Down To Cases

Coverage for motor cargo “in transit” may apply while trailer is parked
A cargo company in Tennessee arranged to have an independent trucking company transport freight for it. The trucking company agreed to indemnify the cargo company for any loss, damage or delay to the freight transported. To cover this obligation, the trucking company 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, a driver for the trucking company parked the trailer portion of the tractor-trailer behind a shopping center and left it overnight. According to the cargo company, the tractor portion of the tractor-trailer rig had experienced mechanical difficulties and needed to be repaired. When the driver returned the next day, the trailer and tire shipment were gone; apparently the goods were stolen overnight.
The trucking company submitted a claim for the theft, which the cargo carrier denied. The cargo company paid the owner of the stolen tires $35,700, then sued the trucking company and its insurer for breach of contract. The insurer said there was no coverage because, among other things, the trailer was parked at the time of loss and thus not “in the course of transit.” Following discovery, the cargo company filed a motion for summary judgment, and the insurer responded with a cross-motion for summary judgment.
The trial court said that “in transit” would imply that goods would be picked up at a given place and hauled to a designated destination. “That would certainly indicate that the expectation is not that a load of cargo in a trailer is going to be left in a public parking lot,” the court said, adding that the expectation “is almost like a bailment,” in which the goods either would be in transit or in a “secured location.” The court said “in transit” would not appear to include “a stop-off where you simply leave (the goods) and go about doing other business, which is apparently what occurred in this case, even though it may have been the business of the truck.” Consequently, the trial court granted summary judgment to the insurer and denied it to the cargo company. It appealed.
The appeal centered on the definition of “in due course of transit.” While the appeals court had not considered that precise phrase before, in Williams v. Berube & Assocs. [26 S.W.3d 640 (Tenn. Ct. App. 2000)], it had discussed the term “in transit” within the meaning of a similar cargo policy. In Williams, the plaintiff transported merchandise to trade shows by truck and trailer. After a trade show, the plaintiff's truck driver, instead of transporting the merchandise back to where it was usually stored, parked the trailer containing the merchandise in a lot the plaintiff used for other, unrelated business. After more than a week, including a three-day Christmas holiday, the plaintiff discovered that the trailer and cargo had been stolen from the lot. After the plaintiff's insurer denied coverage for the loss, the plaintiff sued. A trial court found that the cargo was not “in transit” at the time of the loss and therefore was not covered. The plaintiff appealed. Citing a Texas case, the plaintiff argued that goods were in transit as long as they were in the course of being delivered to the place to which they had been shipped. The appeals court disagreed. It noted that the goods were not parked overnight in the course of delivery. Rather, they were left on a lot, where they were not discovered missing until more than a week later.
Both parties in the current case made arguments based on the Williams decision. The cargo company contrasted the facts in this case, arguing that an overnight stop, as opposed to one of a week or more, does not constitute a sufficient deviation from the delivery course to render the cargo no longer “in transit” for coverage purposes. The insurer, on the other hand, argued that the crux of Williams was not the length of time involved in the stop, but rather the question of whether the cargo was “in the process of shipment” at the time of the loss. According to the insurer, the cargo in the instant case was not “in transit” because the driver effectively abandoned the freight when he left the trailer behind the shopping center.
The appeals court said that in Williams, the cargo clearly was not “in the process of being shipped, and it was not parked overnight in the course of delivery.” Instead, the trailer sat idle for a substantial period of time and for reasons apparently unrelated to its carriage. Under those circumstances, the appeals court said, it was not necessary to set forth a comprehensive definition of the term “in transit” for insurance purposes. But the appeals court said the facts in the case at hand were less clear-cut. Therefore, the court said it was necessary to find a more complete definition of “in transit” or “in due course of transit.”
After discussing cases in other states, the appeals court said: “Once the transportation of the goods has started, the property remains under the protection of the policy during the ordinary delays in transshipments incident to such movements … and (coverage) is not confined to periods of actual movement, but includes periods of rest during the progress of the continuous undertaking. Whether an interruption in actual transit is sufficient to remove the goods from coverage depends on the extent and purpose of the interruption in the context of the risk contemplated. A temporary interruption for a purpose related to the carriage itself does not remove the property from transportation.”
The appeals court said the test appeared to be not whether movement was interrupted overnight, or over a weekend, but whether the goods, even though temporarily at rest, were still on their way, with any stoppage merely incidental to the main purpose of delivery.
The appeals court noted that cases from other jurisdictions recognized that a temporary stop for reasons related to the carriage process itself generally does not mean that the cargo is not in transit for coverage purposes. For example, it cited Aetna Cas. & Surety Co. v. Burbank Generators, Inc., 175 Cal. Rptr. 568 (Ct. App. 1981), which held that cargo contained in trailers that were left parked for eight hours to facilitate a later pickup were in transit.
