T.H.E. Insurance v. Larsen Intermodal Services, Inc.

UNITED STATES COURT OF APPEALS
For the Fifth Circuit

No. 00-30392

T.H.E. INSURANCE COMPANY,

Plaintiff-Appellant,

VERSUS

LARSEN INTERMODAL SERVICES, INC.,

Defendant-Appellee.

Appeal from the United States District Court
for the Eastern District of Louisiana

March 2, 2001

Before KING, Chief Judge, and HIGGINBOTHAM and DUHÉ, Circuit
Judges.

DUHÉ, Circuit Judge:

T.H.E. Insurance Company (“T.H.E.”) appeals the ruling of the

district court granting summary judgment in favor of its insured,

Larsen Intermodal Services, Inc. (“Larsen”) and denying T.H.E.'s

cross-motion for summary judgment. T.H.E. defended Larsen against

the claims of several plaintiffs who were injured in an accident

involving a 1984 White tractor leased to Larsen and driven by one

of its employees. However, T.H.E. determined that the tractor was

not a covered vehicle under the Commercial Trucker's Insurance

policy (the “Policy”) that T.H.E. provided to Larsen.
Nevertheless, T.H.E. settled and paid the injured plaintiffs'

claims as required by a federally-mandated endorsement to the

Policy. The endorsement gives T.H.E. the right to seek

reimbursement from Larsen for any sums paid solely by reason of the

endorsement. The district court concluded, however, that T.H.E.

had waived its right to seek reimbursement. It also denied

T.H.E.'s claim for defense costs. Because we hold that T.H.E. did

not waive its rights to reimbursement of the settlement amounts, we

REVERSE and RENDER summary judgment for T.H.E. on that issue.

However, we conclude that T.H.E. had a duty to defend Larsen, and

we therefore AFFIRM the district court's ruling insofar as it

determined that T.H.E. is not entitled to recover its defense

costs.

I.

FACTS AND PROCEEDINGS

Larsen is a trucking company which operates on both interstate

and intrastate routes. T.H.E. insured Larsen under the Policy for

liability up to $1 million. The Policy provides that only the

autos specifically described on the declarations page attached to

the Policy are “covered autos.” A driver is covered under the

Policy as an insured while he or she uses, with the named insured's

permission, a covered auto that is owned, hired or borrowed by the

named insured. The Policy also provides that autos acquired after

the Policy begins are covered if, among other things, the named

insured requests coverage from T.H.E. within thirty days after

2
acquiring the auto. However, the Policy includes an endorsement

that amends this provision to require that the insured must request

coverage from T.H.E. within twenty-four hours after acquisition.

In addition, the Policy contained the federally-mandated

“Endorsement for Motor Carrier Policies of Insurance for Public

Liability under Sections 29 and 30 of the Motor Carrier Act of

1980,” which is the subject of this appeal. The endorsement,

referred to as Endorsement MCS-90 (“MCS-90”), must be attached to

any liability policy issued to a registered motor carrier pursuant

to 49 U.S.C. §§ 13906(a)(1), 31139(b)(2) and 49 C.F.R. § 387. The

MCS-90 states in pertinent part:

In consideration of the premium stated in the policy to
which this endorsement is attached, the insurer (the
company) agrees to pay, within the limits of liability
described herein, any final judgment recovered against
the insured for public liability resulting from
negligence in the operation, maintenance or use of motor
vehicles subject to the financial responsibility
requirements of Sections 29 and 30 of the Motor Carrier
Act of 1980 regardless of whether or not each motor
vehicle is specifically described in the policy . . . .
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.

Basically, the MCS-90 makes the insurer liable to third parties for

any liability resulting from the negligent use of any motor vehicle

by the insured, even if the vehicle is not covered under the

insurance policy. The endorsement continues:

3
 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.

Thus, the MCS-90 obligates the insured to reimburse the insurer for

any payments the insurer would not have been liable to make under

the policy but for the terms of the endorsement.

