Nowak v. Transport Indem. Co.

• Decision Date: 05 September 1984
• Docket Number: No. 84-011,84-011
• Citation: 358 N.W.2d 294,120 Wis.2d 635
• Parties: Jay E. NOWAK, Plaintiff, v. TRANSPORT INDEMNITY COMPANY, a foreign corporation, Defendant-Appellant, American Interstate Insurance Company of Wisconsin, a domestic corporation, Defendant-Respondent.
• Court: Wisconsin Court of Appeals

Page 294

358 N.W.2d 294

120 Wis.2d 635

Jay E. NOWAK, Plaintiff, v. TRANSPORT INDEMNITY COMPANY, a foreign corporation Defendant-Appellant American Interstate Insurance Company of Wisconsin, a domestic corporation, Defendant-Respondent.

No. 84-011.

Court of Appeals of Wisconsin.

Submitted on Briefs July 10, 1984.

Opinion Released Sept. 5, 1984.

Opinion Filed Sept. 5, 1984.

Schellinger & Doyle, S.C., Brookfield, for defendant-appellant Transport Indemnity Company; James G. Doyle and Timothy J. Strattner, Brookfield, of counsel.

Otjen & Van Ert, S.C., Milwaukee, for defendant-respondent American Interstate Insurance Corporation of Wisconsin; Donald P. Schneider, Milwaukee, of counsel.

Before WEDEMEYER, P.J., MOSER, J., and MICHAEL T. SULLIVAN, Reserve Judge.

WEDEMEYER, Presiding Judge.

Transport Indemnity Company (Transport) appeals from an order of the trial court entered in accordance with its declaratory judgment dismissing American Interstate Insurance Company (AII) as a codefendant in this pending tort action. Transport seeks reinstatement of AII as a defendant and a declaration that AII is the primary insurance carrier. Based on the parties' agreed statement in lieu of record, we hold that the trial court erred in dismissing AII. Additionally, we hold AII to be the primary insurance carrier in this action.

Plaintiff Nowak's cause of action arises from injuries he received in a single vehicle truck accident in March, 1981. When the accident occurred, Lee Verhalen, the owner and operator of the truck, was hauling goods provided by International Transport, Inc. under a trip-lease agreement with International. Nowak was Verhalen's friend and was merely along for the ride. Nowak alleges in his complaint that Verhalen, who died in the accident, negligently caused his injuries. The dispute on appeal is between International's insurer, Transport, and Verhalen's insurer, AII.

Pursuant to federal statutes and regulations of the Interstate Commerce Commission, International is required to assume liability to third parties for damages caused by the negligent actions of its haulers, such as Verhalen, under trip-lease agreements. By an ICC-mandated endorsement to International's policy with Transport, Transport, the insurer, agreed to pay judgments against International based on this liability. ¹

But International's policy with Transport also provided:

EXCESS INSURANCE. If at the time of an Occurrence to which this insurance applies there is any other valid and collectible insurance, including any amount of self-assumed risk, commonly referred to as "self-insurance" applicable to the same Occurrence, then the insurance provided by this policy with respect to that Occurrence shall be excess of any such other insurance or self-assumed risk.

Verhalen's policy with AII contained no similar clause or other type of disclaimer based on other applicable insurance.

Based on the excess insurance clause quoted above, Transport moved for a declaratory judgment that its liability to Nowak was limited to coverage beyond the limits of Verhalen's policy with AII.

The trial court, however, granted judgment dismissing AII from the action. The court found that the only source of Verhalen's liability to Nowak was paragraph seven of the trip-lease agreement, whereby Verhalen agreed to hold International harmless for liability resulting from his negligence. ² The trial court reasoned that because AII's policy disavowed coverage for liability assumed under contract, AII was therefore released from liability to Nowak. ³

AII concedes that the trial court erred in identifying the trip-lease agreement as the source of Verhalen's liability to Nowak. The true source is the common law governing tort actions, which grants to injured parties the right to pursue claims against their alleged tortfeasors. That a contract incorporates or restates a preexisting common law duty of care does not establish the contract as the source of that duty. See Daily Express, Inc. v. Northern Neck Transfer Corp., 490 F.Supp. 1304, 1307-09 (M.D.Pa.1980). The trial court erred by dismissing AII from this action.

AII contends, however, that we should affirm its dismissal for other reasons it first argues on appeal. In support of its contention, AII cites language in its policy excluding coverage if Verhalen used his vehicle as a "public or livery conveyance." AII then sets forth various "facts" in its brief to support the contention that Verhalen was operating his vehicle as a public or livery conveyance at the time of the accident. The "facts" used by AII in its argument to this court do not, however, appear in the parties' agreed statement in lieu of record presented to this court. We therefore do not address the issue. Should AII decide to pursue this contention further, the necessary factual record may be developed before the trial court.

