United States Court of Appeals,
Fifth Circuit.
No. 93-7664.
INDUSTRIAL INDEMNITY COMPANY, Plaintiff-Appellee,
v.
TRUAX TRUCK LINE, INC., and Commercial Union Insurance Co.,
Defendants-Appellants.
March 1, 1995.
Appeal from the United States District Court for the Southern
District of Mississippi.
Before KING and BENAVIDES, Circuit Judges, and LAKE,* District
Judge.
BENAVIDES, Circuit Judge:
Commercial Union Insurance Company ("Commercial Insurance")
and Truax Truck Line, Inc., ("Truax") appeal the judgment entered
against them in this diversity suit, arguing that the appellee,
Industrial Indemnity Insurance Company ("Industrial Insurance"),
had coverage for a highway accident pursuant to the policy it had
issued to Ultimate Transportation, Inc., and that the theory of
unjust enrichment should not be applied to expand the coverage of
the contract issued by Commercial Insurance. The court below
granted Industrial Insurance reimbursement for payments it had made
pursuant to an endorsement attached to Ultimate's insurance policy.
Previously, in state court, Industrial Insurance had
undertaken the defense of Truax and paid a judgment and a
settlement on behalf of Truax. After having done so, it then filed
*
District Judge of the Southern District of Texas, sitting
by designation.
1
suit in the court below claiming that Truax was not its insured and
seeking indemnity from Truax and also from Commercial Insurance on
the basis of fraud, contract, and unjust enrichment. The district
court rejected the claims of fraud and contract.1 The only
question is whether the district court properly granted Industrial
Insurance recovery under its unjust enrichment theory. Finding no
unjust enrichment, we reverse.
I. FACTS AND PROCEDURAL HISTORY
Industrial Insurance, the plaintiff-appellee, brought suit
against the following defendants-appellants: Commercial Insurance,
Truax, Allan Habetz, and MacKenzie Insurance Agencies. The claims
against MacKenzie were severed prior to trial, and MacKenzie is not
a party to this appeal.
After a bench trial, the district court found the facts as
follows. In 1987, Allan Habetz was vice-president and general
manager of Truax Truck Line, Inc. Habetz desired to expand the
company. Because there were insufficient funds for the additional
insurance that would be needed for such expansion, Habetz responded
to an advertisement for low-cost insurance coverage. Habetz went
to the offices of Universal Management, Inc., in Hammond,
Louisiana, and met with Jerry Byrd. Byrd explained that under
Universal's program, Truax would sublease its leased trucks to an
outfit known as Ultimate Transportation, Inc. Universal was
1
The district court's disposition of the fraud and contract
claims are not challenged on appeal; however, the district
court's findings with respect to these claims have assisted us in
the determination of this appeal.
2
purported to be an agent for Ultimate.
It was proposed that Truax would operate under the Ultimate
ICC (Interstate Commerce Commission) permit and save on its
insurance premiums. Pursuant to the arrangement, Truax paid
Ultimate a flat rate per month per truck. Truax was to be given
authority as an agent of Ultimate for the purpose of contracting
with shippers to handle their loads.
On July 1, 1987, David Sharpley, a truck owner/operator,
entered into a one-year lease of his truck to Truax. On July 9,
1987, Ultimate, through Universal, purported to enter into an
agency agreement with Truax. On September 15, 1987, Ultimate and
Truax purportedly entered into a hold harmless and grant of
authority which they assert is part of their agency agreement.
On September 14, 1987, Truax was added as a named insured on
a certificate of insurance and endorsement in regard to the
Ultimate policy issued by Industrial Insurance. The district court
found there was a substantial question as to whether the Truax
certificate of insurance and endorsement was valid. Nevertheless,
it is undisputed that Industrial Insurance had a valid policy in
existence issued to Ultimate Transportation and that that policy
included a hired auto provision and the BMC-90 endorsement. The
endorsement requires an insurer to pay any judgment for a member of
the injured public against an insured regardless whether the
insurance policy specifically covers the vehicle. The endorsement
also provides that the insured must reimburse the insurer for any
payment made that the insurer would not have had to pay for but for
3
the endorsement.
Subsequently, on September 19, 1987, Truax leased Sharpley's
truck to Ultimate. Habetz and Commercial Insurance claim that this
lease amounts to a sublease under the original lease. Sharpley
also leased the same truck to Ultimate in a separate document.
This was claimed to be a confirmation by Sharpley of the sublease
of his truck to Ultimate.
