Consumers County Mut. Ins. v. P.W. & Sons Trucking

• Decision Date: 08 October 2002
• Docket Number: No. 01-20201.,01-20201.
• Citation: 307 F.3d 362
• Parties: CONSUMERS COUNTY MUTUAL INSURANCE CO., Plaintiff-Counter Defendant-Appellee, v. P.W. & SONS TRUCKING, INC., Defendant-Counter Claimant-Appellant, Fred Paillet, IV, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

307 F.3d 362

CONSUMERS COUNTY MUTUAL INSURANCE CO., Plaintiff-Counter Defendant-Appellee, v. P.W. & SONS TRUCKING, INC., Defendant-Counter Claimant-Appellant Fred Paillet, IV, Defendant-Appellant.

No. 01-20201.

United States Court of Appeals, Fifth Circuit.

October 8, 2002.

W. Terry Fitzgerald (argued), Fitzgerald Law Firm, The Woodlands, TX, Sheryl Anne Falk, Fitzgerald & Gartner, Houston, TX, for Consumers County Mut. Ins. Co.

Louis Claiborne Dugas, Michael Jacobellis, Clay Dugas & Associates, Orange, TX, for Defendant-Appellant.

Appeals from the United States District Court for the Southern District of Texas.

Before EMILIO M. GARZA, BENAVIDES and STEWART, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

P.W. & Sons Trucking, Inc. (PWS) and Fred Paillet IV appeal the district court's grant of summary judgment in favor of Consumers County Mutual Insurance Co. ("Consumers") in this declaratory judgment action. Specifically, PWS and Paillet contend that the district court erred when it relied on a Department of Transportation regulation, 49 C.F.R. § 390.5, to determine whether Paillet was an "employee" excluded from coverage under PWS's commercial auto insurance policy. Because we believe the district court properly relied on the regulation, we affirm.

In February of 1998, PWS, a small trucking company, hired two drivers to assist in hauling four loads of plastic resin from Texas to various locations in Louisiana, Arkansas, Missouri, and New York. The drivers, Paillet and Terry Wayne Bob, both held other jobs at the time and worked for PWS on a load-by-load basis. Although there is evidence in the record that Paillet hauled loads for PWS with some frequency, he was not regularly employed by PWS, nor was he obligated to haul future loads after he completed a given trip. PWS paid Paillet on a percentage-of-the-load basis.

Paillet and Bob delivered the four loads of plastic resin to their destinations without incident. On their return trip back to Texas, however, Paillet and Bob were involved in a one-vehicle accident in Virginia. At the time of the accident, Bob was driving the tractor-trailer and Paillet was asleep in the truck's sleeper bunk. Bob died at the scene of the accident. Paillet sustained serious injuries and remained in a coma for more than two months. Paillet later filed suit against PWS to recover for his injuries. PWS notified Consumers of the lawsuit and requested a defense and indemnity under its commercial auto insurance policy.

Thereafter, Consumers filed a declaratory judgment action in federal district court based on the policy's exclusions relating to liability for injuries to employees. In its complaint, Consumers conceded that, at the time of the accident, Paillet and Bob were driving a tractor-trailer covered by PWS's policy with Consumers, and that the injuries caused by the accident fell within the policy's general liability coverage.¹ Consumers argued only that, because Paillet was an "employee" of PWS, his injuries were excluded from coverage by one of the policy's employee exclusions.² In response, PWS argued that the employee exclusions were not applicable to Paillet's case because Paillet was not actually an employee of PWS, but rather an independent contractor. To support its argument, PWS relied on the traditional Texas common law distinction between employees and independent contractors.³

After both Consumers and PWS filed summary judgment motions, the district court held that the policy's exclusions applied to preclude coverage in this case because Paillet was a "statutory employee" of PWS. In reaching its decision, the court relied on § 390.5 of the Department of Transportation regulations, which provides definitions for several terms appearing in those regulations. Section 390.5 defines an "employee" as:

any individual, other than an employer, who is employed by an employer and who in the course of his or her employment directly affects commercial motor vehicle safety. Such term includes a driver of a commercial motor vehicle (including an independent contractor while in the course of operating a commercial motor vehicle), a mechanic, and a freight handler.

49 C.F.R. § 390.5 (emphasis added). Because § 390.5 eliminates the traditional common law distinction between employees and independent contractors for drivers like Paillet, the district court determined that no genuine issues of material fact existed warranting trial in this case. The court then granted summary judgment in favor of Consumers on the basis of the policy's employee exclusions. PWS and Paillet now appeal.

