Prestige Cas. Co. v. Michigan Mut. Ins. Co.

• Decision Date: 04 November 1996
• Docket Number: 95-1049,Nos. 95-1036,s. 95-1036
• Parties: Fed. Carr. Cas. P 84,034 PRESTIGE CASUALTY COMPANY, Plaintiff-Appellee, Cross-Appellant, v. MICHIGAN MUTUAL INSURANCE COMPANY, Defendant-Appellant, Cross-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1340

99 F.3d 1340

Fed. Carr. Cas. P 84,034

PRESTIGE CASUALTY COMPANY, Plaintiff-Appellee, Cross-Appellant, v. MICHIGAN MUTUAL INSURANCE COMPANY, Defendant-Appellant Cross-Appellee.

Nos. 95-1036, 95-1049.

United States Court of Appeals Sixth Circuit.

Argued May 10, 1996.

Decided Nov. 4, 1996.

David S. Anderson (argued and briefed), Ward, Anderson & Porritt, Bloomfield Hills, MI, for Plaintiff-Appellee, Cross-Appellant.

Christopher L. Terry (argued and briefed), Rutledge, Manion, Rabaut, Terry & Thomas, Detroit, MI, for Defendant-Appellant, Cross-Appellee.

Before: SUHRHEINRICH and SILER, Circuit Judges, and CARR, District Judge. ^*

SUHRHEINRICH, Circuit Judge.

In this declaratory judgment action we consider which of two insurance companies must provide primary coverage for liability arising out of a collision of a tractor-trailer and an automobile. Defendant-Appellant-Cross-Appellee Michigan Mutual Insurance Co. ("Michigan Mutual") is the insurer of the motor carrier Wolverine Expediting, Inc. which leased the truck from George Bogle, the owner of the truck and insured of Plaintiff-Appellee-Cross-Appellant Prestige Casualty Company ("Prestige"). Central to the resolution of liabilities is the effect Interstate Commerce Commission ("ICC") regulations making the motor carrier strictly liable for "public liability" from negligent use of the motor vehicle have on the relationship between insurers.

I. Background

A. Motor Carrier Industry

1. ICC Regulations

It is common practice for motor carriers who operate under the authority of the ICC, i.e. "authorized carriers" ¹, to lease equipment from independent contractors who are not regulated by the ICC. Historically, this practice led to abuses which threatened the economic stability of the trucking industry and public interest. American Trucking Ass'ns v. United States, 344 U.S. 298, 304-05, 73 S.Ct. 307, 311-12, 97 L.Ed. 337 (1953); Empire Fire & Marine Ins. Co. v. Guaranty Nat'l Ins. Co., 868 F.2d 357, 362 (10th Cir.1989); 4 Saul Sorkin, Goods in Transit, 45.02 (1994). Unscrupulous ICC-licensed carriers would use leased vehicles to avoid safety regulations governing equipment and drivers. American Trucking, 344 U.S. at 305, 73 S.Ct. at 312. Authorized carriers' use of non-owned vehicles also caused public confusion as to who was financially responsible for the vehicles. Empire Fire, 868 F.2d at 362; Mellon Nat'l Bank & Trust Co. v. Sophie Lines, Inc., 289 F.2d 473, 477 (3d Cir.1961).

To right these wrongs, Congress amended the Interstate Commerce Act to allow the ICC to promulgate regulations governing all aspects of the non-owned equipment by authorized carriers. See 49 U.S.C. § 304(e)(1956), revised 49 U.S.C. § 11107 (1978); see also 49 U.S.C. § 10927. ² See generally Empire Fire, 868 F.2d at 362, 4 Sorkin, Goods in Transit, § 45.03. ICC regulations now require that every lease entered into by an ICC-licensed carrier must contain a clause stating that the authorized carrier maintain "exclusive possession, control, and use of the equipment for the duration of the lease," and "assume complete responsibility for the operation of the equipment for the duration of the lease." 49 C.F.R. § 1057.12(c)(1)(1995). Further, all authorized carriers must maintain insurance or other form of surety "conditioned to pay any final judgment recovered against such motor carrier for bodily injuries to or the death of any person resulting from the negligent operation, maintenance, or use of motor vehicles" under the carrier's license. 49 C.F.R. § 1043.1(a)(1995).

The regulations contain a form endorsement to be included in the authorized carrier-lessee's insurance policy (the "ICC endorsement"). See 49 C.F.R. § 387.15 (1995). It 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 motor carrier of property, with sections 29 and 30 of the Motor Carrier Act of 1980 and the rules and regulations of the Federal Highway Administration's Bureau of Motor Carrier Safety (Bureau) 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 to pay, within the limits of liability described herein, any final judgment recovered against the insured for public liability resulting from negligence in the operation, maintenance or use of motor vehicles subject to the financial responsibility requirements of sections 29 and 30 of the Motor Carrier Act of 1980.... 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 judgment, within the limits of liability herein described, irrespective of the financial condition, insolvency or bankruptcy of the insured.