On October 5, 1987, Sharpley, driving the truck he leased,
collided with a Highway Department dump truck. The collision
killed one highway employee, Robert Evans, and injured another one,
Michael Mitchell. That same day, Sharpley informed Habetz of the
accident. Habetz attempted to report it to Byrd, but did not reach
him till the next day, October 6, 1987. The Mississippi Highway
Patrol investigated the accident, and Sharpley advised the
patrolman that he owned the truck but that it was leased to Truax.
The highway patrolman found Truax placards on both doors of the
truck but did not see any other name on the truck.
On November 3, 1987, Evans' heirs sued Sharpley and Truax in
Mississippi state court. Truax was served with summons and a copy
of the complaint filed by Evans on November 10, 1987. Habetz
called Byrd, and Byrd directed Habetz to forward the summons and
complaint to him, and then he would forward it to MacKenzie
Insurance Agency. The next day Habetz forwarded the documents to
Byrd. According to their file, MacKenzie received the documents on
November 26, 1987. The claims clerk at MacKenzie testified that
she forwarded the documents that same day by United States mail to
4
the claims office of Industrial Insurance in San Francisco,
California.
The next known person to see the documents was an adjustor
with Industrial Insurance, Mr. Hickman, who "discovered" the
summons and complaint on his desk on December 17, 1987. The
following day, Hickman employed a law firm to represent Industrial
Insurance.
Meanwhile, on December 11, 1987, a default judgment in the
amount of $5 million had been entered against Sharpley and Truax.
Prior to that, the attorney for the Evans family had phoned Habetz
and inquired as to the liability limits of the insurance and Habetz
advised that it was $5 million. Additionally, prior to the default
judgment, the Evans' attorney had called Habetz and notified him
that no one had filed an answer in the suit. Habetz testified that
after both of those calls from the attorney, he had relayed this
information to Byrd at Universal.2
On December 29, 1987, a motion to set aside the default
judgment was filed. On February 26, 1988, a letter was sent to
Commercial Insurance informing them (for the first time) of the
accident and the lawsuit.3 On March 4, 1988, a hearing was held on
motion to set aside the default judgement. On April 21, 1988, the
state court set aside the default judgment as to Sharpley, but as
2
Byrd was not called as a witness at this trial.
3
At the time of the accident the insurance policy issued by
Commercial Insurance to Truax did not cover Sharpley's truck;
however, the required BMC-90 endorsement was attached to the
policy.
5
to Truax only the amount of damages was set aside.
On July 23, 1988, a "writ of inquiry hearing" was held in
state court at which Sharpley and Truax were represented by the law
firm hired by Industrial Insurance. Five days later, Industrial
Insurance wrote a letter to Commercial Insurance, demanding that it
assume the defense of Sharpley and Truax. Industrial Insurance
also sent a reservation of rights letter to Truax.
On August 1, 1988, the state court entered judgment on the
writ of inquiry against Truax in the amount of $418,965.50. On
August 16, 1988, Industrial Insurance paid that judgment with
interest. On November 30, 1988, the court granted Sharpley's
motion to dismiss the Evans suit as to him because Industrial
Insurance had paid the damages in full. Additionally, Industrial
Insurance settled the Mitchell claim for $70,000.
CONCLUSIONS OF THE DISTRICT COURT
In the court below, Industrial Insurance argued that the
defendants were liable on the following three theories: fraud,
contract, and the equitable theory of unjust enrichment. The court
rejected the allegation of fraud, finding that although there was
some indication that Universal Management and Ultimate were
attempting to defraud the trucking and insurance companies,
Industrial Insurance had not shown by clear and convincing evidence
that Habetz or Truax was guilty of fraud. Ultimate and Universal
were no longer in business at the time the lawsuit was filed and
were not named as defendants.
The court also rejected the contract claim against Truax.
6
Industrial Insurance argued that the insurance policy issued to
Ultimate did not cover Truax because the leases were invalid, and
thus, Truax had to reimburse Industrial Insurance pursuant to the
express requirements in the BMC-90 endorsement. The BMC-90
endorsement provides that an insured must reimburse the insurer for
any payment made but not covered under the policy. The court found
that this theory failed because the position of Industrial
Insurance was that Truax was not an insured. Additionally, relying
on Canal Insurance Co. v. First General Insurance Co., 889 F.2d 604
(5th Cir.1989), the court held that Industrial Insurance was
precluded from using the BMC-90 endorsement to obtain relief on a
contract theory from Commercial Insurance.
