Carolina Casualty Insurance v. Yeates

FILED
United States Court of Appeals
Tenth Circuit

September 3, 2009
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

CAROLINA CASUALTY
INSURANCE COMPANY,

Plaintiffs-Appellants,
v. No. 07-4019
TYMER YEATES and SHARI
YEATES,

Defendants-Appellees.

UNITED STATES OF AMERICA,

Amicus Curiae.

EN BANC REHEARING ON APPEAL
FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
(D.C. NO. 1:05-CV-124-PGC)

R. Clay Porter, Dennis, Corry, Porter & Smith, L.L.P., Atlanta, Georgia (Beth R.
Holck, Dennis, Corry, Porter & Smith, L.L.P., Atlanta, Georgia; Heinz J. Mahler
and Stephen D. Kelson, Kipp and Christian, P.C., Salt Lake City, Utah, with him
on the briefs), for Appellant.

Jesse C. Trentadue, Suitter Axland, PLLC, Salt Lake City, Utah, for Appellees.

H. Thomas Byron III, Appellate Staff Attorney, United States Department of
Justice, Civil Division, Washington, District of Columbia (Michael F. Hertz,
Acting Assistant Attorney General, Brett L. Tolman, United States Attorney, and
Scott R. McIntosh, Appellate Staff Attorney, United States Department of Justice,
Civil Division, Washington, District of Columbia; Rosalind A. Knapp, Acting
General Counsel, Paul M. Geier, Assistant General Counsel, David K. Tochen,
Acting Chief Counsel, Debra S. Straus, Attorney, Federal Motor Carrier Safety
Administration, United States Department of Transportation, Washington, District
of Columbia, with him on the brief) for Amicus Curiae.

Before HENRY, Chief Judge, TACHA, KELLY, BRISCOE, LUCERO,
MURPHY, HARTZ, O’BRIEN, McCONNELL, * TYMKOVICH, GORSUCH,
and HOLMES, Circuit Judges.

TYMKOVICH, Circuit Judge.

We granted en banc rehearing to reconsider our precedent concerning the

scope and application of federally mandated insurance for interstate commercial

motor carriers. See Carolina Cas. Ins. Co. v. Yeates, 533 F.3d 1202 (10th Cir.

2008) (applying Empire Fire & Marine Ins. Co. v. Guar. Nat’l Ins. Co., 868 F.2d

357 (10th Cir. 1989)).

Federal regulations require interstate trucking companies to maintain

insurance or another form of surety “conditioned to pay any final judgment

recovered against such motor carrier for bodily injuries to or the death of any

person resulting from the negligent operation, maintenance or use of motor

vehicles.” 49 C.F.R. § 387.301(a); see also id. § 387.7. To satisfy this insurance

*
The Honorable Michael W. McConnell, originally a member of this panel,
resigned his commission effective August 31, 2009. The remaining members of
the panel, who are in agreement, have determined this matter. See 28 U.S.C. §
46(d).

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requirement, most interstate trucking companies obtain a specific endorsement to

one or more of their insurance policies—the MCS-90 endorsement—which

guarantees payment of minimum amounts, as set forth in the regulations, to an

injured member of the public. Id. §§ 387.7, 387.9. An MCS-90 endorsement is

intended to “eliminate[] the possibility of a denial of coverage by requiring the

insurer to pay any final judgment recovered against the insured for negligence in

the operation, maintenance, or use of motor vehicles subject to federal financial

responsibility requirements, even though the accident vehicle is not listed in the

policy.” 1 Auto. Liability Ins. 4th § 2:12 (2008).

In this circuit, the leading case interpreting the MCS-90 endorsement is

Empire Fire. In Empire Fire, we evaluated the effect of an MCS-90 endorsement

where multiple insurance policies covered an accident between a trucker and a

member of the public. In resolving which of the policies provided primary

coverage, we concluded the MCS-90 endorsement amended contrary language in

the underlying insurance policy, which would otherwise have limited the

insurance carrier’s liability to excess coverage. Empire Fire, 868 F.2d at 363.

Because multiple potential sources of liability coverage existed, we held that

liability for primary coverage should be allocated among the insurers “pursuant to

traditional state insurance and contract law principles.” Id. at 368. This holding

has been interpreted to mean that an MCS-90 endorsement modifies the

underlying insurance policy in a variety of ways, including (1) allowing recovery

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from a policy that otherwise does not provide liability coverage, and (2) allowing

primary liability recovery from a policy that provides only excess coverage.

Empire Fire carefully addressed competing views in the then-existing

precedent regarding the scope of the MCS-90 endorsement, but its rule has placed

this circuit in the minority for quite some time. See generally Appleman on

Insurance Supp. to § 4467 (Supp. 2008) (describing split). In fact, since our

holding in Empire Fire, only one other circuit has apparently followed our lead.

See Prestige Cas. Co. v. Mich. Mut. Ins. Co., 99 F.3d 1340 (6th Cir. 1996); but

see Kline v. Gulf Ins. Co., 466 F.3d 450 (6th Cir. 2006) (declining to read an

MCS-90 endorsement as modifying the underlying insurance policy limitations).

In this en banc proceeding, Carolina Casualty argues our 20-year-old

decision in Empire Fire has evolved into an idiosyncratic, minority position that

frustrates the regulatory purpose behind the MCS-90 endorsement and impedes

the uniform regulation of interstate trucking. Carolina Casualty asks us to revisit

our prior reasoning and join the majority of circuits in recognizing the MCS-90

endorsement as a surety obligation. We take that opportunity here.

For the reasons discussed below, we hold the MCS-90 endorsement only

applies where: (1) the underlying insurance policy to which the endorsement is

attached does not provide coverage for the motor carrier’s accident, and (2) the

motor carrier’s insurance coverage is either not sufficient to satisfy the federally-

prescribed minimum levels of financial responsibility or is non-existent.

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 We therefore VACATE the panel’s opinion, REVERSE the district court’s

judgment, and order the district court to enter judgment consistent with this

opinion.

I. Background

In 2003 Tymer Yeates was severely injured when a car his wife was driving

was involved in a head-on collision with a truck owned by Bingham Livestock.

Yeates and his wife sued Bingham Livestock and the truck driver in state court.

Bingham Livestock carried two insurance policies relevant to this accident, one

issued by State Farm and one issued by Carolina Casualty. Bingham Livestock

notified both carriers of the claim.

State Farm’s policy specifically insured the truck involved in the accident.

Without much delay, it tendered the policy limit of $750,000 to the Yeateses. In

contrast, Carolina Casualty’s policy was a general liability policy covering a

variety of commercial claims, but did not extend to the truck involved in the

accident. It did, however, include an MCS-90 endorsement, which provided that

Carolina Casualty would pay up to $1,000,000 for “any final judgment recovered

against [Bingham Livestock] for public liability resulting from negligence in the

operation, maintenance or use of motor vehicles.” R., App. at 79 (MCS-90

endorsement).

While the Yeateses’ negligence case was pending in Utah state court,

Carolina Casualty filed this declaratory judgment action in federal court.

