyone be liable?

Section 1.(b) has been amended to add “riots or strikes” to the list of affirmative defenses to a cargo claim, and “any related causes” is also added to the list. This has the potential to expand carriers’ ability to avoid liability for cargo claims under certain circumstances. In a much more controversial change, the NMFTA also shifted the burden of proof associated with affirmative defenses.

Previously, once a shipper established its prima facie case under the Carmack Amendment that goods were tendered to the carrier in good condition, were delivered in damaged condition, and the amount of damages, the carrier bore the burden of proving both the existence of an affirmative defense and that the carrier was not negligent in its handling of the shipment. Section 1.(b), as amended, now provides “the burden to prove carrier negligence is on the shipper.”

Therefore, while a carrier will still be liable for any cargo loss where one of the affirmative defenses occurs concurrently with carrier negligence, the burden is now on the shipper to prove that the carrier was concurrently negligent instead of the carrier being required to prove the nonexistence of negligence.

To read more go to smithmoorelaw.com/TNLFall2016NMFTA 4

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Register for the 7th Annual Atlanta Trucking Conference Smith Moore Leatherwood will again co-sponsor the 7th Annual Atlanta Trucking Conference on Thursday, October 27.

This year’s program will focus on “The Anatomy & Life of a Truck Accident Claim: Preparing for and Avoiding the Pitfalls” and will be located at the Hyatt Regency Atlanta Perimeter at Villa Christina. SML’s Matt Stone and Rob Moseley will present. http://smithmoorelaw. com/firm-to-co-sponsortransportation-seminarin-atlanta-on-october-27

TEAMING UP TO CRACK DOWN FEDERAL AND STATE AUTHORITIES COMBINE TO PRESS NC CARRIERS ON INDEPENDENT CONTRACTOR CLASSIFICATION ERIC SNIDER | eric.snider@smithmoorelaw.com

Employee misclassification, according to the United States Department of Labor’s (“DOL”) Wage and Hour Division, is one of the “most serious problems” facing the entire U.S. economy. The Department tells a grim story: Employees who are misclassified as independent contractors miss out on many benefits, including overtime pay, workers compensation, and unemployment insurance. Employers who misclassify workers glean an unfair competitive advantage by reducing their payroll costs. And misclassification hampers state and federal governments’ ability to collect needed tax dollars.

Because of the perceived gravity of the issue, the feds are taking extraordinary steps to partner with state agencies to investigate—and potentially punish— those employers who may have improperly treated their workers as “independent contractors” instead of as employees.

North Carolina recently joined 33 other states that are cooperating with the DOL on its “Misclassification Initiative.”

That program has a number of stated goals (e.g., to increase compliance with tax requirements and wage laws; to reduce “abusive” employment schemes) but in the near term, the Misclassification Initiative means one thing for employers: increased government scrutiny surrounding employment decisions.

Under

the

program,

state

and

government regulators will be working together to ramp up enforcement activities. First, under new agreements the DOL and state agencies will be able to exchange information about ongoing investigations confidentially. That includes sharing leads, complaints, and reports of possible violations.

To read more go to smithmoorelaw.com/ TNLFall2016DOL

COURT BACKTRACKS ON VALIDITY OF CARMACK WAIVER ROB GREEN | rob.green@smithmoorelaw.com

Last month the Court for the District of New Jersey pulled a u-turn in a lawsuit involving Carmack Amendment claims against two motor carrier in connection with the loss of a $9 million shipment of pharmaceuticals.

The case involved a shipping contract between that purported to waive conflicting provisions under the Carmack Amendment. The Court held that the contract’s provisions did effectively waive certain claims that the shipper and consignee may have

had under the Carmack Amendment and granted summary judgment in favor of the motor carriers. The ruling was a reversal on reconsideration from the Court’s prior decision in December of 2015 hold that the waiver was not effective against the consignee.

By way of background, the pharmaceuticals at issue were stolen while being transported from pharmaceutical company Sanofi Aventis (the shipper) to its distributor

McKesson (the consignee). Great American Lines, the contract carrier for Sanofi, had essentially subcontracted with MVP Leasing for the latter to provide the trucking services and tractor-trailers for Sanofi’s shipments. The truck containing the pharmaceuticals was owned by MVP and was being driven by a driver hired

by MVP at the time of the loss.

