Contingent cargo policies issued to brokers often have a much more limited scope of coverage than brokers or shippers expect. Some brokers believe that if the primary cargo insurer denies coverage or refuses to cover the value of the lost or damaged cargo, its contingent cargo policy will step into fill the void. In reality, the coverage may be much more nuanced and limited. Case in point is a recent decision in the case of MGN Logistics, Inc. v. Travelers Property Casualty Company, et al, No. 16 CV 4301, (N.D. Ill. Aug. 31, 2017). The District Court for the Northern District of Illinois held that the language of a contingent cargo policy validly limited coverage to the “actual limits” of the primary policy. Thus, where a provision in primary cargo policy limited certain thefts to $5,000, the contingent policy also limited the coverage for those thefts to $5,000 even though the policy’s declarations page listed $200,000 in coverage.

In that case, MGN brokered a load of copper wire worth more than $130,000 to a motor carrier insured under a primary cargo policy with a general limit of $250,000. However, the carrier’s cargo policy reduced coverage to $5,000 for certain high value cargo, including copper, if certain security precautions were not taken by the carrier. Those security precautions were allegedly not taken by the carrier, and the copper wire was stolen. MGN paid the shipper for the loss and received an assignment of the claim. It then sought recovery under both the primary and contingent policies.

MGN first submitted a claim to the primary insurer, who offered only $5,000 on the claim in light of the high value theft provisions. MGN rejected the offer and turned to its contingent carrier, Travelers, for full payment under the contingent cargo policy. Travelers rejected the claim

Fa l l

2017

TransporTaTionindusTry news

Bankruptcy Corner: Critical Vendor Orders

The Defend Trade Secrets Act: A New Way to Protect Your Confidential Information

FAST Changes Recommended to the FMCSA’s Safety Measurement System

Mitigating Cyber Risk

Team Directory 7

COuRT AFFIRMS CONTINgeNT CARgO POlICY Limiting Coverage to the Amount Available Under Primary PolicyROB gReeN | rob.green@smithmoorelaw.com

Continued on Page 2

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2 S m i t h M o o r e L e a t h e r w o o d

citing language in the contingent policy that it only covers a loss when the primary insurer declines to cover a loss and that policy pays no more than the “actual limits” of the primary policy. Travelers contended that the “actual limit” of the primary cargo policy was $5,000 because the carrier failed to take the necessary security precautions.

MGN subsequently brought suit to recover the full value of the cargo from Travelers arguing that

the “actual limit” referenced in the contingent policy was the primary policy’s general limit of $250,000. The court took a detailed look at the policy language and applied general principles of policy interpretation. The court held that there was nothing in the policy language to indicate that the phrase “actual limits” was intended to mean the general limit rather than the limit payable under the terms of the primary policy for a given loss. Thus, if the coverage limit was $5,000 under the primary cargo policy based on the

facts of the loss, then the coverage limit for that loss was $5,000 under the contingent policy.

The MGN Logistics case shows the need for a broker to understand what is and is not covered under its contingent cargo policy. This will prevent a potentially expensive surprise when the time comes to submit a claim under the contingent policy. The case also illustrates the broad leeway given to cargo underwriters who add exclusions and limit coverage.

Logistics companies and motor carriers often require key employees to sign confidentiality and non-compete agreements in order to protect the company’s trade secrets. Protection of trade secrets is essential to the operation of a company and can give one entity a competitive edge over others. Trade secrets can be nearly anything, such as a business method or proprietary process, so long as the trade secret derives independent economic value from not being generally known to or readily discoverable by proper means by other persons, and that the trade

secret owner uses reasonable efforts to maintain the information’s secrecy.

Although protection of trade secrets is critical, companies often must make use of a patchwork of state laws that may or may not provide the same level of protection. Remedies vary from state to state, with some allowing for enhanced damages or attorneys’ fees and others not. Companies may be uncertain whether their trade secrets will be protected in one state or another.

Now, however, there is the federal Defend Trade Secrets Act (“DTSA”),

passed as an amendment to the Economic Espionage Act (“EEA”), 18 U.S.C. §§ 1831, et seq., which became effective on May 11, 2016. The DTSA created a federal civil cause of action for trade secret misappropriation, although it does not preempt any state trade secrets acts.

There is little interpretation of the DTSA, and much of its language mirrors that of state trade secrets act. The DTSA allows a trade secret owner to collect actual damages and, if the misappropriation is willful and malicious, a court may award exemplary damages of no more than two times the actual damages awarded, as well as attorneys’ fees.