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Carolina Casualty sought a ruling that it had no liability to the Yeateses under the

general liability policy because (1) State Farm had already tendered its $750,000

policy limits; (2) federal regulations require a minimum of $750,000 for such

accident claims; and (3) therefore, the MCS-90 endorsement would not be needed

to provide federally mandated minimum coverage. The district court rejected this

argument on the basis of our holding in Empire Fire, concluding the Carolina

Casualty policy also provides primary insurance for the accident under the

endorsement and thus Carolina Casualty may be required to pay any final

judgment resulting from the Yeateses’ accident.

Carolina Casualty appealed, arguing one central point. Since State Farm’s

policy specifically covered the accident at issue (and State Farm had already paid

out its policy limits) and Carolina Casualty’s general liability policy did not cover

Bingham Livestock’s truck, the MCS-90 endorsement was not triggered. More

specifically, Carolina Casualty contended (1) its endorsement operated as a

“surety” to make it an insurer of last resort, requiring payment only when no

other insurance is available; (2) the MCS-90 endorsement attached to its policy

was therefore not triggered because the Yeateses had already received insurance

benefits at least equal to the minimum amount required by the MCS-90

endorsement; and, accordingly (3) our precedent in Empire Fire was flawed under

the reasoning adopted by the large majority of other circuit courts in the years

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since it was decided. A panel of this Court affirmed, finding our prior decision in

Empire Fire binding.

The panel determined “Carolina Casualty’s policy as amended by the

endorsement may be available to cover a final judgment arising from the

accident.” Carolina Cas., 533 F.3d at 1206. Applying Empire Fire, the panel

reasoned that “two conditions must be satisfied before the [MCS-90] endorsement

will operate to amend the underlying policy: (1) there must be a covered accident,

and (2) the underlying policy must preclude coverage for that accident.” Id.

Because Carolina Casualty’s policy precluded coverage for the truck involved in

the accident, the panel concluded the attached “MCS-90 endorsement operate[d]

to ‘amend’ the underlying policy and guarantee[d] payment ‘regardless’ of

limiting provisions in the underlying policy.” Id. On this basis, the panel

affirmed the district court’s grant of summary judgment in the Yeateses’ favor.

Carolina Casualty then sought a rehearing en banc, contending—as it has

throughout this litigation—that our decision in Empire Fire is out of step with the

other circuits. We granted Carolina Casualty’s rehearing request and asked for

supplemental briefing on whether our rule from Empire Fire, that an MCS-90

endorsement negates limiting provisions in the attached policy to render that

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policy a primary source of insurance coverage, should be reaffirmed, overruled,

or modified. 1

Today, we modify our prior holding in Empire Fire and adopt the rule used

by the majority of our sister circuits.

II. Regulatory and Legal Framework

We begin with an explanation of the MCS-90 endorsement and its

associated regulations. We then address the competing legal analyses of the

endorsement, including our approach in Empire Fire. Finally, with this

background in mind, we adopt the majority approach and apply it to the facts of

this case.

A. MCS-90 Endorsement

As part of its push to deregulate the trucking industry, increase

competition, reduce entry barriers, and improve quality of service, Congress

passed the Motor Carrier Act of 1980 (MCA), 49 U.S.C. § 10101 et seq. See H.R.

Rep. No. 96-1069 (1980), as reprinted in 1980 U.S.C.C.A.N. 2283; see also

Deimling, Gregory G. et al., The MCS-90 Book: Truckers Versus Insurers and the

Government Makes Three 13 (2004). According to the House Report

accompanying the MCA, the “intent of this legislation [was] to overhaul

1
Due to the governmental interests involved, we also invited the United
States to submit an amicus brief on this issue. Additionally, the Trucking
Industry Defense Association filed a supplemental amicus brief in support of
Carolina Casualty.

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outmoded and archaic regulatory mechanisms, while retaining the pluses of an

industry that has worked by simply conducting itself under the ‘rules of the

game.’” H.R. Rep. No. 96-1069, at 2.

Nevertheless, while the legislation was aimed at reducing regulatory

barriers in the interstate motor carrier industry, some legislators “fear[ed] that

increased safety problems [would] result from the expanded entry provided in [the

MCA]” and that “increased entry [would] open the highways to truckers who

might have little concern for the safe operation and maintenance of their vehicles,

thereby posing a threat to those who share the highways with them.” Id. at 6.

The MCA, therefore, included provisions addressing these concerns as well as the

“abuses that had arisen in the interstate trucking industry which threatened public

safety, including the use by motor carriers of leased or borrowed vehicles to avoid

financial responsibility for accidents that occurred while goods were being

transported in interstate commerce.” Canal Ins. Co. v. Distrib. Servs., Inc., 320

F.3d 488, 489 (4th Cir. 2003); Empire Fire, 868 F.2d at 362; 2 see also 16 Couch

2
In Empire Fire, we recognized:

In the past, the use by truckers of leased or borrowed vehicles led
to a number of abuses that threatened the public interest and the
economic stability of the trucking industry. In some cases,
ICC-licensed carriers used leased or interchanged vehicles to avoid
safety regulations governing equipment and drivers. In other cases, the
use of non-owned vehicles led to public confusion as to who was
financially responsible for accidents caused by those vehicles.

(continued...)

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on Insurance § 226:10 (3d ed. 2008) (“The relationships in the trucking business

are often complicated and usually involve multiple policies. For example, one

entity can own the tractor while another entity owns the trailer, with both of these

entities having contractual arrangements with another party, the trucking

company.”).

The MCA and the subsequent regulations promulgated by the Federal

Motor Carrier Safety Administration (FMCSA) 3 require interstate motor carriers

to obtain “a special endorsement . . . providing that the insurer will pay within

policy limits any judgment recovered against the insured motor carrier for

liability resulting from the carrier’s negligence, whether or not the vehicle

involved in the accident is specifically described in the policy.” Ill. Cent. R.R. v.

DuPont, 326 F.3d 665, 666 (5th Cir. 2003). In particular, the MCA provides that

2
(...continued)
In order to address these abuses, Congress amended the Interstate
Commerce Act to allow the ICC to prescribe regulations to insure that
motor carriers would be fully responsible for the operation of vehicles
certified to them. . . . In response to this mandate, the . . . ICC requires
that all ICC-certified carriers maintain insurance or other form of surety
“conditioned to pay any final judgment recovered against such motor
carrier for bodily injuries to or the death of any person resulting from
the negligent operation, maintenance, or use of motor vehicles” under
the carrier’s permit.

868 F.2d at 362 (citations omitted); see H.R. Rep. No. 96-1069, at 6; see also 49
U.S.C. §§ 13902, 13906.
3
The FMCSA is currently responsible for administrating the regulations. It
was previously part of the now-defunct Interstate Commerce Commission’s
purview.

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a commercial motor carrier may operate only if registered to do so, 49 U.S.C. §

13901, and must be “willing and able to comply with . . . [certain] minimum

financial responsibility requirements,” 4 id. § 13902(a)(1) (emphasis added).

The regulations promulgated pursuant to the MCA require proof of

financial responsibility by one of three methods:

(1) “Endorsement(s) for Motor Carrier Policies of Insurance for Public
Liability under Sections 29 and 30 of the Motor Carrier Act of 1980”
(Form MCS-90) issued by an insurer(s);

(2) A “Motor Carrier Surety Bond for Public Liability under Section 30
of the Motor Carrier Act of 1980” (Form MCS-82) issued by a surety;
or

(3) A written decision, order, or authorization of the Federal Motor
Carrier Safety Administration authorizing a motor carrier to self-insure
under § 387.309, provided the motor carrier maintains a satisfactory
safety rating as determined by the Federal Motor Carrier Safety
Administration . . . .