To read more go to smithmoorelaw.com/ TNLFall2016Carmack

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THE ROAD AHEAD October 2–3 marks the American Trucking Associations (ATA) Management Conference and Exhibition, along with the joint meeting of the National Accounting and Finance Council (NAFC) and the IT Leadership Community (ITLC), in Las Vegas. Rob Moseley will be speaking on transportation contracts. Sounds like ATA is taking a gamble.

The SCTA Board of Directors Retreat will be held October 10–11 in Columbia, SC. Rob Moseley will be attending on the firm’s behalf.

October 13 is the Minnesota Trucking Association food safety seminar in Minneapolis, MN. Rob Moseley and Fred Marcinak will be presenting the legal issues relating to the Food Safety Modernization Act and its regulations.

At that very moment, Matt Stone and Kurt Rozelsky will be in Charm City (Baltimore, MD) for the Trucking Industry Defense Association (TIDA) annual meeting.

The ATA’s Safety and HR Council meets October 24–26 in Oklahoma City, OK. Alex Maultsby and Rob Moseley will present on Employment Traps for Trucking Companies. Also, Rob will present a special session on freight claims.

Marc Tucker will be attending the NCTA Board of Directors meeting and the NCTA Foundation Golf Tournament in Greensboro, NC on October 26.

Matt Stone and Rob Moseley will be presenting at the 7th Annual Atlanta Trucking Conference on Thursday, October 27 in Atlanta, GA. Register at http://smithmoorelaw.com/firm-to-co-sponsortransportation-seminar-in-atlanta-on-october-27.

November 15 is the next installment of the SML Transportation Webinar Series. Save the date and watch for a link to register for the next webinar!

Topic to be announced.

On December 7, Rob Moseley will be attending the last Board meeting of the SCTA.

Making Tracks Rob Moseley addressed The Expedite Association of North America (TEANA) conference on July 8–10 in Nashville, TN. He and firm friend Tommy Ruke addressed the group on insurance issues.

Fred Marcinak presented at the SML webinar on July 12. The topic was “When the Accident Isn’t Your Fault: Appealing Your Safety Rating and Diffusing it at Trial.” The archive version is available at www.smithmoorelaw.com/ transportation-webinar-when-the-accident-isntyour-fault-appealing-your-safety-rating-anddiffusing-it-at-trial-hosted-by-fredric-marcinakand-rob-moseley.

Marc Tucker attended the North Carolina Trucking Association (NCTA) Annual Conference in Hilton Head, SC, July 24–27. He was reelected to the Board of Directors.

Kurt Rozelsky presided over his last The Federation of Defense and Corporate Counsel (FDCC) Trucking Law Section meeting in La Malbaie, Quebec, July 25–30. The meeting also marked the last meeting of the Presidency of SML’s Steve Farrar.

Matt Stone taught two transportation segments at the Claims and Litigation Management (CLM) Claims College in Baltimore, MD, from September 7–9.

On September 13–14, Rob Moseley accompanied the delegation from the SC Trucking Association (SCTA) to Washington, DC to meet with the state’s legislators to discuss problems facing the trucking industry at a national level.

Also on September 13, Bennett Crites, Shawn Kalfus, and Marc “the Trucker” Tucker discussed the intricacies of litigating truck accident cases in the SML footprint. Matt Stone moderated the crew. For an archived version of this discussion, see www.smithmoorelaw.com/transportationwebinar-truck-accident-litigation-in-the-smlfootprint.

On September 29, Rob Moseley took his post as presenter at the Motor Carrier Insurance Educational Foundation in Orlando, FL. He spoke on regulatory changes and insurance coverage issues affecting truck owners.

Rob Moseley presided over the annual meeting of the American College of Transportation Attorneys in Atlanta, GA, August 18–19.