The DeFeND TRADe SeCReTS ACTA New Way to Protect Your Confidential InformationeMIlY BRIDgeS | emily.bridges@smithmoorelaw.com

To read more go to www.smithmoorelaw.com/TNLTradeSecrets

S m i t h M o o r e L e a t h e r w o o d 3

When a shipper files bankruptcy, it’s generally not good news for a motor carrier. However, motor carriers are often in a unique position that might allow them to do better than fellow creditors from other industries, recovering some or all of the unpaid pre-petition debt, while continuing to do business and get paid on a post-petition basis. Although under a bit more scrutiny since a federal circuit court decision in In re Kmart Corp., 359 F.3d 866 (7th Cir. 2004), the so-called “critical vendor” doctrine is alive and well and regularly used in bankruptcy courts throughout the country.

Upon the filing of a Chapter 11 bankruptcy case, the Debtor continues to operate as a “Debtor-in-Possession.” However, the bankruptcy code puts certain restrictions on the Debtor’s powers, so it is not business as usual. One such restriction is that pre-petition debts (i.e. debts incurred prior to the date of the bankruptcy filing) are not paid until a distribution is made pursuant to a confirmed plan or other court order.

Nevertheless, courts have recognized that sometimes it is necessary for a so-called “critical vendor” to be paid on its pre-petition debt. If a vendor is not paid on pre-petition debt, a vendor may refuse to continue to do business with the Debtor. In some situations, a vendor could be so critical to the Debtor’s operations that it would be difficult or impossible to continue to do business while reorganizing its debts without the vendor. For example, in large retail bankruptcies, motor carriers and others in the shipping industry are critical to getting goods from the warehouse to the retail floor, and without its motor carriers, a retailer won’t be able to stock its shelves.

In these situations, it is possible for the Debtor to file a critical vendor motion requesting that a specific carrier, group of carriers, or just all carriers generally be deemed critical vendors so that the Debtor can pay some or all pre-petition debts in exchange for an agreement from the carrier to continue doing business with the Debtor post-petition, generally required to be on ordinary or standard business and credit terms. If the Court is convinced that the vendor is “critical,” then it will enter a critical vendor order approving the Debtor’s request. Depending on how “critical” a motor carrier may be in the Debtor’s particular circumstance, it may be possible to negotiate specific items into the order, for example, a waiver of preference liability or post-petition security interest or lien.

Of course, doing business with a company in bankruptcy may be a risky proposition.

BANkRuPTCY CORNeR:Critical Vendor OrderskeVIN MCCARRell | kevin.mccarrell@smithmoorelaw.com

GMTA’s 2017 Fall Leadership ConferenceNovember 8-9, Hilton Atlanta/

Marietta Hotel & Conference Center

Matt Stone and Rob Moseley will be presenting at this year’s conference! GMTA’s Leadership Conference is a premier top-to-top event where industry leaders gather to learn practices that enhance their company’s productivity. The owners and executives attend in pursuit of senior-level information and networking opportunities that make the Leadership Conference unlike any other in Georgia.

Learn more here: http://www.gmta.org/?page=FallLeadership17

FDA Releases Training Module for Carriers

Subject to the Sanitary Transportation Rule

The U.S. Food and Drug Administration (FDA) announced the availability of an online food safety training module for carriers engaged in the transportation of food by rail or motor vehicle in the United States. FDA is offering this training free of charge to help carriers meet the requirements of the FDA’s Sanitary Transportation of Human and Animal Food Rule (Sanitary Transportation Rule). For more information, please visit:

https://www.fda.gov/Food/NewsEvents/ConstituentUpdates/

ucm576503.htm To read more go to www.smithmoorelaw.com/TNLBankruptcy

4 S m i t h M o o r e L e a t h e r w o o d

The goal of the FMCSA and the idea behind its Safety Management System (“SMS”) is that through better carrier safety management programs, crashes can be prevented. To this end, the FMCSA collects data on the number and frequency of violations of approximately nine hundred different safety regulations. The violations are broken into six categories known as Behavior Analysis and Safety Improvement Categories (“BASICs”). The regulatory violations are then entered into FMCSA’s Motor Carrier Management Information System (“MCMIS”). A seventh BASIC looks at crashes over the preceding two-year period and assigns weight based upon crash severity and length of time since the crash. The SMS then pulls data directly from the MCMIS. The SMS assigns relative weights to each of the BASICs based upon the relevancy of a type of violation

to the likelihood of a future crash. The SMS also assigns weight to the frequency of violations. The SMS attempts to group similar carriers together into peer groups, which is largely done by size and type of operations. Within each peer group, the BASICs for each carrier are ranked from low to high, and each carrier is assigned a percentile rank. A high BASIC percentile is less desirable than a lower score within the same peer group. The FMCSA has set thresholds within each BASIC group, that when surpassed, can flag a carrier for further action. The overall goal of the system was to allow the FMCSA to prioritize its enforcement resources toward those carriers the system identified.