Accordingly, the appeals court held that the common and ordinary meaning of the terms “in transit” or “in due course of transit,” while limited to cargo that is actually en route from one place to the next, contemplates temporary stops that are incidental to the course of transportation. Whether an interruption is incidental to the course of transportation depends upon the purpose and extent of the stop, the appeals court said, and must be decided on a case-by-case basis.
In the instant case, the appeals court said, the parties did not dispute that the driver disconnected the trailer and left it in a parking lot behind a shopping center overnight, during which time the trailer and its cargo were stolen. From these limited facts, however, the court said it could not determine whether the delay rendered the shipment of tires no longer “in transit” or “in due course of transit.” The appeals court said that although the cargo company asserted that the trailer was parked because of the tractor's mechanical difficulties, the record was unclear on the circumstances surrounding the incident.
“We find that genuine issues of material fact remain as to whether the overnight stop was incidental to the process of transporting the shipment for purposes of determining coverage under the cargo insurance policy. Therefore, we must reverse the trial court's grant of summary judgment in favor of (the insurer).” The appeals court also upheld the trial court's denial of summary judgment in favor of the cargo company and sent the case back to the trial court 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 under life insurance policy On April 4, 2002, a man submitted an application for $1 million of whole life insurance on himself. The application did not progress in a timely manner, and the insurer notified the man in June that his application had been closed. On Aug. 8, the man sent the insurer a letter reaffirming his desire to apply for the policy. On Aug. 26, he faxed in a new application, along with another request to reopen his application. The new application was identical to the first in all material respects. On the last page of the new application, the following paragraph appeared in bold:
“In the event the first full premium on the policy applied for is not paid upon the date of this application, the insurance under such policy shall not take effect unless the application is approved by the Company at its Home Office, such policy issued and delivered to the Proposed Insured/Owner, and such first full premium paid during the Proposed Insured's lifetime and continued good health.”
On Aug. 27, the insurer issued the policy and mailed it to the man, along with delivery instructions. The man completed the delivery instructions by returning to the insurer a delivery certificate he had signed and marked as “received September 3.” The delivery certificate provided: “As requested, this policy has been issued without the first premium having been collected with the application. It is hereby certified that there has been no change in the good health of the Insured since the date of the application and it is understood and agreed that the policy shall be effective as of the date of issue only upon payment of the first premium during the lifetime and continued good health of the Insured.” The man paid his first premium on Sept. 6, and the insurer received the signed delivery certificate on Sept. 20.
On Oct. 7, the man found out that a lump on his neck, which he had known about for at least a year, most likely was cancerous. On Oct. 24, he began chemotherapy treatment for Hodgkin's disease. He died on Feb. 17, 2003, from complications stemming from chemotherapy treatment for his cancer.
In March 2003, the man's widow and beneficiary applied for the proceeds from the life insurance policy. However, because the man died during the policy's two-year contestability period, the insurer requested his medical records for the five years preceding his death. After reviewing the records, the insurer determined that the man was not in good health on the date relevant to the policy's effectiveness.
The insurer sought a declaration that the life insurance policy never took effect because of the failure of a condition precedent. The man's widow counterclaimed that the insurer, by refusing to pay the proceeds, breached the terms of the insurance contract. A federal district court held that the insurance policy did take effect and that the deceased's widow was entitled to the proceeds. The court also awarded her attorney's fees and imposed a statutory penalty against the insurer. It appealed.
The appeals court said it did not see how the insurer could have made the policy language much clearer, and that it alone made it sufficiently clear that good health is a condition precedent to effectiveness. It added that it and the Texas Supreme Court numerous times had deemed similar language a condition precedent.
The appeals court held that the insurance applicant did not satisfy the good health condition precedent. In other words, he was not in good health when he paid his first premium on Sept. 6, 2002. The appeals court noted that Texas courts have consistently held that a person is not in good health when he or she suffers from a serious illness that continues and eventually causes their death. The court said the facts stipulated to by the parties at the district court made it clear that the applicant indeed suffered from such an illness when he paid his first premium. Although he was not diagnosed with Hodgkin's disease until October 2002, the record revealed that he had cancer quite some time before his formal diagnosis. Therefore, he was not in good health when he paid his first premium, and the policy never took effect. The district court verdict 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 in Louisville, Ky. As an attorney, he consults on a variety of issues, including business form-ation and estate planning, for agencies and businesses in Kentucky. He can be reached at drenau@thepoint.net or by fax at (502) 805-0702.