Ross v. Wall St Sys

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 05a0129p.06

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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Plaintiff-Appellant, -
TERRY ROSS,
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No. 04-5051
v.
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WALL STREET SYSTEMS and GULF INSURANCE -
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Defendants-Appellees. -
COMPANY,

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Appeal from the United States District Court
for the Western District of Kentucky at Louisville.
No. 03-00387—John G. Heyburn II, Chief District Judge.
Argued: February 2, 2005
Decided and Filed: March 14, 2005
Before: SILER, BATCHELDER, and DAUGHTREY, Circuit Judges.
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COUNSEL
ARGUED: William Kirk Hoskins, Louisville, Kentucky, for Appellant. John G. McNeill,
LANDRUM & SHOUSE, Lexington, Kentucky, Licha H. Farah, Jr., CLARK & WARD, Lexington,
Kentucky, for Appellees. ON BRIEF: William Kirk Hoskins, Louisville, Kentucky, for Appellant.
John G. McNeill, LANDRUM & SHOUSE, Lexington, Kentucky, Licha H. Farah, Jr., R. David
Clark, CLARK & WARD, Lexington, Kentucky, for Appellees.
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OPINION
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MARTHA CRAIG DAUGHTREY, Circuit Judge. The plaintiff, Terry Ross, was seriously
injured in a four-vehicle chain-reaction collision on October 24, 2000, when his pickup truck was
rear-ended by a tractor-trailer rig driven by Richard Martin, in which the ostensible owner/operator,
Willie Conway, was a passenger. Because the Conway rig carried a placard indicating that it was
leased to Wall Street Systems, a long-distance hauling company, Ross sued both Wall Street
Systems and its insurance carrier, Gulf Insurance Company, in Kentucky state court, claiming
negligence.
The defendants removed the case to federal court on the basis of diversity jurisdiction and
filed a motion for summary judgment. In support of the motion, they produced evidence that the
lease executed between Willie Conway and Wall Street Systems on September 19, 2000, had been

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unilaterally terminated by Wall Street Systems on September 25, 2000, a month before the accident
involving plaintiff Ross. The termination process complied with a provision in the lease that
permitted unilateral termination on one day’s notice sent in writing to the address provided in the
lease agreement. There is no dispute that the notice sent by Wall Street systems complied with the
terms of the lease. The dispute is over whether it was effective.
The decision to terminate came as a result of Willie Conway’s inability to produce proof of
supplemental (“bobtail”) insurance for the tractor. Wall Street Systems offered to secure it for him,
with the understanding that the company would be reimbursed when Conway checked in to pick up
his first load. In the process of securing the supplemental insurance, however, company officials
learned for the first time that Willie Conway’s vehicle was actually titled to his mother, Evelyn
Conway. A call to the regional dispatch office also turned up information that Conway had never
reported in to accept a load. As a consequence, Wall Street Systems sent a certified letter to Evelyn
Conway at the address specified in the lease, giving notice of termination. The letter requested the
immediate return of Wall Street Systems’s placard and the other documentation provided under the
lease. The Conways had not complied with that demand at the time of the accident a month later,
and the tractor still bore Wall Street Systems’s placard when the collision took place.
Although the plaintiff’s theories of recovery were not clearly stated in the complaint, the
defense theory was obvious: the lease, if one had ever come into existence, had been terminated a
month prior to the accident, and there was no basis on which to hold either Wall Street Systems or
Gulf Insurance liable for Ross’s injuries. Ross nevertheless maintained that liability could be
predicated on the “current leasing practices” of national trucking companies such as Wall Street
Systems, arguing generally that the public should be able to rely on the fact that Conway appeared
to be operating under the auspices of Wall Street Systems.
The plaintiff contended specifically that Wall Street Systems was liable due to the presence
of its placard on the Conway vehicle at the time of the accident. In the past, some courts followed
a doctrine of “logo liability,” under which the presence of a carrier’s government-issued placard
created an irrebuttable presumption that the lease continued in effect. See, e.g., Rodriguez v. Ager,
705 F.2d 1229, 1236 (10th Cir. 1983). However, the underlying ICC regulations have changed, and
this rule is no longer in effect. In Jackson v. O’Shields, 101 F.3d 1083, 1088 (5th Cir. 1996), for
example, the Fifth Circuit held that “the presence of [carrier’s] placard on the [leased vehicle] and
the lack of a termination receipt did not alone keep the otherwise-terminated agreement alive.” As
was the case in Jackson, Wall Street System’s agreement with Willie Conway stipulated that
Conway, as the independent contractor, bore the burden of removing the placards and returning them
to Wall Street. Ross argued that Jackson should be interpreted as relieving the carrier of logo
liability only if the carrier made “conscientious” efforts and “took reasonable steps” to reclaim the
placards and insurance card. Jackson, 101 F.3d at 1088. In Graham v. Malone Freight Lines, Inc.,
314 F.3d 7, 14-15 (1st Cir. 1999), however, the First Circuit held that when the lease places the
burden of retrieval on the independent contractor, a letter from the carrier terminating the lease and
requesting return of the placards is enough to extinguish the carrier’s vicarious liability. We
likewise hold that, where the lease provides that the contractor is responsible for the return of the
placards, a letter demanding the return constitutes “reasonable steps.” “The absence of a valid lease
precludes imposition of vicarious liability against” Wall Street Systems, and the presence of its
placards on the Conway tractor at the time of the accident “does not constitute grounds for imposing
vicarious liability”. Graham, 314 F.3d at 15.
In addition to claiming that the lease was still valid, Ross alleged that Wall Street Systems
should be liable under what resembles a theory of negligent entrustment. He argued that because
Conway “could not have been on the road” without the Wall Street placard and insurance card, Wall
Street Systems should be liable. There is no evidence indicating that Wall Street Systems was
negligent, but even if their original entrustment to Conway was negligent, any potential liability
No. 04-5051 Ross v. Wall Street Sys. et al. Page 3

