Fall 2010 Transportation Industry Newsletter

InsIde ThIs Issue:

Court Holds Punitive Damages Are Recoverable From Underinsured Motorist Carriers ..................................2

South Carolina Courts Hold That There is No Recovery for Pre-Impact Fear........................3

Team Updates..........................5

US Supreme Court Ends Dispute: COGSA (not Carmack) Applies to Land Segment of Ocean Shipments Subject to Through Bills of Lading............7

In Johnson v. Horry County Solid Waste Authority, Opinion No. 4716 (S.C. Ct.App. July 28, 2010) the South Carolina Court of Appeals dealt with expert testimony in a commercial vehicle accident involving a pedestrian. Susan Johnson was involved in a single vehicle rollover accident at 4:00 a.m. After her car came to rest she exited her vehicle and was standing alongside the highway when she was struck by a sanitation vehicle. The case raised several issues including the requirement and basis for expert testimony.

The first issue dealt with the plaintiff’s intoxication at the time of the accident. In a post mortem test, the plaintiff’s blood alcohol was measured to be .14, which exceeds the legal limit. The Court affirmed the trial court’s decision to exclude the decedent’s blood alcohol. The Court justified its decision to exclude the evidence because no expert testimony was proffered for the trial court’s consideration regarding how the decedent’s judgment would have been impaired with respect to staying out of the roadway. It appears that this decision is based solely on the facts in this particular case.

The second issue raised in this case was the jury charge by the judge which stated that the South Carolina Commercial Drivers License Manual requires the driver of a commercial vehicle to keep a safe clearance on either side of the roadway. Also, there were other references to a CDL manual creating a standard for following distances.

The Court of Appeals held that the CDL manual did not carry the force of law and should not have been charged; however, the Court refused to reverse the case holding that “on the whole” the trial judge’s charge contained the appropriate standard of care and that the defendant did not prove prejudice.

While this decision did not help the defendant in this particular case, the decision should prevent trial judges from charging the CDL manual as a standard of care in future cases.

South Carolina Court Holds CDL Manual Not Standard of Care for

Commercial Truck Driver

®Attorneys at Law

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The question of whether punitive damages are recoverable from an underinsured motorist (“UIM”) carrier has long bedeviled insurers and defense attorneys in South Carolina. The question arises when an injured person has damages that exceed the insurance coverage available for the at-fault motorist, thus triggering the injured plaintiff’s UIM coverage. Typically where liability is clear and damages are significant, the liability carrier for the at-fault motorist will agree to pay its policy limits in exchange for a covenant not to execute on any judgment obtained against the at-fault motorist. The plaintiff then continues the lawsuit against the at-fault motorist in name only, while the UIM carrier steps in to defend the case. In real terms, the suit at this point proceeds against the plaintiff’s own UIM carrier. Any damages, compensatory or punitive, that are awarded would then be paid by the UIM carrier.

For years, defense attorneys and UIM carriers have argued that in this situation, punitive damages may not be recovered from the UIM carrier as a matter of public policy and constitutional law. To support this argument, they have contended that punitive damages are designed to punish a wrongdoer and to prevent future reckless behavior. However, where punitive damages are paid not by the wrongdoer but by the plaintiff’s own insurer, the wrongdoer is not being punished and would not be deterred from future recklessness. Many states agree and hold that punitive damages may not be recovered from a UIM carrier. See, e.g., Fairfield Ins. Co. v. Stephens Martin Paving, L.P., 246 S.W.3d 653, 658 (Tex. 2008).

Court Holds Punitive Damages Are Recoverable From Underinsured Motorist Carriers

Although this question has been debated in South Carolina for years, until recently the state courts had not conclusively decided the issue. Typically, this was because the courts viewed the issue as non-justiciable until a jury had actually awarded punitive damages and very few cases progressed through trial to the point where punitive damages were awarded. However, in the recently decided case of O’Neill v. Smith, the South Carolina Supreme Court decided to address the issue

anyway. In O’Neill, the plaintiff had settled with the liability carrier and was pursuing the lawsuit in an attempt to recover his additional damages from his own UIM carrier. The UIM carrier then moved for summary judgment on the plaintiff’s claim for punitive damages, and the federal court, where the case was pending, certified the issue to the South Carolina Supreme Court for resolution.