49 C.F.R. § 387.7(d)(1)–(3). In other words, a motor carrier can establish proof

of the requisite financial responsibility in one of three ways—(1) by an MCS-90

endorsement, (2) by a surety bond, or (3) by self-insurance. See Distrib. Servs.,

Inc., 320 F.3d at 489.

4
A motor carrier transporting property must demonstrate financial
responsibility of “at least $750,000.00.” 49 U.S.C. § 31139(b)(2). The
implementing regulations “prescribe[] the minimum levels of financial
responsibility required to be maintained by motor carriers of property operating
motor vehicles in interstate, foreign, or intrastate commerce,” 49 C.F.R. § 387.1,
and “appl[y] to for-hire motor carriers operating motor vehicles transporting
property in interstate or foreign commerce,” id. § 387.3. Specific minimum levels
are defined by the cargo being transported. Id. § 387.9.

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 The regulations also denote the specific forms necessary to establish

compliance with the financial responsibility requirements. Specifically, the MCS-

90 form is set forth in 49 C.F.R. § 387.15. 5

5
Section 387.15 mandates the following relevant provisions in an MCS-90
endorsement:

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 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 premiums 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. . . . 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.

(continued...)

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 B. Interplay of the MCS-90 Endorsement and Liability Insurance

The language of the MCS-90 endorsement and the underlying regulations

evince several key conclusions with respect to the financial responsibility

requirements. 6 First, the financial responsibility provisions require motor carriers

to demonstrate they are adequately insured in order to protect the public from

risks created by the carriers’ operations. See id. §§ 387.1, 387.7. From the

express language of the Motor Carrier Act and the regulations, these provisions

are intended to impose a mandatory requirement that motor carriers obtain a

minimum level of liability insurance, depending on the cargo they carry. See id.

§ 387.9.

Second, the provisions were designed to ensure the collectability of a

judgment—not to relieve the injured member of the public from the requirement

that he or she obtain a final judgment of legal liability against the motor carrier

and its insurers as a prerequisite. See id. § 387.15, Illus. I (“[T]he insurer . . .

agrees to pay, within the limits of liability described herein, any final judgment

recovered against the insured for public liability resulting from negligence . . . .”

(emphasis added)).

5
(...continued)
49 C.F.R. § 387.15, Illus. I.
6
The regulations define “financial responsibility” as: “the financial
reserves (e.g., insurance policies or surety bonds) sufficient to satisfy liability
amounts set forth . . . covering public liability.” 49 C.F.R. § 387.5.

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 Third, an MCS-90 endorsement—as one of the acceptable methods of

demonstrating financial responsibility—is ambiguous with respect to how it

interacts with the underlying insurance policy. The endorsement states that “no

condition, provision, stipulation, or limitation contained in the policy, this

endorsement, or any other endorsement thereon, or violation thereof, shall relieve

the [insurance company] from liability or from the payment of any final

judgment, within the limits of liability herein described.” Id. On one hand, this

provision may suggest the endorsement modifies the underlying policy to the

extent the policy is inconsistent. But on the other hand, the endorsement further

provides that “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.” Id. It is precisely this ambiguity that has created

the confusion about the effect of an MCS-90 endorsement on an injured party’s

right to recover a negligence judgment against a motor carrier.

The tension between these competing clauses in the MCS-90 endorsement

leads to confusion because courts are typically confronted with two

determinations involving the endorsement that must be resolved

contemporaneously: (1) the proper allocation of insurance liability among

multiple insurers and the motor carrier, and (2) any possible public financial

responsibility because of a shortfall in available sources for satisfaction of a

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judgment against the motor carrier, at least up to the prescribed minimum amount

under the regulations.

When we decided Empire Fire over 20 years ago, the MCS-90 landscape

was sparse. Since then, our reasoning in Empire Fire has been relegated to a

minority position. See Appleman on Insurance Supp. to § 4467 (Supp. 2008)

(describing the circuit split and the various approaches). To better explain our

decision today, we provide a brief summary of the competing approaches to the

interpretation and application of the MCS-90 endorsement.

C. Empire Fire & Approaches in Other Circuits

1. Empire Fire & Marine Insurance Co. v. Guaranty National
Insurance Co., 868 F.2d 357 (10th Cir. 1989)

In Empire Fire, we resolved the conflict created when multiple insurance

carriers with MCS-90 endorsements provided coverage for a trucker’s accident.

There, the dispute involved two insurance companies, Guaranty Insurance

Company and Empire Fire Insurance Company, and concerned their respective

insurance-policy-based responsibilities for a motor carrier’s accident involving a

truck and driver it had leased from another company. Empire Fire, 868 F.2d at

357. Notably, both insurance policies provided coverage for the accident at issue,

and the dispute centered on which insurer was responsible for primary

coverage—i.e., who would pay first. Id. at 359.

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 The Guaranty Insurance policy, issued to the motor carrier, contained a

clause limiting liability to excess coverage for accidents involving vehicles not

owned by the carrier. Id. at 360. The leasing company, which owned the truck

and had leased the vehicle and the driver to the motor carrier, was insured under

the Empire Fire policy. Id. at 359. By its own terms the Empire Fire policy

provided primary coverage. Id. at 360. Only the Guaranty Insurance policy,

however, contained an MCS-90 endorsement. Id. at 360–61. Based on the

MCS-90 endorsement, the district court concluded Guaranty Insurance was “the

primary insurer as a matter of law over any other insurer.” Empire Fire, 868 F.2d

at 359.

We reversed, finding the MCS-90 endorsement made Guaranty Insurance’s

coverage co-primary—i.e., Guaranty was a primary insurer, but not necessarily

the only primary insurer. Id. at 361. In reaching this conclusion, we considered

three competing interpretations of the scope of the MCS-90 endorsement:

(1) The . . . endorsement makes the insurance policy to which it is
attached primary as a matter of law over all other insurance policies that
lack similar provisions.

(2) [T]he endorsement only negates limiting provisions in the policy to
which it is attached, such as an “excess coverage” clause, but does not
establish primary liability over other policies that are also primary by
their own terms.

(3) [T]he endorsement applies only to situations in which a claim is
being asserted by a shipper or a member of the public, and that the
endorsement does not apply when allocating liability among insurance
carriers.

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Id. 7

We adopted the second approach, determining that both Guaranty

Insurance’s policy and Empire Fire’s policy were available to cover a liability

judgment arising from the accident. Id. at 365. We did not, however, decide how

the liability would be distributed between the two insurance policies. Id. at 366.

Instead, we determined that “once limiting language is read out . . . the two

policies then must be compared pursuant to traditional state insurance and

contract law principles to determine how liability should be allocated” among the

insurers. Id. at 368. We have applied the Empire Fire reasoning in several later

cases. See Campbell v. Bartlett, 975 F.2d 1569, 1581 (10th Cir. 1992); Budd v.

Am. Excess Ins. Co., 928 F.2d 344, 347 (10th Cir. 1991); Railhead Freight Sys. v.

U.S. Fire Ins. Co., 924 F.2d 994, 995 (10th Cir. 1991).

