|
2010
Recent
Developments In
Transportation and Insurance Law
ur firm is pleased to present our annual summary of legal decisions that we
feel are of interest to our clients and friends.
WHO IS THE
INSURED FOR PURPOSES OF THE MCS-90
As we have reported in previous
years, a USDOT guidance, issued in October, 2005, explained that the MCS-90
endorsement is triggered only by entry of judgment against the named insured on
whose behalf the MCS-90 was prepared. Judgments against other persons or
entities, such as the driver of the rig or the lessor of the tractor or trailer,
do not trigger the MCS-90. This regulatory guidance was directed against a
group of decisions, mostly from 2000-2002, which had held to the contrary.
Three different courts this past year relied on the rulemaking in concluding
that claimants were unable to rely upon the MCS-90 since the judgments they had
won were not against the named insured.
The first and most detailed of
the decisions was Armstrong v. United States Fire Insurance Company, 606
F. Supp.2d 794 (E.D. Tenn.). A tractor-trailer rig operated by Nasko Nazov
mowed into a line of vehicles stopped in traffic, causing death and serious
injury to the occupants of several automobiles including the Armstrong family.
U.S. Fire insured Xtra Corporation, the lessor of the trailer, with a $1
million commercial auto policy. The policy excluded coverage for lessees such
as Nazov’s employer World Trucking Express and its employees, such as Nazov.
Attached to the U.S. Fire policy was an MCS-90 endorsement.
Claimants argued, citing to
cases such as John Deere Ins. Co. v. Nueva, 229 F.3d 853 (9th
Cir. 2000) and Adams v. Royal Indem. Co., 99
F.3d 964 (10th Cir. 1996), that U.S. Fire was obligated to pay any
judgment entered against World Trucking and Nazov under the MCS-90. The
Armstrong court cited at length from the Adams and Nueva
decisions and from other cases on both sides of the issue. In its careful
analysis the court observed that some courts have treated the MCS-90 as just
another endorsement and have been willing to read the word “insured” in the
MCS-90 as subject to the definition in the “Who is an Insured” clause. Other
courts, though, read the MCS-90-including its use of the word “insured” – in the
context of the federal motor carrier statutes and regulations. The Armstrong
court had no trouble concluding that the latter approach is correct. In
particular the court looked at the definition of the word “insured” found at 49
C.F.R. §387.5 which explicitly limits the meaning of the word “insured”
to the named insured motor carrier. The court also looked to some of the rights
and responsibilities of the “insured” under the MCS-90 (right to cancel,
obligation to reimburse the insurer) and observed that this could only be true
of the named insured. Finally the court looked to the 2005 USDOT guidance
which, as noted above, rejected the holding in Nueva and insisted that
the MCS-90 is triggered only by judgment against the named insured. (Larry
Rabinovich of our firm consulted with counsel for U.S. Fire)
Along the same lines was
Sentry Select Insurance Company v. Thompson, __ F. Supp. 2d ___ (E.D. Va.)
Mary Thompson was injured in a collision with a rig operated by Eugene Brown for
Eagle Valley Trucking. She won a judgment against Brown and Eagle Valley for
$1.7 million and collected the policy limit from Eagle Valley’s insurer.
Thompson attempted to collect the remainder of her judgment from Sentry whose
insured C&T Trucking owned the trailer attached to Brown’s tractor. The trailer
was not listed on the Sentry policy, but Thompson argued that Sentry was
obligated to pay the judgment because Brown qualified as an insured under the
Sentry MCS-90. She relied primarily on the analysis the Adams decision.
The court, though, found that Adams had overlooked the definition of
insured set out in 49 C.F.R. §387.5 which makes clear that the only insured
under the MCS-90 is the named insured.
The matter is now on appeal to
the Fourth Circuit. Larry Rabinovich and Phil Bramson of our firm are
representing Sentry.
The identical conclusion was
reached, almost in passing, by the Fifth Circuit Court of Appeals in OOIDA
Risk Retention Group v. Williams, 579 F.3d 469, in a decision that focused
on a different issue. Tony Moses, the owner of Slim Shady Express was killed in
his own rig operated by his occasional helper and co-driver Derrick Williams.
At the time of the accident Moses was in the sleeper; Williams, who was driving,
lost control of the rig which slid down an embankment causing Moses’ death.
Moses’ estate sued Williams.
OOIDA issued its truckers policy
to Slim Shady. OOIDA initially argued that since Moses was an employee of Slim
Shady, the employee exclusion precluded coverage. The court, though, held that
the employee exclusion was inapplicable: it applies only if the injured party is
the employee of the insured seeking coverage. Moses was not Williams’s employee
so the exclusion was not applicable.
However, the court found that
the “fellow employee” exclusion applied since both Moses and Williams were
employees of Slim Shady under the federal regulations. Neither conclusion was
obvious – Moses after all was the principal of the company and Williams was,
nominally, an “independent contractor.” Treating them as fellow employees was
also slightly disconcerting to the court because Moses was Williams’s employer
and boss. Nonetheless, the court found that each was a statutory employee of
Slim Shady. There was precedent in the Fifth Circuit and elsewhere that the
regulations deem even so called independent contractors like Williams to be
employees. Moses, too, could be considered an employee since, besides owning
the company, he was also involved in driving. Obviously both Williams and Moses
could not both be driving at the time of the loss, but since they were driving
in tandem they both qualified as employees and thus were fellow-employees
triggering the exclusion. The Fifth Circuit assumed, as it has in other cases
cited in the decision, that an employee for purposes of the federal regulations
is also an employee for purposes of the employee or fellow employee exclusion.
