Transportation Industry newsletter

®
Spring 2010
Inside This Issue:
The ISO Discontinues Support for
Truckers’ Policy in Favor of More
Modern Motor Carrier Policy.
What Does That Mean to Me?......2
Wow! EEOC Slapped with
Attorney’s Fees Incurred by
Trucking Company......................2
Protecting a Truck Insurer
from an Insured’s Potential
Bankruptcy: Letter of Credit as
Collateral...................................3
Team Updates............................5
Female Truck Driver Has
Title VII Claims Dismissed
Following Termination For
Failure to Report Mistake and
File Incident Report....................6
He’s Not My Employee! Or Is He?
Analyzing your Independent
Contractor Arrangements..........7
New Deadline and User Guide:
Medicare Section 111
Reporting ..................................7
Transportation Industry Newsletter
FMCSA Banned Texting by Commercial
Motor Vehicle Drivers... Or Did It?
On January 26, the U.S. Transportation Secretary
Ray LaHood announced a federal guidance
prohibiting texting by commercial motor vehicle
drivers. This prohibition is effective immediately.
However, there wasn’t an existing regulation
upon which the FMCSA could attach a guidance,
and so it appears that the guidance violates the
Administrative Procedures Act and the notice that
must be given before enacting new regulations.
?
The public relations purposes behind the
announcement had the desired affect, and the message
from the Obama administration was clear, even if not enforceable.
The guidance provides civil or criminal penalties of up to $2,750.00.
The regulatory guidance was assigned to 49 C.F.R. 390. The FMCSA
takes the position that this guidance is appropriately “tagged on” to
49 C.F.R. 390.17 which is a catch all regulation stating, “nothing in
this subchapter shall be construed to prohibit the use of additional
equipment and accessories, not inconsistent with or prohibited
by this subchapter, provided such equipment and accessories
do not decrease the safety of operation of the commercial motor
vehicles on which they are used”. The regulation defines texting as
the reading or preparation and transmission of a typed message
through any electronic device. The guidance does not prohibit the
use of cellular phones for oral communication nor does it prohibit
the use of other technology such as dispatching tools and GPS. The
FMCSA will issue rule making to define which electronic devices are
acceptable and which are prohibited.
Law enforcement immediately expressed confusion over the legality
and scope of the guidance. Several law enforcement agencies also
announced that they would not be enforcing the guidance until such
time as formal rule making had occurred. Will this be another hours
of service saga dragging on for our grandchildren to figure out?
The ISO Discontinues Support for Truckers’ Policy
in Favor of More Modern Motor Carrier Policy
What Does That Mean to Me?
The overwhelming majority of insurance policies
covering motor truck liability are designed and supported
by the Insurance Services Office, or ISO. Currently,
there are three forms on the market for commercial auto
risks:
1.
Business/Auto;
2.
Truckers;
3.
Motor Carrier.
Beginning in June, 2010, the ISO will no longer support
the Truckers’ policy. The Motor Carrier policy brings
some changes that need to be addressed by every
trucking company.
The Truckers’ policy has always been based on motor
carrier authority as provided through state and federal
agencies. For example, the Truckers’ policy references
vehicles “being used pursuant to operating rights
granted to you by a public authority”.
The Motor Carrier policy, on the other hand, is based
primarily on contract language. Therefore, we are
moving from a system primarily based on things like
“whose name is on the bill of lading?” and “whose name
is on the side of the truck?” to a detailed analysis of the
contracts in place between the parties. That change is
most noticeable in two areas. First, in the “who is an
insured” section of a Motor Carrier policy, lessors leased
to the motor carrier are covered if the lease agreement
does not require the lessor to hold the insured harmless
as long as the vehicle is used in the scope of the insured’s
business as a motor carrier for hire. Thus, because most
independent contractor lease agreements require the
independent contractor to indemnify and hold harmless
the motor carrier, the vehicle owner would likely not be
insured under the motor carrier policy unless the owner
is the driver. This is a big change from the historical
system for insuring independent contractors through
the motor carrier. Thus, the owner of the leased vehicle
may be left out of the risk management plan.