More recently, in Adams v. Royal Indemnity Co., we addressed

circumstances where no insurance policy, solely by its terms, extended to provide

liability insurance coverage for a motor carrier’s negligence. 99 F.3d 964 (10th

Cir. 1996). The injured party, Adams, was unsuccessful in collecting a judgment

7
Only the Second Circuit has appeared to follow the first approach,
holding that an MCS-90 endorsement, irrespective of the terms of the underlying
insurance policy, makes that policy primary as a matter of law with respect to
coverage for a motor carrier’s negligence. Integral Ins. Co. v. Lawrence
Fulbright Trucking, Inc., 930 F.2d 258 (2d Cir. 1991); see also Harold A.
Weston, Annotation, Effect of Motor Carrier Act Provisions on Insurance and
Indemnity Agreements (49 U.S.C.A. §§ 13906, 14102) in Allocating Losses
Involving Interstate Motor Carriers, 157 A.L.R. Fed. 549, § 9 (1999).

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of approximately $1 million against the driver. Id. at 965. He then sued Royal

Indemnity, which had issued two insurance policies: one to the lessee of the

trailer involved in the accident and one to the partnership that owned the trailer.

Id. Both policies contained MCS-90 endorsements. Id.

We concluded that although neither policy provided insurance coverage for

the accident, the lessee’s policy—by operation of the MCS-90 endorsement—

extended to make Royal liable for Adams’s unsatisfied judgment. Id. at 970–71.

Several insights regarding the MCS-90’s purpose and operation were key to this

conclusion.

First, we noted that the “ICC endorsement is designed to require

ICC-certified carriers to insure against public liability for all their motor

vehicles” and that “[b]y requiring . . . this ICC endorsement, the ICC prevents the

possibility that, through inadvertence or otherwise, some vehicles may be left off

a policy to the detriment of the public.” Id. at 968.

Second, while the MCS-90 endorsement does not explicitly define

“insured,” we concluded it indirectly modified the lessee’s policy with Royal so

the term extended to the trailer and driver involved in Adams’s accident. Adams,

99 F.3d at 970.

Finally, we acknowledged the “endorsement is not intended to preclude

insurers and carriers or multiple insurers from contractually apportioning ultimate

liability among themselves,” id. at 969, and most importantly, “[i]n situations

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where the policy absent the endorsement did not insure the vehicle which caused

the injuries, the endorsement explicitly requires that the insured reimburse the

insurer because the insurer’s payment to the injured motorist is a ‘payment the

company would not have been obligated to make under the provisions of the

policy except for the agreement contained in this endorsement,’” id. at 972

(quoting the mandatory language of the endorsement). Thus, we concluded “the

public is protected by insurance and ultimate responsibility rests on the truckers,

all as mandated by Congress and the [FMCSA].” Id. (emphasis added). As noted

below, our Adams approach is in accord with the majority view.

But, our analysis under Empire Fire—which, as discussed above, involved

a slightly different factual scenario—has fallen into disfavor. Specifically, other

courts have disagreed with our conclusion in Empire Fire that if an insurance

policy with an attached MCS-90 endorsement provides coverage for a motor

carrier’s accident, the MCS-90 endorsement operates to read out any limiting

provisions to make such an insurer a primary insurer, although not necessarily the

only one. Under this approach, an insurer may be forced to indemnify the motor

carrier for its negligence to a greater extent than it bargained for and without a

right to reimbursement from another primary insurer.

2. Majority Approach

The majority of circuits approach the MCS-90 endorsement using a

different framework from Empire Fire. We find their framework persuasive.

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 First, the cases describe the insurer’s obligation under the MCS-90

endorsement as one of a surety rather than a modification of the underlying

policy. 8 The endorsement is a safety net in the event other insurance is lacking.

See Canal Ins. Co. v. Carolina Cas. Ins. Co., 59 F.3d 281, 283 (1st Cir. 1995)

(holding the endorsement to be a “suretyship by the insurance carrier to protect

the public—a safety net—but not insurance relieving . . . [another] insurer. On

the contrary, it simply covers the public when other coverage is lacking”); see

also Kline v. Gulf Ins. Co., 466 F.3d 450, 455–56 (6th Cir. 2006) (same); Canal

Ins. Co. v. Underwriters at Lloyd’s London, 435 F.3d 431, 442 n.4 (3rd Cir. 2006)

(same); Canal Ins. Co. v. Distrib. Servs., Inc., 320 F.3d 488, 490 (4th Cir. 2003)

(same); T.H.E. Ins. Co. v. Larsen Intermodal Servs., Inc., 242 F.3d 667, 672 (5th

Cir. 2001) (same); Harco Nat’l Ins. Co. v. Bobac Trucking Inc., 107 F.3d 733,

736 (9th Cir. 1997); Occidental Fire & Cas. Co. of N.C. v. Int’l Ins. Co., 804 F.2d

983, 986 (7th Cir. 1986). Under this reasoning, an MCS-90 insurer’s duty to pay

a judgment arises not from any insurance obligation, but from the endorsement’s

8
A surety is “a contractual relation resulting from an agreement whereby
one person, the surety, engages to be answerable for the debt, default or
miscarriage of another, the principal.” 74 Am. Jur. 2d Suretyship § 1 (1974); see
Carolina Cas., 533 F.3d at 1208. Accordingly, the MCS-90 insurer would be a
surety for the motor carrier, the principal. Under the surety framework, the MCS-
90 endorsement would obligate the insurer to be answerable for a public liability
judgment—up to certain amounts—against the motor carrier. Unlike our Empire
Fire approach, the surety obligation does not alter the underlying insurance policy
and does not preclude the insurer from seeking reimbursement for its surety-based
payments on behalf of the motor carrier.

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language guaranteeing a source of recovery in the event the motor carrier

negligently injures a member of the public on the highways.

Second, in marked contrast to our approach in Empire Fire, these cases

describe the surety obligation—to pay a negligence judgment against a motor

carrier under the MCS-90 endorsement—as one that is triggered only when (1) the

underlying insurance policy to which the endorsement is attached does not

otherwise provide coverage, and (2) either no other insurer is available to satisfy

the judgment against the motor carrier, or the motor carrier’s insurance coverage

is insufficient to satisfy the federally-prescribed minimum levels of financial

responsibility. E.g., Kline, 466 F.3d at 455–56; Underwriters at Lloyd’s London,

435 F.3d at 442 n.4; Minter v. Great Am. Ins. Co. of N.Y., 423 F.3d 460, 470 (5th

Cir. 2005).