It is undisputed that the tractor involved in the accident

underlying this appeal was never listed on the schedule of covered

vehicles contained on the declarations page of the Policy. Larsen

admits that it has no evidence that it requested coverage for the

tractor within twenty-four hours after its acquisition. Rather, it

appears that T.H.E. was first informed that Larsen had acquired the

vehicle when Larsen submitted a loss notice advising T.H.E. of the

accident, twenty-two days after Larsen leased the tractor.

Before any of the plaintiffs injured in the accident filed

suit, T.H.E. determined that the tractor was not a covered auto

under the terms of the Policy, because Larsen had not requested

coverage for the vehicle within twenty-four hours after acquiring

it. Accordingly, T.H.E. sent a letter to Larsen advising it that

there was no coverage. The letter also advised Larsen that T.H.E.

could claim reimbursement for any amounts it paid to settle claims

4
arising from the accident,1 and invited Larsen to contact T.H.E.

with questions.

Thereafter, the injured plaintiffs filed their petitions

against Larsen, its driver, and T.H.E. in state court, alleging

that the driver's negligent operation of the vehicle caused their

injuries, and that “at the time of the accident sued upon herein,

[Larsen] was insured by [T.H.E.], in connection with the operation

. . . of a 1984 018000 truck at all times pertinent hereto.”

T.H.E. negotiated settlements with two of the plaintiffs, and

informed Larsen of some of the settled amounts in a second letter

in which it restated its right to claim reimbursement for the

settlement amounts. The letter again invited Larsen to contact

T.H.E. with questions. Despite these two letters, no

representative of Larsen contacted T.H.E. concerning its denial of

coverage, its claim for reimbursement, or the defense of the suits.

Not having received any objections from Larsen, T.H.E. engaged

a single attorney to defend the claims of the two remaining

plaintiffs. When the plaintiffs demanded amounts in excess of $1

million, T.H.E. sent a third letter to Larsen stating:

The [Policy] in effect for this loss has a limit of
liability of $1,000,000.00 per occurrence for Bodily
Injury and Property Damage. There exists the possibility
that this loss could exceed your policy limits,
therefore, please accept this letter as notice that
T.H.E. Insurance Company will not be liable for any award

1
T.H.E. based this advice on the Policy endorsement contained
on “Form F,” which is the state law counterpart to the MCS-90.

5
 in excess of $1,000,000.00.

Shortly after T.H.E. sent this letter, the remaining

plaintiffs agreed to settle their lawsuits for an amount less than

$1 million. T.H.E. then filed suit in federal court, seeking a

judgment that Larsen is liable under the MCS-90 to T.H.E. for

reimbursement of the settlement amounts, as well as the costs

T.H.E. incurred in defending the claims. T.H.E. and Larsen filed

cross-motions for summary judgment. The district court noted that

both parties agreed that T.H.E. had no duty to defend Larsen

arising from the terms of the MCS-90. It therefore concluded that

principles of Louisiana insurance law should be applied to

determine whether T.H.E., by assuming Larsen's defense, had waived

its rights to reimbursement under the MCS-90. Because it found

that T.H.E. had failed to obtain a nonwaiver agreement to reserve

its defense of noncoverage under Louisiana law, the court held that

T.H.E. had, in fact, waived its rights. Moreover, the court

reasoned that T.H.E. voluntarily defended Larsen, and consequently

it was not entitled to recover its defense costs. T.H.E. appealed.

II.

ANALYSIS

We review summary judgment rulings de novo, employing the same

standards applicable in the district court. Stults v. Conoco,

Inc., 76 F.3d 651, 654 (5th Cir. 1996). Summary judgment is proper

when there is no genuine issue of material fact and the movant is

entitled to a judgment as a matter of law. Fed. R. Civ. P. 56(c).

6
A. Coverage and Right to Reimbursement

1. Applicable Law

T.H.E. argues that the district court erred in looking to the

Louisiana insurance law on reservation of rights and nonwaiver

agreements, because the Policy itself was never implicated. It

argues that since there was never any coverage for the tractor

under the Policy, and because the MCS-90 did not create coverage,

there was no coverage defense that had to be reserved. According

to T.H.E., the right of reimbursement is a federal right that is

specifically reserved in the MCS-90 itself. T.H.E. urges us,

therefore, to look only to federal law in evaluating its rights

under the MCS-90.

