Pertinent Case Law
Carolina Casualty Ins. Co. v. Yeates
There are dozens, if not hundreds, of cases that construe the MCS-90. Its evolution and interpretation has been torturous. In a significant late 2009 decision, the Tenth Circuit in Carolina Casualty Ins. Co. v. Yeates held that the MCS-90 did not “stack” on top of other coverage that a motor carrier had in place which met the minimum required level of financial responsibility set forth in § 387.9. 584 F.3d 868 (10th Cir. 2009). There, a motorist suffered a significant and permanently-disabling injury in a collision with a truck owned by Bingham Livestock. The truck was specifically covered by a State Farm policy with the minimum $750,000 limits allowed under the regulations. State Farm quickly settled for its policy limits. Bingham Livestock then sought coverage under a general liability policy it held from Carolina Casualty. That policy insured a number of vehicles owned by Bingham, but significantly, it did not extend to the truck involved in the collision.
However, Carolina Casualty’s policy included an MCS-90 endorsement. Carolina Casualty (CCIC) brought a declaratory judgment action and sought summary judgment, alleging that because a separate on-the-risk insurer had paid the amount required for financial security by the regulations, the MCS-90 could not be “triggered”, even by a judgment against the motor carrier in excess of the amount required as security. The trial court found that the MCS-90 stacked on top of on-the-risk coverage, so that Carolina Casualty could be required to pay, even though it did not cover the accident and even though another insurer (i.e., State Farm) had already paid the injured motorist an amount equal to that required by regulation.
On appeal, a three-judge panel of the Tenth Circuit initially affirmed the trial court. Carolina Casualty Ins. Co. v Yeates, 533 F.3d 1202 (10th Cir. 2008). The court then granted a request for rehearing and a panel of twelve judges reversed. In so doing, the court analyzed the basis for the “requirement of evidence of financial responsibility” found in the regulations, and observed that the goal was met by the existence of valid, solvent, on-the-risk coverage in the amount required for the type of freight at issue. Even though it was undisputed that the motorist’s severe and permanent injuries would not be compensated by the $750,000 paid by State Farm, the MCS-90 would not require an insurer who did not have actual coverage for the loss to pay. In this sense, the Tenth Circuit joined the overwhelming majority of courts that have analyzed the MCS-90 and found it to represent a “surety” obligation triggered only when the principal could not otherwise pay the amount of the surety.
Yeates is a landmark case for several reasons. First, it recognizes and discusses the limitations of the requirements imposed by the MCS-90 on an insurer. Second, it explicitly holds that the MCS-90 does not “stack,” and the implications of that holding on trucking claims brought by the significantly injured can be significant. Finally, it adopts in clear and lucid reasoning an analysis that concludes the MCS-90 imposes no greater exposure (more or less) than the other type of “evidence of financial security,” the MCS-82 surety bond. Finally, Yeates is significant because it essentially reverses twenty or more years of interpretation by the Tenth Circuit, which stood in contrast to the interpretation adopted by the majority of courts when dealing with the MCS-90.
Even though it was handed down fairly recently, the Yeates decision has already been extensively cited. In one instance, it was held to support the dismissal of a claim against an insurer in a case involving death and quadriplegia visited upon a family as a result of being rear-ended by a tractor trailer. A few state and federal district courts have slightly distinguished Yeates in various ways.
Herrod v. Wilshire Ins. Co.
Notably, the Tenth Circuit has already been called upon to revisit and clarify Yeates. In Herrod v. Wilshire Ins. Co., a dual-wheel assembly came off the axle of a trailer being leased by Espenschied Transport to DATS Trucking, which owned the tractor towing the trailer. The assembly struck and killed the plaintiffs’ decedent. The plaintiffs brought suit against both entities, but focused their claims primarily on the unsafe and defective condition of Espenschied’s trailer. The plaintiffs ultimately settled their claims against both Espenschied and DATS, collecting $2.2 million from the latter while obtaining a $1.3 million confession of judgment from the former. When the plaintiffs presented Espenschied’s confession of judgment to its insurer, Wilshire, it refused to pay. The plaintiffs were forced to file suit against Wilshire to attempt to collect on the confession of judgment, and the district court granted summary judgment in the plaintiffs’ favor.
