Managing Cargo Theft: Before and After the Loss Presented by: Fredric Marcinak Moderated by: Rob Moseley 2 West Washington Street, Suite 1100 | Greenville, SC 29601 T: 864.751.7600 E: [email protected] E: [email protected]

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Cargo Theft: The Problem • Increased cargo loss – In the second quarter of 2014 the average value of each cargo loss roughly doubled – During the quarter, the average reported loss totaled $321,521, a 104% increase from the third quarter of 2013 and 82% higher than the first quarter of 2014. • The usual suspects – Electronics and alcohol/tobacco products – The highest average loss value was in the pharmaceutical/medication category, which had an average value loss of $2 million.

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Cargo Theft: The Problem • Imposters • Internet load boards (“Internet Truck Stop,” “Get Loaded” and similar websites) publish essential shipment facts and details. • FMCSA’s website publishes essential motor carrier • Information: – Carrier name, address, MC and U.S. DOT numbers – Carrier telephone and fax numbers – Carrier insurance information • This makes it easy for would‐be thieves and imposters to intercept cargo.

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Cargo Theft: The Problem • High value Losses = High Value Exposure – UPS Supply Chain Solutions, Inc. v. Megatrux Transp., Inc., 750 F.3d 1282 (11th Cir. 2014) • Large cargo loss, broker paid customer under contractual limitation • Broker could recover based on Carmack as assignee of shipper • Broker could recover full value of loss from carrier under broker-carrier contract=$461,000 • Broker could recover attorney’s fees from carrier

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Cargo Theft: The Problem – Exel, Inc. v. Southern Refrigerated Transport, Inc., 44 F.Supp.3d 736 (S.D. Ohio 2014). • Large cargo loss, broker sued carrier as assignee of shipper • Carmack did not preempt broker’s breach of contract claim against carrier even though broker was shipper’s assignee • Bill of lading’s liability limitation did not apply • Terms of broker-carrier contract controlled • Carrier liable to broker for $5mm++

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Cargo Theft: Some Solutions

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Cargo Theft: Some Solutions • Risk Management Before the Loss – Contracts • Shipper-Carrier • Broker-Carrier – Bill of Lading – Rules Tariff – Rate/Load Confirmation

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Cargo Theft: Some Solutions

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Cargo Theft: Some Solutions • Risk Management Before the Loss – Don’t Co-Mingle Your Roles • Broker or carrier? • MAP21 Penalties (49 U.S.C. § 14916(a)) • Continued carrier liability • Corporate structures – Properly Vet Carriers • Authority, insurance, safety rating

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Cargo Theft: Some Solutions

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Cargo Theft: Some Solutions • Risk Management Before the Loss – Clarity on High Value Loads • Bay Machinery Services, Inc. v. Codan Forsikring A/S, 4:08cv00368 SWW, 4:09cv00246 (W.D. Ark. 2010) – Broker’s requirement that carrier have $100,000 in cargo coverage unless otherwise noted limited carrier’s liability to $100,000 for $1 million loss – Know Your Insurance Coverage

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Cargo Theft: Some Solutions Insurance: What Insurance? Certificate of Insurance THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES.

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Cargo Theft: Some Solutions • Ann Taylor Inc. v. Heritage Ins. Serv. Inc., et al., 259 S.W. 3d 494 (Ky. App. 2008) • A load of clothing worth $1,000,000.00 was stolen from a truck stop. Fireman’s Fund denied coverage based upon the unattended vehicle exclusion. Ann Taylor sued Fireman’s Fund, and others for negligent misrepresentation for failing to disclose the exclusion in the policy claiming that it relied on the certificate of insurance

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Cargo Theft: Some Solutions Holding: The coverage detailed in the COI listing Ann Taylor as a certificate holder included the coverage required by the transportation agreement: $750,000 per cargo. The fact that the COI did not include any exclusions listed in the policy does not change this. The COI explicitly stated that it should not be relied upon, and while we today do not rule regarding conflicting terms in COIs and policies, we follow the line of cases that hold that a COI is only evidence of insurance coverage and should not be relied upon by a claimant for the full terms of the policy.

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Cargo Theft: Some Solutions •

A. Coverage – we will pay for “loss” to Covered Property from any of the Covered Causes of Loss. 1. Covered Property means property of others that you have accepted as a motor carrier under you tariff and bill of lading or other written contract. We cover property only while it is: a. contained in or an a land vehicle while in “transit” and/or during “loading” or “unloading” or b. at premises scheduled under the limits of Insurance in the Motor Truck Cargo Declarations.