After concluding that the basic
policy provided no coverage for the loss the court turned, finally, to the
MCS-90. The separation (or severability) of interests clause played a part in
the court’s earlier analysis, but the court held that it was inapplicable with
respect to the MCS-90. Citing to the October, 2005 regulatory guidance by the
USDOT, the court held that the MCS-90 would not be triggered by a judgment
against Williams. (The court might also have pointed out that the MCS-90 is not
applicable when the party seeking recovery is an employee, as Moses was).
THE ASTONISHING YEATES
DECISION
A decision that has received a
great deal of attention in the industry is the Tenth Circuit’s latest decision
relating to the MCS-90. Carolina Casualty Ins. Co. v. Yeates, 584 F.3d
868. The full circuit heard the rehearing of the decision we reported last year
which had found in favor of the claimants. Mr. and Mrs. Yeates were struck by a
vehicle owned by Bingham Livestock which was insured by State Farm with limits
of $750,000. The Yeateses claimed, though, that since Bingham was also covered
by a “general liability” policy with Carolina which included an MCS-90 they were
entitled to recover an additional $1 million. The District Court, and, later, a
three member panel of the Tenth Circuit held that, based on prior Tenth Circuit
precedent, Carolina was obligated to pay judgment entered against the motor
carrier. (Under the Tenth Circuit’s Adams decision discussed above the
same would be true of a judgment against a driver or lessor).
Both the District Court and the
panel had relied upon the Tenth Circuit’s 1989 decision in Empire Fire &
Marine Ins. Co. v. Guar. Nat’l Ins. Co., 868 F.2d 357 which held that a
policy containing an MCS-90 was, by definition, a primary or co-primary policy.
Carolina urged the Tenth Circuit to reverse the Empire Fire decision and
to find that since the Yeates plaintiffs had already recovered $750,000 from
State Farm, the MCS-90 issued by Carolina did not apply.
Empire was itself a
refinement of earlier Tenth Circuit precedent which held that if a policy
contained an MCS-90 (and we are talking about a scenario in which the policy
applies) then that policy is converted by the MCS-90 into the primary
policy (even if by its terms it would be excess). A Supreme Court decision from
the mid-70’s made that position untenable so in Empire Fire the Tenth
Circuit slightly modified its position: now the circuit’s view was that some
other policy could also be primary if its terms so provided. But the policy
with the MCS-90 is always at least co-primary. We have discussed the Tenth’s
Circuit’s view periodically over the years. It has always seemed to us to
reflect several fundamental misconceptions about the federal regulatory system.
If a policy applies (let us assume that the loss involved a covered auto), then
the MCS-90 is not reached – if there is one thing that all courts that have
analyzed the MCS-90 agree on that is it. But if the MCS-90 is not reached then,
one might well ask, how can it convert the policy to which it is attached into a
primary policy? Conversely, if the MCS-90 did apply but the policy did
not, then again why should the insurer with the MCS-90 exposure be seen as
primary? After all, an insurer that pays under an MCS-90 has the right to
collect its payment back from the insured. So the MCS-90 insurer will demand
repayment. Faced with such a demand the insured, in turn, will demand
protection from any other insurer (the insurer of the owner-operator, say, or
perhaps a lessor) whose policy coverage extends to him. That insurer will need
to indemnify the insured. In light of that circularity one must ask in what
sense is the insurer that issued the MCS-90 the primary insurer?
In short, the primary/excess
jurisprudence in the MCS-90 context expressed by the Tenth Circuit over the past
forty years is analytically problematic. Problematic or not, though, it is
unclear why the question of which insurer was primary had any bearing on the
Yeates case. The claimants were arguing that they were entitled to both
the State Farm limits and the Carolina MCS-90: there was no question of primacy
at all. Why, then, did the court ever think that the applicability of the
MCS-90 depended on the Empire Fire decision? And, if the Empire
decision was not really at issue, then was this the correct case for the court
to reconsider its approach to primary/excess disputes? These questions were
raised by the United States Department of Justice in an amicus brief prepared
jointly with the United States Department of Transportation in response to the
court’s invitation to express the view of the United States.
The U.S. government’s amicus
brief urged the Tenth Circuit to leave consideration of Empire Fire and
primary/excess analysis for another day. The amicus brief observed that the
District Court could have found that Carolina was obligated to pay without
citing Empire Fire. The amicus brief was certainly correct on this
point.
The primary thrust of the amicus
brief was to consider the substantive question of whether the MCS-90 applies
even if the claimant has recovered $750,000 or more from some other source. The
USDOJ and USDOT found no evidence in the language of the MCS-90 or in the case
law that excuses an insurer on that basis. The amicus brief urged the court to
affirm the District Court decision that Carolina was obligated to pay under its
MCS-90.
The Tenth Court decision does
not refer to the amicus brief, and the court chose not to take the government’s
advice. Instead, the court took the opportunity to do two things that insurers
have long sough: it repudiated the Empire Fire line of cases, deciding to
join with the majority view (perhaps now best called the unanimous view) that
the MCS-90 is irrelevant in resolving primary/excess disputes between insurers.
Secondly, the court held that a claimant who has collected $750,000 from some
other source may not collect anything under an MCS-90.
Let us examine the decision in
greater detail. We initially observe that there is no dissent: the judges on
the panel that held for the Yeates claimants switched their votes on
reconsideration and found for Carolina. If we look back to the panel decision
it now seems that even while the panelists found that the MCS-90 applied (they
believed, however incorrectly, that Empire Fire required that result),
there was a great deal of discomfort, and the panel was signaling that the
entire circuit should reconsider Empire Fire and its progeny. In moving
for an en banc review Carolina and its counsel correctly picked up on this vibe.
