DEFENSE OF TRANSPORTATION SEMINAR: The Litigation of Truck Accidents: Coverage Issues

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1 10 South Riverside Plaza, Suite 1530 Chicago, Illinois Fax: DEFENSE OF TRANSPORTATION SEMINAR: The Litigation of Truck Accidents: Coverage Issues Original Presentation: June 21, 2002 Allegro Hotel 171 W. Randolph Street Chicago, IL Prepared by Gregory G. Vacala

2 THE LITIGATION OF TRUCK ACCIDENTS COVERAGE ISSUES GREGORY G. VACALA THE LITIGATION OF TRUCK ACCIDENTS Types of Coverage: Truck Accident Parties to Coverage The Documents to Evaluate Ultimate Nightmare: Two Elements Can Jeopardize All Coverage Aggressive Claims Handling Construction of Insurance Policies Logo Liability MCS 90 Endorsement TYPES OF COVERAGE: TRUCK ACCIDENT Cargo Trucking MCS 90 Endorsement Non Trucking CGL Combination of coverages created by: Policy Endorsement Policy Exclusions Policy Provisions SAMPLE: TRUCKERS COVERAGE ISO FORM SAMPLE: AUTO COVERAGE NON-ISO FORM SAMPLE: TRUCKERS ENDORSEMENT ISO FORM SAMPLE: TRUCKERS ENDORSEMENT NON-ISO FORM SAMPLE: NON-TRUCKING ENDORSEMENT ISO FORM SAMPLE: NON-TRUCKING ENDORSEMENT NON-ISO FORM

3 SAMPLE: MSC 90 ENDORSEMENT PARTIES TO COVERAGE Named Insured Trucking company Tractor Trailer Owner-Operator Lessor Lessee Injured party Assignee - Contract Assignee - Statutory MCS 90 - May/may not be insured or scheduled vehicle THE DOCUMENTS TO EVALUATE Complete policies - insured Endorsements Exclusions Schedules of vehicles and coverage Lease Agreement - Tractor & Trailer Policies Owner-Operator Trucking-Non Trucking policies CGL policies MCS 90 Endorsement Liability Discovery Statements Police report Bill of lading Dispatch instructions

4 ULTIMATE NIGHTMARE: Two ELEMENTS CAN JEOPARDIZE ALL COVERAGE All insured coverage at risk Trucking Non Trucking. CGL Filed and non-cancelled MCS 90 Judgment entered on insured vehicle and named insured Lessor Lessee AGGRESSIVE CLAIMS HANDLING Early intervention: evaluate policies at risk and vehicles insured Before written communications with insured Before communications with plaintiffs attorney Before reservation of rights letter Obtain complete documents Statements Owner-operator Trucking company Plaintiff All policies - certified copy Trucking Non trucking CGL Lease Bill of lading Dispatch log Strategy Determine if coverage on any policy written by your company Determine if duplicative coverage - other company Seek coverage from other carrier If MCS endorsement liability - leave open reimbursement from insured If write all coverage: Avoid non trucking Avoid CGL

5 CONSTRUCTION OF INSURANCE POLICIES State law construction of all policy language Federal law construction MCS 90 endorsement LOGO LIABILITY Federal regulation dictates lessee - trucking company, shall have exclusive possession control use during lease Federal regulations place liability on lessee No federal liability placed on lessor Majority view - irrebutable presumption if placard displayed Master/servant Agency Minority view - rebutable presumption MCS 90 ENDORSEMENT Required by Department of Transportation Filed with federal government Part of trucking policy (endorsement) Insures any public liability Vehicle covered even if not scheduled (no gross weight restrictions) Coverages beyond insured entity or vehicle Only two requirements Final judgment against insured Arise out of negligent operation, maintenance, use Can cover trailer or tractor Insured liable to reimburse insurer for any payments not obligated to pay but for endorsement No duty to defend: but may be advantageous to volunteer defense costs to avoid collusion