Third, according to the majority case law, the MCS-90 endorsement, its

terms, and its operating provisions that supercede any limitation in the underlying

insurance policy are only implicated as between an injured member of the public

and the MCS-90 insurer. E.g., Distrib. Servs., Inc., 320 F.3d at 493. Referencing

the express language of the MCS-90 endorsement—which provides that “all

terms, conditions, and limitations in the policy to which the [MCS-90]

endorsement is attached shall remain in full force and effect as binding between

the insured and the company,”—these cases conclude the MCS-90 endorsement

operates only to protect the public and “does not alter the relationship between

-21-
the insured and the insurer as otherwise provided in the policy.” Id. Further, “the

MCS-90 endorsement cannot reasonably be read to alter the terms of the policy

for the benefit of other insurers.” Id. The endorsement, in other words, is

irrelevant to and has no effect on the ultimate allocation of a judgment against a

motor carrier as between the carrier and its various insurers. 9

Finally, under the majority’s approach—just as we held in Adams—the

MCS-90 endorsement operates only to guarantee a source of payment of a

judgment, and does not relieve the motor carrier or its liability insurers (assuming

the respective insurance policies extend to the accident at issue) of their duty to

satisfy an injured party’s judgment against the carrier. “The peculiar nature of

the MCS-90 endorsement grants the judgment creditor the right to demand

payment directly from the insurer, and simultaneously grants the insurer the right

9
Although facially similar, the majority approach differs slightly from
Empire Fire. Empire Fire stated that while the MCS-90 endorsement does not
govern the ultimate allocation of liability as among a motor carrier’s various
insurers, Empire Fire, 868 F.2d at 366, it does read out any inconsistent limiting
language in the underlying policy, id. at 368. Therefore, under Empire Fire, an
insurer may be required to provide liability insurance coverage for a motor carrier
its policy would have otherwise excluded but for the MCS-90’s reading out
limiting clauses that, for example, constrain the definition of an insured vehicle or
driver.

Under the majority view, the MCS-90 is completely irrelevant to the
allocation of liability insurance coverage for a motor carrier’s negligence.
Rather, liability is entirely governed by the express terms of the respective
insurance policies, including any limiting provisions—i.e., terms which exclude
vehicles or drivers covered by the policy, limit the policy to primary or excess
coverage, and the like. In this respect, our holding in Adams, 99 F.3d 964, was
completely consistent with the majority view.

-22-
to demand reimbursement from the insured.” Underwriters at Lloyd’s London,

435 F.3d at 442 n.4. A motor carrier may be required to reimburse the MCS-90

insurer for any payout the insurer would not otherwise have been obligated to

make. The endorsement thereby presents neither a windfall for the motor carrier,

nor does it alter the motor carrier’s coverage under its other insurance policies.

See Bobac Trucking Inc., 107 F.3d at 736.

With this background, we turn to our analysis of the claims here.

III. Analysis

A. We Adopt the Majority View

Carolina Casualty argues we should abandon our Empire Fire framework

because it is inconsistent with both the MCS-90’s intended purposes and the

interpretation of the endorsement by the majority of other circuits. We agree, and

conclude the MCS-90 endorsement is intended to impose a surety obligation on

the insurance company.

Consequently, when an injured party obtains a negligence judgment against

a motor carrier, an insurer’s obligation under the MCS-90 endorsement is not

triggered unless (1) the underlying insurance policy (to which the endorsement is

attached) does not provide liability coverage for the accident, and (2) the carrier’s

other insurance coverage is either insufficient to meet the federally-mandated

minimums or non-existent. Once the federally-mandated minimums have been

satisfied, however, the endorsement does not apply.

-23-
 Next, we discuss the reasoning behind our change in MCS-90 interpretation

and application.

1. Surety Nature of the MCS-90 Endorsement

Carolina Casualty correctly notes that the regulatory framework

underscores the surety nature of the MCS-90 obligation. It argues the

endorsement should act as a safety net to protect the public where none of a motor

carrier’s liability insurance policies satisfies at least a minimum amount of an

injured party’s judgment.

We conclude the MCS-90 endorsement is intended to act as a surety for two

reasons. Initially, as explained above, the regulations provide a series of

alternatives for satisfying the requisite proof of a motor carrier’s financial

responsibility under the MCA: (1) an MCS-90 endorsement attached to an

insurance policy, (2) a surety bond, or (3) FMCSA-authorized self-insurance. See

49 C.F.R. § 387.7(d); Distrib. Servs., Inc., 320 F.3d at 489. Because each of

these alternatives equally satisfy the public financial responsibility requirements

prescribed by the FMCSA, the concepts underlying the second and third

alternatives are informative in understanding the nature of the MCS-90 obligation.

A surety bond, evidenced by an MCS-82 form, see 49 C.F.R. § 387.15,

Illus. II, is a surety on its face. The MCS-82 form provides:

This bond assures compliance by the Principal [motor carrier]
with the applicable governing provisions, and shall inure to the benefit
of any person or persons who shall recover a final judgment or

-24-
 judgments against the Principal for public liability . . . . If every final
judgment shall be paid for such claims resulting from the negligent
operation, maintenance, or use of motor vehicles in transportation
subject to the applicable governing provisions, then this obligation
shall be void, otherwise it will remain in full effect.

Id. (emphasis added). By the express terms of the MCS-82 form, the surety’s

obligation under the bond is inapplicable if a final negligence judgment against a

motor carrier is paid from other sources. Rather, the surety’s obligation to an

injured member of the public only arises if there is an unsatisfied judgment.

Similarly, the third alternative of self-insurance requires a motor carrier to

demonstrate to the FMCSA a financial ability to satisfy a negligence judgment.

See id. § 387.309(a). As part of this option, the motor carrier must, among other

things, demonstrate it

has established, and will maintain, an insurance program that will
protect the public against all claims to the same extent as the minimum
security limits applicable to [the motor carrier] . . . . Such a program
may include, but not be limited to, one or more of the following:
Irrevocable letters of credit; irrevocable trust funds; reserves; sinking
funds; third-party financial guarantees, parent company or affiliate
sureties; excess insurance coverage; or other similar arrangements.

Id. § 387.309(a)(2). Under this approach, nothing prevents the motor carrier

from obtaining liability insurance coverage from an outside insurer that would

otherwise satisfy any potential negligence liability obligations for the carrier’s

accidents. In this way, the self-insurance option may also operate as a suretyship

rather than as primary insurance coverage.

-25-
 This regulatory structure suggests the MCS-90 endorsement operates in

much the same way as the two alternatives—i.e., as a surety in the event judgment

against the carrier is for some reason unsatisfied. Conceivably, the motor carrier

may carry adequate insurance coverage providing recovery—at least to the

FMCSA prescribed minimums—for a judgment in favor of an injured party. Or,

the carrier may choose to pay the judgment out of its own pocket. In either of

these cases, the purposes behind the MCS-90 are satisfied, and the endorsement is

unnecessary. See id. § 387.1 (“The purpose of these regulations is to . . . assure

that motor carriers maintain an appropriate level of financial responsibility for

motor vehicles operated on public highways.”). On the other hand, if, for

example, the carrier fails to maintain insurance (or sufficient insurance) on a

truck involved in an accident and fails to pay out of its own pocket for its liability

to the injured party, the MCS-90 endorsement’s purpose is clearly implicated.

The endorsement in this circumstance would effectuate a minimum level of

recovery for the injured party from the MCS-90 provider.

The second reason for finding the MCS-90 operates as a surety is because,

by its express terms, the endorsement provides that while

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, . . . [t]he insured agrees to
reimburse the company for any payment made by the company . . . that
the company would not have been obligated to make under the
provisions of the policy except for the agreement contained in this
endorsement.

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Id. § 387.15, Illus. I. Nothing precludes the motor carrier from paying the

judgment itself or obtaining the payment from other insurance sources. The

endorsement obligates the underlying insurer to make this payment not in the

motor carrier’s stead, but to ensure a minimum level of satisfaction of a public

liability judgment. See id. (noting the insurer’s obligation is “irrespective of the

financial condition, insolvency or bankruptcy of the [motor carrier]”). This is

exactly the way a surety obligation is designed to operate. See Peter A. Alces,

The Law of Suretyship and Guaranty § 1:1 (2009) (“The essence of suretyship is

the undertaking to answer for the debt of another. The surety’s liability is

coextensive with that of the debtor and arises only when the debtor fails to

discharge his duties or to respond in damages for that failure.”).

