COVENANT LOGISTICS GROUP, INC. Commitments Disclosure

16.	COMMITMENTS AND CONTINGENCIES

 

Legal Proceedings

 

From time-to-time, we are a party to litigation arising in the ordinary course of business, most of which involves claims for personal injury, workers’ compensation, and/or property damage incurred in connection with the transportation of freight. We record a liability for the estimated cost of the uninsured portion of pending claims and the estimated allocated loss adjustment expenses, including legal and other direct costs associated with a claim, when we believe that it is probable that a loss has been incurred and the amount can be reasonably estimated.

 

There are inherent uncertainties in these legal matters, some of which are beyond management’s control, making the ultimate outcomes difficult to predict. Moreover, management's views and estimates related to these matters  may change in the future, as new events and circumstances arise and the matters continue to develop. The Company’s business, results of operations, financial condition, or liquidity could be materially and adversely affected by the resolution of one or more of these contingencies.

 

In 2025, a third-party trucking company hauling a load brokered by Solutions and using a trailer owned by Leasing was involved in an accident that resulted in five fatalities and injuries to at least one other person. There are several possible defendants in the case, facts are still being developed, alleged damages have not been specified, and there are significant factual and legal issues to be resolved. The Company has concluded that a loss is probable in the case, but given the preliminary nature of the proceedings, the Company cannot reasonably estimate a range of possible losses at this time in excess of the amount accrued for legal costs. As of  December 31, 2025, the Company accrued $0.7 million for legal costs associated with the accident, but it has not recorded any other liability related to the accident. To the extent Solutions is found to have liability related to the accident, and the damages awarded against the Company exceed the Company’s coverage limits, involve significant aggregate use of the Company’s self-insured retention amounts, or cause increases in the Company’s insurance premiums, the Company’s insurance and claims expense would be volatile and increase.  Any resulting increases in such expenses could have a materially adverse effect on the Company’s business, results of operations, financial condition, or liquidity.

 

We maintain insurance to cover liabilities arising from the transportation of freight for amounts in excess of certain self-insured retentions. Refer to Note 1 for information about our insurance program. 

 

Other Commitments and Contingencies

 

We had $19.9 million and $19.8 million of outstanding and undrawn letters of credit as of December 31, 2025 and 2024, respectively. The letters of credit are maintained primarily to support our insurance programs.

 

We had commitments outstanding at December 31, 2025, to acquire revenue equipment totaling approximately $100.8 million versus commitments at December 31, 2024 of approximately $114.0 million. These commitments are cancelable upon stated notice periods, subject to certain adjustments in the underlying obligations and benefits.