A cogent analysis of these issues requires us to explore the

history and public policy underlying the MCS-90. The MCS-90 was

required under the regulations of the now-defunct Interstate

Commerce Commission (“ICC”). When the ICC was abolished, its

authority to regulate carriers was transferred to the Department of

Transportation, but the old regulations remain in effect until new

ones are promulgated. John Deere Ins. Co. v. Nueva, 229 F.3d 853,

855 n.3 (9th Cir. 2000). This Court has stated that ICC

endorsements are governed by federal law. Canal Ins. Co. v.

First Gen. Ins. Co., 889 F.2d 604, 610 (5th Cir. 1989), modified on

other grounds, 901 F.2d 45 (5th Cir. 1990) (citing Carter v.

Vangilder, 803 F.2d 189, 191 (5th Cir. 1986)).

We have also held that the policy embodied in the ICC

7
regulations “was to assure that injured members of the public would

be able to obtain judgments collectible against negligent

authorized carriers.” Canal v. First Gen., 889 F.2d at 611. Thus,

the insurer's obligations under the MCS-90 are triggered when the

policy to which it is attached provides no coverage to the insured.

The First Circuit has aptly described the obligation placed upon

the insurer by the MCS-90 as one of suretyship. “[W]e consider the

ICC endorsement to be, in effect, suretyship by the insurance

carrier to protect the public–a safety net . . . . [I]t simply

covers the public when other coverage is lacking.” Canal Ins. Co.

v. Carolina Cas. Ins. Co., 59 F.3d 281, 283 (1st Cir. 1995).2

Consistent with this line of reasoning, we have held that the

endorsement accomplishes its purpose by reading out only those

clauses in the policy that would limit the ability of a third party

victim to recover for his loss. Carolina Cas. Ins. Co. v.

Underwriters Ins. Co., 569 F.2d 304, 312 (5th Cir. 1978). “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.” Id. Indeed, the MCS-90 states that “all terms,

conditions, and limitations in the policy to which the endorsement

2
See also Boston Ins. Co. v. Nogg (In re Yale Express Sys.,
Inc. ), 362 F.2d 111, 113-14 (2nd Cir. 1966) (interpreting a
similar ICC endorsement for loss of cargo, and concluding that the
insurer was a surety for the carrier for claims payable solely
under the endorsement).

8
is attached shall remain in full force and effect as binding

between the insured and the company.” Therefore, in Carolina

Casualty v. Underwriters, we held that if an insurer's policy

contained the ICC endorsement, it would not render the insurer

primary as a matter of law. Id. at 313. We also took this

approach in Canal v. First General to hold that the ICC endorsement

is not implicated for the purpose of resolving disputes among

multiple insurers over which insurer should bear the ultimate

financial burden of the loss. Canal Ins. Co. v. First Gen. Ins.

Co., 889 F.2d 604, 611 (5th Cir. 1989), modified on other grounds,

901 F.2d 45 (5th Cir. 1990).3 From these cases and from the terms

of the MCS-90 itself, it 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. Cf.

Carolina Cas. Ins. Co. v. Underwriters Ins. Co., 569 F.2d 304, 313

(5th Cir. 1978). As the Eighth Circuit has framed the analysis,

“[a]lthough it is true that the endorsement and the pertinent

regulations . . . address only public liability and 'do not fix the

liability between insured or insurance companies,' we believe the

regulations' silence on the issue does not require preemption of

3
See also Carolina Cas. Ins. Co. v. Insurance Co. of N. Am.,
595 F.2d 128, 138 n.32 (3rd Cir. 1979) (recognizing a “general
principle” that “a court may give effect to otherwise existing
allocations of financial responsibility where the goal of
protecting the injured public has already been fulfilled.”)

9
state-law doctrines that do not resolve such questions.” Redland

Ins. Co. v. Shelter Mut. Ins. Co., 193 F.3d 1021, 1022 (8th Cir.

