Canal Ins. Co. v. Distribution Services, Inc.

• Decision Date: 27 February 2003
• Docket Number: No. 02-1226.,02-1226.
• Citation: 320 F.3d 488
• Parties: CANAL INSURANCE COMPANY, Plaintiff-Appellant, v. DISTRIBUTION SERVICES, INCORPORATED; Aim Leasing Company, d/b/a Aim Nationalease; Pacific Employers Insurance Company; William Thompkins, Defendants-Appellees, and Bryan I. Lee; Shania Thompkins, a minor by and through her father and next friend William Thompkins, Defendants.
• Court: U.S. Court of Appeals — Fourth Circuit

320 F.3d 488

CANAL INSURANCE COMPANY, Plaintiff-Appellant, v. DISTRIBUTION SERVICES, INCORPORATED; Aim Leasing Company, d/b/a Aim Nationalease; Pacific Employers Insurance Company; William Thompkins, Defendants-Appellees, and Bryan I. Lee; Shania Thompkins, a minor by and through her father and next friend William Thompkins, Defendants.

No. 02-1226.

United States Court of Appeals, Fourth Circuit.

Argued January 23, 2003.

Decided February 27, 2003.

ARGUED:

Mark Steven Paullin, Smith & Jensen, P.C., Richmond, Virginia, for Appellant. Ronald Paul Herbert, Leclair Ryan, P.C., Richmond, Virginia, for Appellees.

ON BRIEF:

Eric S. Jensen, Nathan H. Smith, Michael A. Kiely, Smith & Jensen, P.C., Richmond, Virginia, for Appellant. Charles G. Meyer, III, Leclair Ryan, P.C., Richmond, Virginia, for Appellees.

Before WILLIAMS and MOTZ, Circuit Judges, and HAMILTON, Senior Circuit Judge.

Affirmed by published opinion. Senior Judge HAMILTON wrote the opinion, in which Judge WILLIAMS and Judge DIANA GRIBBON MOTZ joined.

OPINION

HAMILTON, Senior Circuit Judge.

This appeal presents the question of first impression in our circuit: Whether an "Endorsement for Motor Carrier Policies of Insurance for Public Liability Under Sections 29 and 30 of the Motor Carrier Act of 1980,"¹ commonly referred to as the MCS-90 endorsement,² determines the allocation of loss among insurers. Consistent with the majority view of our sister circuits, we answer this question in the negative.

I.

In order to put the facts of this case in their proper perspective, we will first set forth the relevant statutory and regulatory background. Congress enacted the MCA, in part, to address abuses that had arisen in the interstate trucking industry which threatened public safety, including the use by motor carriers of leased or borrowed vehicles to avoid financial responsibility for accidents that occurred while goods were being transported in interstate commerce. Pierre v. Providence Washington Ins. Co., 99 N.Y.2d 222, 2002 WL 31770499 (N.Y. Dec. 12, 2002); see generally Pub.L. No. 96-296, § 3. Accordingly, one remedial measure provided in the MCA is a liability insurance requirement imposed upon each motor carrier registered to engage in interstate commerce, which requirement mandates that a motor carrier file "a bond, insurance policy, or other type of security" in an amount determined by the Secretary of Transportation and the laws of the State or States in which the motor carrier intends to operate. 49 U.S.C. § 13906(a)(1); see also Pub.L. No. 96-296, § 30(c).

The Secretary of Transportation also has the authority to "prescribe the appropriate form of endorsement to be appended to policies of insurance and surety bonds which will subject the insurance policy or surety bond to the full security limits of the" required coverage. 49 U.S.C. § 13906(f). Pursuant to this regulatory authority, the Secretary of Transportation issued a regulation mandating that every liability insurance policy covering a "motor carrier" contain the MCS-90 endorsement.³ 49 C.F.R. §§ 387.7(a), 387.9, 387.15. The MCS-90 endorsement provides, in relevant part, as follows:

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 and whether or not such negligence occurs on any route or in any territory authorized to be served by the insured or elsewhere. [N]o 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. 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.

