United States Court of Appeals
REVISED April 23, 2007 Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS April 04, 2007
FOR THE FIFTH CIRCUIT Charles R. Fulbruge III
Clerk
_______________________
No. 06-40911
_______________________
JASON WELLS,
Plaintiff-Appellee,
versus
GULF INSURANCE CO.,
Defendant-Appellant.
__________________________________________________________
Appeal from the United States District Court
for the Eastern District of Texas
__________________________________________________________
Before REAVLEY, DEMOSS, and BENAVIDES, Circuit Judges.
REAVLEY, Circuit Judge:
The issue here is whether an endorsement—the form of which is prescribed by the
Motor Carrier Act’s implementing regulations—requires an excess insurer to drop below its
liability floor and pay a judgment when it is the first solvent insurer. The district court
1
thought so. We disagree and reverse.
I.
The Motor Carrier Act of 1980 (the “Act”) and its implementing regulations require
carriers like Defendant-Appellant Builder’s Transport, Inc. (“BTI”) to demonstrate that they
are in some way insured against damage they cause.1 A carrier can fulfill its responsibility
by 1) a form MCS-90 endorsement attached to a contract of insurance, 2) a surety bond, or
3) self-insurance.2 BTI satisfied the Act through self-insurance up to $1 million.3 BTI then
entered into excess insurance contracts with Reliance Insurance Company (“Reliance”), Gulf
Insurance Company (“Gulf”), Royal Indemnity Company (“Royal”), and Federal Insurance
Company (“Federal”). Under self-insurance and its excess insurance contracts, BTI was
insured as follows:
$0 – $1 million — BTI (self-insured)
> $1 million – $3.782 million — Reliance (subject to $1.782 million annual
deductible)
> $3.782 million – $16.782 million — Gulf
> $16.782 million – $26.782 million — Royal
> $26.782 million – $36.782 million — Federal
Jason Wells was injured in an accident involving a truck that BTI operated. Wells
1
49 U.S.C. § 13906(a)(1); 49 C.F.R. § 387.7(a).
2
49 C.F.R. § 387.7(d).
3
§§ 387.7(d)(3) and 387.9.
2
sued BTI and obtained a $417,771 judgment, but BTI’s bankruptcy thwarted execution.
Wells then tried to collect the judgment from Reliance, but a Pennsylvania commonwealth
court declared Reliance insolvent. Finally, Wells sued Gulf. Gulf’s excess insurance
contract with BTI contained the MCS-90 endorsement, which the regulations prescribe when
an insurance contract is a carrier’s method for satisfying the $1 million minimum financial
responsibility requirement,4 but which was unnecessary because of Wells’ self-insurance.5
Wells’ theory of liability was that the endorsement’s language placed Gulf in the position
of a surety because it was the first solvent insurer, and therefore it was liable from dollar one
of the judgment.
The MCS-90 form endorsement follows:6
The policy to which this endorsement is attached provides
primary or excess insurance, as indicated by "X", for the limits
shown:
9 This insurance is primary and the company shall not be liable
for amounts in excess of $ ______ for each accident.
9 This insurance is excess and the company shall not be liable
for amounts in excess of $______ for each accident in excess of
the underlying limit of $ ______ for each accident.
The insurance policy to which this endorsement is attached provides
automobile liability insurance and is amended to assure compliance by the
insured, within the limits stated herein, as a motor carrier of property, with
4
§ 387.7(d)(1).
5
§ 387.7(d)(3). However, as discussed below, the form contemplates that it will in some
circumstances be used in excess insurance contracts.
6
§ 387.15 (emphasis added).
3
sections 29 and 30 of the Motor Carrier Act of 1980 and the rules and
regulations of the Federal Motor Carrier Safety Administration.
In consideration of the premium stated in the policy to which this
endorsement is attached, the insurer (the company) agrees to pay, within the
limits of liability described herein, any final judgment recovered against the
insured for public liability resulting from negligence in the operation,
maintenance or use of motor vehicles subject to the financial responsibility
requirements of Sections 29 and 30 of the Motor Carrier Act of 1980
regardless of whether or not each motor vehicle is specifically described in the
policy and whether or not such negligence occurs on any route or in any
territory authorized to be served by the insured or elsewhere. Such insurance
as is afforded, for public liability, does not apply to injury to or death of the
insured's employees while engaged in the course of their employment, or
property transported by the insured, designated as cargo. It is understood and
agreed that no condition, provision, stipulation, or limitation contained in
the policy, this endorsement, or any other endorsement thereon, or violation
thereof, shall relieve the company from liability or from the payment of any
final judgment, within the limits of liability herein described, irrespective of
the financial condition, insolvency or bankruptcy of the insured. However,
all terms, conditions, and limitations in the policy to which the endorsement
is attached shall remain in full force and effect as binding between the insured
and the company. The insured agrees to reimburse the company for any
payment made by the company on account of any accident, claim, or suit
involving a breach of the terms of the policy, and for any payment that the
company would not have been obligated to make under the provisions of the
policy except for the agreement contained in this endorsement.