Another area where this change is going to be evident
is in the “other insurance” section. The Truckers’ policy
historically provided that coverage for a tractor was
primary and the coverage for an attached trailer was
excess. With the Motor Carrier form, when an auto is
hired or borrowed by another motor carrier, the Motor
Carrier policy is primary if there is a written agreement
between the named insured and the lessee if the lease
requires the named insured to hold the lessee harmless.
On the other hand, if the lease does not require the
insured to hold the lessee harmless, the lessor’s
insurance is excess.
From these developments it is apparent there will
be a greater emphasis placed on written contracts
and “formalities” in arrangements between trucking
companies and independent contractors. One thing is
sure: the lawyers will have plenty to do until some of
these questions are resolved.
Wow! EEOC Slapped with Attorney’s Fees Incurred by Trucking Company
The norm in federal employment litigation is that management has to worry, not only about losing the case, but also
about having to pay the attorneys’ fees to employee litigants. But in an interesting turnabout, a federal judge in Iowa has
ordered the EEOC, which was suing a transportation company on behalf of a group of employees to pay more than $4.5
million dollars in attorneys’ fees.
Under what’s referred to as the “American system,” the norm in litigation is for each side to pay its own attorneys’ fees,
unless there’s a statute or contract that shifts that burden to the losing party. A number of federal and state statutes
do contain attorneys’ fees provisions, however, and Title VII of the Civil Rights Act of 1964---the statute involved in this
case----awards fees and costs to the prevailing party. Still attorneys’ fees awards are mostly enforced for successful
employee/plaintiffs.
This time, though, the tables were turned. The EEOC brought the case against CRST Van Expedited, Inc on behalf of
270 women employees, claiming that they had been sexually harassed. The agency presented something of a moving
target in terms of who was in the class of plaintiffs and what their claims were. In the end, the EEOC made only 150 of
those women available for pretrial depositions to attorneys for CRST.
In August 2009, Judge Linda Reade dismissed those claims as well as the claims of the remaining women. As to those
67 women, the court found that “the EEOC abandoned its statutory duties….” This week the court also concluded that
as the prevailing party, CRST was entitled to attorneys fees and analyzed its list of costs. That list of costs was pretty
2
hefty, including costs and legal fees for both Jenner & Block, CRST’s national counsel, and its local counsel Simmons
Perrine Moyer & Bergman. The lead partner for Jenner & Block, for example, charges $825 an hour. So no complaining
from the SML clients reading this!
That was a bit much for the court, however, and Judge Reade awarded fees based on the local rate established by the
local law firm. Still, given the highly unusual step of requiring a public agency to spend $4.5 million dollars in attorneys’ fees, somebody at CRST has to be pretty happy. Not so much the EEOC and big government.
Protecting a Truck Insurer from an
Insured’s Potential Bankruptcy:
Letter of Credit as Collateral
Too often in today’s economy, insurers
are getting the short-end of the stick
when the motor carriers they insure
file bankruptcy.
By the time the
insured files bankruptcy – or possibly
even before any financial problems
arise – it is generally too late to protect
your company from the effects of the
insured’s bankruptcy.
Therefore,
safeguards must be put in place
beforehand in order to insulate an
insurer from bankruptcy’s often harsh
consequences, including harmful
effects on an insurer’s collateral.
Truck insurers, especially those
involved with “fronting policies,”
captives, or high dollar deductibles
necessarily insist on collateral to
secure the insured’s obligations.
This collateral can be found in
several forms, including equipment,
cash, or a letter of credit. A recent
opinion issued in S-Tran Holdings,
Inc. v. Protective Ins. Co., Delaware
Bankruptcy Court, Adversary No. 0751341, 2009 WL 3185771 (Del. 2009),
suggests that one potential safeguard
against bankruptcy is to require a
standby letter of credit as collateral
from the insured.
