Travelers Indemnity Co. v. Western American Specialized Transportation Services, Inc.

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
May 10, 2005
FOR THE FIFTH CIRCUIT Charles R. Fulbruge III
Clerk

No. 04-30536

TRAVELERS INDEMNITY COMPANY OF ILLINOIS,

Plaintiff-Cross Claimant-Appellant,

versus

WESTERN AMERICAN SPECIALIZED TRANSPORTATION
SERVICES, INC., ET AL.,

Defendants,

NOBEL INSURANCE COMPANY,

Defendant-Cross Defendant-Appellee.

Appeal from the United States District Court for
the Western District of Louisiana
_________________________________________________________

Before REAVLEY, JOLLY and PRADO, Circuit Judges.

REAVLEY, Circuit Judge:

This is an attempt by an excess insurance carrier to recover from a primary insurer.

The district court granted summary judgment in favor of the primary carrier, and we

affirm.
 BACKGROUND

In 1997 Dixie Carriere was injured when her automobile and a truck owned and

operated by Richard Barnett collided. Barnett was operating the truck in the course and

scope of his employment with Western American Specialized Transportation Services,

Inc. (Western). The accident occurred in Louisiana and Barnett and Carriere are

Louisiana residents. Western is a Delaware corporation with its principal place of

business in Louisiana.

Western had leased Barnett’s truck and is a common carrier subject to certain

regulations of the Department of Transportation, and was required to carry at least $5

million in insurance coverage.1 Western and Barnett were insured by a $1 million

primary policy with appellee Nobel Insurance Co. (Nobel). Western procured an excess

policy of $4 million from appellant Travelers Indemnity Company of Illinois (Travelers).

The Travelers policy included a federally mandated endorsement known as the MCS-90

endorsement.2 The MCS-90 endorsement states:

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,

1
See 49 C.F.R. § 387.9 (2004).
2
See 49 U.S.C. §§ 13906(a)(1), 31139(b); 49 C.F.R. §§ 387.7, 387.15 (2004). So
far as we can tell from the records and briefs, the primary policy did not include the
MCS-90 endorsement, so the excess policy was not a strict “following form” excess
policy that mirrored precisely the underlying primary policy. However, our analysis does
not turn on whether Nobel’s primary policy also contained the MCS-90 endorsement.

2
 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. . . . 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 the
endorsement.

It is further understood and agreed that, upon failure of the company to pay
any final judgment recovered against the insured as provided herein, the
judgment creditor may maintain an action in any court of competent
jurisdiction against the company to compel such payment.

The last two sentences from the endorsement excerpt quoted above are unusual

provisions for an insurance policy rider or endorsement, in that they (1) expressly grant

the judgment creditor the right to seek direct payment from the insurer, and (2) entitle the

insurer to seek reimbursement from the insured for any payment made under the

endorsement.

Carriere and her husband and children (the Carrieres) brought a Louisiana state

court action against Barnett, Western, and Nobel.3 After a jury trial the state court

3
Because Louisiana has a direct action statute, the Carrieres were allowed to
name Nobel as a party defendant in their state court suit. See LA. REV. STAT. ANN. §
22:655(B) (West 2004).

3
awarded a judgment of $2,674,540 to the Carrieres. Nobel deposited its $1 million in

policy limits plus interest into the registry of the court.

After the state court judgment, the Carrieres attempted to collect the remainder of

their judgment from Travelers. Travelers initiated the pending federal declaratory

judgment action against the Carrieres, Barnett, Western, and Nobel. Travelers sought a

declaratory judgment that its excess policy did not cover any liability of the defendants in

the state court action.

Travelers later sought and received leave to file a “cross-claim” against Nobel,

after allegedly learning for the first time, upon review of a summary judgment

memorandum filed by the Carrieres in the federal suit, that the Carrieres had offered to

settle the state court action for $900,000, within the policy limits of the primary policy,

and that Nobel had refused this settlement offer. Travelers asserted in the cross-claim:

If the Court finds that Travelers provides coverage or financial
responsibility on behalf of Western American and Barnett, Travelers would
be subrogated to the rights of its Insureds, Western American and Barnett,
for claims that Nobel, as the primary insurer of Western American and
Barnett, breached the duties to defend and settle all claims against its
insureds with reasonable prudence and good faith.

The cross-claim then alleges that Nobel breached its duties to its insureds in several

specific respects. For our purposes, the claims are premised on the theory that Travelers

is subrogated to the rights of the insureds and can sue for the alleged negligence of Nobel

in breaching a duty to the insureds to defend prudently the state court suit and settle it

within the policy limits.