We review a district court's grant of summary judgment de novo. McClendon v. City of Columbia, 258 F.3d 432, 435 (5th Cir.2001). The district court's interpretation of an insurance contract is a question of law that we also review de novo. Am. States Ins. Co. v. Bailey, 133 F.3d 363, 369 (5th Cir.1998); Canutillo Indep. Sch. Dist. v. Nat'l Union Fire Ins., 99 F.3d 695, 700 (5th Cir.1996). We will affirm a district court's grant of summary judgment when, viewing the evidence in the light most favorable to the nonmoving party, the record reflects that no genuine issue of material fact exists, and the moving party is entitled to judgment as a matter of law. FED.R.CIV.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

The principal issue in this appeal is whether the district court properly relied on § 390.5 to determine whether Paillet was an employee of PWS under the policy. Both parties contend that the term employee as it is used in the policy is clear and unambiguous. Each, however, presents a different plain meaning of that term. According to Consumers, in light of the policy's purpose and the special significance of § 390.5 in the trucking industry, the parties clearly intended the federal definition to control. In contrast, PWS contends that the parties intended the traditional common law definition of the term. Although PWS acknowledges the federal definition stated in § 390.5, PWS argues that we cannot rely on § 390.5 absent an express incorporation of that definition in the terms of the policy.

Texas rules of contract interpretation control in this diversity case. Am. Nat'l Gen. Ins. Co. v. Ryan, 274 F.3d 319, 323 (5th Cir.2001). Under Texas law, when faced with a coverage dispute, our primary concern is to give effect to the intentions of the parties as expressed by the policy language. Ideal Lease Serv., Inc. v. Amoco Prod. Co., 662 S.W.2d 951, 953 (Tex.1983). We give the terms used in the policy their plain, ordinary meaning unless the policy itself shows that the parties intended the terms to have a different, technical meaning. Puckett v. U.S. Fire Ins. Co., 678 S.W.2d 936, 938 (Tex.1984). When interpreting an insurance policy, however, we cannot simply consider its terms in the abstract. Rather, we must "consider the policy as a whole and interpret it to fulfill [the] reasonable expectations of the parties in light of customs and usages of the industry." N. Am. Shipbuilding, Inc. v. S. Marine & Aviation Underwriting, Inc., 930 S.W.2d 829, 834 (Tex.Civ.App.-Houston [1st Dist.] 1996, n.w.h.).

The policy at issue in this case is a public-liability policy designed specifically for use by motor carriers in the interstate trucking industry. Federal law requires motor carriers to procure at least a minimum level of public-liability insurance in order to obtain an operating permit. See Motor Carrier Safety Act of 1984, 49 U.S.C. § 13906 (2000); 49 C.F.R. § 387.1 et seq. The purpose of this insurance requirement is to ensure that a financially responsible party will be available to compensate members of the public injured in a collision with a commercial motor vehicle. Although the Motor Carrier Safety Act places an affirmative insurance obligation on motor carriers with respect to the public, it does not require motor carriers to obtain coverage for "injury to or death of [their] employees while engaged in the course of their employment." 49 C.F.R. § 387.15.

There is no question that PWS's policy with Consumers was drafted to comply with federal insurance requirements. As a result, these requirements must inform our interpretation of the policy's terms. Section 390.5, which was enacted pursuant to authority granted by the Motor Carrier Safety Act, is central to this federal regulatory scheme.⁴ By eliminating the common law employee/independent contractor distinction, the definition serves to discourage motor carriers from using the independent contractor relationship to avoid liability exposure at the expense of the public. In light of the clear intention of the parties to comply with federal regulations and the broad application of § 390.5 throughout those regulations, it is reasonable to conclude that the parties intended § 390.5 to supply the definition of the term employee in the policy.

Nevertheless, PWS asks us to ignore the federal definition of employee in favor of the common law definition of the term. PWS argues that we should not apply § 390.5 because the policy behind this regulation, and the Motor Carrier Safety Act generally, has no application in this case. Specifically, PWS notes that one purpose of § 390.5 is to discourage trucking companies from using the independent contractor status to manipulate their liability exposure with respect to the public. See, e.g., id. at § 387.1 (stating that the purpose of federal motor carrier regulations generally is "to assure that motor carriers maintain an appropriate level of financial responsibility for motor vehicles operated on public highways"). Based on the stated purpose of the Motor Carrier Safety Act and its regulations, PWS suggests that the definition of employee found in § 390.5 only applies to eliminate the "independent contractor defense" when motor carriers are sued by members of the public for the negligent acts of their drivers. When the issue is whether a...