What is a standby letter of credit?
A standby letter of credit is essentially
a guarantee of payment by the
shipper’s bank. Insurer’s customer,
Motor Carrier, must go to its bank and
apply for a standby letter of credit.
Upon approval of Motor Carrier’s
application, Motor Carrier’s bank then
sends the letter of credit to Insurer
as collateral for Motor Carrier’s
obligations under the insurance policy.
Upon the occurrence of a default of
Motor Carrier, Insurer may contact
Motor Carrier’s bank to “draw down”
on the letter of credit for cash.
Why is a letter of credit better
than any other collateral? Motor
Carriers might prefer to put up
cash, equipment, or other property
as collateral. However, from the
Insurer’s perspective, a letter of
credit might be preferred because
it lacks all of the issues associated
with liquidation of equipment (e.g.
valuation, finding a buyer, etc.); a
letter of credit is much more easily
convertible to cash than would
be equipment or other tangible
property. Of course, if liquidity is the
primary concern, why not have Motor
Carrier simply put up a cash deposit
as collateral?
S-Tran Holdings
demonstrates why.
In S-Tran Holdings, the bankrupt
debtors were related entities, S-Tran
Holdings, Service Transport, Inc.,
and Dixie Trucking Company, Inc.
(collectively “Service Transport”),
which were primarily motor carriers.
Prior to the bankruptcy, as a condition
for
issuing
various
insurance
policies,
Service
Transport’s
insurance company had required
it to put up two forms of collateral:
(i) a cash deposit and (ii) a letter
of credit. When Service Transport
allegedly
defaulted
under
the
agreements, the insurance company
drew on the letter of credit and held
the proceeds. Once the bankruptcy
was filed, Service Transport sued the
insurance company for turnover of
the proceeds of the letter of credit,
as well as breach of contract. The
turnover claim, in other words, meant
that Service Transport wanted to
require the insurance company to
give the letter of credit proceeds
back to the bankruptcy estate so that
a determination could be made as
to how the letter of credit proceeds
should be distributed. The Court
held, in part, in favor of the insurance
company, determining that the letter
of credit and the proceeds therefrom
are not part of the bankruptcy estate.
On the other hand, the cash deposit
was part of the bankruptcy estate,
and therefore, subject to turnover.
How does all of this apply to you
as a Truck Insurer? In the example
laid out above, if Motor Carrier is
in bankruptcy and disputes monies
owed to Insurer under the policy, then
depending on the collateral, Motor
Carrier (or its trustee) may have a
right to control the collateral (i.e. the
“stake’) during the litigation. If the
collateral is cash, equipment, or other
types of property, then Motor Carrier
(or its trustee) will likely control the
stake throughout the course of the
litigation. However, if the collateral is
proceeds from a letter of credit, then
such proceeds are not property of the
estate, and Insurer would likely have
the right to hold the stake during the
course of litigation. As an example,
the S-Tran Holdings adversary case
has been ongoing for over two and a
half (2½) years, and is still ongoing.
The party that is entitled to hold the
stake throughout such a period would
certainly have an advantage.
Therefore, if you are an insurer determining what you will require as
collateral in order to issue a policy,
consider a letter of credit rather than
cash or other collateral. If the insured
later files bankruptcy, you just might
be glad that you did.
3
You Heard It Here, First
Announcing the formation of the American College of Transportation Attorneys. ACTA is a
non-profit association consisting of not more than 25 transportation defense lawyers who have
joined together for the purpose of serving as a confidential resource to the trucking industry.
ACTA functions include:
1) In depth analysis of issues affecting the truck industry and periodic preparation of white
papers for distribution to select truck industry professionals and in house legal counsel.
2) One day round table forums aimed at facilitating discussions of trucking legal issues.
3) Respond to immediate industry issues by email or telephone conference.
