Coverage for motor cargo “in transit” may apply whiletrailer is parked
A cargo company in Tennessee arranged to have an independenttrucking company transport freight for it. The trucking companyagreed to indemnify the cargo company for any loss, damage or delayto the freight transported. To cover this obligation, the truckingcompany bought a motor truck cargo liability insurance policy,which insured property while in “due course of transit.”
While transporting a shipment of tires for the cargo company, adriver for the trucking company parked the trailer portion of thetractor-trailer behind a shopping center and left it overnight.According to the cargo company, the tractor portion of thetractor-trailer rig had experienced mechanical difficulties andneeded to be repaired. When the driver returned the next day, thetrailer and tire shipment were gone; apparently the goods werestolen overnight.
The trucking company submitted a claim for the theft, which thecargo carrier denied. The cargo company paid the owner of thestolen tires $35,700, then sued the trucking company and itsinsurer for breach of contract. The insurer said there was nocoverage because, among other things, the trailer was parked at thetime of loss and thus not “in the course of transit.” Followingdiscovery, the cargo company filed a motion for summary judgment,and the insurer responded with a cross-motion for summaryjudgment.
The trial court said that “in transit” would imply that goods wouldbe picked up at a given place and hauled to a designateddestination. “That would certainly indicate that the expectation isnot that a load of cargo in a trailer is going to be left in apublic parking lot,” the court said, adding that the expectation“is almost like a bailment,” in which the goods either would be intransit or in a “secured location.” The court said “in transit”would not appear to include “a stop-off where you simply leave (thegoods) and go about doing other business, which is apparently whatoccurred in this case, even though it may have been the business ofthe truck.” Consequently, the trial court granted summary judgmentto the insurer and denied it to the cargo company. Itappealed.
The appeal centered on the definition of “in due course oftransit.” While the appeals court had not considered that precisephrase before, in Williams v. Berube & Assocs. [26 S.W.3d640 (Tenn. Ct. App. 2000)], it had discussed the term “intransit” within the meaning of a similar cargo policy. In Williams,the plaintiff transported merchandise to trade shows by truck andtrailer. After a trade show, the plaintiff's truck driver, insteadof transporting the merchandise back to where it was usuallystored, parked the trailer containing the merchandise in a lot theplaintiff used for other, unrelated business. After more than aweek, including a three-day Christmas holiday, the plaintiffdiscovered that the trailer and cargo had been stolen from the lot.After the plaintiff's insurer denied coverage for the loss, theplaintiff sued. A trial court found that the cargo was not “intransit” at the time of the loss and therefore was not covered. Theplaintiff appealed. Citing a Texas case, the plaintiff argued thatgoods were in transit as long as they were in the course of beingdelivered to the place to which they had been shipped. The appealscourt disagreed. It noted that the goods were not parked overnightin the course of delivery. Rather, they were left on a lot, wherethey were not discovered missing until more than a weeklater.
Both parties in the current case made arguments based on theWilliams decision. The cargo company contrasted the factsin this case, arguing that an overnight stop, as opposed to one ofa week or more, does not constitute a sufficient deviation from thedelivery course to render the cargo no longer “in transit” forcoverage purposes. The insurer, on the other hand, argued that thecrux of Williams was not the length of time involved inthe stop, but rather the question of whether the cargo was “in theprocess of shipment” at the time of the loss. According to theinsurer, the cargo in the instant case was not “in transit” becausethe driver effectively abandoned the freight when he left thetrailer behind the shopping center.
The appeals court said that in Williams, the cargo clearlywas not “in the process of being shipped, and it was not parkedovernight in the course of delivery.” Instead, the trailer sat idlefor a substantial period of time and for reasons apparentlyunrelated to its carriage. Under those circumstances, the appealscourt said, it was not necessary to set forth a comprehensivedefinition of the term “in transit” for insurance purposes. But theappeals court said the facts in the case at hand were lessclear-cut. Therefore, the court said it was necessary to find amore complete definition of “in transit” or “in due course oftransit.”
After discussing cases in other states, the appeals court said:“Once the transportation of the goods has started, the propertyremains under the protection of the policy during the ordinarydelays in transshipments incident to such movements … and(coverage) is not confined to periods of actual movement, butincludes periods of rest during the progress of the continuousundertaking. Whether an interruption in actual transit issufficient to remove the goods from coverage depends on the extentand purpose of the interruption in the context of the riskcontemplated. A temporary interruption for a purpose related to thecarriage itself does not remove the property fromtransportation.”
The appeals court said the test appeared to be not whether movementwas interrupted overnight, or over a weekend, but whether thegoods, even though temporarily at rest, were still on their way,with any stoppage merely incidental to the main purpose ofdelivery.
The appeals court noted that cases from other jurisdictionsrecognized that a temporary stop for reasons related to thecarriage process itself generally does not mean that the cargo isnot in transit for coverage purposes. For example, it citedAetna Cas. & Surety Co. v. Burbank Generators, Inc., 175Cal. Rptr. 568 (Ct. App. 1981), which held that cargocontained in trailers that were left parked for eight hours tofacilitate a later pickup were in transit.