1999) (citations omitted).4

We recognize that these cases dealt with the effect of the

MCS-90's provision rendering the insurer liable to injured third

parties, but we think the principles we have identified are also

applicable to the portion of the endorsement giving the insurer a

right of reimbursement. Therefore, on the facts of this case, we

reject T.H.E.'s argument the we should look only to federal law in

evaluating its rights under the MCS-90. The MCS-90 gives T.H.E.

the right to seek reimbursement from Larsen 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

[T.H.E.] would not have been obligated to make under the provisions

of the policy except for the agreement contained in” the MCS-90.

4
See also Carolina Cas. v. Insurance, 595 F.2d at 138 & n.31
(reasoning that “the federal requirements are not so radically
intrusive as to absolve lessors or their insurers of otherwise
existing obligations under applicable state tort law doctrines or
under contracts allocating financial risk among private parties,”
and declaring that “so massive a disruption of the tissue of state
law would be extraordinary in the American legal framework.”);
Occidental Fire & Cas. Co. of N.C. v. International Ins. Co., 804
F.2d 983, 986 (7th Cir. 1986) (holding that once the injured third
party is compensated, state law may be applied to determine which
party should bear the ultimate financial burden); Clarendon Nat'l
Ins. Co. v. Insurance Co. of the West, No. CV-99-5461, 2000 WL
892864 at *7 (E.D. Cal. June 30, 2000) (“The majority of the
federal courts which have considered the issue held that the MCS-90
does not affect the obligations between the insurer and its insured
or between joint insurers.”)

10
We think this means that under the circumstances of this case, the

right of reimbursement is triggered only if there is no coverage

under the Policy. But the construction of insurance policies, and,

therefore, the scope of coverage, are matters of state law. See

Canal Ins. Co. v. First Gen. Ins. Co., 889 F.2d 604, 608 (5th Cir.

1989), modified on other grounds, 901 F.2d 45 (5th Cir. 1990).

Moreover, as we have already indicated, the MCS-90 does not alter

the existing policy obligations between the insured and the

insurer. We must determine then whether there was coverage for the

tractor, either under the terms of the Policy, or because T.H.E.

expanded the scope of coverage under the Louisiana law of waiver

when it provided a defense to Larsen.

2. Scope of Coverage and Waiver

Larsen urges us to hold that T.H.E. waived its right to

contest coverage for the tractor on several grounds. First,

although there is no evidence that it requested coverage for the

tractor within twenty-four hours after acquisition, Larsen contends

that T.H.E. waived the twenty-four hour notice requirement because

it was never explained to Larsen nor strictly enforced by T.H.E.

This contention has no merit. It is true that “[w]aiver

occurs when there is an existing right, a knowledge of its

existence and an actual intention to relinquish it or conduct so

inconsistent with the intent to enforce the right as to induce a

reasonable belief that it has been relinquished.” Steptore v.

Masco Constr. Co., 643 So. 2d 1213, 1216 (La. 1994). However, an

11
insured is presumed to know the provisions of his policy. Stephens

v. Audubon Ins. Co., 665 So. 2d 683, 686 (La. App. 2 Cir. 1995).

The insurance policy constitutes the law between the parties and

should be enforced as written if the terms are clear and express

the intent of the parties. Id. The relevant endorsement makes

abundantly clear that a newly acquired auto will be added to the

policy only if “[y]ou tell us within twenty-four (24) hours after

you acquire it that you want us to cover it . . . .” Larsen has

not cited any authority for its argument that T.H.E. was required

to explain such an unambiguous provision. Moreover, Larsen has not

pointed out any evidence that it was T.H.E.'s consistent practice

to provide coverage even if the insured had not complied with the

twenty-four hour requirement. This is especially true where, as

here, T.H.E. had no knowledge of the vehicle nor opportunity to

adjust its premium at any time before the insured submitted a loss

notice advising T.H.E. of the accident and making a claim under the

Policy.5

Second, Larsen contends that T.H.E. waived its rights to

contest coverage when it sent Larsen its third letter stating that

5
Larsen bases its argument on the testimony of a T.H.E.
representative who stated that if T.H.E. learned by reason of an
audit that an insured was using more vehicles than were declared in
the policy, T.H.E. might conduct an investigation and potentially
add the vehicle to the policy if the omission was just an error.
This is not evidence of a practice by T.H.E. that was “so
inconsistent with the intent to enforce” the twenty-four hour
requirement “as to induce a reasonable belief” that it had been
waived.

