IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
August 12, 2009
No. 08-10381 Charles R. Fulbruge III
Clerk
OOIDA RISK RETENTION GROUP, INC
Plaintiff-Appellant
v.
DERRICK SHAMOYNE WILLIAMS
Defendant
v.
EDITH KNIGHTON, as next friend of B L W a minor child; TERRA MOSES-
WHITE, as next friend of B L W a minor child; N’GAI BROWNING, as next
friend of T M Jr a minor child
Intervenors-Appellees
Appeal from the United States District Court
for the Northern District of Texas
Before REAVLEY, BARKSDALE, and GARZA, Circuit Judges.
EMILIO M. GARZA, Circuit Judge.
This appeal arises out of litigation pertaining to a single-vehicle accident
that killed Tony Moses (“Moses”). Moses was the sole proprietor of Slim Shady
Express and a commercial motor carrier. At the time of the accident that killed
Moses, Moses’ tractor-trailer was being driven by Derrick Shamoyne Williams.
No. 08-10381
Ooida Risk Retention Group, Inc., Moses’ insurer, brought an action in federal
district court to obtain a declaration that it owed no duty to defend or indemnify
Williams in any underlying negligence suit against Williams. Moses’ family
(“Intervenors”) intervened in the federal action, and the district court granted
summary judgment to Intervenors. Ooida contends on appeal that the district
court erred in finding that no exclusion applied to deny coverage under Moses’
insurance policy. Because we find that Moses and Williams are statutory
“employees” under the Motor Carrier Safety Act, and that the “Fellow Employee”
exclusion thus applies to deny coverage, we reverse the district court and render
summary judgment in favor of Ooida.
I
Ooida issued a standard Commercial Motor Carrier Policy (the “Policy”)
to Slim Shady Express, a federally regulated interstate motor carrier under the
Motor Carrier Safety Act. The Policy provided $1 million in liability coverage for
tractor-trailer rigs owned and operated by Moses.
At the time of the accident, Williams was driving the tractor-trailer rig on
an interstate in Florida. Williams lost control of the rig, causing it to overturn
and roll down an embankment. Moses, who was occupying the rig’s sleeper
berth, was crushed and killed. Moses’ family members filed a negligence suit in
state court against Williams. Ooida provided a defense to Williams under a
reservation of rights.
Ooida subsequently filed a declaratory judgment action in federal district
court, seeking a judicial declaration that it owed no duty under the Policy to
defend or indemnify Williams in the underlying negligence suit. Moses’ family
successfully intervened, and the parties filed cross motions for summary
judgment. The district court denied Ooida’s motion and granted Intervenors’
motion for summary judgment, holding that Ooida had a duty to defend
Williams in the underlying suit. The court found that Williams was an “insured”
2
No. 08-10381
under the Policy, and that the “Employee Indemnification” and “Fellow
Employee” exclusions contained in the Policy did not operate to preclude
coverage, as the court could not determine whether Williams was an “employee”
of Moses. The district court also found that the “occupant hazard endorsement”
was void because it conflicted with Texas’s statutory requirements for minimum
liability insurance. The court concluded that the Ooida’s liability was the full
policy limit of $1,000,000. Ooida timely appealed.
II
We review the grant of a motion for summary judgment de novo, applying
the same standards as the district court. Mid-Continent Cas. Co. v. JHP Dev.,
Inc., 557 F.3d 207, 212 (5th Cir. 2009). The insurer’s duty to defend is a question
of law that is also reviewed de novo. Liberty Mut. Ins. Co. v. Graham, 473 F.3d
596, 599 (5th Cir. 2006). Summary judgment is proper when, viewing the
evidence in light most favorable to the non-moving party, the record reflects that
no genuine issue of material fact exists, and the moving party is entitled to
judgment as a matter of law. F ED. R. C IV. P. 56(c).
