Lincoln General Ins. Co. v. De La Luz Garcia, 05-20938.

• Decision Date: 21 September 2007
• Docket Number: No. 05-20938.,05-20938.
• Citation: 501 F.3d 436
• Parties: LINCOLN GENERAL INSURANCE CO., Plaintiff-Intervenor Defendant-Appellee, v. Maria DE LA LUZ GARCIA, doing business as Garcia's Tours, Defendant, v. Claudia Morquecho, individually and as next friend of her minor child Diana Morquecho and her minor child Veronica Hernandez Morquecho; Jose Morquecho; Juana Morquecho, individually and as next friend of her minor child Erick Ivan Rodriguez Morquecho; Marcelina Morquecho, individually and as next friend of her minor child Richardo Velazquez Morquecho; Fidel Morquecho, individually and as personal representative of the Estate of Virginia Anquina Serna, his wife, deceased, and as personal representative of the Estate of Jamie Morquecho, his son, deceased, Intervenor Plaintiffs-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

501 F.3d 436

LINCOLN GENERAL INSURANCE CO., Plaintiff-Intervenor Defendant-Appellee, v. Maria DE LA LUZ GARCIA, doing business as Garcia's Tours, Defendant, v. Claudia Morquecho, individually and as next friend of her minor child Diana Morquecho and her minor child Veronica Hernandez Morquecho; Jose Morquecho; Juana Morquecho, individually and as next friend of her minor child Erick Ivan Rodriguez Morquecho; Marcelina Morquecho, individually and as next friend of her minor child Richardo Velazquez Morquecho; Fidel Morquecho, individually and as personal representative of the Estate of Virginia Anquina Serna, his wife, deceased, and as personal representative of the Estate of Jamie Morquecho, his son, deceased, Intervenor Plaintiffs-Appellants.

No. 05-20938.

United States Court of Appeals, Fifth Circuit.

September 21, 2007.

Ruth Greenfield Malinas (argued), Larry D. Warren, Ball & Weed, San Antonio, TX, for Lincoln Gen. Ins. Co., Plaintiff-Intervenor Defendant-Appellee.

Scott Eugene Raynes (argued), Werner, Kerrigan & Ayers, LLP, Steven Eugene Norris, Norris Cantu, Houston, TX, for Intervenors Plaintiffs-Appellants.

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

Before KING, GARZA and PRADO, Circuit Judges.

PRADO, Circuit Judge:

The issue of first impression before us is whether a federally prescribed form endorsement covers a bus accident occurring in Mexico. The district court held that it does not and granted summary judgment in favor of the insurer. For the reasons that follow, we affirm the judgment of the district court.

I. BACKGROUND

A. Factual Background

On April 7, 2004, a tour bus owned by Maria De La Luz Garcia, doing business as Garcia's Tours (collectively, "Garcia's Tours"), and operated by Jesus Escoto ("Escoto"), a Garcia's Tours' employee, was involved in an accident with a vehicle carrying eight members of the Morquecho family (collectively, the "Morquechos" or the "Morquecho family") in Monterrey, Mexico. The accident occurred on Garcia's Tours' bus route between Houston, Texas, and Celaya, Mexico. Two members of the Morquecho family were killed, and six others were injured.

At the time of the accident, Garcia's Tours held an insurance policy issued by Lincoln General Insurance Company ("Lincoln General"). The policy provides that Lincoln General "will pay all sums an insured legally must pay as damages because of bodily injury or property damage to which this insurance applies, caused by an accident and resulting from the ownership maintenance or use of a covered auto." The policy, however, contains several conditions, including a territorial restriction. That specific condition provides that Lincoln General will cover accidents and losses occurring only within the coverage territory, which is defined as the United States, the territories and possessions of the United States, Puerto Rico, and Canada, or "loss[es] to, or accidents involving, a covered auto while being transported between any of these places."

The policy also contains the federally mandated "Endorsement for Motor Carrier Policies of Insurance for Public Liability Under Section 18 of the Regulatory Reform Act of 1982," referred to as the MCS-90B endorsement because it is issued on federal form MCS-90B. Lincoln General issued the MCS-90B endorsement to Garcia's Tours in compliance with federal law, which requires that for-hire motor carriers of passengers carry minimum levels of financial responsibility.¹ The policy and the MCS-90B endorsement were in effect on the date of the accident.

B. Procedural History

On July 6, 2004, the Morquechos filed suit against Garcia's Tours and Escoto (the bus driver) in Texas state court. The Morquechos asserted claims of negligence, negligent hiring, negligent entrustment, and negligent retention, and sought damages for the injuries sustained in the accident. Lincoln General denied coverage and refused to defend or indemnify Garcia's Tours in the state court action. The Texas state court ultimately found Garcia's Tours liable on all counts and awarded the Morquecho family over $1.2 million in damages.

