No. 14267
IN THE SUPREME COURT OF THE STATE OF MONTANA
1978
TRUCK INSURANCE EXCHANGE, a
reciprocal or inter-insurance
exchange,
Plaintiff and Appellant,
TRANSPORT INDEMNITY COMPANY,
a corporation,
Defendant and Respondent.
Appeal from: District Court of the Third Judicial District,
Honorable Robert J. Boyd, Judge presiding.
Counsel of Record:
For Appellant:
Worden, Thane and Haines, Missoula, Montana
Ronald Bender argued, Missoula, Montana
For Respondent :
Gough, Shanahan, Johnson and Waterman, Helena,
Montana
Daniel Murphy argued, Helena, Montana
Submitted: December 19, 1978
Decided :
FEB 2 1 1979
Filed: Ff-F. 2 ; jFG
erk
M r . Chief Justice Frank I. Haswell delivered the opinion of
the Court.
Plaintiff appeals from an amended judgment of the powell
County District Court granting summary judgment in favor of de-
fendant on the question of liability for insurance coverage and
rights of indemnification.
This is a controversy between two insurance companies as
to which is obliged to provide coverage and defend against prop-
erty damages and personal injuries arising out of an accident
that occurred on January 24, 1976, on the Racetrack overpass
near Galen, Montana. That accident involved a semitractor and
trailer and a passenger car. The tractor on the semi belonged
to Forest Products International, Inc. (FPI, an Oregon based
contract hauler, and was being driven by one Michael Wirkkala,
an employee and major stockholder of FPI. The trailer on the rig
belonged to International Transport, Inc. (ITI), a Minnesota
corporation which is an authorized carrier licensed by the Inter-
state Commerce Commission (I.C.C.).
At the time of the accident, appellant Truck Insurance
Exchange had an insurance policy in effect with FPI and with
Michael Wirkkala individually, and respondent Transport Indem-
nity Co. had a policy in effect covering ITI. The dispute arises
over conflicting provisions in the two policies as affected by
certain I.C.C. regulations and the terms of a "haulers contract"
entered into between FPI and ITI.
On January 23, 1976, FPI and IT1 executed a "Single Trip
or Exempt Haulers Contract" whereby IT1 (the carrier) retained
the services of FPI (the hauler, Michael Wirkkala owner-operator)
to transport an ITI-owned trailer from Oregon to Minnesota. ITI,
as a licensed carrier, is subject to regulations promulgated by
the I.C.C. FPI, as a hauler only and not a certified carrier,
does not have to meet the same I.C.C. requirements.
Among the terms of the hauler's contract were numerous
provisions which the I.C.C. requires licensed carriers to include
in such agreements. One of those provisions appears in the con-
tract as paragraph 6 and reads:
"During the existence of this contract, the Carrier
[ITI] assumes liability for bodily injuries to or
the death of any person (except the Hauler, or the
employees, agents or servants of the Hauler) or for
the loss or damages to the property of others
(except the Hauler, or the employees, agents or
servants of the Hauler) resulting from the negli-
gent operation, maintenance or use of the vehicles
described in appendix A hereof . . ."
Both the tractor owned by FPI and Michael Wirkkala, and the
trailer owned by IT1 were described in appendix A of the contract.
An insurance company that enters into a policy of insur-
ance with a licensed carrier is required by federal statute and
regulation to file with the I.C.C. a certificate of insurance con-
ditioned to pay up to specified limits any claims against its
insured carrier arising out of negligent operation of motor ve-
hicles under the carrier's operating permit. Respondent Transport
Indemnity Co., ITI's insurer, had filed such a certificate of
coverage for IT1 here.
As a result of the accident on January 24, 1976, various
parties have filed personal injury and property damage suits
naming FPI and IT1 as defendants. On April 20, 1977, appellant
Truck Insurance Exchange (FPI's insurer) filed a declaratory judg-
ment action in Powell County District Court seeking a declaration
that respondent Transport Indemnity Company (ITI's insurer) was
obligated to FPI by reason of the assumption of liability clause
in the hauler's contract to provide coverage for and defend against
any claims asserted against FPI.