Moreover, they created further discomfort on the court with the holding
Empire Fire by showing that the other circuits had repeatedly rejected
Empire Fire’s central holding that the MCS-90 impacts on the primary/excess
analysis. In this regard, let us point out that, contrary to the Tenth
Circuit’s assertion (footnote 7) the Second Circuit did not, in Integral Ins.
Co. v. Lawrence Fulbright Trucking, 930 F.2d 258 (2d Cir. 1991) hold that
the MCS-90 makes the policy to which it is attached primary as a matter of law.
In Integral v. Fulbright the Second Circuit was not considering a
primary/excess dispute – the Court held that both policies applied and said
nothing at all about primacy. The Integral v. Fulbright case is
significant for a completely different reason the Second Circuit held that
Integral’s MCS-90 applied even though a different insurer had already paid the
plaintiff $750,000. The Second Circuit, in short, accepted the view later
expressed by the government in the Yeates amicus brief. Integral v.
Fulbright does not conflict with the majority view on the impact of the
MCS-90 on primacy of coverage.]
In any event, what should have
been obvious to the Tenth Circuit in 1989 when it decided Empire Fire had
become obvious in 2009 – the Tenth Circuit was out of step with its sister
circuits. The presence of an MCS-90 in a policy should not impact on whether
the coverage provided by that policy is primary or not. That portion of the
decision is an unalloyed triumph of reason and logic and should be welcomed by
the industry. [Well, perhaps it is somewhat alloyed. The court took the
trouble to insist that Adams v. Royal, discussed above, is consonant with
the majority view and still good law in the Tenth Circuit. That is
unfortunate.] But, as the Department of Justice pointed out in its amicus
brief, the Tenth Circuit’s shift to the majority view should have had no impact
on the Yeates case which, after all, was not a primary/excess case at
all. Why, then, did the Tenth Circuit even mention the majority view?
Perhaps the Tenth Circuit
exhibited the overzealousness of the newly converted. The court identified what
it took to be four elements of the majority view. The second of these, derived
from the Sixth Circuit’s decision in Kline v. Gulf Ins. Co., 466 F.3d 450
is that the MCS-90 is triggered only when: 1) the policy to which the MCS-90 is
attached does not otherwise provide coverage for the judgment entered against
the motor carrier, and 2) no other insurance is available to satisfy the
judgment or the available insurance is less than the required limits for motor
carriers. The Tenth Circuit read this to mean that where, as in Yeates,
there was at least $750,000 available under a different policy to satisfy the
judgment, the MCS-90 is not triggered. The Kline decision, discussed in
this space in 2007, involved an excess MCS-90 and might not provide our ideal
basis upon which to determine the trigger of the more prevalent “dollar one”
MCS-90. (To avoid any misunderstanding here we stress that we are referring to
the point of attachment of the MCS-90 exposure, not the primary or excess status
of the MCS-90 vis-a-vis other exposures). Kline held that an insurer
that agreed to guaranty an insured’s exposure, say, from the level of $1 million
to $2 million, does not drop down to a dollar one exposure if the insurer which
gave the guaranty for the first million is, for whatever reason, unable to pay a
judgment. There was some language in Kline that could be read as broadly
supportive of the Yeates holding but the scenario in Kline was so
unusual that it is a stretch to apply its holding in other contexts.
The bottom line, though, is a
potentially broad new defense to the MCS-90 exposure that insurers will
certainly cite in an attempt to limit their future exposure. The court held
that an MCS-90” is not triggered unless (1) the underlying insurance policy (to
which the endorsement is attached) does not provide liability coverage for the
accident, and (2) the carrier’s other insurance coverage is either insufficient
to meet the federally-mandated minimums or non-existent. Once the federally –
mandated minimums have been satisfied, however, the endorsement does not apply.
Attorneys and other courts will
be weighing and considering this aspect of Yeates in the coming years.
We, of course, have no way of knowing if this decision will be accepted by other
courts – but even if it is adopted important questions will no doubt be
presented in future cases. For instance, Yeates involved a rare,
although not unique, scenario, in which the two polices under discussion were
both issued to the same motor carrier (Bingham Livestock). Would the court have
reached the same decision if the two polices were issued to two separate
defendants (say one to the tractor owner and one to the trailer owner)? There
is language in the opinion that could support alternative conclusions. If the
Yeates holding is found to apply only if where the two policies,
including the one with the MCS-90, are issued to the same insured, then the
impact of the decision will be circumscribed (For what it is worth Kline, too,
involved two policies issued to the same in general, although in Kline
the policies were stacked vertically while in Yeates both policies were primary
policies though apparently directed at different groups of vehicles). Another
question – what if the insured purchases a $1 million policy (which includes an
MCS-90 in the same amount) but in fact requires $5 million in coverage because
it handles hazardous commodities. Were a plaintiff to win a $2 million judgment
against such a carrier there is language in the opinion suggesting that the
MCS-90 should be paid even though plaintiff recovered $1 million. That, though,
would be a major expansion of the MCS-90 exposure and it seem unlikely that the
Tenth Circuit was consciously advocating that. Other questions are almost
certain to arise.
At the end of the day the
decision in notable because the Tenth Circuit has now joined the majority view
that the MCS-90 does not convert the policy to which it is attached into a
primary policy. This will be something to consider when analyzing multiple
coverages in Utah, Colorado, Oklahoma, Wyoming, Kansas and New Mexico, the
states that make up the Tenth Circuit. And it is notable because it is the
first to accept the argument that the MCS-90 does not apply so long as the
plaintiff has recovered from some other insurer. The significance of these
holdings trumps the fact that, at least to some extent, the second development
cancels out the first: if the MCS-90 does not apply at all then there may not be
a primary/excess dispute at all!
