DEE BENSON, District Judge.
The plaintiffs and defendant Wilshire Insurance Company both move for summary judgment. The court heard oral argument on the cross-motions on April 28, 2010. L. Rich Humpherys appeared as counsel for the plaintiffs and Nelson Abbott appeared as counsel for defendant Wilshire Insurance. At the conclusion of oral argument, the court granted the parties additional time to brief issues raised during the hearing. Oral argument on the supplemental briefing was held on July 8, 2010. Counsel for both parties argued, and the court took the case under advisement at the conclusion of that hearing. Now, having fully reviewed the parties' written submissions and considered their oral presentations, the court enters the following Memorandum Decision and Order.
This is a case about whether an insurer that issued a motor carrier an Endorsement(s) for Motor Carrier Policies of Insurance for Public Liability under Sections 29 and 30 of the Motor Carrier Act of 1980, also called an MCS-90, is required to pay out the endorsement for a judgment entered against its client when there is more than one motor carrier involved in the incident and at least one MCS-90 endorsement has already been paid out. Because this case is before the court on cross-motions for summary judgment, the court examines the evidence that supports each party's claims in the light most favorable to the nonmoving party. Albright v. Attorney's Title Ins. Fund, 504 F.Supp.2d 1187, 1192 (D.Utah 2007). Accordingly, the facts set forth below do not constitute findings of fact. Id.
Kimball Herrod was driving his car on Interstate 15 when a wheel came off the trailer of a double-wheeled semi-trailer truck driving at freeway speed in the opposite direction. The wheel flew across the median and struck the Herrods' car, killing Kimball Herrod. At the time of the accident, DATS Trucking, Inc. owned and insured the tractor involved in the accident. Espenschied Transport Corporation owned the trailer and had leased it to DATS.
Kimball Herrod's family, the plaintiffs, brought a wrongful death suit against DATS Trucking, Espenschied Transport, and others, alleging negligence by both defendants. Espenschied contacted its insurer, Wilshire Insurance, and attempted to refer the defense of the personal injury suit to Wilshire. Wilshire Insurance determined that the trailer was not listed on the schedule of covered vehicles for Espenschied's liability policy and declined coverage for the accident. Wilshire Insurance subsequently declined to participate in defending the suit or settlement discussions.
The Herrods settled their claims with Espenschied on June 26, 2007. (Dkt. No. 11, Def.'s Mem. in Supp., Ex. L). In the executed settlement agreement, Espenschied agreed to an entry of judgment in favor of the Herrod family and to pay $1,100,100 with 10 percent interest for a total judgment of $1,292,499.99. (Dkt. No. 11, Def.'s Mem. in Supp., Exs. L & O). The Herrods agreed to not collect any noninsurance assets from Espenschied until the claims against the other parties were resolved and to never pursue collection against the principals of Espenschied or against Espenschied Transportation Corporation if the effect would expose the personal assets of the corporation's principals. (Dkt. No. 11, Def.'s Mem. in Supp., Ex. L, ¶ 2). In other words, the Herrods agreed to collect the amount owed by Espenschied from its liability insurer, Wilshire Insurance Company. (Dkt. No. 11, Def.'s Mem. in Supp., Ex. O, ¶ 2). That same day, Espenschied assigned its claims against DATS Trucking, such as claims for liability, insurance indemnity, or consequential damages, to the Herrods. (Dkt. No. 11, Def.'s Mem. in Supp., Ex. N). As anticipated by the Herrods' and Espenschied's settlement agreement, a separate confessed judgment was entered against Espenschied and DATS. (Dkt. No. 16, Pls.' Mem. in Supp. iv).
A few months later in the fall of 2007, the Herrods settled their claims against DATS with DATS Trucking and its insurers. (Dkt. No. 11, Def.'s Mem. in Supp., Ex. Q). As part of that settlement, DATS and its insurers agreed to pay the Herrod plaintiffs $2,264,000, with periodic payments extending until May 5, 2030. The DATS settlement stated that "this settlement is a compromise of a doubtful and disputed claim, and the payments are not to be construed as an admission of liability on the part of the Defendant, by whom liability is expressly denied." (Id. ¶ 1.4) At the same time that DATS and the Herrods reached a settlement, the Herrods and Espenschied released DATS from liability by executing a separate Settlement Agreement and General Release. (Dkt. No. 11, Def.'s Mem. in Supp., Ex. P). This agreement was also explicit that it should not be construed as an admission of liability by DATS and its insurers. (Id. ¶ 4).
