Bloomington Lincoln Mercury Inc. d/b/a Lincoln of Bloomington v. Clear Blue…

Background

Bloomington Lincoln Mercury Inc. (doing business as Lincoln of Bloomington) purchased sixty pre-owned vehicles from Canadian sellers and arranged for their importation into the United States. Baker Auto of Burton, a trucking company affiliated with AJ Importing, transported the vehicles from Canada to Burton, Michigan. AJ Importing, a company registered with the National Highway Traffic Safety Administration (NHTSA) as an authorized vehicle importer, was required by federal regulation to take possession of the vehicles, perform all necessary modifications to bring them into compliance with federal motor vehicle safety and bumper standards, certify compliance to the NHTSA within 120 days of importation, and obtain NHTSA approval before releasing the vehicles for titling, licensing, or registration. This process involved odometer and speedometer modifications, resolution of manufacturer recalls, and processing of U.S. title paperwork. Bloomington Lincoln paid Baker Auto a flat per-vehicle trucking fee and paid AJ Importing a separate fee for the import and titling process. After NHTSA approval, Bloomington Lincoln would hire yet another trucking company to transport the vehicles from Michigan to its Minnesota lot.

On July 20, 2023, while the sixty vehicles were parked in Burton undergoing the federal certification and titling process or awaiting NHTSA bond release letters, a hailstorm caused damage to all of them. Bloomington Lincoln submitted a claim to its insurer, Clear Blue Specialty Insurance Company. Clear Blue denied the claim, asserting the vehicles were not covered because they were not 'in transit' at the time of the damage. Bloomington Lincoln filed a breach-of-contract action, originally in Hennepin County, Minnesota District Court. Clear Blue removed the case to federal court on diversity jurisdiction grounds — meaning the parties are citizens of different states and the amount in controversy exceeds $75,000. Bloomington Lincoln is a Minnesota citizen; Clear Blue maintains its principal place of business in Puerto Rico and is incorporated under Texas law. Bloomington Lincoln seeks a judgment in excess of $400,000.

Policy Language

The policy required Clear Blue to pay for loss or damage to 'covered autos' from any cause except collision. A 'covered auto' was defined as an auto 'which is parked at a location when not in use or which is in transit to or from a location, except if in transit from the manufacturer,' and which the insured owns. 'Location' was defined as a physical property at which covered autos are held for sale, stored, or used in the insured's business that is listed on the policy declarations. The parties agreed the Burton, Michigan facility was not a listed location. Coverage therefore depended entirely on whether the vehicles were 'in transit.'

Legal Standard: Rule 12(c) Motion for Judgment on the Pleadings

Clear Blue moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c), which allows a court to resolve a case based solely on the pleadings when no material factual dispute remains and the moving party is entitled to judgment as a matter of law. This standard is the same as the standard for a motion to dismiss for failure to state a claim under Rule 12(b)(6): the court accepts all factual allegations in the complaint as true and draws reasonable inferences in the plaintiff's favor. When a contract is the basis of the dispute, the contract may be considered without converting the motion into one for summary judgment.

Applicable Law: Interpretation of 'In Transit'

Because the parties agreed Minnesota law governs the policy, the court was required to predict how the Minnesota Supreme Court would rule. The Minnesota Supreme Court has not interpreted an 'in transit' insurance clause. The court surveyed persuasive authority from other jurisdictions and identified two consistent principles:

1. Incidental-stoppage rule: Goods remain 'in transit' during stops that are incidental to the main purpose of delivery or related to the transportation itself — such as overnight stops, ordinary delays, or stops necessary to obtain transportation permits. 2. Collateral-stoppage rule: Goods are not 'in transit' when a stop occurs for a purpose collateral or unrelated to transportation, even if the stop was necessary. For example, in Koshland v. Columbia Ins. Co., 130 N.E. 41 (Mass. 1921), wool was held not to be 'in transit' during a stop to scour, blend, and bale it in preparation for market. In Palm Desert Nat'l Bank v. Fed. Ins. Co., 473 F. Supp. 2d 1044 (C.D. Cal. 2007), cash was not 'in transit' while stopped at an armored-car company's office to be loaded into ATM cassettes — work essential to placing the cash in ATMs but not related to its transportation.

The court predicted the Minnesota Supreme Court would adopt this framework.

Application to the Facts

The court held that the vehicles were not 'in transit' as a matter of law when the hail damage occurred. Several factors supported this conclusion:

- The Burton stoppage was not for transportation-related activities. It was for federally mandated safety compliance work — modifications, inspections, and NHTSA certification — necessary to make the vehicles legally sellable and drivable in the United States. That is work to prepare goods for market, not work incidental to their carriage. - The contractual arrangements confirmed the separation: Bloomington Lincoln paid separately for trucking from Canada to Michigan, for the import and titling process in Michigan, and for trucking from Michigan to Minnesota. The transit and the compliance work were distinct, sequential, and separately contracted. - This structure distinguished the case from CashZone Check Cashing Corp. v. Vigilant Ins. Co., 981 N.Y.S.2d 698 (N.Y. App. Div. 2014), where the court found the processing of cash was part of a single integrated delivery process. Here, the federal compliance work was a separate phase entirely. - The risks of parking vehicles in an uncovered lot for days or weeks exceeded the ordinary transportation risks Clear Blue accepted under the policy.

The court also rejected Bloomington Lincoln's reliance on U.S. Fire Ins. Co. v. Altech Yachts Inc., 1991 WL 238246 (S.D.N.Y. 1991), in which a yacht's delay in Newark to obtain mandatory transportation permits was held to be a transit-incidental interruption. The court distinguished that case because the permits there were directly required to move the yacht on public roads — a transportation-specific requirement — whereas here, the Michigan stoppage was required to satisfy federal vehicle safety regulations, which are not transportation-specific and whose connection to the inability to transport was indirect.

Dismissal With Prejudice

The court exercised its discretion to dismiss with prejudice rather than without prejudice. Bloomington Lincoln did not suggest it could amend its complaint to cure the 'in transit' problem, identified no additional facts it might rely upon, and the record facts were complete and undisputed. The court found amendment would be futile because the outcome was purely a question of law.

Disposition

- Clear Blue's Motion for Judgment on the Pleadings [ECF No. 18] was granted. - Bloomington Lincoln's Complaint was dismissed with prejudice. - Judgment was entered in Clear Blue's favor on its counterclaim to the extent the counterclaim seeks a declaration that Clear Blue has no obligation to cover Bloomington Lincoln's loss or indemnify it for the damages asserted.