As the parties agree, Texas law governs this insurance dispute. In Texas,
the insurer’s duty to defend is governed by the “eight corners rule,” which holds
that the duty to defend is determined solely from the terms of the policy and the
pleadings of the third-party claimant. JHP Dev., Inc., 557 F.3d at 212 (citing
GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 307 (Tex.
2006)). Only these two documents are ordinarily relevant to the duty-to-defend
inquiry. Graham, 473 F.3d at 599-600. “[A] plaintiff’s factual allegations that
potentially support a covered claim are all that is needed” to invoke the duty to
defend; the duty to defend does not rely on the truth or falsity of the allegations.
JHP Dev., Inc., 557 F.3d at 212 (citing GuideOne, 197 S.W.3d at 310). If the
underlying pleading alleges facts that may fall within the scope of coverage, the
insurer has a duty to defend; if, on the other hand, the pleading only alleges
3
No. 08-10381
facts excluded by the policy, there is no duty to defend. Northfield Ins. Co. v.
Loving Home Care, Inc., 363 F.3d 523, 528 (5th Cir. 2004).
While the duty to defend depends on the allegations in the pleadings, the
“duty to indemnify is triggered by the actual facts that establish liability in the
underlying lawsuit.” Columbia Cas. Co. v. Ga. & Fa. RailNet, Inc., 542 F.3d 106,
111 (5th Cir. 2008)(internal quotation marks and citations omitted).
Accordingly, an insurer’s duty to defend and duty to indemnify are distinct, as
in general the underlying suit must be resolved in order to determine the latter.
Id.
III
Ooida argues that several policy exclusions apply to deny coverage and
thus to foreclose its duty to defend.
A
As an initial matter, the parties’ arguments rely on differing assumptions
about who is the “insured” under the plan. Ooida contends that the “insured” is
Slim Shady Express, and that Moses is thus an “employee” of the named
insured. Intervenors, however, argue that Williams, as the party against whom
the claim is asserted, is the “insured.” We must thus first look to the relevant
policy provisions to determine who is the “insured” party for purposes of
coverage.
Under “Who is an insured,” the Policy states:
The following are “insureds”:
a. You for any covered “auto”.
b. Anyone else while using with your permission a covered “auto” you own,
hire or borrow. . .
The Policy’s definition of “insured” also contains a clause that states that
“coverage applies separately to each insured seeking coverage or against whom
a claim or suit is brought.” In Commercial Standard Insurance Co. v. American
4
No. 08-10381
General Insurance Co., 455 S.W.2d 714 (Tex. 1970), the Texas Supreme Court
addressed a similar “severability of interests” clause providing that the term “the
insured” was used severally in the insurance contract.1 The court held that:
‘The insured’ does not refer to all insureds; rather, the term is used to
refer to each insured as a separate and distinct individual apart from any
and every other person who may be entitled to coverage thereunder. When
a claim is made against one who is an ‘insured’ under the policy, the latter
is ‘the insured,’ for the purpose of determining the company's obligations
with respect to such claim.
Id. at 721. The court thus found that the term “the insured” in the
exclusions referred to the specific individual seeking coverage, not all insureds
collectively. The severability of interests clause in the policy issued by Ooida
accomplishes the same result as that discussed in Commercial Standard, giving
effect to the separate coverage promised each insured by using the term “the
insured” to refer to the particular insured seeking coverage. See also King v.
Dallas Fire Ins. Co., 85 S.W.3d 185, 188 (Tex. 2002)(finding that “separation of
insureds” provision required claim to be viewed from standpoint of particular
insured against whom injured party’s claim is made, and analyzing issue as
though party sued were sole insured.)
Intervenors are thus correct that, given the “severability of interests” or
“separation of insureds” clause in the policy, we must treat the “insured” as the
party against whom the claim is asserted—in this case, Williams, as the
permissive driver of the truck. Contrary to Ooida’s contention that establishing
Williams as the permissive driver of Moses’ truck requires us to look outside the
eight corners of the pleadings, we may safely infer Williams’ status from the
allegations in the complaint that Williams was driving the truck while Moses
1
The clause in Commercial Standard read: “The term ‘the insured’ is used severally
and not collectively, but the inclusion herein of more than one insured shall not operate to
increase the limit of the company's liability.” Commercial Standard, 455 F.3d at 721.