On appeal, Wilshire relied partially on Yeates to argue that its MCS-90 obligation no longer applied because the plaintiffs had already been compensated by DATS in an amount above the minimum financial requirements of the regulations. The Tenth Circuit rebuked Wilshire’s argument as a misconstruction of Yeates, first noting that: “In Yeates, we held that an MCS–90 endorsement is triggered if the underlying insurance policy does not provide liability coverage and the motor carrier’s other insurance is insufficient to meet the mandated federal minimum or is nonexistent. In delineating this standard, we further stated that ‘[o]nce the federally-mandated minimums have been satisfied, however, the endorsement does not apply.”
Hamm v. Canal Ins. Co.
The court then clarified that Wilshire had read its statement above out-of-context and that Yeates did not extend to situations such as the case at bar. In other words, Wilshire “may not evade payment of the judgment against its insured on the basis that the injured party has received compensation elsewhere.” As the flurry of opinions since Yeates indicate, there is sure to be more reliance and interpretation of it by state and federal courts throughout the United States for years to come.
The nature and import of an MCS-90 endorsement is significant for additional reasons. As mentioned above, there are numerous cases which construe the MCS-90. In Hamm v. Canal Ins. Co., the court held that the MCS-90 only pays once, regardless of the number of judgments against a motor carrier arising from a single accident. The Louisiana Court of Appeals has held that the presence of a deductible in a policy is irrelevant to an insurer’s duty to pay when the MCS-90 is triggered.
Hamm v. Canal Ins. Co.
In Hawthorne v. Lincoln General Ins. Co., the court held that a plaintiff could satisfy a default judgment entered against an insured in the amount of $942,000 because the policy included an MCS-90. The court held that the breach of a policy condition (which, although not specifically discussed, almost certainly included a lack of notice to the insurer of the claim) was not a basis upon which the insurer could avoid its obligations under the MCS-90.
Ooida Risk Retention Group, Inc. v. Williams
An issue which has presented inconsistent interpretations of the MCS-90 in the past involves its applicability to persons or entities other than the named insured. A number of courts have held that it would reach out and require an insurer to pay on behalf of total strangers to the policy, such as a potential purchaser who constituted a potential permissive user of the vehicle. However, since the adoption of the interpretation by the FMCSA discussed earlier, and its clarification that the effect of the MCS-90 endorsement is limited satisfying a judgment entered against the named insured only (typically just the motor carrier itself), these cases are questionable precedent. For example, in Ooida Risk Retention Group, Inc. v. Williams, the court held that the MCS-90 only applies to judgments against the motor carrier. This was also the ruling in Sentry Select Ins. Co. v. Thompson. Despite the public policy considerations discussed earlier that would seem to undermine their holdings, these cases sound the alarm that counsel should name the motor carrier in any suit, rather than just the driver or permissive user of a CMV. Otherwise, an insurer looking to exploit the failure to sue its named insured may successfully attempt to evade coverage by claiming it has no obligations under either the MCS-90 or MCS-82. The precedent of Adams in the 10th circuit on this point is highly suspect following the Yeates decision, although the point was not at issue there.
What is the effect of the presence of an MCS-90 on one policy, when there are two that provide coverage? The short answer, and the correct one recognized by a great majority of the courts, is none. The endorsement is only triggered when there is no coverage, and further, is not usually intended to apply in disputes between insurers. Tenth Circuit appears to recognize any role for the MCS-90 in a dispute between insurers, and whether that is still the case after Yeates is highly questionable. There is no logic involved in applying the MCS-90 to such a dispute, since the right of reimbursement under the endorsement would shift liability for any payment made pursuant to its terms back on the insured. The insured would, quite justifiably, turn to its on-the-risk insurer and ask why it did not pay up first, since the insurer with an MCS-90 would be entitled to reimbursement, while the on-the-risk insurer would not. This situation, commonly referred to as the “circle of indemnity,” was addressed in detail by the District Court for the Eastern District of Virginia in American Alternative Insurance Co. v. Sentry Select Insurance Co. There, the court noted that the ultimate result of this “circle” is to place the obligation on the on-the-risk insurer, not the insurer who happens to have an MCS-90 but no coverage. Thus, where both insurers have coverage, the standard analysis involving the respective “other insurance” clauses should be followed, without reference to the presence or absence of an MCS-90.
Where one insurer has both coverage and an MCS-90 endorsement, while another only has an MCS-90 but no coverage, the insurer with the endorsement but no coverage would not be required to pay at all, so long as the on-the-risk insurer was solvent and had in place coverage in the appropriate amount required by regulation. Counsel should avoid becoming a participant in some round-robin sequence of ducking responsibility and “who’s on first” by multiple insurers because of the presence of an MCS-90. Yeates is a strong weapon in that regard.