On June 8, 1977, respondent Transport Indemnity Co. (ITI's
insurer) filed an answer denying responsibility for providing
coverage for or assuming the defense of the damages arising out
of the accident and counterclaiming that all said damages were a
consequence of the negligence of FPI and that therefore appel-
lant Truck Insurance Exchange, as FPI'S insurer, was respon-
sible for them. The counterclaim cited several provisions from
the insurance policy issued to FPI by Truck Insurance ~xchange
to support that conclusion. The cited provisions included the
coverage clauses whereby Truck Insurance Exchange bound itself
to pay all damages FPI became legally obligated for because of
bodily injury or property damage arising out of the ownership,
maintenance, or use of the vehicle to which the insurance applied,
and the clause giving Truck Insurance Exchange the right and
duty to defend any suit against FPI on account of such bodily
injury or property damage. The counterclaim also cited language
from the Truck Insurance Exchange policy issued to FPI that the
insurance afforded by it was primary insurance, and contrasted
that to language in the Transport Indemnity Co. policy issued to
IT1 that if at the time of an o c c m - m c e to which the Transport
Indemnity Co. insurance applied there was in effect any other
valid and collectible insurance applicable to the same occurrence,
then counterclaimant Transport Indemnity's insurance was excess
insurance only.
As originally framed, the counterclaim included an alle-
gation that certain language in the insurance policy issued to
FPI by Truck Insurance Exchange also extended coverage to ITI,
Transport Indemnity C o t s named insured, and that therefore the
policy issued to IT1 by Transport Indemnity Co. was only excess
insurance giving use to no primary duty or liability on the part
of Transport Indemnity Co. On appeal, the claim that IT1 is an
included insured is abandoned and it is apparently conceded that
IT1 is not covered by the Truck Insurance Exchange policy because
of a specific exclusion therein. (The effect of the excess cover-
age clause on the issue of which insurer is liable for primary
coverage, however, is still contested.)
The significant underlying theory of the counterclaim
for purposes of this appeal is that ultimate responsibility for
the accident lay in the negligence of Michael Wirkkala; that
the Truck Insurance Exchange policy is the only policy specifi-
cally extending coverage to him; and that therefore Truck In-
surance Exchange is obligated to defend IT1 against any claims
asserted against it from the accident and indemnify Transport
Indemnity Co. for any settlements or other liabilities paid on
behalf of IT1 by Transport Indemnity Co. under its policy with
Truck Insurance Exchange filed its reply to the counter-
claim on July 14, 1977, admitting that the language cited in the
counterclaim was included in the policy issued to FPI by Truck
Insurance Exchange but alleging that other language in the policy
precluded the conclusion that Truck Insurance Exchange was liable
for primary coverage. The reply did not specify what other lang-
uage Truck Insurance Exchange relied on.
Subsequent to the filing of the original pleadings, an
error in the naming of the plaintiff became apparent and amended
pleadings were filed. The amended pleadings are substantially
identical to the originals except for the change in name.
After a period of discovery, both sides moved for summary
judgment and submitted briefs in support of their motions. The
brief of Truck Insurance Exchange specified the language from the
policy issued by Transport Indemnity Co. on which Truck Insurance
Exchange based its allegation that the Transport Indemnity Co.
policy should be liable for coverage. The language cited empha-
sizes that an "insured" under the Transport Indemnity Co. policy
includes the named insured and "any other person, firm or organ-
ization to whom insurance protection has been extended under the
policy or made so by any provision of law". Language from each
of the coverage clauses to the effect that Transport Indemnity
Co. will pay all sums for which "the insured shall become
legally obligated, by contract or otherwise ... arising out
of the occupation of the named insured" was also emphasized.