ended when the lease contract was terminated. See Graham, 314 F.3d at 14 (holding the
cancellation of a lease relieves carrier of any liability under a negligent entrustment theory).
In the wake of the summary judgment grant against him, Ross brought a motion for
reconsideration based on the theory that Conway’s coverage by Wall Street Systems’s insurance had
a 35-day grace period. The federal government mandates that authorized carriers such as Wall
Street Systems must assume full financial responsibility for any leased vehicles. 49 C.F.R. § 387.1.
In order to assure that leased vehicles are covered by an authorized carrier’s insurance, the
government requires carriers to add the form MCS-90 endorsement to their insurance policies. 49
C.F.R. § 387.15. The MCS-90 endorsement specifies that insurance coverage “will remain in effect
continuously until terminated.” 49 C.F.R. § 387.15. The MCS-90 endorsement further requires a
35-day grace period after the termination of the insurance policy. At issue here is whether the 35-
day grace period in insurance coverage applies to termination of a lease between the authorized
carrier and the independent contractor, or only to cancellation of an insurance policy between the
insurance company and the authorized carrier. The district court found that the 35-day grace period
did not apply to the situation at hand because the grace period takes effect only when the insurance
policy itself, not merely the lease, is terminated. We agree.
The MCS-90 endorsement is part of the insurance policy between the insurance company
(Gulf Insurance) and the carrier (Wall Street Systems). Although the endorsement extends coverage
to the leased truck, the endorsement is not a part of any contract with the operator of the truck. The
text of the MCS-90 clearly applies the 35-day grace period to the “cancellation of this endorsement,”
i.e., the cancellation of the insurance policy itself. This interpretation is fully consistent with the
provision in 49 C.F.R. § 387.7 that explicitly applies the grace period to terminations of “policies
of insurance,” not to the termination merely of coverage.
Section 387.7 further provides that “cancellation may be effected by the insurer or the
insured motor carrier.” There is no dispute that “insurer” refers to the insuring company, here Gulf
Insurance, but Ross argues that the term “insured motor carrier” includes the leased vehicle. “Motor
carrier” is defined as including, but “not limited to, a motor carrier’s agent, officer, or
representative.” 49 C.F.R. § 387.5. If, arguendo, the operator of a leased vehicle is an “insured
motor carrier,” then the operator would be able to terminate its policy with the insurance company.
Here however, there was no policy between the insurance company and the Conways. The only
contractual relationship involving insurance was between Gulf Insurance and Wall Street Systems.
There was no contractual relationship between Gulf Insurance and Conway; therefore no policy was
terminated, and there was no 35-day grace period applicable to the Conways’ rig.
CONCLUSION
For the reasons set out above, we AFFIRM the judgment of the district court.