A Reefer Trailer is a Vehicle

Kiolbassa Provision Company (“Kiolbassa”) operates a smoked meat business out of San Antonio, Texas, where it keeps its offices, production space, and a warehouse for storage. Given the nature of its business, Kiolbassa purchased an Equipment Breakdown Policy (the “Policy”) from Travelers Property Casualty Company of America (“Travelers”) to cover damage to perishable goods when the damage is caused by a malfunctioning of “Covered Equipment” on Kiolbassa’s premises.

In Kiolbassa Provision Company, Incorporated v. Travelers Property Casualty Company of America, No. 21-51033, United States Court of Appeals, Fifth Circuit (June 2, 2022) the Fifth Circuit was asked to resolve whether a reefer trailer was a vehicle and, as a result, the loss was excluded.

FACTS

In August 2019, Kiolbassa ran out of storage space in its warehouse and loaded 49,016 pounds of organic beef trim onto a “reefer trailer” (a trailer with an attached refrigeration unit) located on its premises. The refrigeration unit malfunctioned; the beef spoiled; and Kiolbassa lost about $167,000 worth of product. Kiolbassa then filed an insurance claim under the Travelers policies.

Both claims were denied. Travelers denied coverage under the Equipment Breakdown Policy because the refrigeration unit was mounted on the reefer trailer, which does not meet the definition of “Covered Equipment” in the Policy. Kiolbassa sued for its denial of coverage under only that policy, which insures damage to “Covered Property” caused by a “Breakdown” of “Covered Equipment” on “Covered Premises.”

Travelers does not dispute that the beef trim is “Covered Property”; that the damage occurred due to a “Breakdown” of the refrigeration unit; and that the unit was located on “Covered Premises.” The dispute centers on whether the refrigeration unit is “Covered Equipment.”

In defining the term “Covered Equipment,” the Policy states that it “does not mean” any equipment that is “mounted on or used solely with any vehicle.” The refrigeration unit was “mounted on or used solely with” the reefer trailer. Travelers argued that the reefer trailer is a vehicle, making its denial of coverage appropriate. Kiolbassa, on the other hand, argued that the reefer trailer is not a vehicle because, at the time of spoilage, the trailer was not able to “move on its own”- it was not attached to a semi-truck and was therefore stationary.

The district court agreed with Travelers.

THE POLICY

The relevant portions of the Policy provides, in relevant part, the following:

We will pay for . . . . [s]poilage damage to “Perishable Goods” that is caused by or results from an interruption in utility services that is the direct result of a “Breakdown” to “Covered Equipment” owned, operated or controlled by a private or public utility, landlord or other supplier with whom you have a contract to provide you with any of the following services: air conditioning, communication services, electric power, gas, heating, refrigeration, steam, water or waste treatment.

Section F provides contractual definitions, defining “Covered Equipment” as follows:

‘Covered Equipment’ means any: . . . electrical or mechanical equipment that is used in the generation, transmission or utilization of energy. . . . ‘Covered Equipment’ does not mean any: . . . [v]ehicle, aircraft, self-propelled equipment or floating vessel, including any ‘Covered Equipment’ mounted on or used solely with any vehicle, aircraft, self-propelled equipment or floating vessel.

The term “vehicle” is undefined.

Under Texas law, undefined policy terms must be given their common, ordinary meaning, which is determined with the aid of dictionaries, with those terms read contextually and in light of the rules of grammar and common usage.

The reefer trailer at issue falls plainly within the ordinary meaning of the term “vehicle.” Consulting Black’s Law Dictionary, the term “vehicle” means: (1) “An instrument of transportation or conveyance”; or (2) “Any conveyance used in transporting passengers or things by land, water, or air.” Vehicle, Black’s Law Dictionary 1788 (10th ed. 2014).

Kiolbassa was unable to supply a single dictionary (or similar) definition for “vehicle” in its briefing that would support its position. The insured bears the initial burden of showing that the claim is potentially within the insurance policy’s scope of coverage.

Instead, Kiolbassa argued that the dictionary definitions are unreasonable in light of the Policy and that those definitions should be limited to a conveyance that can move on its own. First, that limitation is not consistent with the common understanding of the word “vehicle.” Self-propulsion is not a vehicle’s defining feature, and whether it can fulfill that function at the time in question is irrelevant to its definition or classification. Second, additional contextual clues point to the reefer trailer being a vehicle: the Texas Department of Transportation considers trailers to be vehicles, Tex. Transp. Code Ann. § 621.001(9); the trailer was registered with the Texas Department of Motor Vehicles; and the trailer was accordingly assigned a Vehicle Identification Number.

To summarize, the trailer is used to transport, which is how vehicles are commonly defined and understood; it is considered a vehicle by the relevant state agency; and it is registered as a vehicle. The court refused to sufficiently change the meaning of the word “vehicle” to exclude the reefer trailer from its definition. It refused to do so.

Sometimes all a court needs to resolve an insurance coverage dispute is to deal with the obvious. When a trailer is registered by the state as a “vehicle” it is, probably, for the purpose of determining insurance coverage, a vehicle. The insured took a chance with its meat when it’s warehouse was full and lost. Although its argument was interesting it could not overcome common sense and Texas statutes.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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