By tying this language to the previously mentioned assumption
of liabilities clause in the hauler's contract and the federal
statutes under which the I.C.C. had issued the regulations
requiring such clauses, the Truck Insurance Exchange brief con-
cluded that coverage under the Transport Indemnity Co. policy
insuring ITI, an I.C.C. regulated carrier, was extended thereby
to the damages at issue by operation of law and by contract with-
in the meaning of the policy.
On January 19, 1978, the District Court entered an order
granting summary judgment to Transport Indemnity Co., insurer of
ITI, the licensed carrier. The court based its decision on the
United States Supreme Court case of Transamerican Freight Lines,
Inc. v. Brada Miller Freight Systems, Inc. (1975), 423 U.S. 28,
96 S.Ct. 229, 46 L Ed 2d 169, which held under circumstances
similar to those here that the party responsible in law (here,
under the I.C.C. regulations, ITI, insured by Transport Indem-
nity Co.) may seek indemnity from the party responsible in fact
(here, FPI and Michael Wirkkala, insured by Truck Insurance Ex-
change) .
A petition for rehearing was subsequently filed by Truck
Insurance Exchange, alleging that the case relied on was dis-
tinguishable and that under the provisions of the policies and
all the circumstances present here Michael Wirkkala was an in-
cluded insured under the Transport Indemnity Co. policy against
whom Transport Indemnity had no claims for the reason that there
is no subrogation or indemnification by an insurer against its
own insured. The petition for rehearing was denied, and judg-
ment was entered for Transport Indemnity Co. on February 9, 1978.
The judgment ordered that Truck Insurance Exchange "is obligated
by its policy to defend and indemnify IT1 for any settlements,
judgments, attorney fees and expenses incurred in connection
with the civil actions instituted as a result of the accident
of January 24, 1976." An amended judgment filed February 27,
1978, corrected the judgment to reflect that Truck Insurance
Exchange's liability was only to the extent of its policy limits.
From that amended judgment, Truck Insurance Exchange has brought
this appeal.
The issues we find controlling, together with the deter-
minative arguments and authorities, are as follows:
Issue I. Did the District Court err in relying on Trans-
american Freight Lines Inc. v. Brada Miller Freight Systems, Inc.
(1975), 423 U.S. 28, 96 S.Ct. 229, 46 L Ed 2d 169, as authority
for its order of summary judgment on the circumstances present
here? We conclude that it did.
While the Brada decision involved the same federal statutes
and regulations as here with respect to motor carriers' use under
leases of motor vehicles not owned by them, 49 U.S.C. §304(e),
49 C.F.R. §1057.4(a)(4), a close reading of the case indicates
it is not controlling. It is true that in Brada the court said:
"Although one party is required by law to have control and respon-
sibility for conditions of the vehicle, and to bear the conse-
quences of any negligence", (referring to I.C.C. licensed carriers,
and the duties imposed on them by the federal statutes and regula-
tions), "the party responsible in law to the injured or damaged
person may seek indemnity from the party responsible in fact."
Brada, 423 U.S. at 40, 96 S.Ct. at 235, 46 L Ed 2d at 179. How-
ever, distinguishing facts and other language in the opinion
limiting its scope do not permit the broad conclusion Brada was
cited for here that any I.C.C. carrier can ignore its statutory
assumption of liability and seek indemnity from the negligent
party anytime.
In Brada both parties were authorized carriers. Trans-
american apparently had more business than its equipment could
handle, while Brada had some spare equipment. Transamerican
therefore leased a rig from Brada, to be operated by a Brada
driver but over Transamerican's roubes and under Transamerican's
operating authority. The lease, as required by the I.C.C. regu-
lations, recited that Transamerican, the certified carrier, had
responsibility for the operation of the equipment "in respect to
the public, shippers, and I.C.C." In addition, the lease con-
tained a separate paragraph in which Brada, the lessor, specifi-
cally agreed to indemnify Transamerican for any claims or losses
arising out of negligent operation of the vehicle by the Brada
driver. The narrow question before the Court was whether the in-
demnification agreement was void and ineffective as contrary to
the public policy behind the I.C.C. regulations (that licensed
carriers would be responsible in fact, as well as in law, for the
actions of borrowed drivers). The Court pointed out that: "The
regulations do not expressly prohibit an indemnification agree-
ment between the lessor and the lessee. In fact they neither
sanction nor forbid it." Brada, 423 U.S. at 39-40, 96 S.Ct. at
235, 46 L Ed 2d at 178. The Court concluded: "We hold only that
the presence in an equipment lease of an indemnification clause
directed to the lessor's negligence is not in conflict with the
safety concerns of the Commission or with the regulations it has
promulgated." Brada, 423 U.S. at 41, 96 S.Ct. at 236, 46 L Ed 2d
at 179.