Because of the importance of SMS percentiles on a carrier’s operations, many in the industry voiced concerns about how the SMS functions. Hearing

these concerns, Congress enacted Sections 5221 and 5223 of the Fixing America’s Surface Transportation (FAST) Act. The FAST Act requires the FMCSA to remove the score from public view and to commission a study to investigate the SMS to evaluate the accuracy and sufficiency of the SMS and to assess whether alternatives would be more effective in identifying high-risk carriers.

The FMCSA commissioned the National Academy of Sciences (“NAS”) to conduct the study. On June 27, 2017, NAS issued a report detailing its findings. Though the study concluded the SMS was not a wholesale analytical catastrophe, NAS determined the program is not based upon a scientific approach. NAS recommended the following improvements:

To read more go to www.smithmoorelaw.com/TNLFAST

FAST ChANgeS ReCOMMeNDeD TO The FMCSA’S SAFeTY MeASuReMeNT SYSTeMROCkY ROgeRS | rocky.rogers@smithmoorelaw.com

S m i t h M o o r e L e a t h e r w o o d 5

When resolving claims with pro se claimants, a recent North Carolina Court of Appeals opinion, Nash Hospitals, Inc. v. State Farm Mutual Auto. Ins. Co., No. COA16-532, 2017 WL 3254961 (N.C. Ct. App., Aug. 1, 2017), has added a new twist. It is common practice to place the burden on the recipient of a personal injury settlement to ensure that any all medical liens are satisfied or, in the alternative, to issue a joint settlement check made payable to the claimant and health care provider. Now, however, payors are saddled with the responsibility of ensuring the direct payment of outstanding medical liens or face potential exposure for failing to do so.

Nash Hospitals arises out of a settlement with a pro se personal injury plaintiff, a $757 hospital bill, and a settlement check made payable jointly to the plaintiff and two of her medical providers. Id. at 1.

Cybersecurity continues to dominate news headlines and permeates all aspects of society; the transportation industry is no exception. Businesses are adapting to this new reality by shoring up technology and educating employees regarding best practices and risks associated with an online presence. While necessary, these steps do not insulate a business from all cyber risks. In today’s interconnected society, data is no longer confined to the traditional brick and mortar perimeter of a business. As businesses adapt to this new reality, they often outsource their data management to third parties, potentially putting that data at risk.

The transportation industry is data intensive, and information traditionally maintained on paper is increasingly transitioning to digital conduits. Transportation management systems, ELDs, AOBRs, and in-cab cameras are only a few of the new services relied on by the industry; these services

are often provided and maintained by third parties. In addition, the maintenance of sensitive employee and business data, as well as the wide range of documents required by the Federal Motor Carrier Safety Regulations, is being maintained electronically. In the past, it was commonplace to manage such data in-house; however, as businesses grow and the amounts of data generated increase, maintaining data in-house is no longer feasible or cost effective. Businesses are turning to the convenience and cost effectiveness of third-party service providers to store and manage their data. Placing your business’s data in the hands of a third party does not, however, ensure that your data is safe or that your business will be adequately protected should something run a foul. A business’s electronic data is quickly becoming its most valuable asset—an asset worth protecting.

Third-Party Service Provider Contract Considerations for the Transportation Industry

On Monday, September 18, SML’s own Joseph Rohe and Stephanie Flynn, along with five other climbers, successfully summited Uhuru Peak of Mount Kilimanjaro in Tanzania. Kilimanjaro is the tallest free-standing mountain in the world, topping

out at 19,341 feet above mean sea level (AMSL), and is one of the “Seven Summits”—the tallest mountains on each of the seven continents. Starting at approximately 7,500 feet,

the ascent took seven days and included a summit bid via the steep and rocky Western Breach. Battling fatigue, single digit temperatures and the significant effects of altitude, the team spent their last night camping at 18,700 feet before beginning their summit attempt prior to daybreak. At 6:10 a.m. local time, just as the sun began to rise over the roof of Africa, the team reached the 19,341 foot Uhuru Peak amid tears, cheers and a few frozen fingers and toes! After spending approximately twenty minutes congratulating one another and taking photos, the team began their two day descent down the mountain with little else on their minds other than the hot showers awaiting them back in civilization. Congrats, Joseph and Stephanie, on a feat few can say they’ve accomplished!