12
“[t]he above policy in effect for this loss has a limit of

liability of $1,000,000.00 per occurrence . . . .” It is Larsen's

argument that T.H.E.'s statement that the Policy “was in effect for

this loss” would have induced a reasonable person to believe that

T.H.E. was providing coverage for the accident. Again, this

argument lacks merit. The Policy was in effect to the extent that

the MCS-90 endorsement that was attached to it required T.H.E. to

pay the claims of the injured plaintiffs up to the Policy's limit

of $1 million. Thus, the letter was not inconsistent with T.H.E.'s

intent to enforce its right to deny coverage.

Larsen also argues, and the district court held, that T.H.E.

failed to reserve its rights to reimbursement under the MCS-90 by

coming forward with a defense for Larsen without obtaining a

nonwaiver agreement. In Tate v. Charles Aguillard Ins. & Real

Estate, Inc., 508 So. 2d 1371, 1375 (La. 1987), the Louisiana

Supreme Court held that “waiver may apply to any provision of an

insurance contract under which the insurer knowingly and

voluntarily elects to relinquish his right, power or privilege to

avoid liability, even though the effect may bring within coverage

risks originally excluded or not covered.” The burden of proving

waiver is on the party asserting it. Id. Louisiana courts apply

waiver principles stringently to “uphold the prohibition against

conflicts of interest between the insurer and the insured . . . .”

Steptore, 643 So. 2d at 1216. Accordingly, the Louisiana supreme

court held in Steptore that the scope of coverage under an

13
insurance policy could be expanded by waiver “when an insurer, with

knowledge of facts indicating noncoverage under the insurance

policy, assumes or continues the insured's defense without

obtaining a nonwaiver agreement to reserve its coverage defense .

. . .” Id.

Larsen has cited no authority explaining what constitutes a

nonwaiver agreement under Louisiana law, and we have found none.

Although one Louisiana court found no waiver when the insurer

obtained a written instrument executed by the insured, see Cassey

v. Stewart, 727 So. 2d 655, 658 (La. App. 2 Cir. 1999), writ

denied, 743 So. 2d 209 (La. 1999), the court did not hold that such

a document was required. Therefore, we hold that T.H.E. adequately

reserved its rights to deny coverage when it put Larsen on notice

of its position that there was no coverage for the tractor under

the Policy and that T.H.E. had a right to seek reimbursement of any

amounts paid after settling the plaintiffs' claims. Because Larsen

received this notice yet made no effort to contact T.H.E. to

express any concerns or objections, it implicitly agreed that

T.H.E. had reserved its rights to deny coverage under the Policy

and consequently to seek reimbursement under the MCS-90.6

6
See also William S. McKenzie & H. Alston Johnson, Insurance
Law and Practice, 15 Louisiana Civil Law Treatise § 216 (1996) in
which the authors discuss the Louisiana Supreme Court's decision in
Steptore, and note:

The court did not discuss what constitutes a
“nonwaiver agreement.” Presumably, the court is not

14
 Larsen also argues that T.H.E. waived its rights by failing to

obtain separate counsel for Larsen when T.H.E. knew it would deny

coverage for the tractor. Larsen relies on Dugas Pest Control of

Baton Rouge, Inc. v. Mutual Fire, Marine and Inland Ins. Co., 504

So. 2d 1051, 1054 (La. App. 1 Cir. 1987), which held that “if the

insurer chooses to represent the insured but deny coverage it must

employ separate counsel.” While we acknowledge this rule, we note

that the court in Dugas held that if the insurer fails to obtain

separate counsel in these circumstances, then due to the ethical

considerations involved, the insurer becomes liable for the

attorney fees and costs of the insured's defense. Id. The court

did not hold that failure to obtain separate counsel vitiates an

insurer's reservation of rights. We recognize that the insurer in

requiring a written instrument executed by both parties.
A written communication from the insurer to the insured
should be sufficient when it gives notice that the
insurer, while willing to undertake the defense of the
insured, reserves it right to assert coverage defenses.
If the insured then accepts defense by the insurer, the
insured does so with knowledge of the potential conflict
of interest and with the implicit agreement that the
insurer has reserved its coverage defenses.

