A Tennessee district court granted summary judgment to an insurer on a breach of contract and statutory bad-faith claim where it found the insurer was not required to indemnify the insured for voluntary payments made to a third party for a covered loss prior to judgment of liability. Dark Horse Express, LLC v. Lancer Ins. Co., 2017 WL 3977692 (M.D. Tenn. Sept. 11, 2017).

The insured, a transport company, entered into a carrier transportation agreement with a third party to transport goods. The carrier was insured under a motor carrier policy which included a cargo endorsement that provided coverage for loss of cargo while in the insured’s control. During transport, the carrier lost control of the cargo from which a portion was stolen. The buyer refused to accept the goods, and the insured tendered a claim to its insurer. The insurer recovered a portion of the full value of the cargo at auction, which it paid to the owner of the goods. The insured paid the balance, and demanded the insurer reimburse it, less the recovered auctioned amount. The insurer denied the claim on the basis that there was no obligation under the policy to pay the cargo claim until legal liability was established by a court. The insured argued that it was entitled to coverage because it would be legally liable for cargo loss by the terms of its carrier contract with the third party and under the Carmack Amendment to the Interstate Commerce Act, 49 U.S.C. §1407, and therefore a judgment was not necessary to trigger coverage.

Coverage litigation ensued, and the insured and insurer filed cross-motions for summary judgment. The court disagreed that the language of the cargo endorsement required the insured’s legal liability to be determined by a judgment. It found that the de facto strict liability for lost cargo imposed under the Carmack Amendment did not circumvent the policy’s requirements for coverage, and thus the insurer was not required to indemnify the insured for the voluntary payments made by the insured to the third party barring a judgment.