5
No. 08-10381
was asleep in the sleeping cab. See Graham, 473 F.3d at 601 (considering “any
reasonable inferences that flow from the facts alleged” in the underlying
complaint.)
Keeping in mind that Williams, not Moses or Slim Shady Express, is the
policy’s “insured,” we now turn to the applicability of the exclusions.
B
We turn to the “Fellow Employee Exclusion” of the policy, which excludes
coverage for:
“Bodily injury” to any fellow “employee” of the “insured” arising out of and
in the course of the fellow “employee’s” employment or while performing
duties related to the conduct of your business.
The application of the “separation of insureds” clause renders Williams,
not Moses, the “insured” for purposes of coverage. Because Moses is the party
to whom “bodily injury” occurred, in order for the Fellow Employee Exclusion to
apply, we must find both Williams and Moses to be statutory “employees.”
The Motor Carrier Safety Act and its attendant regulations govern the
meaning of terms under insurance policies designed to comply with federal
requirements for motor carriers. See Consumers County Mut. Ins. Co. v. P.W. &
Sons Trucking, Inc., 307 F.3d 362, 366 (5th Cir. 2002). 49 C.F.R. § 390.5,
enacted pursuant to the authority of the Motor Carrier Safety Act, defines
“employee” as:
[A]ny individual, other than an employer, who is employed by an employer
and who in the course of his or her employment directly affects commercial
motor vehicle safety. Such term includes a driver of a commercial motor
vehicle (including an independent contractor while in the course of
operating a commercial motor vehicle), a mechanic, and a freight handler.
49 C.F.R. § 390.5 (2009). “Employer” is defined as:
6
No. 08-10381
[A]ny person engaged in a business affecting interstate commerce who
owns or leases a commercial motor vehicle in connection with that
business, or assigns employees to operate it, but such terms does not
include the United States, any State, any political subdivision of a State,
or an agency established under a compact between States approved by the
Congress of the United States. . . .
Id.
The district court, in addressing the issue of Williams’ employment status
in the context of applying the Fellow Employee Exclusion, focused on the
“employed by an employer” language of Section 390.5's definition of “employee.”
It held that the dispositive question was not whether Williams was operating the
vehicle at the time of the accident, but whether he was actually employed by
Moses. Because evidence pertaining to Williams’ employment relationship with
Moses fell outside the eight corners of the pleadings and policy, the lower court
held, it could not find Williams to be a statutory employee.
The district court erred. The complaint sets out the facts that establish
that Williams was, at a minimum, an independent contractor. Intervenors
alleged that “Moses occasionally asked Defendant to help him on long-haul jobs,
and he paid Defendant for his help. . . .” This description fits squarely within
that of an independent contractor. Indeed, the facts as alleged by Intervenors
are scarcely distinguishable from those in Consumers County, in which the
driver of the vehicle was employed on a load-by-load basis by the insured
trucking company. See Consumers County, 307 F.3d at 363-64. As an
independent contractor, Williams qualifies as a statutory “employee” under §
390.5. Id. at 367, see also Perry v. Harco Nat’l Ins. Co., 129 F.3d 1072, 1074-75
(9th Cir. 1997)(holding MCS-90 Endorsement inapplicable with respect to driver
who was independent contractor for insured trucking company.)
The question of Moses’ status as an “employee” under federal law is more
difficult. Intervenors focus on the “other than an employer” language in Section
7
No. 08-10381
390.5 to argue that the definition of “employee” cannot apply to Moses, while
Ooida looks to the language defining “employee” as any “driver of a commercial
motor vehicle.” Ooida contends that, notwithstanding the first sentence in the
definition of “employee,” a driver operating a vehicle owned by a motor carrier
is per se an “employee” under the regulation even if he is himself the motor
carrier.