See also Scottsdale Ins. Co. v. Gulf Sea Temporaries, Inc.,
1999 WL 130633 at *4 (E.D. La. Mar. 10, 1999) (citing 7C Appleman,
Insurance Law and Practice § 4686 (1979) (“[W]here the insured made
no offer to take over the defense of the action, he would be deemed
to have impliedly assented to the conduct of the defense by the
insurer under a reservation of rights.”)); Dennis Sheen Transfer v.
Georgia Cas. Co., 113 So. 165 (La. 1927) (court found no waiver
when insurer assumed insured's defense despite the latter's failure
to give timely notice of the accident, when insured refused to sign
a nonwaiver agreement but had received a letter from insurer
reserving its defense of lack of timely notice).

15
Steptore engaged a single attorney to defend both itself and the

insured when it had knowledge of facts that might have indicated

noncoverage. However, that case is distinguishable. There, the

insurer failed to reserve its rights because it also did not obtain

a nonwaiver agreement. Steptore, 643 So. 2d at 1217.7 We think it

important to note that in this case, Larsen took no action on the

case nor made any objection whatsoever to T.H.E.'s settlement with

the plaintiffs, even after receiving T.H.E.'s reservation of rights

letters and two invitations from T.H.E. to participate in the

matter.

Moreover, it is undisputed that the attorney engaged by T.H.E.

did not know that T.H.E. had denied coverage for Larsen's claims.

The question of coverage was never an issue in the state court

action underlying this case. Therefore, T.H.E. did not retain the

same counsel to defend both Larsen against the injured plaintiffs'

claims and T.H.E. on the issue of coverage and the right to

reimbursement. In this situation, it is reasonable to expect that

counsel would have sought to minimize liability to the injured

plaintiffs as much as possible. In addition, Larsen was not

precluded from litigating the issue of coverage in the current

action. Consequently, we see no reason why Larsen was prejudiced

by T.H.E.'s retention of a single attorney in the state court

7
This distinction was also noted in Scottsdale, 1999 WL 130633
at *4.

16
proceeding.

Larsen makes two final arguments that T.H.E. should not be

reimbursed for the amounts it paid to settle the injured

plaintiffs' claims, but both arguments are unavailing. First,

Larsen asserts that the MCS-90 only requires an insurer to pay a

final judgment in favor of an injured plaintiff, not settlement

amounts. Because T.H.E. settled the claims in this case, it

contends T.H.E. is not entitled to reimbursement. In support of

its position, Larsen points to the language of the MCS-90 which

states, “the insurer (the company) agrees to pay, within the limits

of liability described herein, any final judgment recovered against

the insured.” We reject Larsen's argument. If the insurer must

pay a final judgment under the MCS-90, there is no reason why it

could not seek a favorable settlement rather than risk litigating

to a final judgment that could be more onerous. In Canal v. First

General, we held that an insurer who paid a settlement because of

the requirements of the MCS-90 was entitled to reimbursement from

the insurer who wrongfully denied coverage to the insured. Canal

Ins. Co. v. First Gen. Ins. Co., 889 F.2d 604, 612 (5th Cir. 1989),

modified on other grounds, 901 F.2d 45 (5th Cir. 1990).8 Moreover,

we note that the reimbursement provision of the MCS-90 permits the

8
See also Harco Nat'l Ins. Co. v. Bobac Trucking Inc., 107
F.3d 733 (9th Cir. 1997), where the Court required the insured to
reimburse an insurer who paid a portion of a settlement on the
insured's behalf pursuant to its duties under the MCS-90.

17
insurer to recover “any payment,” not just final judgments, that

the insurer would not have been obligated to pay except for the

agreement contained in the MCS-90.