Having held that AII should remain a party to this action, we turn to the issue of which insurance carrier should be deemed primarily liable should Nowak prevail on his claim. ⁴ AII argues that this question is controlled by the federal statutes and regulations which impose on International the duty to maintain insurance to protect the public while it engages in interstate commerce. 49 U.S.C. sec. 10927(a)(1) (1982) provides in part:

The Interstate Commerce Commission may issue a certificate or permit to a motor carrier ... only if the carrier files with the Commission a bond, insurance policy, or other type of security approved by the Commission .... The security must be sufficient to pay, not more than the amount of the security, 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 certificate or permit, or for loss or damage to property ... or both. A certificate or permit remains in effect only as long as the carrier satisfies the requirements of this paragraph.

Additionally, 49 U.S.C. sec. 11107(a)(4) (1982) provides that the ICC may require carriers using leased vehicles to: "[H]ave control of and be responsible for operating those motor vehicles in compliance with requirements prescribed by the Secretary of Transportation on safety of operations and equipment, and with other applicable law as if the motor vehicles were owned by the motor carrier."

Regulations of the Interstate Commerce Commission supplement these statutes. 49 C.F.R. sec. 1057.12(k)(1) (1983) requires that trip-lease agreements "clearly specify the legal obligation of the authorized carrier to maintain insurance coverage for the protection of the public pursuant to Commission regulations under 49 U.S.C. 10927." 49 C.F.R. pt. 1043 (1983), entitled "Surety Bonds and Policies of Insurance," sets forth the ICC's regulations concerning the type and amount of insurance referred to in 49 C.F.R. sec. 1057.12(k)(1). Also, 49 C.F.R. sec. 1057.12(d)(1) supplements 49 U.S.C. sec. 11107(a)(4) by requiring:

(d) Exclusive possession and responsibilities --(1) The lease shall provide that the authorized carrier lessee shall have exclusive possession, control, and use of the equipment for the duration of the lease. The lease shall further provide that the authorized carrier lessee shall assume complete responsibility for the operation of the equipment for the duration of the lease.

AII argues that this federal regulatory scheme demonstrates an intent to impose primary liability on the licensed carriers, regardless of the parties' contractual arrangements. It cites cases from three jurisdictions where this intent has been read into the federal insurance requirements. See Hagans v. Glens Falls Insurance Co., 465 F.2d 1249 (10th Cir.1972); Argonaut Insurance Co. v. National Indemnity Co., 435 F.2d 718 (10th Cir.1971); Allstate Insurance Co. v. General Fire and Casualty Co., 348 F.Supp. 682 (E.D.Pa.1972); Transport Indem. Co. v. Carolina Cas. Ins., 133 Ariz. 395, 652 P.2d 134 (1982). See also Aetna Casualty and Surety Co. v. Arkin, 365 F.Supp. 813 (N.D.Ill.1973); Federal Insurance Co. v. Allstate Insurance Co., 275 Md. 460, 341 A.2d 399 (1975).

This court, however, favors the view of the majority of courts addressing this issue, which leaves the question of allocating coverage among the insurers to the contractual arrangements of the parties and any applicable state law. This view, which we adopt here, is "that once the public is protected by the existence of an adequate fund, the purpose of the regulations is fulfilled and the parties and their insurers are free to allocate ultimate responsibility among themselves." ⁵ Carolina Cas. Ins. Co. v. Transport Indem. Co., 533 F.Supp. 22, 25-26 (D.S.C.1981), aff'd, 676 F.2d 690 (4th Cir.), cert. denied, 459 U.S. 829, 103 S.Ct. 65, 74 L.Ed.2d 66 (1982).

In Carolina Cas. Ins. Co. v. Insurance Co., 595 F.2d 128 (3rd Cir.1979), the court framed the issue as "whether the federal policy of assuring compensation for loss to the public prevents courts from examining the manner in which private agreements or state laws would otherwise allocate the ultimate financial burden of the injury." Id. at 138. The court concluded:

While a lessee cannot free itself of its federally imposed duties when protection of the public is at stake, the federal requirements are not so radically intrusive as to absolve lessors or their insurers of otherwise existing obligations under applicable state tort law doctrines or under contracts allocating financial risk among private parties.... [W]here the case is "concerned with responsibility as between insurance carriers," and not with the federal policy of protecting the public, "I.C.C. considerations are not determinative" and a court should consider the express terms of the parties' contracts. [Footnote and citation omitted.]

Id. The Fifth Circuit Court of Appeals has noted that the purposes of the federal regulatory scheme are not served by an "automatic...