Thus, reliance on Brada as authority here was inappropriate.
Here, there was no specific undertaking in the lease by the lessor
to indemnify the lessee authorized carrier. To cite Brada as
blanket authority for indemnification in the absence of such a
specific agreement is to circumvent the I.C.C. regulations placing
primary responsibility on the carrier.
Issue 11. Does the Transport Indemnity Co. policy in-
clude Michael Wirkkala as an insured so that no rights of in-
demnity or subrogation can arise in favor of Transport Indem-
nity Co.? We hold that it does.
There is no right of subrogation in favor of an insur-
ance company against its own insured. Home Insurance Co. v.
Pinski Brothers, Inc. (1972), 160 Mont. 219, 500 P.2d 945. This
is true both as to the named insured and as to any party to whom
coverage is extended under the terms of the policy; an additional
insured is entitled to the same protection as the named insured.
Cf. American Surety Company of N.Y. v. Canal Ins. Co. (4th Cir.
1958), 258 F.2d 934.
Respondent Transport Indemnity Co.'s brief concedes that
the terms of the additional insured endorsement in the policy it
issued to IT1 extend coverage to FPI. Respondent is adamant,
however, that the endorsement does not extend coverage to Michael
Wirkkala. Therefore, respondent argues, Transport Indemnity Co.
is not barred from indemnification by Wirkkala by the rule that
an insurer cannot seek indemnity from its own insured.
Respondent's argument that the endorsement does not ex-
tend coverage to Wirkkala is based on an erroneous premise. The
pertinent language in the endorsement is:
"It is hereby understood and agreed that the
insurance ...
is extended to any person or
organization (hereinafter called CONTRACTOR)
as an additional INSURED but only with res-
pect to the ownership, operation, maintenance
or use of AUTOMOBILES whether owned or non-
owned by CONTRACTOR which are contracted to the
NAMED INSURED under a written supplemental lease
or contract subject to all terms and conditions
of the policy to which this endorsement is
attached .. .."
Transport Indemnity Co. argues that by this endorsement the cover-
age of their policy is extended only to persons or organizations
who contract with the named insured (ITI) for the lease of motor
vehicles. Thus, respondent argues, since the lease contract
was only between IT1 and FPI and not between IT1 and Wirkkala,
coverage is not extended to Wirkkala.
This conclusion improperly construes the language of the
endorsement. The endorsement does not refer to "persons or
organizations contracting with the named insured" (as Transport
Indemnity argues). Rather, it refers to "automobiles . . . con-
tracted to the named insured" (Emphasis added.), and extends
coverage to "any person or organization . . . with respect to
the ownership, operation, maintenance or use" of the contracted
automobiles. The proper interpretation of that language clearly
extends coverage to both FPI and Wirkkala regardless of whose
name appears on the contract leasing the vehicle to ITI. This
conclusion is buttressed by the fact that Transport Indemnity
Co.'s interpretation of the endorsement would render it substan-
tially meaningless in that FPI, the contracting party, could
never itself "operate, maintain, or use" the vehicle, but could
do so only through its agents or employees who would never ordi-
narily be direct parties to the contract. We conclude, there-
fore, that the Transport Indemnity Co. policy does run to Michael
Wirkkala by its own terms under the additional insured endorse-
ment and that respondent is barred from seeking indemnification
from him.
Issue 111. Do federal statutes and regulations automati-
cally impose responsibility for primary coverage on the insurer
of the I.C.C. carrier as a matter of law? We find that they do
not.