Espenschied did not have direct insurance for the trailer involved in the accident as it was not listed on Wilshire's schedule of covered vehicles. Espenschied did, however, have MCS-90 coverage under its policy with Wilshire.
Two years after the parties settled, the plaintiffs sued Wilshire Insurance Company in this court, arguing that pursuant to the MCS-90 endorsement included in Espenschied's liability policy with Wilshire Insurance, Wilshire was liable to the Herrods for the liability policy limit, $1,000,000 plus interest.
The Wilshire MCS-90 Endorsement to Espenschied's policy read as follows:
(Dkt. No. 11, Def.'s Mem. in Supp., Ex. H). This language closely tracks the model policy described in the federal regulations implementing the Motor Carrier Act. See 49 C.F.R. § 387.15.
In 1980, Congress passed the Motor Carrier Act, 49 U.S.C. § 10101 et seq., in order "to deregulate the trucking industry, increase competition, reduce entry barriers, and improve quality of service...." Carolina Cas. Ins. Co. v. Yeates, 584 F.3d 868, 873 (10th Cir.2009). The Act also addressed abuses in the trucking industry that threatened public safety, including motor carriers' use of "leased or borrowed vehicles to avoid financial responsibility for accidents that occurred while goods were being transported in interstate commerce." Canal Ins. Co. v. Distrib. Servs., Inc., 320 F.3d 488, 489 (4th Cir.2003); see also Empire Fire & Marine Ins. Co. v. Guar. Nat'l Ins. Co., 868 F.2d 357, 362 (10th Cir.1989) (noting that leased vehicles were used to avoid safety regulations governing equipment and drivers or to confuse the public about who was responsible for accidents caused by nonowned vehicles). In particular, the Act and the subsequent regulations enforcing it require every motor carrier registered to engage in interstate commerce to comply with minimum financial responsibility requirements by filing "a bond, insurance policy, or other type of security" in a specific amount depending on the type of cargo being transported. 49 U.S.C. § 13906(a)(1); 49 C.F.R. § 387.7. The regulations specifically require a motor carrier to have an approved self-insurance program, a surety bond, or an "Endorsement(s) for Motor Carrier Policies of Insurance for Public Liability under Sections 29 and 30 of the Motor
Both parties seek to resolve this case on summary judgment. The court may grant summary judgment only if "there is no genuine issue as to any material fact and [if the moving party] is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56. "A `material fact' is one `that might affect the outcome of the suit under the governing law, and a `genuine' issue is one for which `the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Pelt v. Utah, 539 F.3d 1271, 1280 (10th Cir.2008) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)) (internal citation omitted).
An "MCS-90 endorsement comes into play ... only where (1) the underlying insurance policy to which the endorsement is attached does not otherwise provide liability coverage, and (2) the carrier's other insurance coverage is either insufficient to satisfy the federally-prescribed minimum levels of financial responsibility or is nonexistent." Carolina Cas. Ins. Co. v. Yeates, 584 F.3d 868, 881 (10th Cir.2009).
In this case, the two circumstances above have been satisfied. Espenschied's policy to which an MCS-90 endorsement is attached does not cover the trailer involved in the accident at issue and Espenschied has no other insurance; however, in this case, another carrier has already paid the federally prescribed minimum levels for that carrier. This raises a question of first impression: is an insurer required to pay out an MCS-90 endorsement to a third-party injured by the negligence of one its clients when there is more than one motor carrier assigned liability and at least one MCS-90 endorsement or other avenue of satisfying the financial responsibility obligation has already been paid out?