Wells argued in his motion for summary judgment that the endorsement meant that Gulf was
obligated to pay the judgment because it was the first solvent insurer of any kind, primary
or excess. The district court agreed and entered summary judgment for Wells.
II.
We review the district court’s summary judgment and its interpretation of the
4
endorsement de novo. Schneider Nat'l Transp. v. Ford Motor Co.7
The district court relied primarily on public policy considerations in holding that the
endorsement’s language that purports to excise any provision that would limit recovery by
an injured third party renders an excess insurer’s policy primary as a matter of law when it
is the first solvent insurer. We do not see a federal public policy that would compel the
district court’s construction because the Act allows for self-insurance and does not require
the MCS-90 in this contract.
The MCS-90 endorsement is only required when an insurance policy is used to satisfy
the Act.8 Federal public policy appears unconcerned with the possibility of an insolvent but
self-insured carrier, for the only assurance the regulations require is the Federal Motor
Carrier Safety Administration’s satisfaction that the carrier is qualified.9 “When
‘self-insurance’ is involved, there is no security for the protection of the public other than
the self-insured's financial strength . . . .” Commentary on Final Rule, 46 Fed. Reg. 30974,
30981 (June 11, 1981). It necessarily follows that under this scheme, there may be
circumstances in which an injured party will not be able to recover from a self-insured
carrier. We are therefore unpersuaded that federal public policy favors—much less
compels—the district court’s construction.
7
280 F.3d 532, 536 (5th Cir. 2002).
8
§ 387.7(d)(1); see also Kline v. Gulf Ins. Co., 466 F.3d 450, 452 (6th Cir. 2006) (“. . .
Builders Transport self-insured up to the minimum coverage, and Gulf did not need to [include
the endorsement.]”).
9
§ 387.309.
5
III.
The resolution of this case depends entirely on the terms of the MCS-90 endorsement.
We begin with the boxes at the top of the endorsement. The endorsement here had the
second box checked and read:
This insurance is excess and the company shall not be liable for amounts in
excess of $1,000,000 for each accident in excess of the underlying limit of
$1,000,000 for each accident.
Wells explains that this part of the form is intended not to change the later language that
overrides the underlying policy excess limits, but to allocate the responsibility among
insurance companies—it would clarify how two insurers divide coverage of the required
guarantee, for example, if each insurer insured a $500,000 policy. That, of course, does not
explain why Gulf’s policy filled $1,000,000 in the blanks. While the language here may be
confusing, it does clearly deny excess coverage below $1,000,000, and that argues against
imposing primary coverage on Gulf under any circumstance.
The endorsement continues: “In consideration of the premium stated in the policy .
. . the insurer (the company) agrees to pay, within the limits of liability described herein any
final judgment recovered against the insured . . . regardless of whether or not each motor
vehicle is specifically described in the policy [and regardless of where the negligence
occurs].”10 The endorsement specifically retains the policy’s liability limits—that is, the
policy’s monetary parameters. What the endorsement alters are coverage limits—that is,
10
§ 387.15 (emphasis added).
6
vehicles and persons insured, conduct insured against, and the like. The Second Circuit
recognized this in Integral Ins. Co. v. Lawrence Fulbright Trucking, Inc.,11 where it stated
that “[t]he policy provided coverage only for scheduled vehicles, but the trailer was not
included on the schedule. The policy, however, also included an MCS-90 endorsement,
which extends the insurance coverage to all motor vehicles owned by [the insured],
regardless of whether the vehicle is listed on the schedule.” Further, the court rejected the
insurer’s argument that it did not owe indemnity because its insured was not negligent. Id.
Commentators also recognize this effect of the endorsement. 1 WILLIAM E. KENWORTHY,
TRANSPORTATION SAFETY AND INSURANCE LAW § 19.02, at 19-13–19-14 (3d ed. 2006); 2
DAVID N. NISSENBERG, LAW OF COMMERCIAL TRUCKING § 14.07, at 789 (3d ed. 2003); John
K. Gisleson, Prosecution of Fraud and Civil RICO Claims in the Involuntary Insurance
Market, 29 TRANSP. L. J. 1, 3 (2001). And this coverage limit alteration is consistent with
the endorsement’s purpose.