REFORMING THE POLICY
A sobering decision from the
perspective of insurers was Bovain v. Canal Insurance Company, 383 S.C.
100, 678 S.E. 2d 422, in which the South Carolina Supreme Court reversed a
decision by the trial court. Canal had issued a liability policy with limits of
$40,000 to Rusty Greene Tree Service which hauls cut trees to mills and paper
companies. Plaintiff Bovain’s wife was killed in a collision with a Greene
logging truck, a 26,000 pound ten-wheeler with an attachment for moving logs.
Bovain filed suit against Canal,
alleging that Greene was a motor carrier and, accordingly, should have purchased
a policy with limits of at least $750,000. He also urged the court to reform
the policy and raise the limits to $750,000. A South Carolina regulation
requires motor carriers to insure vehicles with a gross vehicle rating of 10,000
pounds or more under a policy with limits of at least $750,000.
The trial court granted Canal’s
motion for summary judgment: Greene was not a motor carrier the court held since
it purchased the trees that it transported and, therefore, was hauling its own
property. Moreover, the regulations specifically exempted lumber haulers who
move lumber and logs from the forest to “shipping points in this State.”
Accordingly, Canal was exposed only in the amount of $40,000. Bovain appealed
to the Supreme Court.
The South Carolina regulations
for heightened insurance requirements apply to “for hire” motor carriers unless
otherwise exempted. The Supreme Court looked also to the relevant statutes
which used the phrase “for compensation” rather than “for hire.” The statute
specifically warned against a scenario in which title or ownership is
temporarily vested during transit in the carrier as a subterfuge for the purpose
of avoiding regulation. The trial court found that Greene was a private (and
thus exempt) carrier because he owned the logs that he hauled and was paid, at
delivery, for the logs. Greene, in fact, was not licensed as a motor carrier by
the South Carolina Public Service Commission. Since Greene complied with law
for private carriers by purchasing a $40,000 policy.
The actual trail of the money
did not quite support the trial court’s finding, though. It turned out that
John Frazier, a timber broker, rather than the mills, paid Greene. Frazier also
had Greene on his worker’s compensation policy and had helped Greene purchase
his logging trucks. The various mills would give Greene a ticket indicating how
much wood had been delivered. Frazier had the contracts with the mills and
paper companies and took a percentage of the fee. It was Frazier then which has
a relationship with the mills and, which billed the mills and paid Greene.
Greene had apparently sold logs in Frazier’s name for ten years. In light of
these facts, the Supreme Court of South Carolina concluded that Greene was
acting as a for-hire motor carrier and was subject to the regulation. The court
also found that the exemption for lumber haulers did not apply since there was
no evidence that the logs Greene hauled were carried “from the forest.” Canal
secured an affidavit from the South Carolina PSC indicating that the Commission
interpreted the phrase “from the forest” broadly. The court, though disagreed
with the Commission’s interpretation.
In short, then, Greene was
deemed to be acting as a for-hire carrier not subject to the exemption.
Accordingly, Greene was required to purchase limits of $750,000. The court then
devoted just a few short paragraphs for the next step which, for our money, was
far more important than anything else in the opinion. The question is who has
the obligation to comply with the insurance requirements. As we have discussed
in this space in previous years, arguing for policy reformation along those
lines is increasingly popular. The South Carolina Supreme Court’s decision in
Bovain is, perhaps, the most significant victory to date for those who
are attempting to argue that the insurer bears the obligation – and the risk –
of setting the proper liability limits for the policy.
The problem for insurers here is
obvious – Greene applied for coverage presumably telling the insurer that it
needed no filings. The insurer wrote a $40,000 policy because that was what the
insured asked for, and the premium charged reflected that level of exposure for
the insurer. There would need to be an extraordinary public interest to
overcome the clear inequity of retroactively increasing the limits of the
policy. In taking this leap – imposing the duty to pay $750,000 on an insurer
that accepted the risk only for $40,000, the court appears to have relied
entirely on the regulation at 38-414 of the state’s administrative code which
reads “Insurance policies and surety bonds for bodily injury and properly damage
with limits of not less than $750,000.” One assumes that the PSC meant to
emphasize that motor carriers must take care to purchase insurance in the
appropriate amount. This is confirmed by the statue (here, oddly, the court
seems to have been satisfied with the regulations and did not mention the
statute) at 53-3-661 of the South Carolina Code which makes clear that “[t]he
applicant (i.e., the motor carrier seeking to become certified) must provide
evidence of meeting the financial responsibilities or insurance requirements,
satisfy (safety) compliance requirements [of the USDOT] and continually satisfy
these requirements or certification may be suspended, revoked or place in a
probationary status.” It is the motor carrier that must satisfy the insurance
requirements set out in the regulations, not the insurer. And it is PSC which
is supposed to ensure that uncertified and uninsured (or underinsured) motor
carriers stay off the roads of South Carolina. While it is understandable that
the court would want to see to it that the estate of the victim of a tragic
accident not go uncompensated, the decision is hard to justify and likely to
encourage further arguments of this type in other states.
In another decision on this
precise question, the Eleventh Circuit in Waters v. Miller, 564 F.3d 1355
affirmed the judgment of the District Court that we discussed last year denying
that the policy should be reformed to include an MCS-90.
OTHER CASES OF INTEREST
Cargo Loss
Those Certain Underwriters at
Lloyds London v. DTI Logistics, Inc., ___ S.E.2d ___, 2009 WL 3530376 (Ga.