The language of the Motor Carrier Safety Act resolves the question. It
defines “employee” as:
[A]n operator of a commercial motor vehicle (including an independent
contractor when operating a commercial motor vehicle), a mechanic, a
freight handler, or an individual not an employer, who---
(A) directly affects commercial motor vehicle safety in the course of
employment; and
(B) is not an employee of the United States Government, a State, or
a political subdivision of a State. . . .
49 U.S.C. § 31132(2)(Emphasis added). The disjunctive use of “or” creates
a distinction between an “operator of a commercial motor vehicle” and a non-
employer individual who directly affects commercial motor vehicle safety in the
course of employment, strongly suggesting that the statutory definition of
“employee” is broad enough to include owner-operators such as Moses, while in
the course of driving a commercial motor vehicle. We apply the statutory
definition of employee in this instance, as any inconsistency between the
statutory language and the language contained in the regulations must be
resolved in favor of the statute.2 See Brown v. Gardner, 513 U.S. 115, 122
2
Intervenors argue that treating Moses simultaneously as an “employee” and an
“employer” under the regulations runs afoul of the principle that the term “employee” should
not “be given different meanings under an insurance policy depending on the context in which
it is used.” Consumers County, 307 F.3d at 366. In Consumers County we declined to adopt
the Texas common law definition of “employee” over the federal definition in interpreting an
insurance policy also governed by the Motor Carrier Safety Act. We held there that Section
390.5 eliminates the traditional common law distinction between employees and independent
contractors, and that the latter thus fell under 390.5's definition of “employee.” Id. It does not
8
No. 08-10381
(1994)(finding “no antidote” to regulation’s inconsistency with the statute);
Hodgson v. Behrens Drug Co., 475 F.2d 1041, 1047 (5th Cir. 1973)(terms as used
in the regulation “must be construed in light of the statute which that regulation
implements.”)
Having established that a sole proprietor operating a motor vehicle can be
an “employee” under the federal motor carrier regulations, we turn to whether
Moses was driving in tandem with Williams in this case, and thus also operating
the motor vehicle. See Consumers County, 307 F.3d at 367 n.8 (finding that
tandem driver was “employee” under Section 390.5 despite fact that he was not
driving at time of accident.) The underlying complaint does not establish Moses’
role in the truck at the time of the accident; thus, determination of his status as
tandem driver requires consideration of evidence outside the eight corners of the
complaint and the Policy. The district court inquired into whether Williams
qualified as a statutory “employee” under the statute, but applied a strict “eight
corners” approach in doing so. Ooida Risk Ret. Grp., Inc. v. Williams, 544
F.Supp.2d 540, 545 (N.D.Tex. March 25, 2008)(citing to Nat’l Union Fire Ins. Co.
v. Merch. Fast Motor Lines., 939 S.W.2d 139, 141 (Tex. 1997)). Ooida urges us
to examine the extrinsic evidence under an exception to the eight corners rule
recognized by some Texas appellate courts. See, e.g., Mid-Continent Cas. Co. v.
Safe Tire Disposal Corp., 16 S.W.3d 418, 421 (Tex. App.-Waco 2000, pet. denied);
State Farm Fire & Cas. Co. v. Wade, 827 S.W.2d 448, 452-53 (Tex. App.-Corpus
Christi 1992, writ denied); Gonzales v. Am. States Ins. Co., 628 S.W.2d 184, 187
(Tex. App.-Corpus Christi 1982, no writ).
conflict with our holding in Consumers County to find that the federal definition of the term
“employee” also includes owner-operators who are motor carriers if they are driving their own
commercial motor vehicles. Other federal motor carrier safety regulations clearly cover
owner-operators such as Moses. Section 391.1(b), for example, provides that a motor carrier
“who employs himself. . . as a driver” must comply with the rules that apply to motor carriers
as well as the rules that apply to drivers. 49 C.F.R. § 391.1(b). See also 49 C.F.R. 390.11 (“[i]f
the motor carrier is a driver, the driver shall likewise be bound” to driver regulations).
