T.H.E. Ins. Co. v. Larsen Intermodal Services

• Decision Date: 02 March 2001
• Docket Number: No. 00-30392,00-30392
• Citation: 242 F.3d 667
• Parties: (5th Cir. 2001) T.H.E. INSURANCE COMPANY, Plaintiff-Appellant, v. LARSEN INTERMODAL SERVICES, INC., Defendant-Appellee
• Court: U.S. Court of Appeals — Fifth Circuit

Page 667

242 F.3d 667 (5th Cir. 2001)

T.H.E. INSURANCE COMPANY, Plaintiff-Appellant, v. LARSEN INTERMODAL SERVICES, INC., Defendant-Appellee.

No. 00-30392

UNITED STATES COURT OF APPEALS,Fifth Circuit

March 2, 2001

[Copyrighted Material Omitted]

Appeal from the United States District Court for the Eastern District of Louisiana

Before KING, Chief Judge, and HIGGINBOTHAM and DUHE, Circuit Judges.

DUHE, Circuit Judge:

T.H.E. Insurance Company ("T.H.E.") appeals the ruling of the district court granting summary judgment in favor of its insured, Larsen Intermodal Services, Inc. ("Larsen") and denying T.H.E.'s cross-motion for summary judgment. T.H.E. defended Larsen against the claims of several plaintiffs who were injured in an accident involving a 1984 White tractor leased to Larsen and driven by one of its employees. However, T.H.E. determined that the tractor was not a covered vehicle under the Commercial Trucker's Insurance policy (the "Policy") that T.H.E. provided to Larsen. Nevertheless, T.H.E. settled and paid the injured plaintiffs' claims as required by a federally-mandated endorsement to the Policy. The endorsement gives T.H.E. the right to seek reimbursement from Larsen for any sums paid solely by reason of the endorsement. The district court concluded, however, that T.H.E. had waived its right to seek reimbursement. It also denied T.H.E.'s claim for defense costs. Because we hold that T.H.E. did not waive its rights to reimbursement of the settlement amounts, we REVERSE and RENDER summary judgment for T.H.E. on that issue. However, we conclude that T.H.E. had a duty to defend Larsen, and we therefore AFFIRM the district court's ruling insofar as it determined that T.H.E. is not entitled to recover its defense costs.

I. FACTS AND PROCEEDINGS

Larsen is a trucking company which operates on both interstate and intrastate routes. T.H.E. insured Larsen under the Policy for liability up to $1 million. The Policy provides that only the autos specifically described on the declarations page attached to the Policy are "covered autos." A driver is covered under the Policy as an insured while he or she uses, with the named insured's permission, a covered auto that is owned, hired or borrowed by the named insured. The Policy also provides that autos acquired after the Policy begins are covered if, among other things, the named insured requests coverage from T.H.E. within thirty days after acquiring the auto. However, the Policy includes an endorsement that amends this provision to require that the insured must request coverage from T.H.E. within twenty-four hours after acquisition.

In addition, the Policy contained the federally-mandated "Endorsement for Motor Carrier Policies of Insurance for Public Liability under Sections 29 and 30 of the Motor Carrier Act of 1980," which is the subject of this appeal. The endorsement, referred to as Endorsement MCS-90 ("MCS-90"), must be attached to any liability policy issued to a registered motor carrier pursuant to 49 U.S.C. 13906(a)(1), 31139(b)(2) and 49 C.F.R. 387. The MCS-90 states in pertinent part:

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 Carrier Act of 1980 regardless of whether or not each motor vehicle is specifically described in the policy . . . . It is understood and agreed that no condition, provision, stipulation, or limitation contained in the policy, this endorsement, or any other endorsement thereon, or violation thereof, shall relieve the company from liability or from the payment of any final judgment, within the limits of liability herein described irrespective of the financial condition, insolvency or bankruptcy of the insured.

Basically, the MCS-90 makes the insurer liable to third parties for any liability resulting from the negligent use of any motor vehicle by the insured, even if the vehicle is not covered under the insurance policy. The endorsement continues:

However, all terms, conditions, and 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 the provisions of the policy except for the agreement contained in this endorsement.

Thus, the MCS-90 obligates the insured to reimburse the insurer for any payments the insurer would not have been liable to make under the policy but for the terms of the endorsement.

