Carolina Cas. Ins. Co. v. Yeates

• Decision Date: 03 September 2009
• Docket Number: No. 07-4019.,07-4019.
• Citation: 584 F.3d 868
• Parties: CAROLINA CASUALTY INSURANCE COMPANY, Plaintiffs-Appellants, v. Tymer YEATES and Shari Yeates, Defendants-Appellees. United States of America, Amicus Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

584 F.3d 868

CAROLINA CASUALTY INSURANCE COMPANY, Plaintiffs-Appellants, v. Tymer YEATES and Shari Yeates, Defendants-Appellees United States of America, Amicus Curiae.

No. 07-4019.

United States Court of Appeals, Tenth Circuit.

September 3, 2009.

R. Clay Porter, Dennis, Corry, Porter & Smith, L.L.P., Atlanta, GA (Beth R. Holck, Dennis, Corry, Porter & Smith, L.L.P., Atlanta, GA; Heinz J. Mahler and Stephen D. Kelson, Kipp and Christian, P.C., Salt Lake City, UT, with him on the briefs), for Appellant.

Jesse C. Trentadue, Suitter Axland, PLLC, Salt Lake City, UT, for Appellees.

H. Thomas Byron III, Appellate Staff Attorney, United States Department of Justice, Civil Division, Washington, DC (Michael F. Hertz, Acting Assistant Attorney General, Brett L. Tolman, United States Attorney, and Scott R. McIntosh, Appellate Staff Attorney, United States Department of Justice, Civil Division, Washington, DC; Rosalind A. Knapp, Acting General Counsel, Paul M. Geier, Assistant General Counsel, David K. Tochen, Acting Chief Counsel, Debra S. Straus, Attorney, Federal Motor Carrier Safety Administration, United States Department of Transportation, Washington, District of Columbia, with him on the brief) for Amicus Curiae.

Before HENRY, Chief Judge, TACHA, KELLY, BRISCOE, LUCERO, MURPHY, HARTZ, O'BRIEN, McCONNELL,^* TYMKOVICH, GORSUCH, and HOLMES, Circuit Judges.

TYMKOVICH, Circuit Judge.

We granted en banc rehearing to reconsider our precedent concerning the scope and application of federally mandated insurance for interstate commercial motor carriers. See Carolina Cas. Ins. Co. v. Yeates, 533 F.3d 1202 (10th Cir.2008) (applying Empire Fire & Marine Ins. Co. v. Guar. Nat'l Ins. Co., 868 F.2d 357 (10th Cir.1989)).

Federal regulations require interstate trucking companies to maintain insurance or another form of surety "conditioned to pay any final judgment recovered against such motor carrier for bodily injuries to or the death of any person resulting from the negligent operation, maintenance or use of motor vehicles." 49 C.F.R. § 387.301(a); see also id. § 387.7. To satisfy this insurance requirement, most interstate trucking companies obtain a specific endorsement to one or more of their insurance policies— the MCS-90 endorsement—which guarantees payment of minimum amounts, as set forth in the regulations, to an injured member of the public. Id. §§ 387.7, 387.9. An MCS-90 endorsement is intended to "eliminate[] the possibility of a denial of coverage by requiring the insurer to pay any final judgment recovered against the insured for negligence in the operation, maintenance, or use of motor vehicles subject to federal financial responsibility requirements, even though the accident vehicle is not listed in the policy." 1 Auto. Liability Ins. 4th § 2:12 (2008).

In this circuit, the leading case interpreting the MCS-90 endorsement is Empire Fire. In Empire Fire, we evaluated the effect of an MCS-90 endorsement where multiple insurance policies covered an accident between a trucker and a member of the public. In resolving which of the policies provided primary coverage, we concluded the MCS-90 endorsement amended contrary language in the underlying insurance policy, which would otherwise have limited the insurance carrier's liability to excess coverage. Empire Fire, 868 F.2d at 363. Because multiple potential sources of liability coverage existed, we held that liability for primary coverage should be allocated among the insurers "pursuant to traditional state insurance and contract law principles." Id. at 368. This holding has been interpreted to mean that an MCS-90 endorsement modifies the underlying insurance policy in a variety of ways, including (1) allowing recovery from a policy that otherwise does not provide liability coverage, and (2) allowing primary liability recovery from a policy that provides only excess coverage.

Empire Fire carefully addressed competing views in the then-existing precedent regarding the scope of the MCS-90 endorsement, but its rule has placed this circuit in the minority for quite some time. See generally Appleman on Insurance Supp. to § 4467 (Supp.2008) (describing split). In fact, since our holding in Empire Fire, only one other circuit has apparently followed our lead. See Prestige Cas. Co. v. Mich. Mut. Ins. Co., 99 F.3d 1340 (6th Cir.1996); but see Kline v. Gulf Ins. Co., 466 F.3d 450 (6th Cir.2006) (declining to read an MCS-90 endorsement as modifying the underlying insurance policy limitations).