49 U.S.C. S315 and 49 C.R.F. §1043.l(a) provide that no
I.C.C. certificate or permit shall be issued to a motor carrier
unless it has filed with the I.C.C. proof that the carrier is
insured against any liabilities arising out of operations under
its certificate or permit. In this case, Transport Indemnity Co.,
ITI's insurer, filed with the I.C.C. and attached to the policy
issued to IT1 the following certificate of endorsement (in
pertinent part) :
"In consideration of the premium stated in the
policy to which this endorsement is attached,
the Company hereby agrees to pay, within the
limits of liability hereinafter provided, any
final judgment recovered against the insured for
bodily injury to or death of any person, or loss
of or damage to property of others ...result-
ing from negligence in the operation, maintenance,
or use of motor vehicles under certificate of pub-
lic convenience and necessity or permit issued to
the insured by the Interstate Commerce Commission ...
"Within the limits of liability ...it is further
understood and agreed that no condition, provision,
stipulation, or limitation contained in the policy
... shall relieve the Company from liability here-
under . . .."
Truck Insurance Exchange has taken the position throughout this
case that because Transport Indemnity Co. filed the above quoted
endorsement, as required by the federal statutes and regulations,
it is liable for primary coverage as a matter of law. Transport
Indemnity Co. counters that the federal statutes and regulations
are not determinative and do not absolve Truck Insurance Exchange
of the contractual responsibility to provide primary coverage
for FPI and Michael Wirkkala under the policy it issued to them.
There is a plethora of case law involving disputes be-
tween insurers (on facts similar to those involved here) as to
what effect the I.C.C. regulations have on coverage and rights
of subrogation and indemnity. The authority is mainly from
federal court decisions.
Many cases stand for the proposition that the I.C.C.
encorsement does impose primary liability as a matter of law on
the insurer of the licensed carrier under whose permit a vehicle
is in use at the time of an accident. Cf. Argonaut Insurance
Co. v. National Indemnity Co. (10th Cir. 1971), 435 F.2d 718;
Hagans v. Glen Falls Insurance Co. (10th Cir. 1972), 465 F.2d
1249; Ryder Truck Lines v. Carolina Cas. Ins. Co. (Ind-App. 1978),
372 N.E.2d 504; Allstate Insurance Co. v. Federal Insurance Co.
Conversely, there are also numerous cases that reject
the notion that the I.C.C. regulations are determinative. Cf.
Allstate Insurance Co. v. Liberty Mutual Insurance Co. (3rd Cir.
1966), 368 F.2d 121; Wellman v. Liberty Mutual Insurance Company
(8th Cir. 1974), 496 F.2d 131; Vance Trucking Company v. Canal
Insurance Company (D.S.C. 1966) 249 F.Supp. 33, aff'd (4th Cir.
1968), 395 F.2d 391, Cert. denied, 393 U.S. 845, 89 S.Ct. 129, 21
L Ed 2d 116 (holding that I.C.C. regulations are not designed to
excuse a party from liability he might otherwise have).
The most recent decision in the area, and one of the best
reasoned, is also one that closely parallels many of the facts
present here. Carolina Cas. Ins. Co. v. Underwriters Ins. Co.
(5th Cir. 1978), 569 F.2d 304.
In Carolina Cas. the court held:
" ..
. the endorsement does not make (the insurer
of the licensed carrier) the primary insurer as a
matter of law ...I.C.C. policy factors are
frequently determinative where protection of a
member of the public or a shipper is at stake, but
those factors cannot be invoked by another insur-
ance company which has contracted to insure a
specific risk and which needs no equivalent protec-
tion." 569 F.2d at 313.
We find that reasoning persuasive and adopt it as controlling.
Issue IV. Should one of the insurers here be responsible
for primary coverage and the other for excess or should coverage
be prorated between them? We conclude that coverage should be
prorated.