Finally, Larsen argues that T.H.E. should be barred from

recovering the settlement amounts because it did not seek Larsen's

consent prior to agreeing to the settlements. However, we note

that Section II A of the Policy states that T.H.E. may investigate

and settle any claim as it considers appropriate.

B. Duty to Defend and Responsibility for Defense Costs

T.H.E. also argues that we should not apply the state law of

waiver because the duty to reserve rights is part of the duty to

defend. It contends that where the insurer has no duty to defend,

there can be no waiver of a coverage defense even if the insurer

did not reserve its rights or deny coverage.9 It is T.H.E.'s

position that it never had a duty to defend Larsen either under the

terms of the Policy or the MCS-90. It defended Larsen, rather, in

order to mitigate damages and protect itself from having to pay a

default judgment in the state court proceedings. Furthermore,

because it had no duty to defend Larsen, T.H.E. argues that we

should award it defense costs under the MCS-90's reimbursement

provision.

We express no opinion as to whether, under Louisiana law, the

9
In support of its position, T.H.E. cites only 46 C.J.S.
Insurance § 824 (1993). It has identified no Louisiana authority
on this point.

18
presence or absence of a duty to defend generally has any impact on

whether the insurer must reserve its right to deny coverage when it

provides a defense. We do hold, however, that T.H.E. did have a

duty to defend Larsen, and that on the facts of this case, the

state law of waiver is applicable. Furthermore, because T.H.E. had

a duty to defend, it is not entitled to be reimbursed for defense

costs.

We agree with T.H.E. that the MCS-90 does not impose a duty to

defend on the insurer where such a duty would not have otherwise

existed. In Canal v. First General, we held that the MCS-90 does

not in itself require the insurer to defend an insured. 889 F.2d

at 612. And as we have already stated in this opinion, the MCS-90

leaves unaffected any provisions of the Policy that do not impact

the insurer's duty to compensate injured members of the public.

Therefore, although the MCS-90 itself does not impose a duty to

defend upon the insurer, neither does it negate such a duty that

might fall upon the insurer under the Policy as interpreted

according to state law. Cf. id. at 611; Carolina Cas. Ins. Co. v.

Underwriters Ins. Co., 569 F.2d 304, 312 (5th Cir. 1978).10

10
See also Carolina Cas. Ins. Co. v. Insurance Co. of N. Am.,
595 F.2d 128, 139, 144 (3rd Cir. 1979) (holding that the ICC
endorsement does not impose a duty to defend nor does it alter
otherwise existing duties, and concluding that the question of the
duty to defend was a matter of state law); Harco Nat'l Ins. Co. v.
Bobac Trucking Inc., 107 F.3d 733, 736 (9th Cir. 1997) (“[T]he
reimbursement provision of the MCS-90 is inconsistent with implying
a duty to defend.”); and Clarendon Nat'l Ins. Co. v. Insurance Co.
of the West, No. CV-99-5461, 2000 WL 892864 at *7 (E.D. Cal. June

19
 Under Louisiana law, the insurer's duty to defend is generally

broader than its liability for damage claims. American Home

Assurance Co. v. Czarniecki, 230 So. 2d 253, 259 (La. 1969).

[T]he insurer's duty to defend . . . is determined by the
allegations of the injured plaintiff's petition, with the
insurer being obligated to furnish a defense unless the
petition unambiguously excludes coverage.

Thus, if, assuming all the allegations of the
petition to be true, there would be both (1) coverage
under the policy and (2) liability to the plaintiff, the
insurer must defend the insured regardless of the outcome
of the suit. Additionally, the allegations of the
petition are liberally interpreted in determining whether
they set forth grounds which bring the claims within the
scope of the insurer's duty to defend the suit brought
against the insured.

Id. (citations omitted).

It is also the rule in Louisiana that “where the petition

alleges facts which would place the claim within the coverage of

the policy, the insurer cannot avoid the duty to defend upon its

own determination that there is no coverage under its policy

provisions.” Smith v. Insurance Co. of the State of Pa., 161

So.2d 903, 918 (La. App. 1 Cir. 1964). However, an allegation of

coverage by the injured plaintiff cannot create a duty to defend

when the facts of the petition clearly place the claim outside the

policy's coverage. For example, in Michel v. Ryan, 373 So. 2d 985,

988 (La. App. 3 Cir. 1979), although the plaintiff alleged the

policy “was in full force and effect,” he also alleged that the

30, 2000) (observing that federal courts have generally held that
the MCS-90 does not affect the obligations between the insurer and
its insured).