9
No. 08-10381
In Northfield Ins. Co., this Court made an “Erie guess” that the Texas
Supreme Court would not recognize any exception to the eight corners rule.
However, the Court also stated that, were the Supreme Court of Texas to
recognize an exception, it would be limited to cases where “it is initially
impossible to discern whether coverage is potentially implicated and when the
extrinsic evidence goes solely to a fundamental issue of coverage which does not
overlap with the merits of or engage the truth or falsity of any facts alleged in
the underlying case.” Northfield, 363 F.3d at 531. In GuideOne Elite Ins. Co. v.
Fielder Rd. Baptist Church, 197 S.W.3d 305, 308-09 (Tex. 2006), the Supreme
Court of Texas cited this language from Northfield with approval, though it held
that the circumstances of the case before it did not meet the conditions of the
exception. The district court rejected Ooida’s arguments that Northfield and
GuideOne support the application of an exception to the eight corners rule to the
determination of coverage here.
We find that GuideOne supports our “Erie guess” that the limited
conditions of an exception to the eight corners rule exists here. The facts at
hand fit comfortably within the narrow language contained in Northfield: readily
ascertainable facts, relevant to coverage, that do not “not overlap with the merits
of or engage the truth or falsity of any facts alleged in the underlying case.”
Northfield, 363 F.3d at 531. The fact relevant to whether Moses is an
“employee” under Section 390.5—whether he was tandem-driving with Williams,
and thus “operating a commercial motor vehicle”—does not implicate Williams’
negligence in the underlying suit, does not contradict any of the allegations in
the pleadings, and controls the question of policy coverage. See, e.g., W. Heritage
Ins. Co. v. River Entm’t, 998 F.2d 311, 314-15 (5th Cir. 1993)(holding that
applicability of policy exclusion for service of alcohol to an intoxicated person
was necessary to determine initial question of coverage, and thus considering
evidence extrinsic to the pleadings and policy). Because the pleadings do not
10
No. 08-10381
contain the facts necessary to resolve the question, we hold that the exception
employed by Northfield applies and that extrinsic evidence can be considered.
It is clear from the record that Moses was tandem driving with Williams
on the night the accident occurred. In Williams’ deposition, he states that Moses
“started the job [of driving the truck to Florida] and pick[ed] [Williams] up along
the way,” and that Williams joined him in Garland. The allegations contained
in the Intervenors’ complaint against Williams do not contradict this testimony.3
We therefore hold that Moses is a statutory “employee” under Section 390.5 and
the Fellow Employee exclusion applies to negate Ooida’s duty to defend in the
underlying suit.4 Because we find that the Fellow Employee Exclusion operates
to deny coverage, we do not address the applicability of the Employee
Indemnification or Workers Compensation Exclusions.
C
Because a policy exclusion precludes Ooida’s duty to defend, it is
unnecessary to resolve Ooida’s arguments with respect to the application of the
Occupant Hazard Exclusion. However, even though we hold that Ooida has no
duty to defend, we must still address the separate question of Ooida’s potential
duty to indemnify Williams pursuant to the MCS-90 Endorsement contained in
the policy.5
3
Intervenors’ complaint states: “Tony Moses was killed while riding as a passenger in
a tractor-trailer rig owned by him and operated by Defendant, his friend and sometime helper.
Moses occasionally asked Defendant to help him on long-haul jobs, and he paid Defendant for
his help, but Defendant was not Tony Moses’ employee.”
4
Intervenors additionally contend that the “Individual Named Insured Endorsement”
negates the Fellow Employee Exclusion. The Endorsement reads: “The FELLOW EMPLOYEE
Exclusion does not apply to “bodily injury” to your or a “family member’s” fellow employees.”
The exclusion clearly applies to injuries sustained by the “fellow employees” of the named
insured, Moses. Because here, the injuries were sustained by Moses, not Williams as a fellow
employee, this endorsement does not abrogate the Fellow Employee exclusion.
