Occidental Fire & Cas. Co. of North Carolina v. International Ins. Co.

Citation804 F.2d 983
Decision Date31 October 1986
Docket NumberNo. 85-2113,85-2113
PartiesOCCIDENTAL FIRE & CASUALTY CO. OF NORTH CAROLINA, a North Carolina Corporation, Plaintiff-Appellant, v. INTERNATIONAL INSURANCE CO., an Illinois Corporation, Defendant-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)

Fred A. Smith, Hinshaw, Culbertson, Moelmann, Hoban & Fuller, Chicago, Ill., for plaintiff-appellant.

Daniel J. Kordik, Brown, James & Rabbitt, P.C., Belleville, Ill., for defendant-appellee.

Before CUDAHY and COFFEY, Circuit Judges, and EVANS, District Judge. *

COFFEY, Circuit Judge.

The appellant, Occidental Fire and Casualty Company of North Carolina ("Occidental"), sued the appellee, International Insurance Company ("International") seeking a declaratory judgment that International's insurance policy provided primary coverage under a truck liability policy for a truck accident. The district court held that Occidental's policy provided primary coverage. Occidental appeals. We affirm.

I

On August 29, 1980, Broviak Trucking Company ("Broviak") leased a truck tractor and trailer to Beelman Trucking Company ("Beelman"). The lease provided that Broviak would provide Beelman with one of its employees to drive the leased truck. The lease specifically provided that pursuant to the Interstate Commerce Commission ("ICC") regulations, Beelman would "assume full common carrier responsibility ... for the operation of such vehicle." The lease also provided that Broviak would "indemnify Lessee against ... any loss or damage resulting from the negligence, incompetence or dishonesty of such driver(s)."

On September 25, 1980, while en route to pick up a load of coal at the Ziegler Coal Company in Illinois, Broviak's employee, John Hauk, was involved in an accident with a van driven by Ralph Stork who was fatally injured in the accident. Ralph Stork's wife brought a wrongful death action in Illinois state trial court against Broviak, its driver Hauk, Beelman, and Ziegler Coal Company. On March 9, 1983, the parties agreed to settle the action for $175,000. Occidental, the insurer for Broviak, agreed to pay one-third of the settlement or $43,366 and International, the insurer for Beelman, agreed to pay two-thirds of the settlement or $86,732. 1

After the insurance companies and Stork's estate had settled the wrongful death claim, Occidental brought this declaratory judgment action in federal district court seeking a determination of whether International's policy or Occidental's policy provided primary coverage. The district court found that the indemnity agreement in the lease between Broviak and Beelman shifted the "ultimate legal obligation" to Broviak. The court held that since ultimate responsibility for the accident rested with Broviak, Occidental's policy provided primary coverage.

On appeal, Occidental raises the following issues: (1) whether the Illinois ICC endorsement contained in International's policy assigns primary coverage for the accident to International as a matter of law; and (2) if the ICC endorsement does not impose liability as a matter of law, whether primary coverage for the accident is imposed upon International by the express terms of its policy language.

II ICC Regulations

The Interstate Commerce Commission regulations state that any trucking equipment lease shall provide that the lessee assume "complete responsibility for the operation of the equipment for the duration of the lease." 49 C.F.R. sec. 1057.12(d)(1). Pursuant to this regulation, the truck rental lease between Broviak and Beelman provided that Beelman, as lessee, would assume "complete responsibility ... for the operation of [the] vehicle." Further, International's policy contained an Illinois ICC endorsement stating that the company agreed to pay any final judgment rendered against the insured "resulting from the operation, maintenance or use of motor vehicles by virtue of a certificate of public convenience and necessity or permit issued to the insured by the Illinois Commerce Commission...." The ICC endorsement also stated that "no condition, provision, stipulation, or limitation contained in the policy ... shall relieve the company from liability hereunder or from the payment of any such final judgment...."