Accordingly, the appeals court held that the common and ordinarymeaning of the terms “in transit” or “in due course of transit,”while limited to cargo that is actually en route from one place tothe next, contemplates temporary stops that are incidental to thecourse of transportation. Whether an interruption is incidental tothe course of transportation depends upon the purpose and extent ofthe stop, the appeals court said, and must be decided on acase-by-case basis.
In the instant case, the appeals court said, the parties did notdispute that the driver disconnected the trailer and left it in aparking lot behind a shopping center overnight, during which timethe trailer and its cargo were stolen. From these limited facts,however, the court said it could not determine whether the delayrendered the shipment of tires no longer “in transit” or “in duecourse of transit.” The appeals court said that although the cargocompany asserted that the trailer was parked because of thetractor's mechanical difficulties, the record was unclear on thecircumstances surrounding the incident.
“We find that genuine issues of material fact remain as to whetherthe overnight stop was incidental to the process of transportingthe shipment for purposes of determining coverage under the cargoinsurance policy. Therefore, we must reverse the trial court'sgrant of summary judgment in favor of (the insurer).” The appealscourt also upheld the trial court's denial of summary judgment infavor of the cargo company and sent the case back to the trialcourt for further proceedings.
Cargo Master Inc. v. ACE USA Insurance Co. No.W2005-02798-COA-R3-CV (Tenn.App. 01/19/2007) 2007.TN.0000006(www.versuslaw.com).

Good health ruled a condition precedent to coverage underlife insurance policy On April 4, 2002, a man submitted anapplication for $1 million of whole life insurance on himself. Theapplication did not progress in a timely manner, and the insurernotified the man in June that his application had been closed. OnAug. 8, the man sent the insurer a letter reaffirming his desire toapply for the policy. On Aug. 26, he faxed in a new application,along with another request to reopen his application. The newapplication was identical to the first in all material respects. Onthe last page of the new application, the following paragraphappeared in bold:
“In the event the first full premium on the policy applied for isnot paid upon the date of this application, the insurance undersuch policy shall not take effect unless the application isapproved by the Company at its Home Office, such policy issued anddelivered to the Proposed Insured/Owner, and such first fullpremium paid during the Proposed Insured's lifetime and continuedgood health.”
On Aug. 27, the insurer issued the policy and mailed it to the man,along with delivery instructions. The man completed the deliveryinstructions by returning to the insurer a delivery certificate hehad signed and marked as “received September 3.” The deliverycertificate provided: “As requested, this policy has been issuedwithout the first premium having been collected with theapplication. It is hereby certified that there has been no changein the good health of the Insured since the date of the applicationand it is understood and agreed that the policy shall be effectiveas of the date of issue only upon payment of the first premiumduring the lifetime and continued good health of the Insured.” Theman paid his first premium on Sept. 6, and the insurer received thesigned delivery certificate on Sept. 20.
On Oct. 7, the man found out that a lump on his neck, which he hadknown about for at least a year, most likely was cancerous. On Oct.24, he began chemotherapy treatment for Hodgkin's disease. He diedon Feb. 17, 2003, from complications stemming from chemotherapytreatment for his cancer.
In March 2003, the man's widow and beneficiary applied for theproceeds from the life insurance policy. However, because the mandied during the policy's two-year contestability period, theinsurer requested his medical records for the five years precedinghis death. After reviewing the records, the insurer determined thatthe man was not in good health on the date relevant to the policy'seffectiveness.
The insurer sought a declaration that the life insurance policynever took effect because of the failure of a condition precedent.The man's widow counterclaimed that the insurer, by refusing to paythe proceeds, breached the terms of the insurance contract. Afederal district court held that the insurance policy did takeeffect and that the deceased's widow was entitled to the proceeds.The court also awarded her attorney's fees and imposed a statutorypenalty against the insurer. It appealed.
The appeals court said it did not see how the insurer could havemade the policy language much clearer, and that it alone made itsufficiently clear that good health is a condition precedent toeffectiveness. It added that it and the Texas Supreme Courtnumerous times had deemed similar language a conditionprecedent.
The appeals court held that the insurance applicant did not satisfythe good health condition precedent. In other words, he was not ingood health when he paid his first premium on Sept. 6, 2002. Theappeals court noted that Texas courts have consistently held that aperson is not in good health when he or she suffers from a seriousillness that continues and eventually causes their death. The courtsaid the facts stipulated to by the parties at the district courtmade it clear that the applicant indeed suffered from such anillness when he paid his first premium. Although he was notdiagnosed with Hodgkin's disease until October 2002, the recordrevealed that he had cancer quite some time before his formaldiagnosis. Therefore, he was not in good health when he paid hisfirst premium, and the policy never took effect. The district courtverdict in favor of the applicant's widow was reversed.
Assurity Life Insurance Co. v. Grogan, No. 05-51609 (5th Cir.03/02/2007) 2007.C05.0000700 (www.versuslaw.com).

Don Renau is a retired agent and practicing attorney inLouisville, Ky. As an attorney, he consults on a variety of issues,including business form-ation and estate planning, for agencies andbusinesses in Kentucky. He can be reached at [email protected]or by fax at (502) 805-0702.