Finally, the court granted Industrial Insurance recovery on
its claim that Truax and Commercial Insurance were unjustly
enriched as a result of Industrial Insurance paying the Evans'
judgment and Mitchell's settlement. The court further awarded
Industrial Insurance its attorneys' fees.
II. ANALYSIS
A. WHETHER TRUAX WAS UNJUSTLY ENRICHED.
Truax and Commercial Insurance argue that Truax and Sharpley
were insured under the policy issued by Industrial Insurance to
Ultimate. Thus, they argue that the payments made by Industrial
Insurance did not result in unjust enrichment.
It is undisputed that Ultimate Transportation had a valid
insurance policy in existence on October 5, 1987, that was issued
by Industrial Insurance and that policy included a hired auto
7
provision, along with the required BMC-90 endorsement. The dispute
is whether Sharpley's truck, which was leased to Truax and
"subleased" to Ultimate, was covered under the hired auto
provision.
The district court opined that Industrial Insurance
"mistakenly" paid the judgment pursuant to the BMC-90 endorsement.4
Apparently the district court found that the payment by Industrial
Insurance was "mistaken" because Truax did not transfer exclusive
possession and control and use of the truck to Ultimate pursuant to
the leases, and thus, the leases violated certain ICC regulations.
Bench Opinion at 684-88 (citing 49 C.F.R. Section 1057.11(c)). As
the appellants point out, the trial court did not specifically
address the coverage provided by Industrial Insurance, but seemed
to assume that if Ultimate's leases violated ICC regulations, then
Industrial Insurance had no coverage of the accident.
The parties are in vigorous dispute regarding whether the
leases were valid and whether Truax was covered under the hired
auto provision of Ultimate's insurance policy.5 Assuming without
deciding that Industrial Insurance did not have coverage of the
accident in question, it must be determined whether Truax was
unjustly enriched. The Mississippi Supreme Court has opined as
4
In its brief, however, Industrial admits that both it and
Commercial Union were liable to members of the public under the
BMC-90 endorsement.
5
See Carolina Casualty Insurance v. Underwriters Insurance
Co., 569 F.2d 304, 313-14 (5th Cir.1978) (to determine coverage,
this Court looks to the express terms of the policy and can look
to lease agreements and ICC regulations).
8
follows on the concept of unjust enrichment:
The Restatement of Restitution ... provides, if payment is
made, even by mistake, to a creditor of a third person to
satisfy a just debt of that third person, the payor has no
right of restitution of or from the third party. Restatement
of Restitution § 14(1) (1936). Accord, United States v.
Bedford Associates, 713 F.2d 895, 905 (2nd Cir.1983),
Equilease Corp. v. Hentz, 634 F.2d 850, 853 (5th Cir.1981),
and Strubbe v. Sonnenschein, 299 F.2d 185, 191-92 (2nd
Cir.1962). To be sure, this is not so if the third person has
procured the mistake or participated in or caused a breach of
some duty imposed in law, but where nothing like this has
happened, the enrichment is not unjust and the payor must
instead look to the party whose debt has been paid, through
subrogation or some such theory.
Omnibank v. United Southern Bank, 607 So.2d 76, 92 (Miss.1992).
In the case at bar, the district court, without citation of
authority, found that Truax had been unjustly enriched:
The third theory of recovery by Industrial Indemnity is
one of unjust enrichment and is asserted against Truax and
Commercial Union. Its argument against Truax is that since
Truax had the exclusive possession, control, and use of the
equipment at the time of the accident and was required to
assume complete responsibility therefor under the ICC
regulations, that Truax was liable ultimately for the damages
that it caused; that Industrial Indemnity mistakenly paid
those damages on behalf of Truax; and therefore that Truax
was unjustly enrichment and should be reimbursed. The Court
agrees with Industrial Indemnity and will hold that Industrial
Indemnity is entitled to indemnity under the theory of unjust
enrichment against Truax....
Bench Opinion at 693 (emphasis added).
Although the district court found that Truax was unjustly
enriched, it did not determine whether Truax procured the "mistake"
or participated in or caused a breach of some duty imposed in law.