2. Bob-tail Insurance

"Bob-tail" in trucking parlance is the operation of a tractor without an attached trailer. Reeves v. B & P Motor Lines, Inc., 82 N.C.App. 562, 346 S.E.2d 673, 675 (1986); 4 Sorkin, Goods in Transit, § 45.01. For insurance purposes, however, it typically means coverage "only when the tractor is being used without a trailer or with an empty trailer, and is not being operated in the business of an authorized carrier." 4 Sorkin, Goods in Transit, § 45.02. Bob-tail/deadhead ³ insurance is also known as "non-trucking use insurance." Id. See also Reeves, 346 S.E.2d at 675-76 (interpreting endorsement denominated as "Truckmen--Insurance for Non-Trucking Use (Bob-tail only)" defined as used in business of any person to whom rented and excluding coverage whenever lessor is "in the business of the lessee"). Owner-operators who lease trucks, tractors and trailers with drivers to authorized carriers frequently carry limited liability or "bob-tail/deadhead" insurance. 4 Sorkin, Goods in Transit § 45.02.

B. Facts

The facts are undisputed. George Bogle, a lessor of trucks, leased one of his vehicles to Wolverine Expediting, Inc. on June 11, 1985. Wolverine is a licensed interstate transportation company. In accordance with ICC regulations, the lease provided that Wolverine was granted exclusive possession, use and control of the truck for use in Wolverine's trucking business for not less than thirty days, and that Wolverine would be liable for all claims for damages arising out of operation of the vehicle during the lease period.

Bogle subsequently hired driver Gregory C. Freed to drive the truck. Bogle paid Freed a percentage of monies made on each trip. On October 8, 1985, while driving the truck east on I-96 in Wayne County, Michigan, Freed struck Ronald Paul's vehicle. Paul was seriously injured as a result.

Just prior to the accident, Bogle had "borrowed back" the truck from Wolverine because Wolverine's business was slow. Wolverine failed, however, to remove its identifying placards from the truck and to request a receipt for surrender of the vehicle as required by ICC regulations. See 49 C.F.R. §§ 1057.11(b); 1057.12(b). See also, Rodriguez v. Ager, 705 F.2d 1229, 1236 (10th Cir.1983).

C. State Court Proceedings

Paul and his wife brought suit in state court on July 18, 1986, against Bogle, Freed, and Wolverine. After plaintiffs stipulated to the dismissal of Wolverine, Bogle and Freed filed a third-party complaint against the motor carrier/lessee, asserting that Wolverine was primarily liable for Paul's damages pursuant to the applicable ICC regulations. Wolverine counterclaimed that it was entitled to indemnification from Freed for any monies it might owe Bogle.

On motions for summary disposition, the state trial court ruled that the ICC regulations imposed primary liability on Wolverine. The court rejected Wolverine's claim for indemnification from Freed, concluding that Freed was a "statutory employee" of Wolverine. The parties appealed.

Bogle and Freed settled with Paul for $225,000 during the pendency of the appeal. The sum was paid by Bogle's insurer, Prestige Casualty Company.

The Michigan Court of Appeals affirmed in part and reversed in part. Paul v. Bogle, 193 Mich.App. 479, 484 N.W.2d 728 (1992). First, the court ruled that Wolverine was liable for the accident because Freed was Wolverine's "statutory employee" under the ICC regulations and applicable state law. Id. 484 N.W.2d at 733.

The Paul court then determined that Wolverine was liable under state law as an owner of the vehicle because the Michigan Vehicle Code, which defines an owner of a motor vehicle to include anyone who leases a vehicle for more than thirty days. Id. Additionally, the court found that Wolverine's failure to remove its identifying placards and to request in accordance with ICC regulations a receipt for surrender constituted its implied consent to Bogle and Freed to use the truck for any purpose. Id. at 733-34. In so ruling the court specifically rejected Wolverine's argument that it should not have any liability because Freed was driving the truck on Bogle's business at the time of the accident:

The applicable statute, when taken into consideration with Wolverine's duties under the applicable ICC regulations, precludes the success of such an argument. Under the ICC regulations, Wolverine continued to consent to the use of the vehicle, no matter whose business or interests were pursued, as long as the identifying placards remained on the vehicle and Wolverine had not obtained a receipt from Bogle or his agent for the return of the vehicle. Given this implied consent, it is immaterial whose business was being pursued at the time of the accident.

Id. at 734.

The Paul court then turned to Freed and Bogle's request for indemnification from Wolverine. The appellate court reversed the trial court's order granting Freed contractual indemnification from Wolverine...