Occidental contends that since Beelman was an ICC authorized carrier and International's policy contained the ICC endorsement stating that it would pay for any liability incurred by its insured, International provided primary coverage for the accident as a matter of law. In support of its argument, Occidental cites several cases holding that the ICC endorsement imposes primary coverage for an accident on the lessee's insurance carrier as a matter of law. See, e.g., Argonaut Insurance Co. v. National Indemnity Co., 435 F.2d 718 (10th Cir.1971); Hagans v. Glens Falls Insurance Co., 465 F.2d 1249, 1252 (10th Cir.1972); Allstate Insurance Co. v. General Fire & Casualty Co., 348 F.Supp. 682 (E.D.Pa.1972). These cases, however, predated the Supreme Court's decision in Trans-American Freight Lines, Inc. v. Brada-Miller Freight Systems, Inc., 423 U.S. 28, 96 S.Ct. 229, 46 L.Ed.2d 169 (1975), where the Supreme Court held that an indemnification agreement between the lessor and lessee shifting liability to the lessor did not contravene the ICC regulations providing that the lessee was ultimately responsible for the operation of the vehicle. The Supreme Court reasoned that as long as one of the responsible parties, the lessor or lessee, pays for the damages the public is protected and thus "[t]he mere presence of a clause such as the one here--that the lessor is to bear the burden of its own negligence--does not, in and of itself, offend the regulations so long as the lessee does not absolve itself from the duties to the public and to shippers imposed upon it by the Commission's regulations." Id. at 40, 96 S.Ct. at 235. Since the Brada-Miller decision, cases confronted with the issue of whether the ICC endorsement imposes liability on the lessee's insurance carrier have held that as long as the member of the public has been compensated for his or her loss, the ICC endorsement does not make the lessee's insurer primarily liable as a matter of law. See, e.g., Carolina Casualty Insurance Co. v. Insurance Co. of North America, 595 F.2d 128 (3d Cir.1979); Carolina Casualty Ins. Co. v. Underwriters Insurance Co., 569 F.2d 304 (5th Cir.1978). This circuit recently followed those cases in rejecting the contention that the ICC endorsement renders the lessee's insurance company primarily liable as a matter of law.

"The purpose of the federal statute and regulations is to ensure that an ICC carrier has independent financial responsibility to pay for losses sustained by the general public arising out of its trucking operations. However, once it is clear that there are sufficient funds available to safeguard the public, the inquiry changes: '[t]he pertinent question is 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.' "

Travelers Insurance Company v. Transport Insurance Company, 787 F.2d 1133, 1140 (7th Cir.1986) (quoting Carolina Casualty Insurance Co. of North America, 595 F.2d 128, 138 (3d Cir.1979) (emphasis added). Since there is no question that the member of the public who was injured in the accident has been duly compensated, we reject Occidental's argument that the ICC endorsement contained in the lease and in International's policy renders International primarily liable for coverage of the accident as a matter of law. Pursuant to our recent decision in Travelers Insurance Company, supra, we examine the contract language and the applicable state law governing liability to determine which insurance company provides primary coverage.

The Policy Language

Occidental next contends that the language in the respective insurance contracts of Occidental and International clearly state that International is to provide primary coverage for the accident while Occidental is to provide excess coverage only. Occidental's policy states:

"I. COVERAGE A--BODILY INJURY LIABILITY--COVERAGE B--PROPERTY DAMAGE LIABILITY:

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages....

III. PERSONS INSURED: Each of the following is an insured under this insurance to the extent set forth below:

(a) the named insured;

* * *

* * *

(c) any other person while using an owned automobile or a temporary substitute automobile with the permission of the named insured, provided his actual operation or (if he is not operating) his other actual use thereof is within the scope of such permission, but with respect to bodily injury or property damage arising out of the loading or unloading thereof, such other person shall be an insured only if he is:

(1) a lessee or borrower of the automobile, or

(2) an employee of the named insured or of such lessee or borrower;"

Incorporated within this policy is an addendum to the insurance contract referred to as the "truckmen's endorsement" that provides:

"It is agreed that the insurance applies with respect to the automobile described herein [truck and trailer provided by Broviak] or designated in the policy as subject to this endorsement, subject to the following additional provisions:

* * *

* * *

(d) With respect to (1) any automobile of the commercial type while leased or loaned to any person or organization, other than the named insured, engaged in the business of transporting property by automobile for others, or (2) any hired private passenger automobile, or (3) any non-owned automobile, the insurance under this endorsement shall be excess insurance over any other valid and collectible insurance, whether primary, excess or contingent, available to the insured. Otherwise,...

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