Truck Law

A Transportation Law Blog from TransportationAttorneys.NET

Month: August, 2016

Cargo Theft – Insurance and Prevention

by gspencermynko

Transportation Attorneys was recently retained on a matter involving theft of a loaded tractor trailer. Unfortunately, when the tractor and trailer were found, the tractor was gutted and $100,000 worth of cargo was gone.

 
Most of you are probably thinking “Well, thankfully I’m sure the cargo was insured against theft.  Well, that’s what I thought as well – until I saw the denial letter from the insurance carrier.  In this particular case, two tractor-trailers with fully loaded trailers were stolen from a locked yard with an attendant who lived on the premises. Notably, the theft occurred early Saturday morning. Of course, no one from the motor carrier was on the premises during the time of the theft.
Unfortunately, the cargo theft insurance policy included something called an “Absolute Attended Vehicle Provision”. This clause in the policy stated “For a reduced premium consideration we will not pay for theft of covered property from a truck unless, at the time of the theft of covered property, there is an employee of yours, in or upon the truck whose duty it is to attend the vehicle.”
Uh-Oh. So basically, the Motor Carrier had a policy which excluded coverage for theft unless the theft occurred while a driver was with the truck. Obviously, this policy has “cheap” written all over it. Unfortunately, whatever savings the motor carrier may have enjoyed were likely wiped out by one theft.
 
Note to everybody involved in trucking: check your insurance policies carefully for exclusions.
While having good insurance is always a good idea, this article is also focused on prevention. This is a little different from what I usually write about because preventing cargo theft is not so much a legal issue as it is a commonsense issue.
My office is in Southern California which is a hotbed for cargo theft.  Billions of dollars of cargo are stolen in Southern California every year. Our close proximity to extensive networks of highways, railways, ports, and warehouses provides a vast infrastructure which organized thieves take advantage of. Once in possession of stolen goods, cargo thieves sell them to a “fence”, who in turn quickly offloads the stolen goods to criminal gangs, who quickly distribute the merchandise.

Here are some common strategies criminals use:

One. Criminals will gather information on industrial parks and manufacturing or distribution facilities where items are made or stored, then break in or set up surveillance positions to monitor shipping operations, especially the use of trucks.
Two. Criminals will pay drivers at rest stops or fueling stations to give up their tracks, or wait until the truck and trailer are unattended. The thieves will rely on their sophisticated knowledge to gain access to the truck and drive off with the stolen equipment.

Three. Criminals will use a stolen tractor to hook up a dropped or unattended trailer. Once they have control of the trailer, they may move it to a secure location or break into the trailer and quickly unload it into an empty trailer or several smaller trucks.

Four. Criminals will steal a truck and/or trailer and park it in an industrial area and observe from a safe distance to see if a tracking system is being utilized and whether law enforcement shows up.

Five. Sophisticated criminals will prepare stolen goods for resale by changing the packaging, relabeling boxes, creating falsified bills of lading or customs paperwork in order to move stolen car go out of the country.

So what can trucking companies do to protect against this? (Besides buying good cargo theft policies):

One. Use high-tech devices. Use GPS tracking tools and geofencing solutions that send a security alarm if a vehicle travels outside of prescribed routes or enters high-risk areas. Vehicle immobilization technology may also be a useful tool.
Two. Use low tech devices. Apply a variety of locks such as king-pin locks, air brake valve locks, glad hand locks that lock the trailer’s airline, and always seal containers.

Three. Stay vigilant and alert. Look for signs that your facility’s operation is under surveillance. Criminals will park outside of facilities often using cameras or other devices to “case” your facility. Pay attention to unauthorized personnel inside the facility or walking the perimeter. Look for vehicles, usually minivans or SUVs, especially with two or more occupants, that appear to be following your drivers.

Four. Immediately report all suspicious activity and respond to every alarm. Frequent “false alarms” may be a sign that criminals are testing your facility’s security system and law enforcement response times.