In short, the surety concept flows naturally from the purpose and text of the

governing regulatory provisions.

2. Trigger for MCS-90 Endorsement

With this understanding of the surety nature of the MCS-90 endorsement,

we move to the conditions that trigger its application. As discussed above, the

relevant purpose of the Motor Carrier Act was to ensure a motor carrier’s

financial responsibility for negligence liability, not to preempt state insurance law

or contracting principles. We thus agree with Carolina Casualty that an MCS-90

endorsement, rather than fundamentally altering the terms of the underlying

-27-
insurance policy, operates to ensure payment of a minimum amount of an injured

party’s judgment against a negligent motor carrier.

The MCS-90 endorsement comes into play, then, only where (1) the

underlying insurance policy to which the endorsement is attached does not

otherwise provide liability coverage, and (2) the carrier’s other insurance

coverage is either insufficient to satisfy the federally-prescribed minimum levels

of financial responsibility or is non-existent. This conclusion flows from the

language of the MCS-90 endorsement, and the nature of the coverage provided by

it.

Textual Provisions

As an initial matter, an understanding of when the MCS-90 endorsement

comes into play can be obtained by examining two seemingly divergent

provisions in the MCS-90 endorsement: the first provision dictates that “no

condition, provision, stipulation, or limitation contained in the policy . . . shall

relieve the [insurance company] from liability or from the payment of any final

judgment, within the limits of liability herein described”; and the second

provision requires that “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.” 49 C.F.R. § 387.15, Illus. I.

The first provision requires the insurer to pay a public liability

judgment—entered against the motor carrier for negligence with respect to

-28-
vehicles subject to the financial responsibility requirements—whether or not the

events giving rise to the judgment come within the policy’s express coverage.

See id. (requiring payout even if the particular vehicle involved in an accident

was for some reason not “specifically described in the policy” or was driven on a

route the carrier was not authorized to serve, and “irrespective of the financial

condition, insolvency or bankruptcy of the insured”); see also Larsen Intermodal

Servs., Inc., 242 F.3d at 671. At first blush, the provision appears to

automatically invalidate any contrary or limiting terms in the underlying

insurance policy.

The second provision, however, reiterates the underlying insurance policy

remains in force on its original terms as between the motor carrier and the

respective insurance company. Any policy exclusions, or outright lack of

coverage by the policy for the accident at issue, remain valid and enforceable as

between the motor carrier and its insurer. This conclusion is supported by the

endorsement’s reimbursement provision: if the insurer would not have been

obligated to pay the judgment absent the endorsement, the insurer is entitled to

reimbursement by the motor carrier. See 49 C.F.R. § 387.15, Illus. I (“The

insured agrees to reimburse the company . . . 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 . . . [the MCS-90] endorsement.”). The motor

carrier therefore is free to negotiate the terms of its insurance policies with

-29-
various insurers as it sees fit. Consequently, with respect to the ultimate

allocation of responsibility, the MCS-90 endorsement should be irrelevant. 10

Nature of the Obligation

Notably, the endorsement and the underlying insurance policy, while

linked, impose different obligations based on different requirements. An

insurance policy typically imposes an obligation to indemnify (i.e., pay without

reimbursement) on the insurance company based on the policy’s coverage of a

particular risk. The endorsement, on the other hand, imposes an obligation on the

insurance company to make payment in the first instance, based on a final

judgment entered against the motor carrier and subject to possible reimbursement

by that carrier.

It is therefore helpful to distinguish between the two types of protection at

play when a motor carrier is responsible for an accident causing injury to a

member of the public. First, there is a public financial responsibility embodied in

the MCS-90 (and in the other two alternatives prescribed by 49 C.F.R.

§ 387.7(d)): liability for a judgment rendered against a motor carrier in favor of

an injured member of the public for negligence. An insurer guaranteeing a motor

carrier’s public financial responsibility presents a readily accessible source for

10
This interpretation of the two provisions is preferable since the language
of the endorsement is mandated by the regulations and cannot be altered. See
Regulatory Guidance for the Federal Motor Carrier Safety Regulations, 58 Fed.
Reg. 60,734, 60,742 (Nov. 17, 1993) (stating “the prescribed text of the [MCS-90
endorsement] may not be changed”).

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satisfaction of the judgment irrespective of the ultimate apportionment of

insurance liability. This liability, by itself, imparts no duty to defend or right of

subrogation to the insurance company. As the endorsement makes clear, although

the MCS-90 insurer may be obligated to pay a liability judgment against the

motor carrier, the insurer can obtain indemnification from the insured party—the

motor carrier. In essence, the MCS-90 is a guarantee an injured member of the

public will obtain at least a portion of his or her judgment regardless of the

ultimate allocation of liability and regardless of the financial health of the motor

carrier.

The other type of liability—and more widely understood—is the insurance

liability. A motor carrier insures itself against possible liability in its business

operations. Based on the insurance policy limits and in exchange for a premium

paid, an insurance company agrees to cover the carrier (i.e., pay for certain

liabilities without right of reimbursement) for the carrier’s own negligence. The

purpose of liability insurance is to minimize the motor carrier’s risks in operating

its fleet; insurance transfers a certain amount of risk from the trucking company

to its insurer. Further, the insurance company providing liability insurance has a

duty to defend the carrier in a lawsuit for negligence and may be ultimately on the

hook for any judgment against the carrier.

The insurance company has an incentive to ensure the motor carrier

operates its business in a safe manner; the insurance company can increase

-31-
premiums, drop its coverage, or refuse to renew the policy in response to risks

raised by the motor carrier’s operation. The motor carrier, having obtained

liability insurance coverage, is typically obligated to pay two possible expenses:

(1) the premium for the policy, and (2) any portion of a negligence judgment

exceeding all applicable insurance policy limits. The insurance company in turn

is obligated to pay (without right of reimbursement from the carrier) for the motor

carrier’s defense and liability costs covered by the policy, typically only up to the

policy’s stated limits.

To accomplish the MCS-90’s suretyship purpose, the endorsement—when

triggered—reads out “only those clauses in the policy that would limit the ability

of a third party victim to recover for his loss.” Larsen Intermodal Servs., Inc.,

242 F.3d at 673 (quoting Carolina Cas. Ins. Co. v. Underwriters Ins. Co., 569

F.2d 304, 312 (5th Cir. 1978)). This purpose, however, is not implicated where

there is an allocation of responsibility as between multiple insurers. Id. (“But

there is no need for or purpose to be served by this supposed automatic

extinguishment of a clause insofar as it affects the insured or other insurers who

clamor for part or all of the coverage.” (quotation and brackets omitted)). The

MCS-90 should not render the endorsement-insurer primary, or co-primary, as a

matter of law where the underlying policy provides otherwise. See id. (“[T]he

MCS-90 states that ‘all terms, conditions, and limitations in the policy to which

the endorsement is attached shall remain in full force and effect as binding

-32-
between the insured and the company.’”). “[I]t follows that when the protection

of injured members of the public is not at stake, the MCS-90 and the relevant

federal regulations do not address coverage for the purpose of disputes between

the insured and the insurer.” Id; see Empire Fire & Marine Ins. Co. v. J.

