American Gen. Fire & Cas. Co. v. Truck Ins. Exch.

• Decision Date: 21 April 1987
• Docket Number: Civ. A. No. 86-2106.
• Citation: 660 F. Supp. 557
• Parties: AMERICAN GENERAL FIRE AND CASUALTY COMPANY, Plaintiff, v. TRUCK INSURANCE EXCHANGE, Defendant.
• Court: U.S. District Court — District of Kansas

660 F. Supp. 557

AMERICAN GENERAL FIRE AND CASUALTY COMPANY, Plaintiff, v. TRUCK INSURANCE EXCHANGE, Defendant.

Civ. A. No. 86-2106.

United States District Court, D. Kansas.

April 21, 1987.

Jerome V. Bales, Wallace, Saunders, Austin, Brown & Enochs, Overland Park, Kan., for plaintiff.

Edward M. Boyle, Payne & Jones, Overland Park, Kan., for defendant.

MEMORANDUM AND ORDER

EARL E. O'CONNOR, Chief Judge.

This action was brought by the plaintiff, American General Fire and Casualty Company "American General",¹ pursuant to the Declaratory Judgments Act, 28 U.S.C. §§ 2201 et seq. American General alleges that it is entitled to indemnification from the defendant, Truck Insurance Exchange "TIE", for claims arising out of a motor vehicle accident which occurred on March 11, 1983, in Kansas City, Kansas. This case raises an issue that has troubled numerous federal and state courts in recent years: the determination of the ultimate liabilities of lessors, lessees and insurers of trucks used in interstate commerce when those vehicles are involved in accidents. The matter is now before the court on the defendant's motion for summary judgment and the plaintiff's cross-motion for summary judgment.

To rule favorably on a motion for summary judgment, the court must first determine that the matters on file regarding the motion "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Pleadings and documentary evidence must be liberally construed in favor of the party opposing the motion. Thomas v. United States Dept. of Energy, 719 F.2d 342, 344 (10th Cir.1983). A party resisting a motion for summary judgment, however, must set forth specific facts showing that there is a genuine issue for trial. Dart Indus., Inc. v. Plunkett Co. of Oklahoma, Inc., 704 F.2d 496, 498 (10th Cir.1983).

I. Facts.

In order to resolve the issues at hand, it is necessary to go into considerable detail as to the facts in the case and the applicable law. The facts are undisputed. On March 11, 1983, Timothy Myers was driving a semi-tractor pulling two semi-trailers when he was involved in a multiple-vehicle collision. The truck and trailers were owned by Bunger Construction, Inc., and/or Texas Storage Rental, Inc. Timothy Myers was a salaried employee of Bunger and was operating the truck with his employer's permission. At the time of the collision, Bunger had a liability insurance policy issued by American General, a member of the Maryland Casualty Group. The truck and trailers involved in the accident were listed in the policy as "covered autos." Under the policy, American General agreed to pay all sums the "insured" was legally obligated to pay because of bodily injury or property damage caused by an accident and resulting from the ownership, maintenance or use of a covered vehicle. "Insured" was defined in the policy to include anyone using a covered vehicle with Bunger's permission. Primary insurance specifically was provided for any covered vehicle. The policy also had an "other insurance" clause whereby American General only agreed to pay a pro rata share of the damages if two or more insurance policies covered the claims.

At the time of the collision, the truck driven by Timothy Myers was engaged in transporting property for C. Maxwell Trucking Company pursuant to a one-way (trip) lease between Bunger, as lessor, and C. Maxwell, as lessee. The truck was being operated under the ICC placards of C. Maxwell. Under the lease, Bunger furnished the driver, as well as the leased equipment. The lease agreement also provided:

It is understood that leased equipment under the Agreement is in the exclusive possession, control and use of the authorized carrier, lessee C. Maxwell, and the lessee assumes full responsibility in respect to the equipment it is operating to the public, the shippers, and all regulatory bodies having jurisdiction. It is agreed that the lessor Bunger will carry acceptable public liability and property damage insurance, lessor agrees to reimburse and otherwise indemnify lessee for any and all losses sustained by lessee resulting from the use of the aforesaid equipment.

At the time of the accident, the lessee, C. Maxwell, was an interstate carrier subject to regulation by the Interstate Commerce Commission (ICC). On March 11, 1983, C. Maxwell was insured under a liability insurance policy issued by the defendant, TIE. Under this policy, TIE agreed to pay all sums the "insured" was required to pay as damage because of bodily injury sustained in a covered occurrence. As a precondition to its liability, the TIE policy required a final judgment to be entered against the insured or a written agreement executed by the insured, the claimant and the insurance company. "Insured" was defined in the policy to include only C. Maxwell and any of its executive officers, directors or stockholders who were acting within the scope of their duties; the policy did not contain an omnibus or "permissive user" clause. Finally, the policy expressly specified that it only provided "excess" insurance if other insurance was applicable.