4) Work with motor carriers to address regulatory issues and serve as a legal resource to
improve Federal Motor Carrier Safety Regulations.
Our own Rob Moseley was selected as a member, and was promptly elected Treasurer. Don’t
they know how cheap he is? Refreshments at the first meeting will be boiled peanuts.
The SML Transportation Team
Collect
ll!
Them A
4
The Road Ahead
•
James Faucher (Greensboro), Fredric Marcinak and Rob Moseley (Greenville), will be attending the annual
TLA conference in Hilton Head at the end of April. Rob is on the meeting committee and will be moderating a
panel on the challenges facing the trucking industry.
•
Rob will take part in Truck Golf Town, March 29 in Myrtle Beach, SC. (“Take part” is a good way to describe it
as Rob’s game isn’t considered “playing.”)
•
Kurt Rozelsky (Greenville) is scheduled to speak on “Cell Phones, Texting and Other Perils of Distracted
Driving” at up-coming Transportation Training Sessions in Atlanta, GA and Dallas, TX in the month of April.
•
Rob will lead the one-day seminar on Transportation Contracts in Dallas on March 24. This seminar will be
presented by SMC3. Use registration code, “Speaker” when signing up online to save $150: http://www.
smc3.com/seminars/CL/Mar2010/overview.asp?utm_id=652
•
Jack Riordan (Greenville) will be attending Truckfest, sponsored by the SCTA on March 17
•
Rob will be speaking at an SCTA seminar on independent contractors. Stay tuned to sctrucking.org for more
details.
•
Rob will be presenting on cargo claims at the TIDA cargo seminar in Memphis on May 12.
•
Rob and the rest of the Moseleys (“Rob & Robin Plus Seven” sounds like a reality show for sure) will be
attending the SCTA Annual Meeting at Wild Dunes, near Charleston, SC. Do they have room for the bus at
Wild Dunes?
Making Tracks
•
Members of the SML Transportation team recently attended a DRI Trucking Seminar in which Rob Moseley
was a speaker on Advanced Trucking Insurance Issues and Kurt Rozelsky, DRI Trucking Committee ViceChair, was actively involved in the planning and production of the seminar that was attended by over 600
trucking attorneys and risk managers. Erik Albright (Greensboro), Rob Moseley and Kurt Rozelsky also
attended several panel counsel meetings for existing clients.
•
Kurt Rozelsky recently participated in the FDCC Transportation Section session at the 2010 Winter Meeting of
the Federation of Defense and Corporate Counsel. The FDCC is an 1,100 member, invitation-only international
association of attorneys committed to promoting knowledge, fellowship, professionalism, in the pursuit of a
balanced justice system and representation of those in need of a defense in civil lawsuits. Kurt is currently
serving as Vice-Chair of the Transportation Section. Steve Farrar (Greenville), a member of the Board of
Directors of the FDCC, and Manning Connors (Greensboro), also attended the Winter Meeting in Orlando, FL.
•
Rob testified on behalf of a tort reform bill for the Civil Justice Coalition, which includes the SC Trucking
Association, at a Senate Judiciary Committee Hearing.
•
Jason Pfister (Raleigh) and Rob Moseley attended the Conference of Freight Counsel in Austin, TX on Jan.
10-11. This meeting was just after Alabama’s win over Texas. The trail of tears led to Austin. The host hotel,
the Driscoll, was so classy it had it’s finest meeting room named “The Citadel!”
•
Tynetra Evans (Greenville), Marc Tucker (Raleigh), and Rob Moseley attended the Chicago Regional
Conference of the Transportation Lawyers Association in Chicago on Jan. 22. Rob presented on a panel
dealing with attacking “industry experts” and other litigation techniques.
•
Marc Tucker and Jason Pfister recently spoke on the topic of Depositions, Documents, and Drivers, at the
North Carolina Trucking Association, Safety Council Down East Chapter meeting on February 4th.