The Supreme Court held that punitive damages are recoverable from a UIM carrier. The court relied on several primary points to support its ruling. First, the court found that S.C. Code § 38-77-160, which provides for UIM coverage, allows for the recovery of punitive damages. Section 160 provides:

[C]arriers shall . . . offer . . . underinsured motorist coverage . . . to provide coverage in the event that damages are sustained in excess of the liability limits carried by an at-fault . . . underinsured motorist.

The term “damages” in § 160 is defined as including “both actual and punitive damages.” S.C. Code § 38-77-30(4). Putting these two provisions together, the court found

that § 160 provides that punitive damages are recoverable from a UIM carrier.

The court’s reading of § 160 leads into its second argument in support of its holding. Specifically, the court’s reading of this section necessarily assumes that punitive damages can be “sustained” by a plaintiff. This in and of itself reveals the court’s mindset that punitive damages are not just for punishing, they also can be “sustained” by an injured person.

In articulating its second ground to support the holding, the court made this clear, reaffirming prior decisions which hold that punitive damages also serve the purpose of compensating the plaintiff for the reckless behavior of the tortfeasor. Although the case law relied on by the court is longstanding, it is not particularly well-reasoned since it imparts a compensatory purpose to punitive damages, and it is not clear how the purpose of compensating the plaintiff is not adequately served by a compensatory damage award alone.

Next, to support its ruling, the court held that even where punitive damages are recovered from a UIM carrier rather than from a tortfeasor, they still serve the purpose of

deterring future reckless conduct by others. The court offered no explanation for how this deterrence is achieved, and there would seem to be none—unless motorists who purchase UIM coverage are expected to realize that, in the aggregate, UIM premiums will increase if they act recklessly and cause more punitive damage awards to be paid by insurers.

Finally, the court cited case law referring to a UIM carrier’s argument that it should not be required to pay a punitive damage award as “disingenuous” since, as a liability carrier, the insurer would have to pay punitive damages even though it had done no wrong itself. However, this argument ignores the fact that, in the liability context, the tortfeasor himself has contracted with the insurer, and the insurer is able to identify and manage its risk through premium levels and even cancelling or refusing coverage. In the UIM context, the insurer has no relationship with the tortfeasor, nor any ability to predict exposure for its insureds’ encounters with reckless, underinsured drivers.

The decision in O’Neill will affect those trucking companies and insurers who obtain UIM coverage to protect their drivers by requiring them to pay punitive damages awarded in favor of the driver against an at-fault motorist. Even where a trucking company elects not to obtain UIM coverage, it will still be affected by O’Neill because, logically, the decision in O’Neill will extend to uninsured motorist (“UM”) coverage as well. Because UM coverage is mandatory, all trucking companies in South Carolina will be required to pay punitive damages where the driver recovers them against an uninsured motorist. Finally, punitive damages paid by a UIM or UM carrier, and even larger settlements paid because of the possibility of punitive damages being awarded, will affect the loss runs for trucking companies, which, in turn, will lead to increased premiums for coverage.

Generally, trucking companies select the minimum coverages for UM and UIM because their drivers are covered by worker’s compensation. However, because the mandatory UM is $75,000 for a $1 Million CSL policy, the UIM is normally purchased at the same amount. Even worse, this applies to self-insureds who use a fronting policy to cover this exposure. In that case, the motor carrier will have paid the worker’s compensation for the driver, paid for its physical damage to its own vehicle, paid the cargo claim of its shipper, and it will now pay the excess exposure of the at-fault motorist who caused the whole thing.

We are not aware of any other state, beyond South Carolina, which imposes a compensatory element to punitive damages. This will no doubt be on the table for tort reform when the legislature reconvenes next session.

South Carolina Courts Hold That There is

No Recovery for Pre-Impact Fear

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The South Carolina Court of Appeals recently issued an opinion in it was held that South Carolina does not allow plaintiffs to recover for pre-impact fear. In Rutland v. S.C. Dept. of Transportation, Opinion No. 4721 (S.C. Ct. App., August 4, 2010), the plaintiff was a passenger in a vehicle driven by her husband when it encountered a rainstorm, hydroplaned and overturned. The plaintiff was killed in the accident. Plaintiff’s estate brought a claim against the South Carolina Department of Transportation for the negligent design and maintenance of the roadway. The case involved the allocation of settlement funds from the liability coverage of the vehicle involved in the accident as between wrongful death and survival claims. The DOT took the position that there was no evidence to support a survival claim. There was no evidence of conscious pain and suffering following the accident; however, the plaintiff argued that the decedent experienced pre-impact fear and mental trauma because of her knowledge of her impending death. The Court held that South Carolina does not recognize pre-impact fear as a compensable cause of action. In doing so, the Court relied upon a 2009 Federal District Court decision. The plaintiff in this case will likely seek review by the South Carolina Supreme Court. This matter is not over yet.