Ct. App. Nov. 2, 2009). A motor carrier left three loaded trailers overnight in
a lot owned by Ryder. All three trailers were stolen, their cargo emptied by
thieves, and returned to the lot. The policy provided that the insurer would
"indemnify the Insured for ALL RISKS OF PHYSICAL LOSS OR DAMAGE FROM AN EXTERNAL
CAUSE to lawful cargo in and/or on a truck [defined to include trailers] whilst
in the Insured's care, custody or control...." The court found that the insured
motor carrier was entitled under this language to recover the cost of the lost
cargo, even though the insured had not paid the shipper for the loss.
The policy also excluded
coverage for loss from an unattended vehicle unless it was on a "guarded lot."
The appellate court approved the trial court's jury instruction that "guard
means to watch over or supervise entry or exit," that a "lot means a piece of
land having specific boundaries," and that "the guarded lot condition is
satisfied if the lot is watched over or entrance and exit is supervised." The
motor carrier submitted evidence that Ryder employees monitored the property;
there was a single entrance near where the employees worked; employees were
present 24/7; the property was enclosed by a chain link fence, most of which was
topped with barbed wire; and the employees frequently stopped suspicious persons
and expelled intruders. The insurer present evidence that the facility had two
parking lots; employees mostly monitored the lower lot, while the trailers were
parked in the upper lot which could not be seen from the lot below; the fence to
the upper lot had a large hole in one place and had been pushed down in another
place; Ryder employed no security personnel; no one was assigned as a look-out
on the date of loss; and installed security cameras were not functioning. The
appellate court held that the issue of whether the cargo was stolen from a
"guarded lot" was a question of fact for the jury (which found in favor of the
motor carrier), and that directed verdict for the insurer on this point was
properly denied.
Permissive User
Desroches v. Dickson,
2009 WL 1617474 (N.J. Super. App. Div. June 10, 2009). The general rule in New
Jersey is that, once a person is given permission to use a motor vehicle in the
first instance, any subsequent use short of theft is permissive within the terms
of the standard omnibus coverage clause. The court held, however, that a
request to a friend to start an automobile for the purpose of warming it up did
not constitute permission to "use" the vehicle, so as to bring it within
coverage when the friend drove the automobile away and was involved in an
accident.
Covered Auto
Progressive Casualty
Insurance Co. v. Skin, 211 P.3d 1093. The named insured's 15 year old son
caused an accident while operating an all-terrain vehicle ("ATV"). The policy
provided liability coverage if the son was operating a "vehicle," defined as a
private passenger, pickup body, or sedan delivery type; but limited medical
benefits coverage to situations in which the victim was not occupying a "motor
vehicle," a term undefined in the policy. The 3-2 majority agreed with the
insurer that the policy definition of "vehicle" applied and barred liability
coverage, but held that the undefined term "motor vehicle" was ambiguous and
held that the son was entitled to medical benefits coverage. The minority
argued that the medical benefits coverage was clearly intended to cover the
insured when injured as a pedestrian, and should not apply when the insured was
occupying a self-powered vehicle of any type.
Defense Costs and Independent Counsel
National Casualty Co. v.
Forge Industrial Staffing Inc., 567 F.3d 871. The insured, asserting its
concern that defense counsel retained by the insurer would focus the defense of
anti-discrimination charges before the EEOC toward uncovered claims, retained
its own counsel and then sought reimbursement from the insurer. The insurer had
offered a defense reserving its rights on the grounds that the policy did not
cover punitive damages or claims arising out of willful failure to comply with
employment practices laws. The charges before the EEOC, however, did not state
claims either for punitive damages or for willful violation of any law. The
court noted further that any facts tending to show intentional conduct would
likely be elicited by plaintiffs’ counsel. Accordingly, the Tenth Circuit held
that no conflict existed which required appointment of independent counsel.
Non-Owned Auto
Union Standard Insurance Co.
v. Hobbs Rental Corp., 566 F.3d 950. Hobbs, a company in the business of
leasing oil drilling equipment, was sued as a result of an accident involving a
vehicle owned by Brunson, which Hobbs had hired to transport some of Hobbs’
equipment. Hobbs argued that the vehicle qualified as an covered non-owned auto
being used in connection with Hobbs’ business. Noting the specific example in
the definition of covered non-owned autos (privately-owned autos driven by Hobbs
employees), the court found that, instead of covering all autos somehow related
to the named insured’s business, the non-owned auto coverage applies only when a
person who works for the company is utilizing a privately-owned vehicle to
perform company-related work.
Carmack Amendment
Pacific Indemnity Co. v.
Pickens Kane Moving & Storage Co., ___ F. Supp.2d ___, 2009 WL 2905717 (D.
Ariz. Sept. 9, 2009). The shipper entrusted cargo consisting of antiques and
fine art to the upstream carrier with a stated value of $1,000,000. The
upstream carrier, however, did not inform the downstream carrier of the stated
value, and it was not recorded on either of the two bills of lading generated by
the respective carriers. The shipment was destroyed by fire while in the
possession of the downstream carrier. The shipper's insurer paid the shipper's
loss claim and then brought an action in subrogation against the motor
carriers. The court held that the downstream carrier was permitted to rely on
the $5.00 per pound limitation in its bill of lading.
AIOI Insurance Co. v. Timely
Integrated, Inc., 2009 WL 2474072 (S.D.N.Y. Aug. 12, 2009). Motor carrier
which was authorized to transport shipment, and which represented to shipper
that it would transport cargo itself, held liable to shipper for damage to cargo
where cargo was actually transported by another motor carrier under contract to
initial motor carrier.
F.M. Machine Co. v. R&L
Carriers, Inc., 2009 WL 1759577 (N.D. Ohio June 16, 2009). Shipment
incurred $56,000 in damage while in transit, but motor carrier sought to limit
liability to $18,000 based on limitation in bill of lading. The shipper argued
that carrier had not given shipper a fair opportunity to choose between two or
more levels of coverage, as required in the Carmack Amendment. The court,
however, held the shipper to the terms of the bill of lading, since it had been
drafted by the shipper itself.