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TEAM DIRECTORY ERIK ALBRIGHT

KEVIN MCCARRELL

MIKE BOWERS

ROB MOSELEY

MANNING CONNORS

K R I S T E N N O WA C K I

RICK COUGHLIN

BOB PERSONS

Greensboro, NC | 336.378.5368 erik.albright@smithmoorelaw.com

Charleston, SC | 843.300.6633 mike.bowers@smithmoorelaw.com

Greensboro, NC | 336.378.5236 manning.connors@smithmoorelaw.com

Greensboro, NC | 336.378.5471 rick.coughlin@smithmoorelaw.com

Greenville, SC | 864.751.7652 kevin.mccarrell@smithmoorelaw.com

*TEAM LEADER* Greenville, SC | 864.751.7643 rob.moseley@smithmoorelaw.com

Greenville, SC | 864.751.7753 kristen.nowacki@smithmoorelaw.com

Atlanta, GA | 404.962.1075 bob.persons@smithmoorelaw.com

BENNETT CRITES

M A R Y R A M S AY

M E G H A N E A R LY

JOHN REIS

JULIE EARP

JACK RIORDAN

ROB GREEN

JOSEPH ROHE

J AY H O L L A N D

J E N N I F E R R AT H M A N

MARVIS JENKINS

KURT ROZELSKY

S H AW N K A L F U S

PETER RUTLEDGE

FREDRIC MARCINAK

M AT T S T O N E

A L E X M A U LT S B Y

MARC TUCKER

Charleston, SC | 843.300.6653 bennett.crites@smithmoorelaw.com

Greenville, NC | 864.751.7627 megan.early@smithmoorelaw.com

Greensboro, NC | 336.378.5256 julie.earp@smithmoorelaw.com

Greenville, SC | 864.751.7617 robert.green@smithmoorelaw.com

Wilmington, NC | 910.815.7165 jay.holland@smithmoorelaw.com

Atlanta, GA | 404.962.1018 marvis.jenkins@smithmoorelaw.com

Atlanta, GA | 404.962.1042 shawn.kalfus@smithmoorelaw.com

Greenville, SC | 864.751.7691 fredric.marcinak@smithmoorelaw.com

Greensboro, NC | 336.378.5331 alex.maultsby@smithmoorelaw.com

Charleston, SC | 843.300.6659 mary.ramsay@smithmoorelaw.com

Charlotte, NC | 704.384.2693 john.reis@smithmoorelaw.com

Greenville, SC | 864.751.7638 jack.riordan@smithmoorelaw.com

Greenville, SC | 864.751.7668 joseph.rohe@smithmoorelaw.com

Megan Early Joins Transportation Group Megan M. Early joined the Greenville office in September and will practice in the transportation industry group, focusing on representing commercial motor vehicle companies and motor carriers.

She’ll provide regional and nationwide guidance on commercial litigation matters, including cargo/freight claims, collections/contract disputes, FMCSA and state regulatory compliance and permitting matters, and insurance coverage cases. Early received her law degree, cum laude, from the Southern University Law Center.

She earned her undergraduate degree from Wofford College.

Atlanta, GA | 404.962.1074 jennifer.rathman@smithmoorelaw.com

Greenville, SC | 864.751.7624 kurt.rozelsky@smithmoorelaw.com

Greenville, SC | 864.751.7610 peter.rutledge@smithmoorelaw.com

Atlanta, GA | 404.962.1057 matt.stone@smithmoorelaw.com

Raleigh, NC | 919.755.8713 marc.tucker@smithmoorelaw.com

Welcome Baby Marcinak!

Congratulations to Fredric and Tara Marcinak. John Marcinak was born (surprisingly, 6 weeks early!) on August 19th at 10:32am. 5 lbs. 1.8 oz; 19 inches.

Smith Moore Leatherwood LLP Attorneys at Law 2 West Washington Street Suite 1100 Greenville, SC 29601 T 864.751.7600 F 864.751.7800 www.smithmoorelaw.com

GO GREEN

Sign up to recieve the digital version of the Transporation Industry Newsletter today! www.surveymonkey.com/r/TNLVersion

Emergency Response Team As part of the array of transportation services provided to firm clients, our 24/7 emergency response team is standing by to serve clients with urgent needs following a catastrophic accident. The team has handled numerous night time and weekend emergencies for our clients.

Members of the emergency response team take responsibility for preserving physical and electronic evidence, taking driver and witness statements, making arrangements for cargo salvage, and managing relations with law enforcement. Additionally, firm clients benefit from the team’s knowledge of substantive experts and criminal defense counsel. smithmoorelaw.com/emergencyresponseteam

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