Nonetheless, the court's statements in the context of rejecting the
claim of fraud against Truax indicate that the court did not find
Truax procured the "mistake":
The Court finds that although there is indication that
9
Universal Management and Ultimate were engaged in some type of
fraudulent scheme to defraud not only Industrial Indemnity but
also the trucking companies from which it solicited business,
that the plaintiff has not proved by clear and convincing
evidence, which is required in regard to proof of fraud, that
Habetz or Truax Truck Lines was guilty of any fraud and
accordingly finds that the Plaintiff has failed to prove its
allegations under its theory of fraud as to Habetz and Truax.
Additionally, we note that Truax paid a substantial amount
(approximately $1500 per month) to Universal in order to be covered
under Ultimate's insurance policy, and Industrial Insurance does
not dispute that it received a premium from Ultimate for the hired
auto coverage. We are inclined to agree with the district court's
observation that Universal and Ultimate may have engaged in a
scheme to defraud Industrial and Truax. Accordingly, because the
district court refused to find any wrongful conduct on the part of
Truax as alleged by Industrial Insurance, and because the court
found not only that Industrial Insurance had failed to prove that
Truax was guilty of any fraud, but also (at least implicitly) found
that Truax was a victim of this scheme, the finding of unjust
enrichment cannot be upheld.
B. WHETHER COMMERCIAL INSURANCE WAS UNJUSTLY ENRICHED.
It is undisputed that the insurance policy issued by
Commercial Insurance to Truax in effect at the time of the accident
did not cover Sharpley's truck. However, pursuant to the BMC-90
endorsement attached to that policy, Commercial Insurance could
have been held liable for a judgment against Truax up to the
$750,000 policy limit.6 The court below found:
6
Pursuant to the terms of the endorsement, Commercial Union
then could have recovered from Truax any amount that was not
10
that since Commercial Union was responsible under the
endorsement for any judgment and claims against Truax while
operating this truck, since it was in the exclusive
possession, control, and use of Truax and further, since
Industrial Indemnity had, in effect, paid the obligation of
Commercial Union, Commercial Union has been unjustly enriched
by the payment of Industrial Indemnity.
Bench Opinion at 694 (emphasis added).
This Court has explained that "[w]here ... a policy does not
provide coverage for nonlisted vehicles except to third-party
members of the public through operation of ICC form endorsement BMC
90, the policy provides no coverage for purposes of disputes among
insurers over ultimate liability." Canal Insurance Co. v. First
General Insurance Co., 889 F.2d 604, 611 (5th Cir.1989). The court
below, in its analysis of the contract claim against Commercial
Insurance, acknowledged the holding in Canal, and stated that
"[t]he Court's understanding of this part of Canal is that
Industrial Indemnity may not use the endorsement coverage in order
to obtain relief from Commercial Union." Bench Opinion at 692-93.
Nevertheless, as set forth above, the district court found that
Commercial Insurance had been unjustly enriched because it would
have been liable under the endorsement.
Apparently recognizing this conflict in the district court's
opinion, Industrial Insurance argues that it does not seek to
recover from Commercial Insurance under the "endorsement but under
the equitable doctrine of unjust enrichment for claims which
Commercial should have paid because of the BMC endorsement." This
covered by the policy.
11
argument is not persuasive.7 Industrial Insurance seeks through
the back door what this Court has not allowed through the front
door. Indeed, this Court has observed that the policy behind the
endorsement is to assure that injured members of the public would
be able to satisfy judgments against negligent truckers. Canal,
889 F.2d at 611. "[T]his policy has no application to coverage
disputes among insurers." Id. Moreover, it strains logic to find
that, as a matter of Mississippi law, because Industrial Insurance
complied with this federal policy, Commercial Insurance was
unjustly enriched.8 Finally, Commercial Union did absolutely
nothing to incur liability for Industrial's payment under an unjust
enrichment theory. Accordingly, the district court's finding that
Commercial Insurance was unjustly enriched cannot stand.
CONCLUSION
For the reasons set forth above, we REVERSE the district
court's judgment awarding Industrial Insurance recovery on its
unjust enrichment claims and RENDER a take nothing judgment in
favor of Commercial Insurance and Truax. REVERSED AND RENDERED.
7
Industrial also argues that Canal is distinguishable
because, in that case, one of the insurance companies provided
coverage without regard to the BMC-90 endorsement, and in this
case, neither of the insurance companies provide coverage without
the endorsement. We find this to be a distinction without a
difference.
8
This is especially true in light of Industrial's admission
that "[it] is not disputed by either insurer that the BMC-90
endorsement would render either Industrial or Commercial
responsible for the claims asserted by the members of the
public."
12