Custom Rubber Corp. v. ATS
Specialized, Inc., 633 F. Supp.2d 495, 2009 WL 1324069. The collateral
source rule in tort actions prevents a defendant from claiming a setoff from the
plaintiff’s damages for any compensation the plaintiff has received from another
source. The Northern District of Ohio found that an action brought under the
Carmack Amendment for damage to cargo sounds essentially in negligence and that,
accordingly, the collateral source rule applied and barred the motor carrier
from claiming a setoff for the $95,000 the consignee received from its insurer.
Transport Solutions, Inc. v.
St. Paul Mercury Insurance Co., 678 S.E.2d 201. In a matter involving
stolen cargo, the shipper’s insurer attempted to impose Carmack Amendement
liability on the motor carrier by establishing that the cargo had been delivered
to the carrier in good condition. The court held that, where the cargo is
delivered by the shipper in a sealed container, good condition can only be
established by eyewitness testimony regarding the loading or by contemporaneous
records of automated processes by which the goods were produced and packaged for
shipping. In this case, the shipping records showing sale of the cargo to the
purchaser were insufficient to demonstrate delivery in good condition.
Warehouseman
Norfolk Southern Railway Co.
v. Groves, 586 F.3d 1273. Where a consignee takes too long to unload rail
cars, the rail carrier which is deprived of the use of its cars is entitled to
additional compensation known as "demurrage" charges, both under common law and
pursuant to the Interstate Commerce Commission Termination Act. In this case
the Eleventh Circuit held that the warehouseman acting as freight reloader was
not a "consignee," and therefore not liable for demurrage charges, where the
freight forwarder had identified the warehouseman as a consignee on the bill of
lading without the warehouseman's consent or knowledge. The court refused to
hold the warehouseman liable simply because it had been identified as a
consignee on the bill of lading and had accepted delivery of the goods;
following the approach of the Seventh Circuit in Illinois Cent. R.R. Co. v.
South Tec Dev. Warehouse, Inc., 337 F.3d 817 (7th Cir. 2003), and rejecting
the Third Circuit's approach in CSX Transp. Co. v. Novolog Bucks County,
502 F.3d 247 (3d Cir. 20007), cert. denied, ___ U.S. ___, 128 S. Ct.
1240, 170 L. Ed.2d 65 (2008).
Direct Action
Fierro v. Lincoln General
Insurance Co., 217 P.3d 158. Held that Oklahoma's Motor Carrier Act did not
permit direct action against a motor carrier's insurer absent a judgment against
the insured. One member of the three-judge panel would have limited the holding
to motor carriers which are not required to be licensed by the Oklahoma
Corporation Commission; the judge concurred in the result, since the motor
carrier in question was an interstate motor carrier based in California.
Who Is An Insured
Miller's Classified Insurance
Co. v. French, 295 S.W.3d 524. This case arose out of a single car accident
in which the claimant was injured while a passenger of the named insured's 15
year old, unlicensed daughter. The policy purported to exclude coverage for any
person operating a vehicle without a reasonable belief that the person is
entitled to do so. The court found that the term "any person" is ambiguous, in
view of the fact that various persons ("you," "we," "us," "our," "family
member," "insured") were specifically defined but "any person" was not;
accordingly, the exclusion was deemed unenforceable.
Vehicle & Traffic Law §
388
Ciminello v. Sullivan,
885 N.Y.S.2d 118. New York's Vehicle & Traffic Law § 388 imposes vicarious
liability on vehicle owners for another person's negligent use or operation of
the vehicle with the owner's permission. The court held that § 388 does not
impose such vicarious liability on the owner for injuries arising from being
struck by a cup thrown from the insured vehicle.
Estoppel
Kinnaman-Carson v. Westport
Insurance Corp., ___ S.W.3d ___, 2009 WL 1211259 (Mo. May 5, 2009). The
insurer’s offer of a defense under reservation of rights was rejected by the
insured, which then proceeded to sign a consent judgment with the claimant.
Unaware of the consent judgment, the insurer sent the insured a second letter
offered a defense with no reservation of rights. The court held that the second
letter precluded the insurer from denying coverage in the claimant’s subsequent
action to satisfy the judgment. The opinion suggests that the court was
influenced by the fact that the insurer had made no effort to monitor the status
of the action against the insured, nor to open the consent judgment in order to
defend the action.
Other MCS-90 Cases
Canal Indemnity Co. v.
Galindo, 2009 WL 2921863 (5th Cir. Sept. 14, 2009). The loss in question
occurred in Mexico, about one mile from the United States border. The court
held that the MCS-90 endorsement applies only to accidents occurring within the
United States, even if occurring as part of transportation between the United
States and Mexico.
Canal Insurance Co. v. Kwik
Kargo, Inc., 2009 WL 1086524 (D. Minn. Apr. 21, 2009). The court extended
the insurer’s right to reimbursement from the insured under the MCS-90
endorsement to include legal fees incurred in settling the claims against the
insured, as well as legal fees incurred in pursuing the reimbursement. In a
separate holding, the court held that the entity which leased the accident
vehicle to the named insured motor carrier (which was apparently not a named
defendant in the bodily injury action) was not liable to reimburse the insurer
for payments made pursuant to the MCS-90. Notably, the court reached this
conclusion by analyzing why the lessor was not an insured under the policy's
"Who Is An Insured" provisions, and did not address the definition of the word
“insured” found at 49 C.F.R. §387.5 (applicable to the MCS-90) which
explicitly limits the meaning of the word “insured” to the named insured motor
carrier.