Since C. Maxwell was subject to regulation by the ICC, the TIE policy also contained a special endorsement, ICC form BMC 90. In this endorsement, the defendant agreed to pay, within the policy limits, any final judgment recovered against the "insured" for bodily injury or property damage resulting from negligence in the operation, maintenance or use of any motor vehicle under the insured's certificate of public conveyance and necessity. This endorsement also stated that "no condition, provision, stipulation, or limitation contained in the policy ... shall relieve the Company from liability hereunder or from the payment of any such final judgment...."

Subsequent to the collision in question, a personal injury suit was filed in the District Court of Wyandotte County, Kansas, by Cledyth and Margaret Markum. This action was brought against Timothy Myers and Bunger Construction, Inc. The Markums alleged that the truck was negligently driven by Myers and negligently maintained by Bunger. The suit was removed to federal court (Case No. 84-2017) where American General, pursuant to the terms of its policy, defended Myers and Bunger. Prior to any final judgment, plaintiff paid the Markums $150,000.00 in exchange for a general release of all claims. C. Maxwell and Truck Insurance Exchange were never made parties to the Markum action.

On March 11, 1986, American General's predecessor filed this action seeking a declaratory judgment that the insurance policy issued by TIE to C. Maxwell provided primary coverage for the Markum claims, and that American General's policy was only excess coverage for those claims. Plaintiff argues that defendant is the primary insurer due to the Interstate Commerce Act and regulations issued by the ICC.

II. Applicable Federal Statutes and Regulations.

The key issue raised in the dispute between these parties is the effect of relevant federal statutes and federal regulations promulgated by the Interstate Commerce Commission (ICC). These statutes and regulations were developed in response to the increasing use of nonowned vehicles by ICC-licensed motor carriers. The expanding use of leased or interchanged vehicles led to a number of abuses which threatened the public interest and the economic stability of the industry. See American Trucking Ass'n v. United States, 344 U.S. 298, 304-05, 73 S.Ct. 307, 311-12, 97 L.Ed. 337 (1953). In some cases, ICC-licensed carriers used leased or interchanged vehicles to avoid safety regulations governing equipment and drivers. Id. at 305, 73 S.Ct. at 321; see also Indiana Refrigerator Lines, Inc. v. Dalton, 516 F.2d 795, 796 (6th Cir.), cert. denied, 423 U.S. 985, 96 S.Ct. 392, 46 L.Ed.2d 302 (1975). Interstate carriers also used the nonowned vehicles to circumvent ICC territorial restrictions and operate in areas outside that allowed in their license. American Trucking Ass'n v. United States, 344 U.S. at 304, 73 S.Ct. at 311; Carolina Casualty Ins. Co. v. Insurance Co. of N. Am., 595 F.2d 128, 137 (3d Cir.1979).

In order to address these problems, the Interstate Commerce Act was amended. As amended, the Act provided that the ICC could prescribe regulations governing the use of leased vehicles by motor carriers to ensure that the motor carrier would be fully responsible for the vehicle's operation. 49 U.S.C. § 304(e) (1956). Section 304 was substantially revised by Congress in 1978. Those portions relating to vehicles leased by motor carriers were reenacted in different form and codified at 49 U.S.C. §§ 10927, 11107.

Under current law, all ICC-certified carriers must file an insurance policy or other form of surety with the ICC which is "sufficient to pay ... for each final judgment against the carrier for bodily injury to, or death of, an individual resulting from the negligent operation, maintenance, or use of motor vehicles" under the carrier's permit. 49 U.S.C. § 10927(a)(1). This statutory requirement is mirrored in the ICC's regulations. 49 C.F.R. § 1043.1(a). In addition, 49 U.S.C. § 11107(a)(3) requires a "motor carrier ... that uses motor vehicles not owned by it to transport property under an arrangement with another party to ... obtain liability and cargo insurance on the vehicles...." To ensure compliance with these mandates, the ICC has developed various forms to be used as endorsements to carriers' insurance policies. See 49 C.F.R. § 1003.3.

In addition to requiring carriers to obtain liability insurance, Congress and the ICC also have imposed "control and responsibility" obligations on the carriers. A motor carrier subject to ICC jurisdiction is required to "have control of and be responsible for operating those leased motor vehicles." 49 U.S.C. § 11107(a)(4). To enforce this provision, the ICC regulations mandate that every lease entered into by an...