MITIgATINg The CYBeR RISk

MARC TuCkeR | marc.tucker@smithmoorelaw.com

To read more go to www.smithmoorelaw.com/TNLCyberRisk

To read more go to www.smithmoorelaw.com/TNLSettlement

Settlement of Claims, Satisfaction of Medical liens, and a New Twist in North CarolinaMARC TuCkeR marc.tucker@smithmoorelaw.com

Joseph Rohe and Stephanie Flynn Climb Mount kilimanjaro

S m i t h M o o r e L e a t h e r w o o d 6

T H e r o a d a H e a d

On July 11, the Transportation Team presented a webinar on ELDs and how to manage the transition. Rob Moseley led the discussion. Kurt Rozelsky was supposed to moderate, but he bailed. You may listen to the archived version at http://ow.ly/l7Zy30ftnZ0

Jack Riordan attended the SC Defense Trial Attorneys’ Association Summer Meeting in Asheville, NC, on July 14–16. Jack is on the Board of Directors and was immediate past Chair of the Summer Meeting.

Marc Tucker and Rob Moseley attended the NC Trucking Association Annual Conference in Asheville, NC, on July 16-18. Marc was reelected to the Board of Directors. Rob gave a presentation to the group on the new era of truck accident litigation.

Fredric Marcinak filled in for Rob Moseley as the guest speaker at the Appalachian Hardwood Manufacturers meeting in Asheville, NC on July 24. Fred presented on issues affecting the members relating to transportation.

Kurt Rozelsky attended the Federation of Defense and Corporate Counsel meeting on July 24-29 in Montreux, Switzerland. Despite standing orders of Customs and Border Patrol, they let him back into the country.

The Annual Meeting of the American College of Transportation Attorneys was held at the Orlando Airport Hyatt on August 17–18. This meeting marked the end of Rob Moseley’s term as Chair of the organization.

Rob Moseley was the luncheon speaker for the Arkansas Trucking Conference held in Rogers, Arkansas on September 13–14. Rob discussed the latest developments in broker liability. Rocky Rogers and Matt Stone attended the meeting and made excuses for Rob’s hair.

Matt Stone presented at the CLM Claims College School of Transportation in Baltimore, MD on September 6-9.

Rob Moseley discussed truck underwriting concerns at the Sentry Agents Conference on September 13–14 in Stevens Point, WI.

The firm hosted a webinar on September 19 relating to the Labor and Employment Landscape under the Trump Administration. Alex Maultsby and Emily Bridges led the presentation. This is available on archives at http://ow.ly/t5s530ftnU7

Rob Moseley discussed truck accident litigation at the Kentucky Trucking Association meeting at the Belterra Casino and Resort in Florence, IN, on September 20–22.

Fredric Marcinak and Matt Stone were on a panel with industry experts at the Specialized Carriers & Rigging Association annual workshop in Kansas City, MO, on September 20–22.

Marc Tucker was a panel member for the telematics discussion at the NCTA Safety and Human Resources Annual Conference in Myrtle Beach, SC, on September 30th.

M a k i n g T r a c k s

Rob Moseley will discuss litigation and regulatory trends at the Marsh Fleet Solutions Risk Control Workshop in Jupiter on October 3-4—Jupiter, FL that is. Although there is no limit to where Rob will go to speak to trucking groups, he has no plans to leave the Earth’s atmosphere.

Rob Moseley joins our friend Tommy Ruke at the Motor Carrier Insurance Educational Foundation Annual Conference in Orlando, FL on October 5-6. Rob will update the group on accident litigation, coverage issues, and regulatory changes.

Rob Moseley will present at the SCTA Board Retreat October 9–10 in Columbia, SC.

Rob Moseley will be a panelist at the SCTA ELD Workshop in Columbia, SC, on October 18.

On October 22–25, Rob Moseley will be back in Orlando, FL at the American Trucking Association’s Management Conference and Exhibition. Rob will be presenting on accident litigation to the National Accounting and Finance Council.

On October 25–27, Kurt Rozelsky and Matt Stone will attend TIDA in Las Vegas, NV.

Jack Riordan will attend the 50th Anniversary Annual Meeting for the SCDTAA at Sea Island, GA on November 9-12. Jack presently serves on the Board of Directors and was the originating Chairman of the Trucking Substantive Law Committee.