Wilshire argues that federal law requires that only one MCS-90 endorsement, or other satisfaction of financial responsibility, be paid out to an injured party, regardless of how many motor carriers were involved in an incident. In this case, Wilshire argues that because the Herrod plaintiffs
Both parties rely on Carolina Casualty Insurance Co. v. Yeates, 584 F.3d 868 (10th Cir.2009), in presenting their arguments; but this case is not directly on point. Yeates addressed the required payment of MCS-90 policies when one motor carrier had multiple insurance policies. Yeates, 584 F.3d at 871-72. In that case, the motor carrier specifically insured the truck involved in an accident with State Farm and then also carried general liability insurance with Carolina Casualty. Id. After State Farm paid its policy limit of $750,000, which was also the regulatory minimum, Carolina Casualty sought a declaratory judgment that it had no liability under its general liability policy. Id. Characterizing an MCS-90 policy as a surety obligation, the Yeates court agreed, concluding that an "MCS-90 endorsement does not apply once the federally-mandated minimums have been satisfied" by a motor carrier, whether through one insurance policy or an aggregate of policy proceeds. Id. at 879, 886. Limited to the facts of the case, Yeates in no way addressed whether financial responsibility minimums required by the Motor Carrier Act are assigned per incident or per carrier. Unpersuaded by the parties' arguments that Yeates is dispositive, the court will start at the beginning—the statute itself and its implementing regulations.
Based on the language of the statute, there is no merit in Wilshire's position. The statute and CFR require that
Still, Wilshire argues that public policy considerations support payment of only one endorsement per incident. First, Wilshire argues that the MCS-90 endorsement should not operate to make it liable for a claim for which no premium was paid, but, this is precisely what the MCS-90 endorsement was designed to do—insure payment on a claim for which there is inadequate or no insurance. This does not rewrite the contract between the insurer and insured, instead the endorsement provides that "all terms, conditions, and limitations in the policy to which the endorsement is attached shall remain in full force and effect ..." and requires the insured to reimburse the insurer "for any payment the company would not have been obligated to make under the provisions of the policy except for the agreement contained in this endorsement." "In sum, the MCS-90 endorsement creates an obligation entirely separate from other obligations created by the policy to which it is attached." Yeates, 584 F.3d at 884. Similarly, applying an endorsement to a claim does not rewrite an agreement between carriers as to how to assign risk. Cf. id. at 882 ("Consequently, with respect to the ultimate allocation of responsibility, the MCS-90 endorsement should be irrelevant."). That is also a matter separate from the endorsement's application.
Wilshire also argues that obligating each motor carrier charged with negligence in an incident with financial responsibility will create an inequity between persons injured in accidents with one motor carrier and persons injured in accidents with multiple motor carriers. For instance, Wilshire asserts that if one person is injured in an accident with equipment owned by three different motor carriers and another person is injured in a similar accident but the equipment is all owned by one company, the first party will recover three times more from the motor carriers. This hypothetical is misleading. If the Motor Carrier Act's MCS-90 requirement is applied to each motor carrier, the injured party would only recover more if each motor carrier was negligent. In many cases negligence is asserted against only one party. See, e.g., Royal Indem. Co., 99 F.3d 964, 966 (10th Cir.1996). And even if negligence is asserted against each motor carrier, this is a reality of tort law. A party injured by the negligence of many compared to the negligence of one has the right to recover from each negligent party. Moreover, accepting this argument would create an incentive counter to the purpose of the MCS-90 endorsement. When multiple defendants are named but the plaintiff is limited to only one financial responsibility obligation, it would be beneficial for each party to wait the others out in a "game of `chicken'" and thereby avoid being "tagged first by the injured party ... [to] shoulder[] the entire financial liability." Redland Ins. Co. v. Shelter Mut. Ins. Co., 193 F.3d 1021, 1022-23 (8th Cir.1999). This cannot be what Congress intended by creating the financial responsibility obligations.
Therefore, based on the statute and the regulations, as well as their initial purpose, the court concludes that each motor carrier is required to satisfy the financial responsibility requirements, including paying out on an MCS-90 endorsement where applicable.
