American Alternative Ins. v. Sentry Select Ins.

• Citation: 176 F.Supp.2d 550
• Decision Date: 18 December 2001
• Docket Number: No. 01-668-A.,01-668-A.
• Parties: AMERICAN ALTERNATIVE INSURANCE COMPANY, Plaintiff, v. SENTRY SELECT INSURANCE COMPANY, and Sparkle Transport, Inc. d/b/a Seven Hills Transport, Defendants.
• Court: U.S. District Court — Eastern District of Virginia

176 F.Supp.2d 550

AMERICAN ALTERNATIVE INSURANCE COMPANY, Plaintiff, v. SENTRY SELECT INSURANCE COMPANY, and Sparkle Transport, Inc. d/b/a Seven Hills Transport, Defendants.

No. 01-668-A.

United States District Court, E.D. Virginia, Alexandria Division.

December 18, 2001.

Lynn M. Fitzpatrick, Franklin & Prokopik P.C., Herndon, VA, for Plaintiff.

John T. Husk, Law Office of Seaton & Husk, L.P., Vienna, VA, Edward Miller McClure, Brincefield Hartnett Maloof & Associates P.C., Alexandria, VA, Frank Austin Wright, Jr., Overby Hawkins Selz & Wright, Rustburg, VA, for Defendants.

MEMORANDUM OPINION

ELLIS, District Judge.

This declaratory judgment action is a dispute between insurers over which of two insurance policies is primarily responsible for covering injuries and property damage arising from a one-vehicle tractor-trailer accident. At issue specifically is whether a federally mandated endorsement to an interstate motor carrier insurance policy requires that policy to provide primary coverage for an accident involving a vehicle not listed in the policy where, as here, a second policy exists that provides coverage for the accident and specifically lists the vehicle.

I.

This action grows out of injuries sustained in a one-vehicle accident involving a tractor-trailer owned and driven by Comet Iles, III. On November 1, 2000, Iles was hauling a load of sweet potatoes from Louisiana to Ohio on a contract arranged by Seven Hills Transport (Seven Hills). The trip was cut short in Boone County, Kentucky, when Iles's rig flipped on its side and slid off the road as Iles unsuccessfully attempted to negotiate a curve in the highway. Traveling with Iles that day were his wife and three children, including a son who was seriously injured in the accident. Iles's injured family members have filed as-yet-unresolved claims against Iles and Sparkle Transport, Inc. (Sparkle) for injuries they suffered in the accident.

Although Iles owned the tractor-trailer involved in the accident, the rig displayed the placards, the U.S. Department of Transportation number, and the motor carrier number of Sparkle. Sparkle and Seven Hills are owned by the same person, but purport to perform different functions. Seven Hills, as an authorized freight broker, appears to be in the business of arranging freight shipments, while Sparkle, as an authorized motor carrier, appears to be in the business of hauling freight across state lines.¹

Iles was insured by plaintiff American Alternative Insurance Company (AAIC) under a Truckers Policy that provided $1 million of liability insurance for certain "covered autos." Iles's tractor and trailer were both specifically listed as "covered autos" under the AAIC policy. Sparkle, in turn, was insured by defendant Sentry Select Insurance Company (Sentry). The Sentry policy also provided $1 million of liability insurance and limited its coverage to specified "covered autos," which listing did not include the tractor or trailer driven by Iles on the day of the accident. Both the AAIC policy and the Sentry policy were in force on the day of the accident. The Sentry policy, but not the AAIC policy, included an "Endorsement for Motor Carrier Policies of Insurance for Public Liability Under Sections 29 and 30 of the Motor Carrier Act of 1980" (also known by its form number: MCS-90), which is an insurance policy endorsement required by federal law for motor carriers that transport goods in interstate commerce. See 49 U.S.C. §§ 13906(a)(1), 31139(b)(2), (e)(1); 49 C.F.R. § 387.15. The parties agree that the Sentry policy would not provide liability coverage for this accident absent the MCS-90 endorsement.

The parties' contentions frame the issue presented. AAIC, for its part, admits that its policy provides coverage for this accident, but contends that the coverage provided is excess over the limits of the Sentry policy because of the effect of the MCS-90 endorsement. Sentry, by contrast, contends that its policy provides no coverage at all, despite the MCS-90 endorsement. To resolve this coverage dispute, AAIC brought this action for declaratory judgment seeking a determination that, despite the tractor and trailer not being listed as "covered autos" on the Sentry policy, (i) the MCS-90 endorsement operates to require the Sentry policy to provide primary coverage for the damage that resulted from Iles's accident and (ii) the AAIC policy would, at most, provide only excess insurance over the $1 million limit of the Sentry policy.