Carolina Casualty Insurance
Co. v. Estate of Karpov, 559 F.3d 621 (7th Cir. 2009). The
court, applying the plain language of the endorsement as set out in the federal
regulations, agreed with the insurer that the coverage limit of the MCS-90 is
per accident, rather than per person.
Statutory Employee
Illinois Bulk Carrier, Inc.
v. Jackson, 908 N.E.2d 248. Allied Waste subcontracted a haul of solid
waste to IBC, which in turn subcontracted it to Wireman. All three entities
were federally-certificated motor carriers. When Wireman’s driver was involved
in an accident, the court held that IBC and Wireman were not statutory employees
of Allied Waste under federal law, since the definition of an “employee” of a
motor carrier in 49 C.F.R. § 390.5 is limited to an “individual.”
Primary-Excess/Other
Insurance/Insured Contract
Sentry Select Insurance Co.
v. Fidelity & Guaranty Insurance Co., 46 Cal. 4th 204, was the
first time the California Supreme Court has weighed in on the state’s
primary/excess statute (Insurance Code §11580.9) which as been analyzed, in its
various iterations, by the appellate and trial courts over the past forty
years. Sentry had paid a claim, then sought contribution from Fidelity under
subdivision (d) of the statute which, according to the case law, provides that
when one insurer schedules the tractor on its policy and the other schedules the
trailer, the two insurers pro-rate the loss.
The Supreme Court, though, held
that the primary/excess dispute was controlled by subdivision (b) of the statute
which applies when one of the parties leases a vehicle without driver to the
other one. The statute was amended while the matter was working its way through
the courts but the Supreme Court held that under either version, Fidelity’s
coverage was excess since its insured had leased a pair of trailer’s to Sentry’s
insured. The new version of the statute also contains a completely new
paragraph, subdivision (h), which, on the surface, imposes primary status on the
insurer of the for-hire trucker, but the Supreme Court did not address that
provision. Larry Rabinovich and Phil Bramson of our firm represented Sentry.
Hertz Equipment Rental Corp.
v. Ammon Painting Co., ___ S.W.3d ___, 2009 WL 2345578 (Mo. Ct. App. Aug. 4,
2009). Ammon, a commercial power washing and painting company, was insured
under a Valiant primary policy and an Assurance excess policy. Ammon leased an
aerial lift from CSC, which was insured under a primary policy and an excess
policy issued by Travelers; the lease provided that Ammon would indemnify CSC
against claims arising out of the use of the lift. An Ammon worker sued CSC for
injuries incurred when he came into contact with electrical lines while using
the CSC lift. CSC and Travelers settled the claim, then sought reimbursement
from Valiant and Assurance. The court held that both the Valiant primary policy
and the Assurance excess policy had to be exhausted before Travelers was
required to contribute under its primary policy. The court reasoned that the
"other insurance" clauses of the various policies were effectively trumped by
the indemnification agreement (i.e., the "insured contract") between Ammon (the
indemnitor) and CSC (the indemnitee). The decision is understandable, and the
result correct, if seen as a means of avoiding circuitous litigation: if CSC (or
its insurers standing in its shoes) could successfully sue Ammon for full
indemnification, Ammon and both its insurers would ultimately bear the full
burden of compensating the injured party, regardless of the "other insurance"
clauses. Notably, however, language in the opinion could be interpreted as
holding (incorrectly, in our view) that the insured contract somehow affected
the various insurers' obligations to provide coverage directly to CSC (as a
named insured on the Travelers policies, and as an additional insured under the
Valiant and Assurance policies).
Castronovo v. National Union
Fire Insurance Co. of Pittsburgh, PA, 571 F.3d 667. Insureds entered into
consent judgment in excess of primary policy limits, without the consent of the
umbrella insurer which, accordingly, denied coverage. The insureds argued that
the umbrella insurer was estopped from relying on the "consent to settle"
provision because the umbrella insurer had no defended the insureds. The
insureds pointed to policy language stating that the umbrella insurer would
defend where damages were sought which were not covered by any underlying
insurance, and argued that one underlying insurer had denied coverage while
another had paid its policy limit into court which was insufficient to meet the
damages claimed by the plaintiffs. The court, however, found that the second
underlying policy "covered" the damages, even if the policy limit was
insufficient. Moreover, the insureds never tendered their defense to the
umbrella insurer. Accordingly, the umbrella insurer had no duty to defend, and
was not estopped from relying on its "consent to settle" provision to deny
coverage for the judgment.
Clarendon National Insurance
Co. v. United Fire & Casualty Co., 571 F.3d 749. A leased vehicle was
involved in an accident while operated by an employee of the lessee. Clarendon
issued a primary policy to the vehicle owner; United Fire issued both a primary
policy and an excess policy to the vehicle lessee. The "other insurance"
clauses of the primary policies both provided that coverage was primary for a
vehicle owned by the named insured and excess for a vehicle not owned by the
named insured. Both policies also provided that coverage is primary for
liability assumed under an "insured contract," defined to include both a lease
of an auto and an agreement to indemnify another against tort liability. Since
the lease provided that the lessee would indemnify the lessor for liability
arising out of the use of the leased auto, the court held that United Fire's
primary policy provided primary coverage, notwithstanding the fact that the
owner had not asserted a claim against the lessee for contractual
indemnification, no lawsuit arising out of the accident had been filed (and,
although not discussed, the indemnification clause in the lease did not
expressly provide that the owner was to be indemnified against liability arising
out of its own negligence.) Moreover, the court held that United Fire's excess
policy also had to be exhausted before coverage under Clarendon's primary policy
was triggered.