Transport, Inc., 880 F.2d 1291, 1298 (11th Cir. 1989) (“It is clear that while ICC

regulations require the carrier, or its certified insurer, to protect the public from

loss due to negligent acts, the regulations do not alter or affect the obligations

between the insured and the insurer, or where there is more than one insurer, the

apportionment of liability between them.”).

Additionally, the MCS-90 endorsement is “not an ordinary insurance

provision to protect the insured. The endorsement does not extinguish the debt of

the insured.” Travelers Indem. Co. of Ill. v. W. Am. Specialized Transp. Servs.,

Inc., 409 F.3d 256, 260 (5th Cir. 2005). The MCS-90 endorsement instead grants

the insurer the right to seek reimbursement from the insured party 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 insurance

company] would not have been obligated to make under the provisions of the

policy except for the agreement contained herein.” 49 C.F.R. § 387.15, Illus. I;

see also W. Am. Specialized Transp. Servs., Inc., 409 F.3d at 260 (“[The

endorsement] transfers the right to receive the insured’s debt obligation from the

judgment creditor to the insurer.”). Such a right of reimbursement is triggered

-33-
only if there is no coverage under the insurer’s policy. Larsen Intermodal Servs.,

Inc., 242 F.3d at 673.

In sum, the MCS-90 endorsement creates an obligation entirely separate

from other obligations created by the policy to which it is attached. The MCS-90

defines the insurer’s public financial responsibility obligation, while the

underlying policy defines the insurer’s insurance liability obligation. It would

make no sense to jump to the insurer’s MCS-90 endorsement obligation if the

underlying insurance policy already provides coverage for the accident.

Triggering Circumstances

It follows from the regulatory scheme and the text of the endorsement that

the surety obligation is triggered only when the underlying insurance policy does

not provide coverage and either (1) no other insurance policy is available to

satisfy the judgment against the motor carrier, or (2) the motor carrier’s insurance

coverage is insufficient to meet the federally-mandated minimum level. See

Distrib. Servs., Inc., 320 F.3d at 490; Larsen Intermodal Servs., Inc., 242 F.3d at

672.

First, if no other insurance policy is available the purposes behind the

MCS-90 are clearly implicated. As the majority of circuits have recognized, the

“primary purpose of the MCS-90 is to assure that injured members of the public

are able to obtain judgment from negligent authorized interstate carriers.” John

Deere Ins. Co. v. Nueva, 229 F.3d 853, 857 (9th Cir. 2000). Where, for example,

-34-
a motor carrier fails to obtain insurance on a particular vehicle 11 or driver, no

liability policy would extend to cover the carrier’s potential negligence on the

public highways. If an injured party obtains judgment, he or she would be left to

rely solely on the financial stability of the motor carrier to satisfy judgment. This

is the exact situation the endorsement contemplates and is designed to address.

See 49 C.F.R. § 387.15, Illus. I (stating the endorsement imposes an obligation on

the MCS-90 insurer to make “payment of any final judgment . . . irrespective of

the financial condition, insolvency or bankruptcy of the insured”).

Under this scenario, the motor carrier becomes a judgment-debtor to the

injured party, the judgment-creditor. The endorsement would then operate to read

out any exclusions or limitations and thereby require the MCS-90 insurer, as a

surety, to pay the injured party. However, the “endorsement does not extinguish

the debt of the insured; it transfers the right to receive the insured’s debt

obligation from the judgment creditor to the insurer.” W. Am. Specialized Transp.

Servs., Inc., 409 F.3d at 260. And most importantly, it merely shifts the risk of

non-payment from the injured party to the MCS-90 insurer. See 49 C.F.R.

§ 387.15, Illus. I (stating the insurance company has a right to reimbursement

from the motor carrier for payment of such a judgment). In this way, the

endorsement satisfies its public policy purpose.

11
For example, a motor carrier may lease a truck and fail to carry any
insurance policy extending coverage to leased vehicles.

-35-
 Second, and similarly, the endorsement may be implicated where the sum

of all liability coverage applicable to a motor carrier’s accident is insufficient to

meet the financial responsibility minimums. This situation may arise where all

the motor carrier’s insurance policies providing coverage for a specific accident

have policy limits, in aggregate, which are set too low.

The federal regulatory scheme provides for different minimum financial

responsibility coverage amounts. Motor carriers must maintain at least $750,000

in financial responsibility coverage for vehicles transporting non-hazardous

cargo, $1 million for vehicles transporting oil and certain hazardous substances,

and $5 million for other hazardous substances and radioactive materials. See id.

§ 387.9. Motor carriers may obtain multiple MCS-90 endorsements attached to

multiple insurance policies, each providing proof of the requisite level of

financial responsibility for a particular type of cargo. See Regulatory Guidance

for the Federal Motor Carrier Safety Regulations, 62 Fed. Reg. 16,370, 16,403

(Apr. 4, 1997). Or, alternatively, as in this case, the motor carrier may obtain one

policy with an attached endorsement meeting the highest requisite minimum for

the type of cargo it transports. The carrier may then maintain other insurance

policies covering the carrier’s liability risk for various vehicles but lacking any

MCS-90 endorsement, such as the State Farm policy here.

Either way, the MCS-90 endorsement may be implicated where a motor

carrier improperly transports cargo using vehicles that are not insured up to the

-36-
requisite minimums for that cargo. In such a circumstance, the liability insurance

coverage would be insufficient to meet the above minimums and the MCS-90

endorsement(s) would operate to satisfy the deficiency.

Once again, if an insurer, which otherwise has no liability for an accident

but for the MCS-90 endorsement, pays out the financial responsibility minimums

as governed by the regulations, that insurer is not without recourse; it may still

seek reimbursement from the motor carrier.

* * *

In sum, today we join the majority of circuits in describing an insurer’s

obligation under an MCS-90 endorsement as one of a surety. After a negligence

judgment is rendered against a motor carrier, the MCS-90 insurer’s obligation is

only triggered when (1) its underlying insurance policy does not provide liability

coverage, and (2) either no other insurer provides coverage for the accident or the

motor carrier’s insurance coverage, in aggregate, is insufficient to satisfy the

regulatory requirements. 12 Finally, we conclude the MCS-90 endorsement does

not apply once the federally-mandated minimums have been satisfied.

We now address Carolina Casualty’s appeal applying this framework.

12
We also note that the MCS-90 financial responsibility obligation may be
implicated when a motor carrier’s insurer, which is obligated to pay a judgment in
favor of an injured member of the public, is either insolvent or refuses to pay
under its policy. In that instance, the MCS-90 insurer may be called on to satisfy
the federally-prescribed minimum amount. However, as we have stated above,
the MCS-90 insurer would then be free to seek reimbursement from both the
motor carrier as well as the defaulting liability insurer.

-37-
 B. Application to Carolina Casualty

Carolina Casualty argues that under the majority approach, State Farm’s

$750,000 payment to the Yeateses satisfied the regulatory purpose behind the

FMCSA regulations. Thus, it is entitled to a declaratory judgment that it has no

liability under the MCS-90 endorsement to the Yeateses. In particular, since

Carolina Casualty’s policy with Bingham Livestock did not cover the truck

involved in the accident, it has no duties under its general liability policy.