Disguised as a sports weekend, Rob and his son, Joshua, inspected trucks throughout Wisconsin.

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The Smith Moore Leatherwood Transportation Team

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The Road Ahead

• Rob Moseley will be taking over as co-chair of the Transportation Lawyer’s Association’s Freight Claims Committee.

• Marc Tucker will be presenting at the North Carolina Trucking Association Safety Council Down East Chapter on the CSA 2010 & Litigation.

• Kurt Rozelsky will be co-hosting a webinar on “ANSWERING THE MIDNIGHT CALL: TOP TEN ACTION ITEMS FOR A LAWYER TO KNOW AND DO TO IMMEDIATELY REACT TO A CATASTROPHIC MOTOR VEHICLE ACCIDENT!” It is scheduled for November 30, 2010 at 2:00 p.m. EST. Sign-up through Transportation Lawyers Association at translaw.org.

• On November 9, Marc Tucker will be presenting at the North Carolina Trucking Association Safety Council meeting

in Burlington on PSP & Hiring Practices.

• Rob is speaking on his “Top 10” legal issues facing the trucking industry at the American Trucking Association Management Conference and Exhibition in Phoenix October 16-18.

• Rob is leading a session on cargo claims developments at the SMC3’s Loss Prevention Conference in Atlanta on

October 18-19. To register, please go to http://www.smc3.com/conferences/LP/2010/overview.asp. • On October 24-25, Rob Moseley will be teaching insurance coverage at the Advanced Truckers session in Orlando,

FL. • Representatives of the firm will be participating in the SC Trucking Association’s Truck Owner’s Summit in

Columbia on November 17. • Jason Pfister, Fredric Marcinak and Rob Moseley will be attending the Conference of Freight Counsel’s meeting

in Orlando on January 9-10.

• Rob Moseley has been teaching cargo claims webinars on behalf of the American Trucking Association. The last of the series of four is scheduled for October 28. See http://www.atabusinesssolutions.com/t-ATAFreightClaimsManagementWebinarSeries.aspx for details.

Making Tracks• Kurt Rozelsky was named Chair of the DRI Truck Law Committee at the DRI Annual Meeting in San Diego.

• Jack Riordan and his co-chair on the Trucking Committee spoke on CSA 2010 at the SCDTAA’s Annual Joint Meeting with the Claims Management Association of SC the weekend of July 22-24, 2010 at the Grove Park Inn in Asheville, NC.

• Rob Moseley taught “Transportation Contracts: Crucial Clauses” in Charlotte, NC on September 15, 2010.

• Marc Tucker attended the NCTA Safety Meeting in Myrtle Beach, SC from August 5-7

• Rob co-hosted the inaugural meeting of the American College of Transportation Attorneys on August 20th in Chicago. If you work for a trucking company and have more than 300 power units, contact Rob if you are interested in this group.

• Kurt spoke on Developments in Distracted Driving at Trucking Boot Camp seminars in Chicago (July 8th), Orlando (July 9th), Boston (October 12th), and Denver (October 19th).

• Rob Moseley and Marc Tucker attended the NCTA Management Council Meeting in Asheville, NC in September. Rob spoke on developments in safety and possible ramifications on litigation.

• Rob attended and presented at the ATA Safety Management Conference in Rogers, Arkansas from September 28-29, 2010. Rob spoke on Legal Pitfalls in the New Era of Safety Management.

• On September 16, Rob Moseley spoke on Insurance Coverages for Truckers and Independent Contractors to a

group of retail insurance agents at the CIC Truckers II meeting in Charlotte. • Rob Moseley attended the SC Trucking Association Board of Directors Leadership Retreat at Wild Dunes (someone

has to do it, right?) October 4-6. Once again, the SCTA will be taking the lead in pursuing tort reform in SC.