To this point, two things have been determined:
(a) Michael Wirkkala is insured under both policies
involved here (as an additional insured under the additional in-
sured endorsement in the Transport Indemnity Co. policy, and as
a named insured under the Truck Insurance Exchange policy). Thus,
Transport Indemnity Co. is not entitled to indemnification
from Michael Wirkkala and cannot shift primary liability to
Truck Insurance Exchange on that ground.
(b) There is a fairly even split of authority on whether
I.C.C. regulations automatically impose primary coverage on the
insurer of the certified carrier as a matter of law. The line
of reasoning we find persuasive holds that they do not. Thus,
Truck Insurance Exchange cannot shift primary liability to Trans-
port Indemnity Co. on that ground.
The upshot is that both insurance companies have legiti-
mate arguments that the other should be primarily responsible.
Truck Insurance Exchange argues that by reason of the
terms of the lease contract between IT1 and FPI, where in para-
graph 6 IT1 assumes liability for negligent operation of the
vehicles, Truck Indemnity Co. as ITI's insurer is absolutely
liable for primary coverage. Truck Indemnity Co. replies that
it is not a party to and therefore not bound by the terms of that
contract. "It is well settled that disputes of this sort hinge
principally on the express terms of the policy and an insurer's
contractual obligations cannot ordinarily be altered by collater-
al agreements between its insured and third persons." Carolina
Cas.,
- 569 F.2d 313.
The express terms of the Transport Indemnity Co. policy
state that if at the time of an occurrence to which the insurance
applies there is in effect other insurance applicable to the same
occurrence, then Transport Indemnity's policy provides excess
coverage only. The express terms of the Truck Insurance Exchange
policy, on the other hand, state that where other insurance is
applicable, the amount of Truck Insurance Exchange's liability
shall not be reduced by the existence of such other insurance.
Thus, Truck Insurance Exchange provides primary coverage.
"However, it is equally well settled that a court
can look to outside sources--such as lease agreements and I.C.C.
regulations--to define the status of persons who are covered
by the insurance contract." Carolina Cas., 569 ~ . 2 d 314.
at
In addition to the assumption of liability by Transport Indem-
nity's insured in the hauler's contract, the I.C.C. endorsement
attached to the Transport Indemnity Co. policy specifies that
"no condition, provision, stipulation or limitation contained
in the policy shall relieve the Company from liability hereunder."
Thus, the excess coverage clause, at least up to the limits of
liability specified in the I.C.C. endorsement, is negated and
ineffective to relieve Transport Indemnity Co. from primary
coverage.
Taking into consideration all of the above factors, we
conclude that both insurers have obligated themselves to provide
primary coverage. Coverage should be prorated between them in
accordance with the limits of liability applicable in each policy.
In conclusion, we note that although Truck Insurance Ex-
change itself moved for summary in the District Court, on appeal
it argues that summary judgment is improper because genuine issues
of fact exist as to Michael Wirkkala's negligence. Transport
Indemnity Co. replies that Truck Insurance Exchange proceeded in
the District Court as if no genuine issues of fact were present
and cannot now be heard to argue that summary judgment is precluded.
Having determined that neither party is entitled to summary judg-
ment against the other because both provide primary coverage, we
have rendered this issue moot.
The order of the District Court granting summary judgment
in favor of Transport Indemnity Co. is vacated. The cause is
remanded with instructions to enter a declaratory judgment:
(a) That Transport Indemnity Co. provides primary coverage
to ITI, FPI, and ~ichaelWirkkala and Truck Insurance Exchange
provides primary coverage to FPI and Michael Wirkkala;
(b) That if Michael Wirkkala was the negligent party,
then coverage for any settlements or judgments should be pro-
rated between Truck Insurance Exchange and Transport Indemnity
Co. based upon the applicable policy limits in each policy;
(c) That if the insurers contest the negligence of
their insureds, then the contestant or contestants are obligated
to defend their insureds against the claims pending in the
District Court, each insurer to be responsible for its own attor-
ney fees and costs and any judgments returned against its insureds.
Reversed and remanded.
Chief Justice
We concur?