The dispute in this case, then, concerns responsibility for the first $1 million of insurance coverage.² And, the question presented by the parties' cross-motions for summary judgment is whether the MCS-90 endorsement included in the Sentry policy requires Sentry to provide $1 million of primary coverage for the accident notwithstanding that the tractor and trailer are not listed vehicles in the policy and notwithstanding the existence of coverage by the AAIC policy, which does list the tractor and trailer.

II.

The threshold question in this case is one of governing law: Is the construction of the MCS-90 endorsement contained in the Sentry policy governed by federal law or state law? This threshold question is particularly important here because the Supreme Court of Virginia has adopted an interpretation of the MCS-90 endorsement that conflicts with the interpretation adopted by other federal district courts in this circuit and with the majority of federal circuit courts³ that have considered the issue. On one hand, were state law to govern, the Supreme Court of Virginia's interpretation would control and the analysis here would end with the application of that court's interpretation of the MCS-90 endorsement to the facts of this case. On the other hand, if the interpretation of the MCS-90 endorsement is a matter of federal law, then the Supreme Court of Virginia's ruling is not controlling and, in the absence of federal controlling authority, the task here is to construe the MCS-90 endorsement as a matter of federal law in accordance with settled principles of construction. AAIC argues that the effect of the MCS-90 endorsement on the underlying insurance contract, which was entered into in Virginia,⁴ should be governed by Virginia law because the dispute concerns the effect of an MCS-90 endorsement that is attached to a Virginia insurance contract. Sentry, in turn, argues that the effect of the MCS-90 endorsement is a question of federal law regardless of what law governs the underlying insurance contract and that the Supreme Court of Virginia's interpretation of the MCS-90 endorsement is neither correct nor binding.

It is, of course, settled that a diversity coverage dispute is typically governed by state law — in this case Virginia law, because the Sentry policy was made or entered into in Virginia.⁵ Yet, as well-reasoned cases reflect, federal law must govern where, as here, the dispute concerns the interpretation of an insurance policy endorsement that is required by federal law and whose language is prescribed by a federal regulation.⁶ This conclusion follows from the settled principle that "the meaning of words in a federal statute is a question of federal law." Western Air Lines, Inc. v. Board of Equalization of State of S.D., 480 U.S. 123, 129, 107 S.Ct. 1038, 94 L.Ed.2d 112 (1987). And indeed, were this not so, the anomalous result would be the prospect of conflicting state constructions of a federal statute that was enacted by Congress to serve as a uniform solution to a national problem affecting interstate commerce.

III.

The next, and determinative, question in this case, then, is the meaning and effect of the MCS-90 endorsement, addressed as a question of federal law. Well-settled principles govern this inquiry. The language of the MCS-90 is contained in a federal regulation adopted pursuant to statutory authority and, as such, has the force of law. The interpretive analysis properly begins with the plain meaning of the regulation's language. See United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989); United States v. Turkette, 452 U.S. 576, 580, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981). If the language is clear and unambiguous, the inquiry ends there.⁷ Yet, where the language is ambiguous, the intent of Congress or the Agency concerning the disputed language must be resolved through application of various settled rules of construction and interpretation, including analysis of the underlying statute's structure and purpose. See United States v. Jackson, 759 F.2d 342, 344 (4th Cir.1985); Johnson v. Garraghty, 57 F.Supp.2d 321, 326 (E.D.Va.1999).

To begin with, it is important to note that neither the MCS-90 endorsement nor the related parent regulations and statute specifically mention the question of coverage priority or allocation in circumstances where two or more policies may apply. This was not the issue that the MCS-90 endorsement and related provisions were adopted or promulgated to address. Still, the endorsement's language is plainly infected with ambiguity in this regard, as it arguably admits of two conflicting interpretations on this point:⁸ (i) that an insurance policy with an MCS-90 endorsement is amended by the endorsement in all circumstances to provide primary coverage to compensate injured third parties, or (ii) that such a policy is only effectively amended to provide coverage in those circumstances where an injured third party would otherwise go uncompensated. These conflicting interpretations arise because the effect of the MCS-90 endorsement on the underlying policy is clearly affected by who is seeking to benefit from its application. On one hand, the MCS-90 clearly states that it amends the underlying policy to ensure compliance with the federal "Motor Carrier Act of 1980 and the rules and regulations of the Federal Motor Carrier Safety Administration." 49 C.F.R. § 387.15.⁹ It goes on to declare...