Aside from its argument that the minimum financial responsibility requirement has already been satisfied, Wilshire raises three additional arguments to avoid financial
To begin, Espenschied was a motor carrier accused of negligence in its maintenance of the trailer. The MCS-90 requires payment for injury "resulting from negligent operation, maintenance, or use of motor vehicles." 49 U.S.C. § 13906. Wilshire argues that because DATS, via contract, was responsible for maintaining the trailer and because DATS was operating and maintaining the trailer, Espenschied's MCS-90 policy should not apply. However, by its own admission, Espenschied is a registered motor carrier and because it owned the trailer, at some point it was responsible for the maintenance of the trailer. The Herrods sued Espenschied for negligent maintenance. Therefore, the court concludes that as a motor carrier accused of negligence, Espenschied's MCS-90 is at issue. Additionally, Wilshire's argument is counter to the entire purpose of the financial responsibility obligation. "Attempts to circumscribe liability by the use of leased or borrowed vehicles was the impetus behind the ICC's mandating the MCS-90 endorsement." John Deere Ins. Co. v. Nueva, 229 F.3d 853, 857 n. 5 (9th Cir.2000); Empire Fire & Marine Ins. Co. v. Guar. Nat'l Ins. Co., 868 F.2d 357, 361-62. The requirement was created to avoid the very confusion created by the use of non-owned vehicles. Yeates, 584 F.3d at 873 n. 2 (quoting Empire Fire & Marine Ins. Co. v. Guar. Nat'l Ins. Co., 868 F.2d 357, 362 (10th Cir.1989)).
Wilshire's second argument is also faulty. Settlements of actual negligence claims formalized into a consent judgment qualify as a final judgment. As explained by the Yeates court, "the provisions of [the MCS-90 policy] were designed to ensure collectability of a judgment...." The MCS-90 was not designed "to relieve the injured member of the public from the requirement that he or she obtain a final judgment of legal liability against the motor carrier...." Yeates, 584 F.3d at 875, 879. In this case, the Herrod plaintiffs have a final judgment of legal liability against Espenschied. Wilshire argues that the consent judgment did not include an admission of liability, let alone a finding or judgment of negligence. Instead, Wilshire argues this is an unresolved issue of fact. For support, Wilshire cites Green v. Royal Indem. Co., 93 Civ. 4335, 1994 WL 267749, at *3-4, 1994 U.S. Dist. Lexis 7948, at *9 (S.D.N.Y. June 15, 1994), which held that a consent judgment was only presumptive or prima facie evidence that a motor carrier acted negligently. Id. at *3-4, 1994 U.S. Dist. Lexis 7948, at *9-10. This presumption, according to the Green court, could be rebutted with a showing that the judgment was obtained through "bad faith, fraud, or factual or legal error."
Finally, any allocation of risk between the parties is not relevant to a determination of the duty to pay out under MCS-90. This is a contract dispute between DATS and Espenschied that is independent of the MCS-90 issue. As discussed above, Wilshire is obligated to pay the MCS90 liability and then, if warranted, may seek indemnification if it agreed to allot risk differently. See Carolina Cas. v. Yeates, 584 F.3d 868, 882, 885 (10th Cir.2009) ("[W]ith respect to the ultimate allocation of responsibility, the MCS-90 endorsement should be irrelevant." "[I]f an insurer, which otherwise has no liability for an accident but for the MCS-90 endorsement, pays out the financial responsibility minimums as governed by the regulations, that insurer is not without recourse; it may still seek reimbursement from the motor carrier."). The determination of liability among motor carriers and insurers is separate from the financial responsibility obligation owed to the public. Thus, once the "public ... [is] protected, the parties are then free, as among themselves, to allocate risk however they choose." Adams v. Royal Indem. Co., 99 F.3d 964, 969 (10th Cir.1996).
In conclusion, because the Herrod plaintiffs asserted independent negligence claims against DATS and Espenschied, both motor carriers are obligated to meet the Motor Carrier Act's financial responsibility requirements. Espenschied does not have adequate insurance to satisfy this obligation and therefore its MCS-90 policy provided by Wilshire is applicable. This policy is triggered by the consent judgment and the fact that Espenschied was a motor carrier accused of negligent maintenance. The leasing agreement between Espenschied and DATS, which included an allocation of risk, does not alter this application. Instead, Wilshire is required to pay on its MCS-90 policy and thereafter may seek to recover from Espenschied or others any monies for which it does not believe it is liable.
Accordingly, defendant Wilshire's motion for summary judgment is DENIED and the plaintiff's motion is GRANTED.
IT IS SO ORDERED.