•
Rob Moseley taught a session on insurance coverages at the Greenville Bar Association annual CLE on
February 12. Firm Associate Zandra Johnson roped him into it - really hard to get Rob to speak, isn’t it!
5
Female Truck Driver Has Title VII Claims
Dismissed Following Termination For Failure to
Report Mistake and File Incident Report
The United States District Court
for the Northern District of Iowa,
in Myers v. Croell Redi-Mix Inc., No.
6:08-cv-02043 (N.D. Iowa December
4, 2009), dismissed a female truck
driver’s Title VII claims after she
was fired for failing to report a
mistake and file an incident report
as required by company policy.
The defendant hired the plaintiff
as a “powder hauler” in 1995. As
part of her job duties, the plaintiff
drove a tractor-trailer picking
up cement powder and fly ash
and delivering those materials to
Croell’s production facilities in Iowa.
Excessive fly ash in the cement
mixture can impede the setting
process for cement. On November
28, 2006, the plaintiff delivered
a load of fly ash to one of Croell’s
production plants and mistakenly
hooked her unloading pipe to the
cement silo pipe. The plaintiff then
blew fly ash into the cement silo for
approximately four minutes before
realizing her mistake. She admitted
that company policy required her
to report such mistakes to her
supervisor and to assist in filling out
an incident report.
The plaintiff could not locate
the plant manager or any other
employee. She then returned
to her home production facility
and reported the mistake to her
immediate supervisor there. Her
supervisor then attempted to
call the production facility where
the mistake was made but was
unable to reach anyone.
It was
later discovered that the fly ash
mistakenly added to the cement
silo pipe was used on a Croell
customer’s project. When the
cement failed to set, the customer
complained, forcing Croell to
replace the concrete at a loss
of $6,600.00 and jeopardizing a
million-dollar contract.
6
On December 1, 2006, Croell Vice
President Harlan Taylor fired the
plaintiff after she indicated that
she did not report her mistake. The
plaintiff then filed suit alleging that
the company’s asserted reason
for firing her – failure to report the
mistake and failure to assist in filing
an incident report – was a pretext
for unlawful sex bias.
The District Court granted summary
judgment to the defendant on the
claim of sex discrimination because
the plaintiff failed to show that
similarly situated male employees
accused of similar misconduct
received more lenient treatment,
such as failing to report a mistake
but remaining employed by Croell.
In addition, the District Court
granted summary judgment to
the defendant on the claim of
sexual harassment. While the
plaintiff previously filed a formal
internal complaint in 2003 alleging
harassment by a fellow employee,
Croell immediately investigated that
incident and largely succeeded in
keeping the plaintiff and the alleged
harasser
separated.
Following
the formal complaint in 2003,
the plaintiff alleged that she was
the subject of other less obvious
harassment,
including
name
calling. The District Court found
that the response by Croell was
more than adequate and the less
obvious harassment did not rise
to the level of “sufficiently severe
or pervasive” to interfere with her
work performance.
In addition, because the plaintiff
filed her formal internal complaint in
2003 and because she never again
complained to company officials
about any other harassment, the
District Court found that the three
year gap between her filing of a
formal internal complaint and her
termination was too extensive to
allow her retaliation claim to go
forward. Finally, the plaintiff could
not produce any evidence that
Croell assigned her trucks and
trailers with numerous mechanical
issues and that she was offered less
hours then similarly situated male
employees. Thus, the District Court
dismissed her disparate treatment
claim as well.
While the outcome of this case
is not surprising, it provides yet
another example of the importance
of maintaining, implementing, and
following a sexual harassment/
discrimination complaint procedure.
Here, Croell promptly responded
to the plaintiff’s complaint of
harassment in 2003 and took steps
to prevent any further harassment.
In addition, Croell maintained
accurate records regarding the
equipment that all employees were
assigned as well as the number of
hours that all employees worked, in
order to defeat the plaintiff’s claims
of sex discrimination and disparate
treatment.