4
 By summary judgment the district court ruled that the MCS-90 endorsement in the

Travelers policy applied to the state judgment in favor of the Carrieres.4 The Carrieres

argued below, the district court held, and the parties to this appeal do not dispute, that the

MCS-90 endorsement was the only basis on which the excess policy covered the Carriere

accident and resulting judgment.5 After this interlocutory ruling Travelers settled with the

Carrieres for $1.55 million. The court then ruled in a second summary judgment that

Travelers had no claim against Nobel,6 the subject of the pending appeal.

DISCUSSION

The issue presented is whether the district court erred in ruling that Travelers, the

excess carrier, had no claim against Nobel, the primary carrier, for Nobel’s alleged

negligent failure to settle the state court suit within the policy limits of the primary

policy. The prevailing law, as accurately summarized by the district court, is that the

4
Travelers Indem. Co. of Ill. v. W. Am. Specialized Transp. Serv., Inc., 235 F.
Supp.2d 522 (W.D. La. 2002).
5
Travelers urged below that under another endorsement in the excess policy,
endorsement CG T8 00 09 96, its policy only applied when the insured was hauling
oilfield equipment for certain named entities, or hauling anything for three other named
entities, and that Western was not hauling for any named entity at the time of the
collision with Carriere. However, this endorsement had no effect on the MCS-90
endorsement, because as quoted more fully above the latter states that “no condition,
provision, stipulation, or limitation contained in the policy . . . or any other endorsement
thereon . . . shall relieve [Travelers] from liability or from the payment of any final
judgment, within the limits of liability herein described . . . .”
6
Travelers Indem. Co. of Ill. v. W. Am. Specialized Transp. Co., 317 F. Supp.2d
693 (W.D. La. 2004).

5
MCS-90 endorsement imposed a suretyship obligation on Travelers to the Carrieres.7

“Suretyship is an accessory contract by which a person binds himself to a creditor to

fulfill the obligation of another upon the failure of the latter to do so.”8

Whether the MCS-90 obligation is most accurately described as one of suretyship,

“in effect” a suretyship, or “akin” to suretyship, the result is the same and Travelers

became subrogated to the rights of the Carrieres as judgment creditors of the insured

parties, with a right to reimbursement from the insureds. The peculiar nature of the

MCS-90 endorsement, granting the judgment creditor the right to demand payment

directly from the insurer, and simultaneously granting the insurer the right to demand

reimbursement from the insured, is inconsistent with allowing the insurer to stand in the

shoes of the insured under a subrogation theory, and in effect sue on behalf of the insured

for injury to the insured. The MCS-90 endorsement is “in effect, suretyship by the

insurance carrier to protect the public—a safety net,”9 and not an ordinary insurance

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

7
See id. at 698, where the court discussed T.H.E. Ins. Co. v. Larsen Intermodal
Servs., Inc., 242 F.3d 667, 672 (5th Cir. 2001) (noting that “[t]he First Circuit has aptly
described the obligation placed upon the insurer by the MCS-90 as one of suretyship”)
and other circuit court decisions.
8
LA. CIV. CODE ANN. art. 3035 (West 2005).
9
T.H.E. Ins. Co., 242 F.3d at 672 (quoting Canal Co. v. Carolina Cas. Ins. Co., 59
F.3d 281, 283 (1st Cir. 1995)).

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insured; it transfers the right to receive the insured’s debt obligation from the judgment

creditor to the insurer.

Because Travelers became subrogated to the rights of the Carrieres as creditors

and not to the rights of the debtors insured under the Nobel and Travelers primary and

excess policies, Travelers cannot pursue a claim against Nobel under a theory that Nobel

breached a duty to the insureds. Travelers has no direct state law claim against Nobel

under a theory that the primary insurer owed a duty to the excess insurer. “[T]he primary

insurer does not owe a duty of care or even of good faith performance to the excess

insurer of its insured.”10 Absent a viable theory of liability based on subrogation,

Travelers cannot prevail against Nobel. “[I]f the excess insurer is to recover from the

primary insurer for acts which make the excess insurer’s contract and liability more

burdensome, it must do so by asserting the insured’s rights after becoming subrogated to

them or after acquiring them through assignment.”11

AFFIRMED.

10
Great Southwest Fire Ins. Co. v. CNA Ins. Cos., 557 So.2d 966, 971 (La. 1990).
11
Id.

7