In the recent decision of Kawasaki Kisen Kaisha Ltd. v. Regal-Beloit Corp., 130 S.Ct. 2433 (June 21, 2010), the United States Supreme Court once again addressed the interplay between a through bill of lading and conflicting domestic law applicable to an international shipment of goods. This landmark case gives even more weight to the provisions of through bills of lading against inconsistent domestic law, and its impact will resolve confusion and uncertainty in this area.

In Regal-Beloit, various cargo owners, including Regal Beloit and Victory Fireworks, Inc., arranged for a shipment of goods from China to inland destinations in the Midwestern United States. The cargo owners hired Kawasaki Kisen Kaisha Ltd. and its agent “K” Line America, Inc. to ship the goods from China to the United States. “K” Line issued four through bills of lading to the cargo owners, which covered the entire course of the shipment. The bills required “K” Line to arrange delivery of the goods from China to their final destinations in the United States by any mode of transportation of “K” Line’s choosing. As through bills of lading, these bills covered both the ocean and inland portions of the transport in a single document.

The through bills of lading issued by “K” Line contained five relevant provisions. First, they included “Himalaya clauses” which extended the bills’ defenses and limitations on liability to parties that signed subcontracts to perform services provided by the bills (here, the railroad). Second, the bills permitted

“K” Line to subcontract on any terms whatsoever for completion of the journey. Third, the through bills provided that the Carriage of Goods by Sea Act (“COGSA”) terms governed the entire journey. Fourth, the bills required that any dispute be governed by Japanese law. Fifth, the bills required that any action relating to the carriage of goods must be brought in Tokyo.

Pursuant to the bills of lading, “K”

Line contracted with Union Pacific Railroad Company for rail shipment of the cargo in the United States. The goods were shipped in a “K” Line vessel from China to Long Beach, California, where they were transferred to a Union Pacific train for rail carriage to the final destinations. After the containers were loaded onto the Union Pacific train, the train transported them eastward. Unfortunately, the train derailed in Oklahoma, destroying the cargo.

The cargo owners then filed suit in California state court, and defendants removed that suit to

federal court. “K” Line then moved to dismiss the suit based on the Tokyo forum selection clause, arguing that the suit must be brought in Tokyo. The district court granted the motion, enforcing the forum selection clause. On appeal to the United States Court of Appeals for the Ninth Circuit, the cargo owners contended that the Carmack Amendment, 49 U.S.C. §11706; 49 U.S.C. § 14706, governs the inland portion of the shipment. Specifically, the cargo owners contended that the Carmack Amendment provisions applied and permitted suit in the United States, the provisions of the bills of lading notwithstanding. The Ninth Circuit agreed with the cargo owners and reversed the district court’s dismissal of the suit, holding that the Carmack Amendment governed over the inconsistent provisions of the bills of lading.

The Supreme Court granted certiorari to review the issue,

given the split between the various circuits as to whether Carmack trumps the terms of the bill of lading.

The Supreme Court began by observing that the terms of the bills of lading were authorized by COGSA. Specifically, the Court noted that COGSA governs the terms of bills of lading issued by ocean carriers engaged in foreign trade, and that it does not limit the parties’ ability to adopt forum selection

clauses. In addition, while COGSA applies only to shipments from United States ports to ports of foreign countries and vice versa, it gives the parties the option of extending its terms by contract to cover the entire period in which the goods would be under a carrier’s responsibility, including a period of inland transport. Thus, the through bills of lading issued by “K” Line were permissible under COGSA.

The Court then came to the crux of the matter: the conflict and interplay between the bills of lading, which were permissibly issued under COGSA, and the provisions of Carmack. Right off

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US Supreme Court Ends Dispute: COGSA (not Carmack) Applies to Land Segment of Ocean Shipments Subject to Through Bills

of Lading

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the bat, the Court declared that it would not address one of the big issues in the case. While the cargo owners argued that Carmack’s venue provisions preempted the forum selection clause in the bills of lading, “K” Line contended that the parties were free to contract out of Carmack’s venue provisions and other requirements of Carmack. However, the Court stated that in light of its resolution of the issue, discussed below, based on the language of the Carmack Amendment, it did not need to decide whether parties could agree to contract out of Carmack requirements. Thus, the Court left that important question to be resolved in the future.

In considering whether the Carmack Amendment controlled over contrary provisions in the bills of lading, the Court relied heavily on the text of the Carmack Amendment. Specifically, the Court examined Section 11706(a), which provides:

A rail carrier providing transportation or service subject to the jurisdiction of the Surface Transportation Board under this part shall issue a receipt or bill of lading for property it receives for transportation under this part.