Further, because the truck was transporting non-hazardous cargo and because the

State Farm Insurance payout satisfied Bingham Livestock’s financial

responsibility requirements, Carolina Casualty contends its duties under the MCS-

90 endorsement are not implicated.

The Yeateses respond that under either the old Empire Fire approach or the

approach we adopt today, Carolina Casualty remains potentially liable. In

essence, the Yeateses contend the public liability guarantee under Carolina

Casualty’s MCS-90 endorsement should “stack” 13 with all other applicable

liability policy limits to satisfy as much of their judgment as possible.

13
The State Farm policy provided $750,000 in coverage (which it has
already paid to the Yeateses). Carolina Casualty’s MCS-90 endorsement provides
$1 million in coverage to Bingham Livestock for any public liability judgment.
At oral argument, it was unclear whether the Yeateses contended the MCS-90
limits would stack by providing an additional $1 million in coverage for a
judgment in their favor or just an additional $250,000. We need not discern
which contention the Yeateses were making because we find Carolina Casualty’s
MCS-90 endorsement equally inapplicable.

-38-
 We agree with Carolina Casualty and conclude that the MCS-90

endorsement here is not triggered. First, there is another insurance policy, the

State Farm policy, available to satisfy a liability judgment against Bingham

Livestock. In fact, State Farm has already made a $750,000 policy limit payment

irrespective of any actual final judgment against Bingham Livestock to the

Yeateses.

Second, Bingham Livestock’s insurance coverage, by virtue of the State

Farm policy, is not insufficient to meet the federally-mandated minimum level for

the type of cargo it was transporting at the time of the accident. No one disputes

the truck was transporting non-hazardous cargo and that the requisite minimum

level of financial responsibility was therefore $750,000. Rather, the Yeateses

contend the MCS-90 endorsement language in the Carolina Casualty policy still

allows for an additional recovery against Carolina Casualty. We disagree.

The Carolina Casualty policy endorsement states:

The policy to which this endorsement is attached provides primary . . .
insurance . . . for the limits shown:
This insurance is primary and the company shall not be liable for
amounts in excess of $1,000,000 for each accident.

R., App. at 79. The Yeateses seize on the language in the endorsement providing

[i]n 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 for public
liability resulting from negligence . . . regardless of whether or not each
motor vehicle is specifically described in the policy.

-39-
Id. They claim this particular MCS-90 provision in conjunction with Carolina

Casualty’s $1 million policy limit precludes a declaratory judgment in Carolina

Casualty’s favor.

But the Yeateses’ reading of the MCS-90 endorsement, in light of the

majority approach we adopt today, is unpersuasive. The schedule of limits,

attached as the second page of Carolina Casualty’s MCS-90 endorsement,

delineates the same limits contained in 49 C.F.R. § 387.9. R., App. at 80

(containing table with limits as prescribed by the FMCSA regulations). While

Carolina Casualty’s policy provided a $1 million limit, this is explained as a

result of the higher limits required for transport of oil and certain hazardous

cargo.

The question remains whether an insurer that provides an MCS-90

endorsement to satisfy the regulatory requirements for multiple types of

cargo—non-hazardous and hazardous—necessarily exposes itself to the highest

possible limits as delineated by its underlying insurance policy. We think not.

A recent Sixth Circuit case rejected a similar argument. In Kline v. Gulf

Insurance Co., a motor carrier chose to self-insure for $1 million, the requisite

financial responsibility requirements under the FMCSA regulations for the cargo

the carrier transported. 466 F.3d at 452. The carrier also obtained an excess

liability insurance policy for $1 million (for claims over $1 million) and an

umbrella policy for any claims above $3 million from two insurers. Id. The

-40-
umbrella policy apparently contained an MCS-90 endorsement. Id. Kline, the

injured party, obtained a $3.2 million judgment against the carrier, but was unable

to collect from the self-insured trucking company as it had declared bankruptcy.

Id. Although Kline did collect $1 million against the excess insurer and $200,000

from the umbrella insurer, $2 million of the judgment remained unsatisfied. Id.

Kline sought to collect the additional amounts from the umbrella insurer, arguing

the attached MCS-90 endorsement operated to satisfy a portion of his unpaid

judgment. Id.

The Sixth Circuit held the MCS-90 endorsement inapplicable. Specifically,

the court noted that the “purpose of the [MCS-90] endorsement is to give full

security for the protection of the public up to the limits prescribed [by federal

regulation].” Kline, 466 F.3d at 455 (emphasis added) (citing 46 Fed. Reg.

30,974 (1981)); id. at 456 (“The federal government balanced the need to

compensate victims with the needs of industry and determined the appropriate

minimum compensation for members of the public.”). Additionally, “[r]ead as a

whole, the MCS-90 incorporated the limits of liability in the original insurance

policy; it did not replace them.” Id. at 455.

Moreover, according to the court, the MCS-90 endorsement’s language

stating “‘[t]he insurance policy to which this endorsement is attached . . . is

amended to assure compliance by the insured [with the MCA]” suggested the

insurer “intended to offer $1 million in coverage only if the law required such

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coverage.” Id. Because the carrier self-insured to the minimum regulatory

amount, the court determined the MCS-90 endorsement’s public policy purpose

was not implicated. Id.

And, as Kline had already collected $1.2 million of her judgment, her

recovery already exceeded the $1 million regulatory minimum level of financial

responsibility for the carrier. Id. Thus, the court concluded the purposes

underlying the MCA and the regulatory regime had been served and the MCS-90

did not operate to make the umbrella insurer liable on any amount its policy did

not otherwise mandate. 14 Id. at 456.

This reasoning is persuasive here. The Yeateses have already collected

$750,000—the regulatory minimum compensation level—from State Farm on any

hypothetical judgment they may eventually receive against Bingham Livestock.

Therefore the public policy purposes underlying the MCS-90 have been satisfied.

The Carolina Casualty policy, by its own terms, does not extend coverage to the

truck involved in the accident. Accordingly, we are unwilling to read the Motor

Carrier Act and the FMCSA regulations as requiring Carolina Casualty to bear

14
Kline’s argument, according to the Sixth Circuit, “would force insurance
companies to evaluate . . . [a motor carrier’s] financial well-being before issuing
secondary policies” and that such a requirement would generate significant
additional and unanticipated costs. Kline, 466 F.3d at 456. The Kline court
concluded that Kline was, in essence, asking the court to “rewrite the minimum
compensation provisions, something . . . [the court is] unwilling to do given the
language of the MCS-90 and the public policy directives already in place.” Id.

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responsibility it did not anticipate or otherwise bargain for once the public policy

purposes of the regulations have been satisfied.

We therefore conclude that State Farm’s $750,000 payment satisfied

Bingham Livestock’s minimum financial responsibility requirements under

federal law and the MCS-90 endorsement attached to the Carolina Casualty policy

does not supply additional coverage. The Yeateses therefore cannot recover

under this endorsement. 15

IV. Conclusion

For the foregoing reasons, we VACATE the prior panel decision,

REVERSE the district court’s judgment, and REMAND to the district court for

entry of judgment consistent with this opinion.

15
Nothing in this opinion, though, prevents the Yeateses from pursuing
their state tort suit against Bingham Livestock and holding it or other excess
insurers liable for any judgment above that paid by its primary insurance carrier.

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