While the state court suit was pending, Lincoln General filed this declaratory judgment action against Garcia's Tours in federal district court. Lincoln General sought a declaration that the policy did not provide coverage for any damages arising out of the accident involving the Morquechos and, consequently, that it had no duty to defend or indemnify Garcia's Tours under the terms of the policy. Because of their interest in this suit, the Morquecho family intervened. In their complaint, the Morquechos requested a declaration that the policy provided coverage for the accident and that the MCS-90B endorsement applied to any judgment rendered against Garcia's Tours in the underlying state court suit.

Lincoln General and the Morquechos subsequently filed cross-motions for summary judgment.² In its summary judgment motion, Lincoln General argued that it did not owe a duty to defend or indemnify the underlying state court action because the accident occurred in Mexico, outside of the policy's coverage territory, and because the MCS-90B endorsement did not expand coverage to Mexico under its plain terms. Although the Morquechos conceded that the body of the policy contained a territorial restriction that did not include Mexico, the Morquechos contended that the terms of the MCS-90B endorsement trumped the territorial limitation in the policy and mandated coverage for the accident.

The district court granted summary judgment in favor of Lincoln General. The district court reasoned that because "[t]he application of the MCS-90B endorsement derives its authority from the substantive provisions of 49 U.S.C § 31138 and the jurisdictional limitations of 49 U.S.C. § 13501 . . . the regulations governing the applicability of the form MCS-90B endorsement are also limited to the transportation of passengers between a place in the United States and a place in a foreign country to the extent the transportation is in the United States." Dist. Ct. Order at 19 (internal quotation marks omitted). The district court held that "the application of form MCS-90B only applies to transportation that occurs within the United States, and does not apply to transportation occurring outside of the United States." Id. Based on its analysis, the district court concluded that "the MCS-90B endorsement cannot apply to the accident in this case, and that Plaintiff Lincoln General is not obligated to pay any final judgment recovered against Garcia['s] Tours as a result of the accident occurring in Mexico." Id. at 21.

On July 29, 2005, the district court entered a final judgment dismissing the case. On August 8, 2005, the Morquechos filed a motion for reconsideration, in which they argued, for the first time, that the endorsement covers Garcia's Tours' liability for negligent hiring, retention, and entrustment because those acts occurred in the United States and not in Mexico. On September 26, 2005, the district court denied the motion for reconsideration without commenting on the Morquechos' new argument.

The Morquechos now appeal, arguing that the district court erred in determining that the MCS-90B endorsement did not cover their accident in Mexico. According to the Morquechos, the endorsement reads out any language in the policy that would limit the right of injured third parties to recover, including the territorial restriction in the policy. In the alternative, the Morquechos raise the argument that they made in their motion for reconsideration, asserting that the endorsement covers the accident, even though it occurred in Mexico, because Garcia's Tours' negligent hiring, retention, and entrustment occurred in the United States. This court has jurisdiction over the Morquechos' appeal pursuant to 28 U.S.C. § 1291.³

II. DISCUSSION

"We review the district court's summary judgment and its interpretation of the endorsement de novo." Wells v. Gulf Ins. Co., 484 F.3d 313, 315 (5th Cir.2007). The operation and effect of a federally mandated endorsement is a matter of federal law. See Canal Ins. Co. v. First Gen. Ins. Co., 889 F.2d 604, 610 (5th Cir.1989), modified on other grounds, 901 F.2d 45 (5th Cir. 1990); see also John Deere Ins. Co. v. Nueva, 229 F.3d 853, 856 (9th Cir.2000).

A. Coverage of the MCS-90B Endorsement

The first question before us is whether the MCS-90B endorsement to the policy obligates Lincoln General to cover an accident occurring in Mexico. The resolution of this issue depends entirely upon the terms of the MCS-90B endorsement. The endorsement provides in relevant part:

The insurance policy to which this endorsement is attached provides automobile liability insurance and is amended to assure compliance by the insured, within the limits stated herein, as a for-hire motor carrier of passengers with Section 18 of the Bus Regulatory Reform Act of 1982 and the rules and regulations of the Federal Highway Administration (FHWA) and the Interstate Commerce Commission (ICC).

In consideration of the premium stated in the policy to which this endorsement is attached, the insurer (the company) agrees judgement recovered against the insured for public liability resulting from negligence in the operation, maintenance or use of motor vehicles subject to financial responsibility requirements of Section 18 of the Bus Regulatory Reform Act of 1982 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 . . . . It is understood and agreed that no 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 judgement, within the limits of liability herein...