The Court interpreted the provision to mean that a rail carrier is required to issue a bill of lading only when it is a “receiving rail carrier.” Thus, the Court held that only a receiving rail carrier and not a delivering or connecting rail carrier is required to issue a bill of lading. Examining prior decisions, the Court held that a receiving rail carrier is subject to liability only when damage is done to property for which the receiving rail carrier is required to issue a bill of lading. In other words, the Court held that Carmack applies only to the transport of property for which Carmack requires a receiving carrier to issue a bill of lading, regardless of whether that carrier actually issues a bill of lading.

Applying this principle, the Court held that for Carmack to apply, the carriage of goods must begin with

a receiving rail carrier required to issue a bill of lading. Therefore, Carmack would not apply if the property is received at an overseas location under a through bill of lading that covers the transport into an inland location in the United States. In that case, there is no receiving rail carrier to receive the property for domestic rail transportation, and no rail carrier must issue a bill of lading under Carmack.

Turning to the facts of the case before it, the Court held that because “K” Line was not a receiving rail carrier, Carmack did not require “K” Line to issue a Carmack compliant bill of lading. That “K” Line chose to use rail transport to complete one segment of the journey under its through bill of lading did not put “K” Line within Carmack’s reach and did not require it to issue a Carmack bill of lading. As for Union Pacific, the Court held that it was a mere delivering carrier which did not have to issue its own Carmack bill of lading.

Because no Carmack bill of lading was required to be issued, Carmack’s provisions were not triggered and the through bills of lading were left to stand alone as providing the applicable terms and conditions governing the shipment, including the forum selection clause. Therefore, at the end of the day, the Court did not address and resolve a conflict between Carmack and COGSA bills of lading because it held that Carmack simply was not triggered in this circumstance. Instead, when a shipper issues a through bill of lading for an overseas shipment, COGSA will govern the entire shipment and

Carmack will not be triggered because there is no receiving rail carrier which is required to issue a bill of lading under Carmack.

As the Court observed, the case would be quite different if the bills of lading for overseas transport were not through bills of lading but, instead, ended at American ports and the cargo owners were then required to contract with a rail or motor carrier to complete shipment of the cargo to a destination in the United States under a separate bill of lading. In those circumstances, the rail or motor carrier would be required to issue a separate bill of lading under Carmack, triggering the applicability of Carmack.

Finally, the Court held that interpreting Carmack’s provisions to apply to international import shipping would undermine the purpose of COGSA, which is to facilitate efficient contracting, and contracts or carriage by sea. Noting that the cargo owners had agreed to through bills of lading and had authorized “K” Line to subcontract for the inland segment on any terms whatsoever, the Court held that the cargo owners made the decision to select “K” Line as a single company for their through transportation needs rather than contracting for rail services themselves. Therefore, they were obligated to accept the terms of the bills of lading issued by “K” Line.

Although Regal-Beloit dealt with an inland shipment by a rail carrier, its reasoning would apply equally to shipments which are hauled on the inland leg by a motor carrier. For example, goods which are shipped to the United States under a through bill of lading and which are transported from the port to an inland destination by an intermodal motor carrier would not be subject to Carmack or to contrary state laws, but instead would be governed by the provisions of the through bill of lading for the entire shipment. In these circumstances, cargo owners could face onerous requirements, such as those requiring them to bring suit in Tokyo under Japanese law as was the case in Regal-Beloit.

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We represent both large and small trucking companies as insureds on behalf of numerous national insurance companies and as self-insureds. In addition, the firm has served for many years as outside General Counsel for a nationally recognized commer-cial vehicle insurer and is experienced in all aspects of transportation law including issues involving federal and state statutes and regula-tions promulgated by the former Interstate Commerce Commis-sion (ICC), the successor Surface Transportation Board, the Department of Transportation and the Public Service Commis-sion. As part of the array of transportation services provided to firm clients, an after-hours emergency response team is standing by to service clients with urgent needs following a catastrophic accident.

ATLANTA CHARLOTTE GREENSBORO GREENVILLE RALEIGH WILMINGTON404.962.1000 704.384.2600 336.378.5200 864.242.6440 919.755.8700 910.815.7100

Smith Moore Leatherwood LLP | Attorneys at Law | www.smithmoorelaw.com

Transportation Industry Team