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Pepper Law Obtains Reversal by Sixth Circuit in Lancer Cargo Insurance Case

Our firm undertook representation of a local interstate trucking company, Dark Horse Express, LLC (“Dark Horse”) in a cargo insurance claim case in which Lancer Insurance Company (“Lancer”) issued the cargo insurance coverage which was at issue. At the district court level, Lancer argued that it was entitled to summary judgment because Dark Horse’s customer, which owned the lost cargo, had never obtained a judgment against Dark Horse for the cargo loss at issue. Lancer won a summary judgment from the District Court. We appealed to the Court of Appeals for the Sixth Circuit which reversed the District Court.

Here is a summary of the basic facts:

  • Dark Horse was hauling about $250,000 worth of steaks for its customer, PFG, from Dallas to Lebanon
  • Dark Horse’s driver stopped just outside of Dallas after picking up the load
  • While stopped, someone broke the seal of the truck and stole about $35,000 worth of the steaks
  • PFG refused to take the remainder of the steaks because of the broken seal and possible contamination
  • Under the contract between Dark Horse and PFG, which was titled “Transportation Agreement,” Dark Horse had agreed to be liable for the full value of the load in the event the seal of the truck was broken
  • Dark Horse paid PFG for the value of the load, less the salvage that was obtained by PFG
  • Dark Horse then made a claim under its cargo insurance coverage with Lancer for the amount it paid its customer, PFG, for the loss of the load
  • Lancer refused to pay for various reasons, including that no court judgment had been entered against Dark Horse in favor of PFG for the loss of the load
  • Dark Horse filed suit in Sumner County, Tennessee Circuit Court and Lancer removed the case to the United States District Court for the Middle District of Tennessee
  • Lancer moved for summary judgment on several grounds

One of Lancer’s summary judgment arguments was that the insurance policy at issue contained a provision which, Lancer asserted, conditioned Lancer’s duty to pay on a judgment being entered against Dark Horse by a court. The specific provision upon which Lancer relied required Lancer to pay sums Dark Horse “legally must pay as a motor carrier for ‘loss’ to Cargo ….”

The District Court held that the language in question did require a judgment to be entered by a court of competent jurisdiction against Dark Horse and in favor of PFG before Lancer had any obligation to pay the claim. It based its decision, in substantial part, on a 1971 decision of the Supreme Court of Tennessee, but noted that there was contrary authority decided under at least one other state’s contract law.

On appeal, we argued that, under the plain language of the policy at issue, it was not necessary for a judgment to be entered against Dark Horse by a court before Lancer had an obligation to pay the claim. We argued that all that was necessary was that Dark Horse prove that it was obligated to pay the claim to its customer, PFG, and that the Transportation Agreement between Dark Horse and PFG established that obligation, and consequently, the legal liability of Dark Horse to PFG. We pointed out that the case relied upon by the District Court did not involve a cargo loss claim and was distinguishable on a number of other grounds.

In response to our argument on appeal, Lancer Insurance Company made a barrage of arguments, all of which were ultimately rejected by the Sixth Circuit in its decision reversing the District Court. The Sixth Circuit held that the cargo insurance coverage policy at issue, by its plain language, did not require that a judgment be entered against Dark Horse before Lancer had an obligation to pay the claim.

The Sixth Circuit held that the word “must” in the phrase “legally must pay” signified an “obligation.” It then reasoned that contracts themselves, not just judgments resulting from breaches of contract, create obligations. The court stated: “Indeed, contracts exist to create legal obligations, and thus to save the parties the expense of reducing every dispute to a court judgment.”

The District Court filings, including those associated with Lancer’s motion for summary judgment filed by our firm and Lancer’s lawyers, can be obtained via Pacer. The style of the case is Dark Horse Express, LLC v. Lancer Insurance Company, United States District Court of the Middle District of Tennessee, no. 3:15-CV-01491.  The opinion of the Sixth Court, as well as the parties’ appellate briefs, may also be obtained from Pacer. The case number on appeal was 17-6237.