Note 10 - Commitments and Contingencies

6 Months Ended

Jun. 30, 2012

Commitments and Contingencies Disclosure [Text Block]

Note 10. Commitments and Contingencies

From time-to-time, we are a party to ordinary, routine litigation arising in the ordinary course of business, most of which involves claims for personal injury and property damage incurred in connection with the transportation of freight.  We maintain insurance to cover liabilities arising from the transportation of freight for amounts in excess of certain self-insured retentions.  In management's opinion, our potential exposure under pending legal proceedings is adequately provided for in the accompanying consolidated condensed financial statements.

On December 9, 2009, Carrie Bachrach and Randolph Bachrach filed suit against Covenant Transport, Inc. and one of the Company's former drivers seeking damages in connection with an accident that occurred in September 2008, involving a truck operated under Covenant’s authority. On March 13, 2012, a jury in the United States District Court for the District of Arizona entered a damage award of approximately $13.2 million in favor of the plaintiffs. On June 18, 2012, the United States District Court for the District of Arizona granted our request for remittitur totaling $1.6 million or a new trial. In July 2012, both plaintiffs rejected the remittitur and requested a new trial.

Under the terms of the commercial trucking insurance program that we had in place in 2008, we retained liability for up to $4.0 million with respect to the accident. We have third party insurance in place covering all amounts of the damage award in excess of such retention, excluding our pro-rata share of related out-of-pocket expenses. We recorded a $4.0 million charge representing our self-insured retention in respect of this accident in the consolidated financial results of the Company in 2008. Accordingly, the Company’s exposure was previously recorded and therefore the damage award did not impact the operating results for the three or six months ended June 30, 2012. Under the terms of our insurance policies, the Company is the primary obligor of the amount of the damage award, and as such, the Company has recorded a $1.6 million receivable from the third party insurance provider in other assets and as a corresponding accrual in the long-term portion of insurance and claims accruals in the consolidated condensed balance sheet at June 30, 2012.  A date for the retrial has not been set and the results of the trial cannot be estimated.

Our primary auto liability insurance policy includes a policy release premium refund of up to $4.0 million per policy year, if certain loss levels are not met and we were to commute the policy. This policy includes coverage for occurrences in excess of $1.0 million up to $10.0 million per policy year and any claims in excess of $20.0 million. We did not elect to commute the policy for the April 1, 2010 through March 31, 2011 policy year. However, in June 2012 we commuted the policy for April 1, 2011 through March 31, 2012 policy year and as such are responsible for all claims that occurred during that policy year, excluding any claims between $10.0 million  and $20.0 million, should such a claim develop. We recorded a $4.0 million reduction in insurance and claims expense in the second quarter of 2012 related to the commutation, net of reserve movements resulting from changes in estimates surrounding the diligence around the decision to commute the policy.  The insurer did not remit the premium refund directly to the Company, but rather applied a credit to the current auto liability insurance policy, such that we recorded the policy release premium refund as a prepaid asset at June 30, 2012.