Five. Know you’re supply chain.  Everyone should know the carrier and driver scheduled to pick up your cargo and verify their identity before you release the load. Also, monitor delivery schedules and routes, and be suspicious of overdue shipments or out of route journeys. Review your supply chain partner security procedures and know where your cargo will stop along its route.

Six. Execute basic safety practices. Make sure trucks are locked and parked in an organized manner on a well lit facility lot. Make sure all alarm systems are functioning properly and are monitored by a central station. Make sure Driver teams understand that one person must remain with the vehicle at all times. Regularly review security at your site and promptly address maintenance and repair issues.

Seven. Know your employees.  Cargo theft is often and “inside job”. Rigorous pre-employment screening will help weed out those people most likely to steal merchandise from warehouses, loading docks or trucks.

If you have concerns about protecting your company from becoming a victim of cargo theft, call Transportation Attorneys ASAP.

Surviving a Workers Compensation Premium Audit

by gspencermynko

Workers Compensation Premium Audits can devastate Trucking Companies. I’ve heard these referred to by the term “Shock Audits”

 
Unfortunately, trucking companies may go into “shock” when they receive an audit bill for a recently expired Worker’s Compensation insurance policy. Of course, this is due to an unexpectedly high increase in premium from an audit. What is particularly troubling is that the increase in premium can be so high, that the viability of the trucking company is threatened. Hence the term “shock audit”.

 

Understandably, these audits can result in serious distress and frustration for the owners of a trucking company. And while outrage is a common reaction to being on the receiving end of such an audit, a cool, methodical, and specific analysis of the facts are what you will need to successfully dispute an unfavorable audit.

The starting point in your fact-finding mission will include the original policy, the audit billing statement, and the audit worksheets.

 
A company will need to examine how the estimated original premium was calculated.  Critical to this analysis are two important considerations: 1) whatclassification codes were used, and 2) how much payroll was assigned to each classification. For example, this frequently becomes an issue where the auditor assigns clerical workers into the higher risk “truckmen’s” classification. Another example is where independent contractor truck drivers are considered to be company or employee truck drivers. If the auditors misunderstood the nature of work done by some employees, the auditor may have misclassified certain workers into the wrong classification.
Certainly, estimated payroll on the original policy will need to be compared with the payroll used in the audit. Furthermore, any increase in additional premium will need to correlate with an increase in payroll.  If you receive a significant audit bill, but any increase in payroll does not justify such a large additional premium bill, there may be a problem. Furthermore You must also compare theexperience modification factor on the policy to the experience modifier on the audit.
WHAT DO YOU DO IF YOU WANT TO DISPUTE THE AUDIT RESULTS?
The procedures involved in disputing a work comp audit are specific, detailed and deadline driven. Here is information directly from the WCIRB’s website:
“Disputing Your Insurer’s Decision
To dispute a decision made by your insurer, the dispute must be in writing and sent to your insurer’s designated office. Contact information for your insurer’s dispute process is found in a policyholder notice attached to your policy titled “Your Right to Rating and Dividend Information,” under the paragraph “Our Dispute Resolution Process.” Issues disputed with your insurer may include classification assignments or premium issues. Claims-handling issues are not addressed in this procedure and should be directed to your claims adjuster.