Graves Amendment
Carton v. General Motors
Acceptance Corp., 639 F. Supp.2d 982. The claimants, seeking to impose
owner liability on GMAC, the lessor of the vehicle that struck them, argued that
the Graves Amendment was inapplicable because the lessor had obtained a judicial
order of replevin against the lessee. (The lessee had failed to make lease
payments and allowed her insurance to lapse, in violation of the lease terms,
but was continuing in possession of the leased automobile). The court held
that, under the law of Wisconsin (where the lease was entered), the lease
continued in effect notwithstanding the order of replevin. In its continuing
status as a lessor in the business of leasing vehicles, therefore, GMAC was
exempt from Iowa's ownership liability statute pursuant to the Graves
Amendment. The court also noted that the presumptions of the Graves Amendment
could not be overcome by mere assertions that the lessor was negligent; some
assertion that the lessor had committed criminal acts or that it was negligent
in its maintenance of the leased vehicle would be required.
Dubose v. Transport
Enterprise Leasing, LLC, 2009 WL 210724 (M.D. Fla. Jan. 27, 2009). The
Graves Amendment, by its explicit language, not intended to supercede the law of
any state imposing liability on a leasing company "for failure to meet the
financial responsibility or liability insurance requirements under State
law...." In this case, however, the court found that the lessor had not
violated any laws by failing to take steps to confirm that the lessee was
properly insured (it was not), beyond obtaining a certificate of insurance.
Accordingly, the court held that the plaintiff's action against the leasing
company for injuries incurred in a collision with the leased tractor was barred
under the Graves Amendment.
Meyer v. Nwokedi, 759
N.W.2d 426. Held: Graves Amendment preempted any action seeking to impose
vicarious liability on rental company, notwithstanding state statute which
limited liability of rental company.
Reciprocity Clause
Zurich American Insurance Co
v. Key Cartage, Inc., ___ N.E.2d ___, 2009 WL 3470846 (Ill. Oct. 29,
2009). Overruling last year's appellate ruling, 386 Ill. App. 3d 1, 896 N.E. 2d
400 (2008), the Supreme Court of Illinois held that
the reciprocity clause is enforceable under Illinois law, at least in the
context of a commercial auto policy. The court found that the omnibus
coverage requirements of the Illinois Safety and Family Financial Responsibility
Law are inapplicable to commercial vehicles governed under the Illinois
Commercial Transportation Law. Accordingly, a reciprocity clause that limits
omnibus coverage in a commercial vehicle context is permissible.
UM/UIM
Humphrey v. Vermont Mutual
Automobile Insurance Co., 979 A.2d 452. Two policies provided UIM coverage;
in accordance with their respective "other insurance" clauses, one policy was
primary and the other was excess. The Vermont UIM statute provided that UIM
insurers are entitled to indemnity for any amounts that should have been paid by
the tortfeasor, but was silent on how to apportion that set-off among multiple
UIM insurers. The Supreme Court of Vermont held that the entire amount of the
set-off would be allocated to the primary UIM insurer, up to its policy limits,
with any remaining set-off going to the excess UIM insurer.
Economy Premier Assurance Co.
v. Jackson, 913 N.E.2d 90. The son of divorced parents was killed in a
motor vehicle accident while a passenger. His parents asserted separate
wrongful death claims against his driver, who was underinsured, and then each
sought UIM benefits under their respective policies. The court found that
neither parent was an insured under the other's policy (although the son, who
resided in each household at different times, was an insured under both
policies), and that their wrongful death claims were brought in their own names
(as compared to a bodily injury action brought by the son's estate).
Accordingly, the anti-stacking provisions of the parents' policies were
inapplicable, and each parent was entitled to full coverage under his or her
policy.
Lauric v. USAA Casualty
Insurance Co., 209 P.3d 190. Without notice to, or consent of, his UIM
insurer, the insured settled a suit with the tortfeasor for the limit of the
tortfeasor’s liability insurance, and then sought to recover UIM benefits. The
court held that the UIM insurer could not deny coverage under the
consent-to-settle clause absent a showing of prejudice.
White v. Liberty Insurance
Corp., 975 A.2d 786. The tortfeasor’s liability policy and the insured’s
UIM policy had the same limits - $15,000 per person/$30,000 per accident. The
court held that, under the statutory definition, the tortfeasor’s vehicle was
not “underinsured,” and the insured victim was not entitled to recover UIM
benefits under her own policy, even though she had split the tortfeasor’s
liability insurance equally with her two fellow passengers (and, thus, each
received $10,000 rather than the per person limit of $15,000).
Kline v. Farmers Insurance
Exchange, 277 Neb. 874, 766 N.W.2d 118 (2009). The UIM policy in question
was issued to a limited liability company, which owned the vehicle involved in
the accident; the injured party was the sole shareholder of the company. The
policy excluded UIM coverage “if the injured person was occupying a vehicle you
do not own which is insured for this coverage under another policy.” This
exclusion, however, did not match any of the exclusions expressly approved under
the Nebraska UIM statute.
Boritz v. New Jersey
Manufacturers Insurance Co., 968 A.2d 1223. A passenger in the named
insured’s vehicle sought benefits under the named insured’s UIM policy, which
contained a step-down provision reducing coverage for the passenger to the limit
of her own UIM policy. The court acknowledged the validity of the step-down
clause, but found that, in response to the passenger’s request for consent to
settle, the UIM insurer had merely stated its full limit and had not mentioned
the step-down provision. Under the circumstances, the court found that the
passenger had relied on the UIM insurer’s representations in pursuing a
liability policy limit settlement with the tortfeasor, and that the UIM insurer
was estopped from relying on its step-down provision.
Central Analysis Bureau's "2009
Review and Look Ahead To 2010"
Copyright 2011, Schindel, Farman, Lipsius, Gardiner & Rabinovich LLP
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