20
accident occurred on a date that was more than three years beyond

the policy period. Consequently, the court held that the petition

unambiguously excluded coverage.

In the case underlying this appeal, the plaintiffs alleged

that “at the time of the accident sued upon herein, [Larsen] was

insured by [T.H.E.], in connection with the operation . . . of a

1984 018000 truck at all times pertinent hereto.” Unlike in

Michel, however, whether there is coverage in this case depends on

facts and circumstances not apparent from the face of the Policy.

Though the tractor involved in the accident was not listed in the

schedule of covered autos, it nevertheless could have been covered

had Larsen requested coverage within twenty-four hours after

acquiring it. T.H.E. admits in its brief that once coverage is

timely requested, coverage attaches immediately, but an invoice

reflecting the new premium is issued some time within the following

thirty days. The record also indicates that a final endorsement

showing coverage for the new vehicle could be issued by T.H.E. four

to five months after coverage was requested. Therefore, the

allegations of the petitions did not “unambiguously exclude

coverage,” because it was entirely possible that at the time of the

accident, the tractor could have been covered. “An insured's duty

to defend arises whenever the pleadings against the insured

disclose even a possibility of liability under the policy.”

21
Steptore v. Masco Constr. Co., 643 So. 2d 1213, 1218 (La. 1994).11

T.H.E. had a duty to defend Larsen under Louisiana law.

Because the MCS-90 does not alter existing duties between the

insured and the insurer, T.H.E. is not entitled to be reimbursed

for defense costs.12

11
This case is also different from Richards v. Farmers Export
Co., 377 So. 2d 859 (La. App. 4 Cir. 1979) (on rehearing), wherein
individual employees were alleged to be insured as “executive
officers” under their company's general liability policy. The
employees, however, were not “executive officers” as defined in the
policy. The court held the company's insurer had no duty to
provide a defense, because the policy was issued to the company,
not to the individual employees, who were strangers to the policy.
The court stated:

Surely the Czarniecki doctrine cannot be extended to any
case where an insurance company, which is a total
stranger to the defendant, is simply alleged to provide
coverage. Carried to its logical conclusion, this
argument would enable a plaintiff to pick out of the air
any insurance company, allege coverage and require the
company to defend.

Id. at 863. Those concerns are not present in the instant case,
because Larsen as the named insured is not a stranger to the
Policy.
12
T.H.E. relies on our decision in Canal v. First General as
support for its claim for defense costs. There, Canal Insurance
Company defended the insured and paid the claims only because of
the requirements of the MCS-90, after First General Insurance
Company wrongfully denied coverage. We held that Canal provided a
defense not because it had a duty to defend under the MCS-90, but
because it had a “manifest interest in controlling the litigation
to minimize the size of any judgments once First General denied
coverage and refused to defend.” Canal Ins. Co. v. First Gen. Ins.
Co., 889 F.2d 604, 612 (5th Cir. 1989), modified on other grounds,
901 F.2d 45 (5th Cir. 1990). We determined, however, that Canal
was not acting as a “volunteer” under Mississippi insurance law,
and held that First General had to reimburse Canal for the costs of
defense. Id. However, our holding was based on our determination
that First General had a duty to defend the insured and Canal did

22
 CONCLUSION

Because T.H.E. adequately reserved its rights to deny coverage

and seek reimbursement from Larsen for the settlement amounts,

there is no genuine issue of material fact and T.H.E. is entitled

to judgment as a matter of law on that issue. However, T.H.E. had

a duty to defend Larsen, and it is therefore not entitled to

recover defense costs.

REVERSED and RENDERED in part, and AFFIRMED in part.

not. This holding is consistent with our decision today that
T.H.E. is not entitled to defense costs because it had a duty to
defend Larsen.

23