It is undisputed that the tractor involved in the accident underlying this appeal was never listed on the schedule of covered vehicles contained on the declarations page of the Policy. Larsen admits that it has no evidence that it requested coverage for the tractor within twenty-four hours after its acquisition. Rather, it appears that T.H.E. was first informed that Larsen had acquired the vehicle when Larsen submitted a loss notice advising T.H.E. of the accident, twenty-two days after Larsen leased the tractor.

Before any of the plaintiffs injured in the accident filed suit, T.H.E. determined that the tractor was not a covered auto under the terms of the Policy, because Larsen had not requested coverage for the vehicle within twenty-four hours after acquiring it. Accordingly, T.H.E. sent a letter to Larsen advising it that there was no coverage. The letter also advised Larsen that T.H.E. could claim reimbursement for any amounts it paid to settle claims arising from the accident,¹ and invited Larsen to contact T.H.E. with questions.

Thereafter, the injured plaintiffs filed their petitions against Larsen, its driver, and T.H.E. in state court, alleging that the driver's negligent operation of the vehicle caused their injuries, and that "at the time of the accident sued upon herein, [Larsen] was insured by [T.H.E.], in connection with the operation . . . of a 1984 018000 truck at all times pertinent hereto." T.H.E. negotiated settlements with two of the plaintiffs, and informed Larsen of some of the settled amounts in a second letter in which it restated its right to claim reimbursement for the settlement amounts. The letter again invited Larsen to contact T.H.E. with questions. Despite these two letters, no representative of Larsen contacted T.H.E. concerning its denial of coverage, its claim for reimbursement, or the defense of the suits.

Not having received any objections from Larsen, T.H.E. engaged a single attorney to defend the claims of the two remaining plaintiffs. When the plaintiffs demanded amounts in excess of $1 million, T.H.E. sent a third letter to Larsen stating:

The [Policy] in effect for this loss has a limit of liability of $1,000,000.00 per occurrence for Bodily Injury and Property Damage. There exists the possibility that this loss could exceed your policy limits, therefore, please accept this letter as notice that T.H.E. Insurance Company will not be liable for any award in excess of $1,000,000.00.

Shortly after T.H.E. sent this letter, the remaining plaintiffs agreed to settle their lawsuits for an amount less than $1 million. T.H.E. then filed suit in federal court, seeking a judgment that Larsen is liable under the MCS-90 to T.H.E. for reimbursement of the settlement amounts, as well as the costs T.H.E. incurred in defending the claims. T.H.E. and Larsen filed cross-motions for summary judgment. The district court noted that both parties agreed that T.H.E. had no duty to defend Larsen arising from the terms of the MCS-90. It therefore concluded that principles of Louisiana insurance law should be applied to determine whether T.H.E., by assuming Larsen's defense, had waived its rights to reimbursement under the MCS-90. Because it found that T.H.E. had failed to obtain a nonwaiver agreement to reserve its defense of noncoverage under Louisiana law, the court held that T.H.E. had, in fact, waived its rights. Moreover, the court reasoned that T.H.E. voluntarily defended Larsen, and consequently it was not entitled to recover its defense costs. T.H.E. appealed.

II. ANALYSIS

We review summary judgment rulings de novo, employing the same standards applicable in the district court. Stults v. Conoco, Inc., 76 F.3d 651, 654 (5th Cir. 1996). Summary judgment is proper when there is no genuine issue of material fact and the movant is entitled to a judgment as a matter of law. Fed. R. Civ. P. 56(c).

A. Coverage and Right to Reimbursement

1. Applicable Law

T.H.E. argues that the district court erred in looking to the Louisiana insurance law on reservation of rights and nonwaiver agreements, because the Policy itself was never implicated. It argues that since there was never any coverage for the tractor under the Policy, and because the MCS-90 did not create coverage, there was no coverage defense that had to be reserved. According to T.H.E., the right of reimbursement is a federal right that is specifically reserved in the MCS-90 itself. T.H.E. urges us, therefore, to look only to federal law in evaluating its rights under the MCS-90.

A cogent analysis of these issues requires us to explore the history and public policy underlying the MCS-90. The MCS-90 was required under the regulations of the now-defunct Interstate Commerce Commission ("ICC"). When the ICC was abolished, its authority to regulate carriers was transferred to the Department of Transportation, but the old regulations remain in effect until new ones are promulgated. John Deere Ins. Co. v. Nueva, 229 F.3d 853, 855 n.3 (...