On November 8–9, Matt Stone will be in charge of the mock trial at the Georgia Motor Trucking Association’s Fall Leadership Conference in Marietta, GA. Rob Moseley will also speak at this conference.

Fredric Marcinak and Rob Moseley will attend the ATA Safety and HR Conference in Memphis, TN on November 14-16. Fredric will provide a cargo claims update and Rob will discuss broker liability.

Thinking further down the road: Rob Moseley will present his contract and freight claims full day seminar as part of the SMC3 Jump Start in Atlanta, GA, on January 22. To register, go to http://www.smc3jumpstart.com/

e R I k A l B R I g h TGreensboro, NC | 336.378.5368 erik.albright@smithmoorelaw.com

R O B M O S e l e Y* T E A M L E A D E R *Greenville, SC | 864.751.7643rob.moseley@smithmoorelaw.com

TeaM DirecTory

M I k e B O W e R S Charleston, SC | 843.300.6633mike.bowers@smithmoorelaw.com

e M I lY B R I D g e SGreenville, SC | 864.751.7618emily.bridges@smithmoorelaw.com

R I C k C O u g h l I NGreensboro, NC | 336.378.5471rick.coughlin@smithmoorelaw.com

J AY h O l l A N DWilmington, NC | 910.815.7165jay.holland@smithmoorelaw.com

R O B g R e e NGreenville, SC | 864.751.7617robert.green@smithmoorelaw.com

J e S S e e l I S O NAtlanta, GA | 404.962.1024jesse.elison@smithmoorelaw.com

J u l I e e A R PGreensboro, NC | 336.378.5256julie.earp@smithmoorelaw.com

M e g A N e A R lY- S O P PAGreenville, SC | 864.751.7627megan.early@smithmoorelaw.com

F R e D R I C M A R C I N A kGreenville, SC | 864.751.7691fredric.marcinak@smithmoorelaw.com

A l e x M A u lT S B YGreensboro, NC | 336.378.5331 alex.maultsby@smithmoorelaw.com

B e N N e T T C R I T e SCharleston, SC | 843.300.6653bennett.crites@smithmoorelaw.com

S h AW N k A l F u SAtlanta, GA | 404.962.1042shawn.kalfus@smithmoorelaw.com

D AV I D l I NAtlanta, GA | 404.962.1041david.lin@smithmoorelaw.com

k e V I N M C C A R R e l lGreenville, SC | 864.751.7652kevin.mccarrell@smithmoorelaw.com

B O B P e R S O N SAtlanta, GA | 404.962.1075bob.persons@smithmoorelaw.com

k R I S T e N N O WA C k IGreenville, SC | 864.751.7753kristen.nowacki@smithmoorelaw.com

M A RY R A M S AYCharleston, SC | 843.300.6659mary.ramsay@smithmoorelaw.com

PAT T I R A M S e u RGreensboro, NC | 336.378.5304patti.ramseur@smithmoorelaw.com

J O S e P h R O h eGreenville, SC | 864.751.7668joseph.rohe@smithmoorelaw.com

R O C k Y R O g e R SGreenville, SC | 864.751.7610rocky.rogers@smithmoorelaw.com

J O h N R e I SCharlotte, NC | 704.384.2693john.reis@smithmoorelaw.com

J A C k R I O R D A NGreenville, SC | 864.751.7638jack.riordan@smithmoorelaw.com

k u R T R O z e l S k YGreenville, SC | 864.751.7624kurt.rozelsky@smithmoorelaw.com

M AT T S T O N e Atlanta, GA | 404.962.1057matt.stone@smithmoorelaw.com

M A R C T u C k e RRaleigh, NC | 919.755.8713marc.tucker@smithmoorelaw.com

Welcome David lin and Jesse elison!

David joined our Atlanta office in early September from a regional insurance defense firm. He is a graduate of Kennesaw State University and Emory University School of Law and was admitted to the State Bar of Georgia in 2013.

Jesse joined our Atlanta office in late September from a cargo and freight carrier where he served as General Counsel. He is a graduate of Brigham Young University and the University of Oregon School of Law.

We are excited to welcome them to the Transportation team and SML family!

S m i t h M o o r e L e a t h e r w o o d 8

Smith Moore Leatherwood LLPAttorneys at Law 2 West Washington StreetSuite 1100Greenville, SC 29601

T 864.751.7600F 864.751.7800www.smithmoorelaw.com

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

emergency response Team

g O g R e e NSign up to recieve the digital version of the Transporation Industry Newsletter today!

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