Disputing the WCIRB’s Decision
To dispute a decision made by the WCIRB, such as the classification of the operations assigned on a WCIRB inspection report or the calculation of your experience modification, follow the process explained in the 
Appealing to the Insurance Commissioner
If you have exhausted either your insurer’s dispute process or the WCIRB’s dispute process, and you are still not satisfied with the outcome, you have the right to appeal the issue to the Administrative Hearing Bureau at the California Department of Insurance. When responding to your dispute, your insurer or the WCIRB should provide you with contact information for filing your appeal with the Department of Insurance. The information is also found in the “Your Right to Rating and Dividend Information” policyholder notice attached to your workers’ compensation policy; Part 1, Section V of the California Workers’ Compensation Uniform Statistical Reporting Plan – 1995; and Section VIII of the California Workers’ Compensation Experience Rating Plan – 1995. The appeals process is also found in the California Code of Regulations, Title 10, Chapter 5, Subchapter 3, Article 9.7. When filing an appeal, you should be as specific as possible concerning your issue and include any supporting documentation. You should also clearly explain why you believe your insurer or the WCIRB acted (or failed to act) in error.”
If you happen to be insured by State Compensation Insurance Fund (SCIF), The dispute resolution process is very specific:
A written statement detailing the specific information claimed to be inaccurate must be submitted to the dispute department. Any claim of inaccurate audit information must be supported by a detailed explanation of what is believed to be incorrect and what the correction should be. Copies of original financial and/or other records that support the discrepancy must cover all disputed information. All information needs to be received within 10 CALENDAR DAYS, if not SCIF will consider the matter closed. (You may wish to referred to SCIF’s Premium Audit Guide which is available online.)
Obviously this may seem intimidating and unfair: try to keep these things in mind if you feel your audit is incorrect:
Do not wait until the last minute to respond to the audit; Do not procrastinate. You have to get in front of this! If your account is turned over to a collection agency or a lawsuit is filed against you, you have very limited ability to negotiate directly with the insurance company.
Be proactive at correcting your audit. mistakes occur in a high percentage of audits. Insurance carriers know that. Be proactive at correcting those errors!
Follow the rules established by your insurance carrier for filing a workers compensation audit dispute. And be sure to be aware of the various deadlines in place for filing disputes and the appeal of any unfavorable decision. Again, do not delay.
Finally, if you are unsure as to what you need to do, contact someone who does. If you find yourself at risk for undergoing a workers compensation premium audit or you are in the midst of one or you have been assessed, call Transportation Attorneys ASAP.

Piercing The Corporate Veil and Alter Ego Liability

by gspencermynko

Clients frequently ask me if incorporating can really protect their personal assets.


This is my second article on this topic where I revisit the original article and now discuss what the courts say about losing corporate protection. Because new clients have been asking about the protection afforded by incorporating, I feel compelled to review a topic incredibly important to all trucking companies
 
I have always said all trucking businesses should be incorporated:Trucking is a risky business. Disaster looms around every corner and the consequences of negative events can destroy companies and the livelihood of their owners. This rings true for large trucking companies and individual owner operators: anyone involved in trucking and transportation needs to take steps to protect themselves from overwhelming liability. If a company follows proper corporate protocol, the owners, shareholders, and officers should be able avoid personal liability for the company’s debts/liabilities.
However, courts will sometimes hold a corporation’s owners and shareholders personally liable for business debts. This is called “piercing the corporate veil”.  Corporations enjoy a “veil” of limited liability, but this can be lifted if a court decides the owner/shareholders are not entitled to corporate protection.      
Corporations are legal entities and are separate from the people who own them.The major advantage of forming a corporation is the owners have limited personal liability for company debts. Usually, Corporation owners or shareholders cannot be held personally responsible for business debts. However, courts can ignore the limited liability status of the corporation and hold its officers, directors and shareholders personally liable for its debts. As stated above, this is called “piercing the corporate veil”. Small corporations are at greatest risk for having their veils pierced. “Closely held corporations” – corporations owned by one or just a few people – are most likely to get their veils pierced.
When a corporate veil is pierced, the owners/shareholders can be held personally liable for corporate debts. When this happens, creditors can go after the owner’s home, bank account, investments, and any other assets to satisfy the corporate debt. Therefore, it is critical to understand when a court will pierce the corporate veil.
So, when do courts pierce the corporate veil?
One: there is no true separation between the company and its owners. If the owners fail to maintain formal legal separation between their business and their personal finances, the corporation is just a sham and the owners are personally operating the business as if the corporation didn’t exist. In this situation, the corporation is the “alter ego” of it’s owner(s).  Examples of this include an owner paying personal bills from the business checking account, ignoring legal formalities that a corporation must follow (such as recording important corporate decisions in the minutes of a meeting), not holding shareholder meetings (even if there is only one shareholder), and generally not acting like a corporation. In these situations, a court could decide that the owners are not entitled to limited liability protection.
Two: fraudulent or wrongful conduct by the company. If the company’s owners acted recklessly or dishonestly, a court could decide that limited liability protection should not apply.
Three: The companies creditors suffered an unjust cost. In the event a corporation is the “alter ego” of its owner, and the company’s actions were wrongful or fraudulent, a court will try to prevent injustice or unfairness by piercing the corporate veil.
Factors courts consider when piercing the corporate veil include:
One: whether the corporation engaged in fraudulent behavior.
Two: whether the corporation failed to follow corporate formalities.
Three: whether the corporation was adequately capitalized and had enough funds to operate.
Four: whether one person or small group of people were in complete control of the corporation.
Again, small corporations are particularly vulnerable to piercing. Owner operators need to be particularly concerned about this. Even though you are the sole owner and shareholder of the corporation, you still need to follow corporate formalities. Specifically, you need to hold annual meetings of directors and shareholders, keep accurate and detailed records of important decisions, adopt company bylaws, and abide by those bylaws.  Do not commingle assets. The corporation should maintain its own bank account and the owner should never use the company account to pay for personal expenses.
You can protect yourself against a court piercing your corporate veil by:
Following the rules for forming and maintaining a corporation.
Maintaining a separate bank account for the corporation.
Do not use corporate assets for personal use.
Making a reasonable initial investment in the corporation.
Do not personally guarantee corporate debts.
Do not use the corporation for illegal, fraudulent or reckless acts.
Do not commingle personal assets with corporate assets.
 