49 C.F.R. § 387.15, at Illustration I.

"It is well-established that the primary purpose of the MCS-90 [endorsement] is to assure that injured members of the public are able to obtain judgment from negligent authorized interstate carriers." John Deere Ins. Co. v. Nueva, 229 F.3d 853, 857 (9th Cir.2000), cert. denied, 534 U.S. 1127, 122 S.Ct. 1063, 151 L.Ed.2d 967 (2002). Accordingly, the MCS-90 endorsement creates a suretyship by the insurer to protect the public when the insurance policy to which the MCS-90 endorsement is attached otherwise provides no coverage to the insured. T.H.E. Ins. Co. v. Larsen Intermodal Servs., Inc., 242 F.3d 667, 672 (5th Cir.2001); Harco Nat'l Ins. Co. v. Bobac Trucking, Inc., 107 F.3d 733, 736 (9th Cir.1997); Progressive Cas. Ins. Co. v. Hoover, 570 Pa. 423, 809 A.2d 353, 360 n. 11 (Pa.2002).

With this statutory and regulatory background in mind, we turn to the facts of the present case, which facts are not in dispute. On October 22, 1999, William Thompkins, and his minor daughter Shania Thompkins, suffered personal injuries as pedestrians in an accident with a tractor-trailer that was negligently operated by Bryan Lee (Lee). The accident took place in the parking lot of a truck stop in Caroline County, Virginia. At the time of the accident, Lee was working within the scope of his employment for Distribution Services, Inc. (DSI), a company engaged in the business of providing overland shipping and trucking services. DSI did not own the tractor truck (i.e., the cab) involved in the accident (the Truck), but rather leased it from AIM Leasing Company (AIM), a company engaged in the business of leasing tractor trucks and other vehicles to overland shipping and trucking companies.

At the time of the accident, DSI and Lee, acting within the scope of his employment with DSI, were insured by Canal Insurance Company (Canal) under a commercial automobile liability policy (the Canal Policy) which provided $1 million of liability insurance coverage for certain "covered autos" and contained the MCS-90 endorsement. Absent the MCS-90 endorsement, the Truck was not a "covered auto" under the Canal Policy.

AIM was insured at the time of the accident by Pacific Employers Insurance Company (Pacific) under a commercial automobile liability policy (the Pacific Policy) which provided $1 million of liability insurance coverage for certain covered autos and contained the MCS-90 endorsement. Pursuant to the rental agreement between DSI and AIM, DSI agreed to obtain primary liability insurance coverage for the Truck with AIM as an additional named insured and to indemnify and hold AIM, its agents, servants, and employees harmless from any and all claims for injury to persons or damage to property and for any and all expenses incurred in the defense of such claims. Pursuant to Endorsement 15 in the Pacific Policy, the Pacific Policy expressly conditioned coverage of leased vehicles, such as the Truck, (1) upon the lessee (DSI) furnishing AIM with a certificate of insurance naming AIM as an additional insured on the lessee's liability insurance policy and (2) upon other liability insurance required by the lease agreement being non-collectible. DSI never provided AIM with a certificate of insurance naming AIM as an additional insured on any liability insurance policy held by DSI.

Subsequent to the accident, Shania Thompkins, by her father as next friend, brought a negligence action related to her injuries against DSI and Lee in Virginia state court. Canal then brought a motion for declaratory judgment in Virginia state court seeking a determination of coverage for the underlying accident. Canal named DSI, Lee, and Shania Thompkins as defendants. Shania Thompkins removed the declaratory judgment action to the United States District Court for the Eastern District of Virginia. Prior to the entry of final judgment in her state court negligence action, Canal settled with Shania Thompkins on behalf of DSI and Lee for $125,000.

Canal then amended its motion for declaratory judgment to name Pacific and AIM as defendants. Moreover, unlike Canal's original motion for declaratory judgment, its amended motion for declaratory judgment named William Thompkins as a defendant individually, not just as the father and next friend of Shania Thompkins. Canal did so in anticipation of William Thompkins filing his own negligence action in connection with the accident. Canal's amended motion for declaratory judgment sought a declaration that it "is entitled to a determination that any policy issued to [AIM] by [Pacific] provides coverage for the injuries alleged by Shania and William Thompkins, and Canal is entitled to seek reimbursement from [AIM] and [Pacific] for any settlement amounts or final judgments in favor of Shania or William Thompkins." (J.A. 25-26).

Canal subsequently made a motion for voluntary dismissal of Shania Thompkins as a defendant, which motion the district court granted. Thereafter, Pacific, AIM, and William Thompkins moved for summary judgment with respect to Canal's amended motion for declaratory judgment. The district court granted summary judgment in favor of Pacific, AIM, and William Thompkins and denied as moot Canal's amended motion for declaratory judgment. Following ...