Pierre v. PROVIDENCE WASH INS.

• Decision Date: 12 December 2002
• Citation: 754 N.Y.S.2d 179,99 N.Y.2d 222,784 N.E.2d 52
• Parties: STEVE PIERRE, Respondent, v. PROVIDENCE WASHINGTON INSURANCE COMPANY, Appellant.
• Court: New York Court of Appeals Court of Appeals

99 N.Y.2d 222

784 N.E.2d 52

754 N.Y.S.2d 179

STEVE PIERRE, Respondent, v. PROVIDENCE WASHINGTON INSURANCE COMPANY, Appellant.

Court of Appeals of the State of New York.

Argued November 12, 2002.

Decided December 12, 2002.

Schindel, Farman & Lipsius, LLP, New York City (Laurence J. Rabinovich of counsel), for appellant.

Bertram Herman, P.C., East Norwich (Bertram Herman of counsel), for respondent.

Chief Judge KAYE and Judges CIPARICK and ROSENBLATT concur with Judge GRAFFEO; Judge WESLEY dissents and votes to modify in a separate opinion in which Judges SMITH and LEVINE concur.

OPINION OF THE COURT

GRAFFEO, J.

In November 1994, plaintiff Steve Pierre was injured when his vehicle was struck by a tractor-trailer driven by Steve Harris. Harris' employer, Preston Conquest, owned the tractor cab but the trailer was owned by Blue Hen Lines, a federally-registered motor carrier engaged in the business of transporting goods in interstate commerce. Conquest had leased the tractor to Blue Hen and agreed to provide Blue Hen with a driver. In turn, the lease obligated Blue Hen to obtain liability insurance coverage for any personal injury and property damage that might arise as a result of operation of the tractor-trailer. It is undisputed that Harris was operating the vehicle in the course of Blue Hen's business when the collision occurred.

Blue Hen purchased a liability policy, which was in effect on the day of the accident, from defendant Providence Washington Insurance Company. As a condition precedent to coverage, a notice of accident provision in the policy required that an insured promptly notify the insurance carrier of any accident arising from operation of the vehicle. The parties agree that Harris and Conquest met the policy's definition of an "insured."

In June 1995, plaintiff sued Harris and Conquest, respectively the driver and owner of the tractor, obtaining a default judgment against them. After an inquest, a judgment for compensatory damages was entered in the amount of $227,560. In the course of litigation, plaintiff learned that Blue Hen owned the trailer and that Providence had issued a trucker's liability policy to Blue Hen to cover losses from motor vehicle accidents occurring in the course of Blue Hen's business.¹ Plaintiff forwarded the judgment to Providence and requested payment under Blue Hen's policy. Providence immediately disclaimed coverage on the ground that Harris and Conquest breached the notice of accident condition in the policy by failing to timely inform Providence of the accident involving Pierre. The disclaimer letter did not refer to plaintiff's failure to obtain a judgment against Blue Hen as a basis for denying coverage.

Plaintiff commenced this action against Providence in October 1997 seeking payment of the judgment. After discovery, Providence moved for summary judgment dismissing the complaint on the ground that the failure of Harris and Conquest to timely notify it of the accident absolved the company of liability.

Plaintiff cross-moved for summary judgment, relying on the terms of a federally-mandated policy endorsement, known as the MCS-90, attached to liability policies issued to motor carriers who transport goods in interstate commerce. Plaintiff noted that, under federal law, motor carriers must register with the federal government and demonstrate that they have secured adequate financial resources to pay judgments arising from accidents occurring in the course of their transport business, ordinarily accomplished through purchase of a liability insurance policy with the MCS-90 endorsement.

As required by federal regulation (see 49 CFR 387.15), the MCS-90 endorsement provides that the insurance carrier agrees to pay any final judgment "recovered against the insured for public liability," as a result of the negligent operation of any vehicle, regardless of whether the vehicle is specifically described in the policy and despite the insured's failure to comply with policy conditions. In effect, the endorsement shifts the risk of loss for accidents occurring in the course of interstate commerce away from the public by guaranteeing that an injured party will be compensated even if the insurance carrier has a valid defense based on a condition in the policy. The burden is then on the insurer to pursue indemnification from other parties if coverage was not warranted under the terms of the underlying policy. In this case, plaintiff argued that the MCS-90 endorsement, which was required to be included in the liability policy Providence issued to Blue Hen, obviated the effect of the notice of accident condition in the policy, at least insofar as it obligated the insurance company to compensate plaintiff, the injured party.