5
The district court did not address this question because it did not find that any of the
policy exclusions applied. Ooida Risk Ret., 544 F.Supp.2d at 547.
11
No. 08-10381
As previously discussed, the duty to indemnify is distinct from the duty to
defend; the former is determined by all the facts and circumstances that result
in the insured’s potential liability. Farmers Tex. County Mut. Ins. Co. v. Griffin,
955 S.W.2d 81, 82 (Tex. 1997).
The policy’s MCS-90 Endorsement, which is required by federal law, reads:
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 Act of 1980
regardless of whether or not each motor vehicle is specifically described in
the policy and whether or not such negligence occurs on any route or in
any territory authorized to be served by the insured or elsewhere. Such
insurance as is afforded, for public liability, does not apply to injury to or
death of the insured’s employees while engaged in the course of their
employment, or property transported by the insured, designated as cargo.
It is understood and agreed that no condition, provision, stipulation, or
limitation contained in the policy, this endorsement, or any other
endorsement thereon, or violation thereof, shall relieve the company from
liability or from the payment of any final judgment, within the limits of
liability herein described, irrespective of the financial condition,
insolvency of bankruptcy of the insured. However, all terms, conditions,
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 provisions of the policy
except for the agreement contained in this endorsement.
(Emphasis added). Intervenors argue that even if a policy exclusion
applies such that Ooida has no duty to defend, Ooida is still required by the
MCS-90 Endorsement to pay any judgment against Williams in the underlying
suit. Ooida counters that, under the clause in the endorsement exempting
liability for “injury or death of the insured’s employees while engaged in the
12
No. 08-10381
course of their employment,” it does not have a duty to indemnify Williams for
Moses’ death.
Ooida assumes that the “insured” in the MCS-90 Endorsement is Moses,
not Williams, and thus that it is exempted where Moses’ employee (Williams)
caused the accident in the course of his employment. The question before us is
thus whether the “separation of insureds” clause, which made Williams the
“insured” for the purposes of the policy exclusions, similarly operates to make
Williams the “insured” in the context of the MCS-90 Endorsement. We find that
it does not.
The federal regulation that requires the MCS-90 Endorsement clearly
defines the “insured” as “the motor carrier named in the policy of insurance,
surety bond, endorsement, or notice of cancellation, and also the fiduciary of
such motor carrier.” [Emphasis added.] 49 C.F.R. § 387.5. The Federal Motor
Carrier Safety Administration has issued regulatory guidance emphasizing that
“Form MCS-90. . . [is] not intended, and do[es] not purport, to require a motor
carrier’s insurer or surety to satisfy a judgment against any party other than the
carrier named in the endorsement or surety bond or its fiduciary.” Federal
Motor Carrier Safety Administration, Regulatory Guidance for Forms Used To
Establish Minimum Levels of Financial Responsibility of Motor Carriers, 70 FR
58065-01 (October 5, 2005). Thus, Moses, as the named insured, is the “insured”
for purposes of applying MCS-90 Endorsement.6
The MCS-90 Endorsement does not indemnify “employees” of the named
insured acting in the course of their employment. Williams, as a statutory
6
This holding is not in conflict with the Consumers County principle that the meaning
of a term in an insurance policy does not vary with the context, 307 F.3d at 362. Rather, the
MCS-90 Endorsement, which relates solely to the duty to indemnify, is treated differently from
the policy exclusions, which govern the duty to defend. The public policy purpose of the MCS-
90 Endorsement is therefore entirely distinct from the question of coverage.
13
No. 08-10381
“employee” of Moses, see Part IIB supra, does not fall within the ambit of the
MCS-90 Endorsement, and Ooida therefore has no duty to indemnify Williams.
IV
Because we find that Ooida has no duty to defend or to indemnify under
the policy, we REVERSE the district court and RENDER summary judgment in
favor of Ooida.
14