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Insurer on the hook for payment of stolen meat

Insurer on the hook for payment of stolen meat

A federal appeals court has reversed a lower court ruling and held an insurer is obligated to compensate a trucking company for meat stolen while a truck driver was engaged in a “liaison.”

In 2014, Hendersonville, Tennessee-based Dark Horse Express L.L.C. contracted to transport goods for Richmond, Virginia-based Performance Group Inc., a food distributor, according to Tuesday’s ruling by the 6th U.S. Circuit Court of Appeals in Cincinnati in Dark Horse Express L.L.C. v. Lancer Insurance Co.

Performance bought about $250,000 worth of meat from a vendor in Dallas, and a driver picked up the load for delivery to Performance. Along the way, he stopped for a liaison at a motel, and when he woke up, his truck was gone, said the ruling.

The next day, Dark Horse located the truck with GPS and finished the delivery, but Performance found that about $30,000 of the meat was missing and the trailer’s security seal broken. The transportation contract gave Performance the right to refuse goods for any broken seals, and Performance rejected the entire load.

Dark Horse’s insurer, Long Beach, New York-based Lancer insurance Co., eventually sold the meat for about $50,000 and gave the money to Performance, but Performance demanded payment for the remaining cost of the meat — about $200,000 — from Dark Horse, which in turn demanded that Lancer pay that amount, according to the ruling.

When Lancer refused, Dark Horse paid Performance itself, then filed suit against Lancer in U.S. District Court in Nashville, Tennessee, on charges including that Lancer had breached the terms of its insurance policy.

The District Court granted Lancer summary judgment, finding that the policy required coverage only for payments mandated by a court judgment, which Performance never sought against Dark Horse.

On appeal, a three-judge panel of the 6th Circuit unanimously reversed the lower court’s ruling. Lancer’s policy required the insurer to “pay all sums” that Dark Horse “legally must pay as a motor carrier for ‘loss’ to Cargo” while in its custody, said the ruling.

“The question here is whether the phrase ‘legally must pay’ included payments mandated by sources other than court judgments, namely the transportation contract between Dark Horse and Performance.”

The panel decided this was the case. Contracts “exist to create legal obligations, and thus to save parties the expense of reducing every dispute to a court judgment,” said the ruling.

“And when parties go to court, presumably the court simply enforces the contract. Thus, as matter of ordinary English one would say that a party who breaches a contract is obligated — not only morally, but legally — to make the other party whole.

“Accordingly, the phrase ‘legally must pay’ included Dark Horse’s payment obligations under contracts as well as under judgments,” said the ruling, in reversing the lower court’s judgment and remanding the case for further proceedings.


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