The endorsement, originally promulgated by the Interstate Commerce Commission
(“ICC”), was directed at trucking companies’ practice of using leased or borrowed vehicles,
which often resulted in evasion of safety requirements and confusion about financial
responsibility for damage caused by the operation of the vehicles. Empire Fire & Marine
Ins. Co. v. Guar. Nat'l Ins. Co.12 The endorsement “had its origin in the ICC's desire that the
11
930 F.2d 258, 260 (2d Cir. 1991).
12
868 F.2d 357, 362–63 (10th Cir. 1989).
7
public be adequately protected when a licensed carrier uses a leased vehicle to transport
goods pursuant to an ICC certificate.” Id.
The endorsement also provides that “no condition, provision, stipulation, or limitation
contained in the policy [or] this endorsement . . . shall relieve the [insurer] from liability or
from payment of any final judgment, within the limits of liability herein described . . . .”13
But even this language retains the “limits of liability described herein” clause. The retention
of that clause can have no meaning at all if the surrounding language is read to excise the
policy’s liability limits.
Further, the endorsement clearly provides that the insurer must pay the described
judgment “irrespective of the financial condition, insolvency or bankruptcy of the insured
. . . [but] [t]he insured agrees to reimburse the [insurer] for any payment . . . that the [insurer]
would not have been obligated to make under the provision of the policy except for the
agreement contained in this endorsement.”14 The district court focused on this language, but
read it in isolation. Under the endorsement’s coverage limit alteration, the insurer is required
to pay a judgment even if, for example, the policy does not list a vehicle as covered. The
endorsement thus broadens the insurer’s duty to pay, and the insured incurs a duty to
reimburse the insurer.
The Sixth Circuit has decided this same question in Kline v. Gulf Ins. Co.15 and
13
§ 387.15 (emphasis added).
14
Id.
15
466 F.3d 450 (6th Cir. 2006).
8
concluded that the endorsement did not require Gulf to drop below its liability floor. In
Kline,16 the plaintiff obtained a $3.2 million judgment against BTI. Under BTI’s insurance
arrangement, BTI would have paid $2 million (self-insurance of $1 million plus a $1 million
dollar deductible under its policy with Reliant), Reliant as first excess insurer would have
paid $1 million, and Gulf as second excess insurer would have paid $200,000. Because of
BTI’s insolvency, however, the plaintiff only received $1.2 million—$1 million from Reliant
and $200,000 from Gulf under their respective policies. The plaintiff sued Gulf and argued
that it should be liable from dollar one based on the endorsement. The district court
disagreed, and in affirming, the Sixth Circuit held that the “limits of liability described
herein” clause preserved the policy’s liability limits.17 The Sixth Circuit also recognized that
the purpose of the endorsement is to ensure compliance with the regulations and that
regardless of BTI’s insolvency, since it was self-insured, the purpose of the regulations was
satisfied.18
In contrast, the cases Wells relies on in support of his theory involve MCS-90
endorsements necessary to satisfy the Act or primary insurance policies. In Travelers Indem.
Co. v. W. Am. Specialized Transp. Servs.,19 the carrier satisfied the $5 million minimum
responsibility level with both primary and excess insurers, requiring the endorsement in the
16
Id. at 452.
17
Id. at 455.
18
Id.
19
409 F.3d 256 (5th Cir. 2005).
9
excess insurer's policy. In T.H.E. Ins. Co. v. Larsen Intermodal Servs.,20 there was a
reimbursement dispute after the insurance company paid the claim. Canal Ins. Co. v.
Carolina Cas. Ins. Co.,21 and Empire Fire & Marine Ins. Co. v. Guar. Nat'l Ins. Co.,22 both
involved a dispute between two insurers where one insurer's policy contained endorsement
and the other's did not. In Am. Inter-Fidelity Exch. v. Am. Re-Insurance Co.,23 an insured
failed to pay its insurer reimbursement, and a reinsurer disputed its duty to pay the insurer.
And Integral Ins. Co. v. Lawrence Fulbright Trucking, Inc.,24 involved a federally mandated
MCS-90 endorsement in a primary insurance policy. These cases are therefore inapposite.
IV.
We join the Sixth Circuit and hold that where an excess insurer’s coverage is not
required to satisfy a carrier’s minimum level of financial responsibility under the Act, the
form MCS-90 endorsement does not require the excess carrier to satisfy a judgment below
its liability floor simply because it is the first solvent insurer.
Accordingly, we reverse the district court’s judgment and render judgment for Gulf
Insurance Company.
20
242 F.3d 667 (5th Cir. 2001).
21
59 F.3d 281 (1st Cir. 1995).
22
868 F.2d 357 (10th Cir. 1989).
23
17 F.3d 1018 (7th Cir. 1994).
24
930 F.2d 258 (2d Cir. 1991).
10
REVERSED and RENDERED.
11