As employment litigation continues
to increase, employers must
maintain accurate personnel files
of each employee; document all
complaints of harassment; and
discipline, when appropriate, all
employees in an equal fashion for
the same or similar offense.
He’s Not My
Employee! Or Is He?
Analyzing your Independent
Contractor Arrangements
Engaging
an
independent
contractor instead of hiring an
employee can save costs, if done
right. It can also multiply costs if
done wrong.
Misclassifying an employee as an
independent contractor can cause
a host of liability issues–back
overtime pay, federal and state taxes,
FICA contributions, penalties from
the IRS, and exposure for workers’
compensation, unemployment, and
federal discrimination claims.
From time to time, courts give
employers
pointed
reminders
that simply calling someone an
“independent contractor” does not
make it so.
In January, the North Carolina Court
of Appeals considered the situation
of a trucking company that leased a
truck to a third party and contracted
with a driver to run the third party’s
trucking routes. The driver had to
qualify with the third party under its
driver training program, including
its physical fitness test and its
rules and regulations. As the court
found, the third party had “exclusive
control, possession, and use” over
the company’s truck and directed
where and when the driver would
make runs. The trucking company
arranged with the driver to pay him
a flat fee per mile based on the job
assigned by the third party.
The court, however, found sufficient
control by the trucking company
to make the driver its employee
instead
of
its
independent
contractor.
It could refuse an
assignment from the third party
(although the court did not find it
ever did so). It required the driver
to report the truck’s condition and
to bring the truck in for repairs. It
held the accident insurance policy
for his driving. It paid for his gas.
Ultimately, it had a right to end the
relationship with the driver.
the trucking company employed
the driver, owed him workers’
compensation coverage, and was
responsible for benefits owed to
him following an accident–proving
that improper classification as a
contractor can be costly.
The IRS plans to audit at random
2,000 companies for each of the
next 3 years, beginning in February
2010 - to determine compliance
with workers classifications and
employment tax rules. Carefully
analyze
your
independent
contractor arrangements, paying
particular attention to your right to
control his or her actions.
On this basis, the court found
Medicare Section 111 Reporting:
Medicare Section 111 Reporting
can be frustrating and complicated...
...or surprisingly simple.
Section 111 Medical Payments by Liability Entities
SML Compliance Solutions LLC
www.smlcompliance.com | (336) 574-5099
Extended Deadline and
a New User Guide
CMS has pushed back the date for first production
of Non-Group Health Plan (NGHP) Input Files
from April 1, 2010 to January 1, 2011.
NGHP
data exchange testing is to continue during 2010
and all Responsible Reporting Entities (RREs)
should be registered with the Coordination of
Benefits Contractor and testing, or preparing for
file testing status. The data exchange testing is to
be completed by December 31, 2010 for all NGHP
files. Also, there is now an updated Section 111
NGHP User Guide that can be found at: http://www.
smlcompliance.com/NGHPUserGuideV3022210.
pdf
Settlement
payments
made
to
Medicare
beneficiaries are required to be reported to the
Centers for Medicare & Medicaid (CMS) and
failure to report these payments will result in the
assessment of a penalty of $1000 per day per
claim. “Section 111” applies directly to all self–
insured entities, liability insurers, No-Fault insurers,
and Workers Compensation insurers.
7
More than 180 attorneys offering creative legal solutions
throughout the Southeast and beyond.
Transportation Industry Team
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 commercial vehicle insurer and is experienced in all aspects of transportation
law including issues involving federal and state statutes and regulations promulgated by the former Interstate Commerce Commission (ICC), the successor Surface Transportation Board, the
Department of Transportation and the Public Service Commission. 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.
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Smith Moore Leatherwood LLP | Attorneys at Law | www.smithmoorelaw.com
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919.755.8700
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Smith Moore Leatherwood LLP
Attorneys at Law
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T: (864) 242-6440
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www.smithmoorelaw.com
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