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B. Exclusions ….. 2. We will not pay for your liability for a loss caused by or resulting from any of the following: … b. dishonest of criminal acts by you, your partners, managers, directors, officers, trustees, employees or authorized representatives (including leased employees and operators under contract to you) or anyone with an interest in the property (including their employees or authorized representatives): (1) acting alone or in collusion with others; (2) whether or not occurring during the hours of employment.

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Cargo Theft: Some Solutions • C. Definitions “Transit” begins with the actual movement of the goods from point of shipment bound for a specific destination. It remains in transit during the ordinary, reasonable and necessary stops, interruptions, delays or transfers incidental to the route and method of shipment. “Transit” ends when any of the following occurs: 1. Covered property is accepted by, or on behalf of, the consignee at the intended destination or at any intermediate point short of the original destination; or 2. Seventy-two hours after arrival at destination; or 3. Any other stops that exceed seventy two hours.

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Cargo Theft: Some Solutions • D. This policy does not insure the liability of the insured for loss to any covered property caused by or resulting in or from the following, whether any other cause contributes to the loss or damage: – Voluntary parting with title or possession of any covered property by the insured or others to whom the covered property may be entrusted whether or not induced to do so by any fraudulent scheme, trick, device or false pretense – Standard criminal acts exclusion

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Cargo Theft: Some Solutions • E. Limitations as indicated on Declarations Page – Locked Vehicle Clause. We shall not be liable for loss to covered property caused by theft and/or vandalism unless the scheduled vehicle including the attached trailer, shall be equipped with entirely enclosed bodies of good construction and completely locked with a key or combination lock. No claim for loss by theft and/or vandalism shall be valid unless there shall be visible evidence of violent forcible entry into the vehicle. – Unattended Vehicle Clause. We shall not be liable for loss to covered property caused by theft and/or vandalism unless at the time of the theft and/or vandalism a permanent employee or permanent agent of the insured shall be in or on the vehicle or within five(5) feet of the vehicle.

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Cargo Theft: Some Solutions • After The Loss – Preemption Defenses for Brokers & Carriers • FAAAA, 49 U.S.C. 14501(c) – Ameriswiss Tech., LLC v. Midway Line of Illinois, Inc., 888 F. Supp. 2d 197 (D.N.H. 2012) – Huntington Operating Corp. v. Sybonney Exp., Inc., No. CIV.A. H-08-781, 2010 WL 1930087 (S.D. Tex. May 11, 2010) – Non Typical, Inc. v. Transglobal Logistics Grp. Inc., No. 10-C-1058, 2012 WL 1910076 (E.D. Wis. May 28, 2012)

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Cargo Theft: Some Solutions • Carmack Amendment – NO True Conversion Exception – Certain Underwriters at Interest at Lloyd’s of London vs. United Parcel Service of America, Inc., 762 F.3d 332 (3d Cir. 2014) – CONTRA: Schultz v. Auld, 848 F. Supp. 1497, 1506 (D. Idaho 1993); Mlinar v. United Parcel Serv., Inc., 129 So.3d 406, 411 (Fla.Dist.Ct.App.2013); Dynamic Transit v. Trans Pac. Ventures, 291 P.3d 114, 117 (Nev. 2012); Schwartz v. Atlas Van Lines Inc., 95 Wash. App. 202, 976 P.2d 145, 151–52 (1999).

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Cargo Theft: Some Solutions Carmack Apportionment

49 U.S.C. 14706(b)

Common Law Indemnity

Limitations on Liability After the loss

Contribution

Balance the Equities

Sompo Japan Ins. Co. of Am. v. Action Exp., LLC, 19 F. Supp. 3d 954, 957 (C.D. Cal. 2014), as amended (June 4, 2014)

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Fredric Marcinak

Smith Moore Leatherwood, LLP 2 West Washington Street, Suite 1100 Greenville, SC 20601 864.751.7691 [email protected]

Rob Moseley

Smith Moore Leatherwood, LLP 2 West Washington Street, Suite 1100 Greenville, SC 20601 864.751.7643 [email protected]

© 2015 Smith Moore Leatherwood LLP. ALL RIGHTS RESERVED.