In response to plaintiff's cross motion, defendant claimed that an MCS-90 endorsement was not part of the insurance policy issued to Blue Hen. Although Providence had filed a certificate of insurance with the Interstate Commerce Commission certifying that it had included the endorsement and provided Blue Hen the coverage mandated by federal law, it initially asserted in Supreme Court that the MCS-90 endorsement was not part of the policy (a position it subsequently abandoned). In addition, Providence argued that even if the endorsement was read into the policy, it would not provide a basis for plaintiff to recover because plaintiff's judgment was against Harris and Conquest rather than Blue Hen, the named insured.

Supreme Court denied Providence's motion for summary judgment and granted plaintiff's cross motion, holding that Providence was obligated to pay the judgment. Concluding that the federal security requirement had to be read into the policy, the court reasoned that the MCS-90 endorsement eliminated the prompt notice condition as a defense in a claim brought by an injured party. The court found that plaintiff could recover, notwithstanding his failure to obtain a judgment against Blue Hen, because Harris and Conquest met the policy's definition of an "insured" and the insurer was required under the endorsement to pay any final judgment "recovered against the insured."

Providence appealed and the Appellate Division affirmed, with one Justice dissenting. The Court echoed Supreme Court's rationale and emphasized that the result was consistent with the public policy considerations underlying the MCS-90 endorsement requirement: to provide a safety net to members of the public injured as a result of negligent operation of tractor-trailers used in interstate commerce. Rather than applying the insurance policy's definition of "insured," the dissenting Justice would have relied on a definition that appears in the federal regulations, which he interpreted as more restrictive than the policy definition. The Appellate Division granted Providence leave to appeal to this Court and we now affirm.

Before we interpret the MCS-90 endorsement, it is helpful to consider the purpose of the federal statutory and regulatory scheme governing the interstate trucking industry. Congress passed the Motor Carrier Act of 1980 to update federal regulation of the national motor carrier industry "to reflect the transportation needs and realities of the 1980's" (Pub L 96-296 § 3 [a]). The legislation was, in part, intended to address abuses that had arisen in the industry which threatened public safety, including the use by motor carriers of leased or borrowed vehicles to avoid financial responsibility for accidents that occurred while goods were being transported in interstate commerce (Empire Fire & Mar. Ins. Co. v Guaranty Natl. Ins. Co., 868 F2d 357, 362 [10th Cir 1989]).

The legislation imposed a "[l]iability insurance requirement" upon each motor carrier registered to engage in interstate commerce which mandated that a motor carrier file "a bond, insurance policy, or other type of security" in an amount determined by the Secretary of Transportation and the laws of the state or states in which the motor carrier intended to operate (49 USC § 13906 [a] [1]; see also former 49 USC § 10927 [a] [1]). The security must be sufficient to cover "each final judgment against the registrant for bodily injury to, or death of, an individual resulting from the negligent operation, maintenance, or use of motor vehicles, or for loss or damage to property" (49 USC § 13906 [a] [1]; see also former 49 USC § 10927 [a] [1]). Congress further provided that "[f]inancial responsibility may be established under this section by any one or any combination of the following methods acceptable to the Secretary: evidence of insurance, guarantee, surety bond, or qualification as a self-insurer" and authorized the Department to "establish, by regulation, methods and procedures to assure compliance with this section" (Pub L 96-296 § 30 [c]).

With the oversight of the Interstate Commerce Commission, the Federal Department of Transportation promulgated regulations implementing the financial security requirements set forth in section 30 of the legislation, which were intended "to create additional incentives to motor carriers to maintain and operate their vehicles in a safe manner and to assure that motor carriers maintain an appropriate level of financial responsibility for motor vehicles operated on public highways" (49 CFR 387.1). The Department determined that the "legislative history of Section 30 indicates a congressional belief that increased financial responsibility will lead to improved safety performance as unsafe motor carriers will incur higher premiums than safe carriers, or will be unable to obtain coverage" (46 Fed Reg 30974 [1981]). To this end, the Department concluded that section 30 was "a remedial legislative measure * * * [that] should be interpreted broadly" (46 Fed Reg 30974, 30977).

In particular, the Department promulgated a motor carrier endorsement form known as the MCS-90 (see 49 CFR 387.15).² The endorsement was to be attached to the trucker's liability policy...