In this en banc proceeding, Carolina Casualty argues our 20-year-old decision in Empire Fire has evolved into an idiosyncratic, minority position that frustrates the regulatory purpose behind the MCS-90 endorsement and impedes the uniform regulation of interstate trucking. Carolina Casualty asks us to revisit our prior reasoning and join the majority of circuits in recognizing the MCS-90 endorsement as a surety obligation. We take that opportunity here.

For the reasons discussed below, we hold the MCS-90 endorsement only applies where: (1) the underlying insurance policy to which the endorsement is attached does not provide coverage for the motor carrier's accident, and (2) the motor carrier's insurance coverage is either not sufficient to satisfy the federally-prescribed minimum levels of financial responsibility or is non-existent.

We therefore VACATE the panel's opinion, REVERSE the district court's judgment, and order the district court to enter judgment consistent with this opinion.

I. Background

In 2003 Tymer Yeates was severely injured when a car his wife was driving was involved in a head-on collision with a truck owned by Bingham Livestock. Yeates and his wife sued Bingham Livestock and the truck driver in state court. Bingham Livestock carried two insurance policies relevant to this accident, one issued by State Farm and one issued by Carolina Casualty. Bingham Livestock notified both carriers of the claim.

State Farm's policy specifically insured the truck involved in the accident. Without much delay, it tendered the policy limit of $750,000 to the Yeateses. In contrast, Carolina Casualty's policy was a general liability policy covering a variety of commercial claims, but did not extend to the truck involved in the accident. It did, however, include an MCS-90 endorsement, which provided that Carolina Casualty would pay up to $1,000,000 for "any final judgment recovered against [Bingham Livestock] for public liability resulting from negligence in the operation, maintenance or use of motor vehicles." R., App. at 79 (MCS-90 endorsement).

While the Yeateses' negligence case was pending in Utah state court, Carolina Casualty filed this declaratory judgment action in federal court. Carolina Casualty sought a ruling that it had no liability to the Yeateses under the general liability policy because (1) State Farm had already tendered its $750,000 policy limits; (2) federal regulations require a minimum of $750,000 for such accident claims; and (3) therefore, the MCS-90 endorsement would not be needed to provide federally mandated minimum coverage. The district court rejected this argument on the basis of our holding in Empire Fire, concluding the Carolina Casualty policy also provides primary insurance for the accident under the endorsement and thus Carolina Casualty may be required to pay any final judgment resulting from the Yeateses' accident.

Carolina Casualty appealed, arguing one central point. Since State Farm's policy specifically covered the accident at issue (and State Farm had already paid out its policy limits) and Carolina Casualty's general liability policy did not cover Bingham Livestock's truck, the MCS-90 endorsement was not triggered. More specifically, Carolina Casualty contended (1) its endorsement operated as a "surety" to make it an insurer of last resort, requiring payment only when no other insurance is available; (2) the MCS-90 endorsement attached to its policy was therefore not triggered because the Yeateses had already received insurance benefits at least equal to the minimum amount required by the MCS-90 endorsement; and, accordingly (3) our precedent in Empire Fire was flawed under the reasoning adopted by the large majority of other circuit courts in the years since it was decided. A panel of this Court affirmed, finding our prior decision in Empire Fire binding.

The panel determined "Carolina Casualty's policy as amended by the endorsement may be available to cover a final judgment arising from the accident." Carolina Cas., 533 F.3d at 1206. Applying Empire Fire, the panel reasoned that "two conditions must be satisfied before the [MCS-90] endorsement will operate to amend the underlying policy: (1) there must be a covered accident, and (2) the underlying policy must preclude coverage for that accident." Id. Because Carolina Casualty's policy precluded coverage for the truck involved in the accident, the panel concluded the attached "MCS-90 endorsement operate[d] to `amend' the underlying policy and guarantee[d] payment `regardless' of limiting provisions in the underlying policy." Id. On this basis, the panel affirmed the district court's grant of summary judgment in the Yeateses' favor.

Carolina Casualty then sought a rehearing en banc, contending—as it has throughout this litigation—that our decision in Empire Fire is out of step with the other circuits. We granted Carolina Casualty's rehearing request and asked for supplemental briefing on whether our rule from Empire Fire, that an MCS-90 endorsement negates limiting provisions in the attached policy to render that policy a primary source of insurance coverage, should be reaffirmed, overruled, or modified.¹

Today, we modify our prior holding in Empire Fire and adopt the rule used by the majority of our sister circuits.

II. Regulatory and Legal Framework

We begin with an explanation of the MCS-90 endorsement and its associated regulations. We then address the competing legal...