Letting the world to know they are dealing with a corporation. Put “inc.” On business cards, letterhead, invoices, email, etc. when signing company documents, make it clear you’re doing so in your representative capacity; e.g.: president, vice president, secretary, etc.
What the Courts look for to determine if the corporate wall of protection stands:
 
“The basic rule stated by [the California] Supreme Court as a guide in the application of [the] doctrine [of alter ego] is as follows:  The two requirements are (1) that there be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist, and (2) that, if the acts are treated as those of the corporation alone, an inequitable result will follow”  (Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.App.2d 825, 837.)  The familiar litany of factors showing alter ego include:
the commingling of funds; 
 
unauthorized diversion of corporate funds to other than corporate uses; 
 
treatment by an individual of the assets of the corporation as his own; 
 
failure to maintain minutes or adequate corporate records; 
 
identical equitable ownership in entities; 
 
failure to adequately capitalize corporation; 
 
absence of corporate assets and undercapitalization; 
 
use of a corporation as a mere shell, instrumentality or conduit for a single venture or the business of an individual; 
 
diversion of assets from a corporation by or to a stockholder or other person or entity, to the detriment of creditors; 
 
the manipulation of assets and liabilities between entities so as to concentrate the assets in one and the liabilities in another; 
 
contracting with another with intent to avoid performance by use of a corporate entity as a shield against personal liability; 
 
and “use of a corporation to transfer to it the existing liability of another person or entity.”  (Id. at pp. 838-840.)
The Court held that the following allegations were adequate to state a cause of action against the defendant on an alter ego theory:  “that the individuals . . .  ‘dominated’ the affairs of the corporation; that a ‘unity of interest and ownership’ existed between respondent and the corporation; that the corporation is a ‘mere shell and naked framework’ for individual manipulations; that its income was diverted to the use of the individuals and respondent; that the corporation was, in effect, inadequately capitalized; that the corporation failed to issue stock and to abide by the formalities of corporate existence; that the corporation is and has been insolvent; and that adherence to the fiction of separate corporate existence would, under the circumstances, promote injustice.”  (First Western, 267 Cal.App.2d at pp. 915-916.)  The court held that assuming those facts could be proved, the shareholders of the corporation “may be held liable as principals or partners under the alter ego principle.”  (Id. at p. 916.)
The laws regarding Piercing the Corporate Veil and “Alter Ego” are complex. A 1-2 hour consultation with 

Transportation Attorneys

is time and money well spent to determine whether your Trucking Company can withstand attack and protect its owners from from being liable for its debts.