6 SAMPLE TRUCKERS COVERAGE ISO FORM

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8 SAMPLE CA TRUCKERS COVERAGE FORM Various provisions in this policy restrict coverage. Read the entire policy carefully to determine rights duties and what is and is not covered. Throughout this policy the words "you" and "your" refer to the Named Insured shown in the Declarations. The words we", "us" and "our" refer to the Company providing this insurance. Other words and phrases that appear in quotation marks have special meaning. Refer to SECTION-.VI - DEFINITIONS. SECTION I - COVERED AUTOS ITEM TWO of the Declarations shows the "autos' that are covered "autos" for each of your coverages. The following numerical symbols describe the "autos" that may be. covered "autos". The symbols entered next to a coverage on the Declarations designate the only autos" that are covered "autos". A. DESCRIPTION OF COVERED AUTO DES- IGNATION SYMBOLS SYMBOL DESCRIPTION 41 = ANY "AUTOS". 42 = OWNED "AUTOS" ONLY Only the "autos" you own (and for Liability Coverage any "trailers" you don't own while connected to a power unit you own). This includes those "autos" you acquire ownership of after the policy begins. 43 = OWNED COMMERCIAL AUTOS" ONLY. Only those trucks, tractors and "trailers" you own (and for Liability Coverage any "trailers" you don't own while connected to a power unit you own). This includes those trucks, tractors and "trailers you acquire ownership of after the policy begins. 44 = OWNED "AUTOS" SUBJECT TO NO- FAULT. Only those "autos" you own that are required to have No-Fault benefits in the state where they are licensed or principally garaged. This includes those "autos" you acquire ownership of after the policy begins provided they are subject to the No-Fault law in the state where they are licensed or principally garaged. 45 = OWNED "AUTOS" SUBJECT TO A COM- PULSORY UNINSURED MOTORISTS LAW. Only those "autos" you own that, because of the law in the state where they are licensed or principally garaged, are required to have and cannot - reject Uninsured Motorists Coverage. This includes those "autos" you acquire ownership of after the policy begins provided they are subject to the same state uninsured motorists requirement. 46 = SPECIFICALLY DESCRIBED "AUTOS". Only those "autos" described in ITEM THREE of the Declarations for which a premium charge is shown (and for Liability Coverage any "trailers" you don't own while attached to any power unit described in ITEM THREE). 47 = HIRED "AUTOS" ONLY. Only those "autos' you lease, hire, rent or borrow. This does not include any "private passenger type auto" you lease, hire, rent or borrow from any member of your household, any of your employees, partners or agents or members of their households. 48 = TRAILERS IN YOUR POSSESSION UNDER A WRITTEN TRAILER OR EQUIPMENT INTERCHANGE AGREEMENT. Only those "trailers" you do not own while in your possession under a written "trailer" or equipment interchange agreement in which you assume liability for "loss" to the "trailers" while in - your possession. 49 = YOUR "TRAILERS" IN THE POSSESSION OF ANYONE ELSE UNDER A WRITTEN TRAILER INTERCHANGE AGREEMENT. Only those "trailers" you own or hire while in the possession of anyone else under a written "trailer" interchange agreement. When Symbol "49" is entered next to a Physical Damage Coverage in ITEM TWO of the Declarations, the Physical Damage Coverage exclusion relating to - "loss" to a "trailer" in the possession of anyone else does not apply to that coverage. 50 = NONOWNED "AUTOS" ONLY. Only those "autos" you do not own; lease, hire, rent or borrow that are used- in connection with your business. This includes "private passenger type autos" owned by your employees or partners or members of their households but only while used in your business or your personal affairs. CA Copyright, Insurance Services Office, Inc., 1991 Page 1 of 12

9 SAMPLE AUTO COVERAGE NON-ISO FORM

10 AUTO LIABILITY PROTECTION This insuring agreement provides auto liability protection for your business. There are, of course, limitations and exclusions which apply to that protection. As a result, this agreement should be read carefully to determine the extent of the coverage provided to you and other protected persons. Table of Contents Page What This Agreement Covers 1 Bodily injury and property damage liability. 1 Pollution cost or expense. 1 Right and duty to defend. 2 Additional payments. 3 Right to appeal. 3 Out of state coverage. 3 Which Autos Are Covered 4 Any auto 4 Owned commercial autos 4 Owned private passenger autos 4 Scheduled autos 4 Hired autos 4 Non-owned autos 4 When This Agreement Covers 4 Where This Agreement Covers 4 Who Is Protected Under This Agreement 5 Individual. 5 Partnership or joint venture. 5 Corporation or other organization. 5 Any permitted user. 5 Anyone legally responsible for the actions of a protected person. 5 Separation of protected persons. 5 Limit Of Coverage 5 Exclusions - What This Agreement Won t t Cover 6 Contract liability. 6 Control of property. 6 Employer's liability. 6 Injury to a fellow employee. 7 Intentional or expected bodily injury or property damage. 7 Nuclear energy liability. 7 Pollution. 8 Racing or demolition contest. 9 Specialized equipment. 9 Workers' compensation. 9 The St Paul The terms of this agreement apply to each state unless a state s Commercial Auto Required Endorsement indicates otherwise. Other insurance 9 Insurance provided by another insurer. 9 Insurance provided under another policy with us or any of our member insurance companies. 10 What This Agreement Covers Bodily injury and property damage liability. We'll pay amounts any protected person is legally required to pay as damages for covered bodily injury or property damage that: results from the ownership, maintenance, use, loading or unloading of a covered auto; and is caused by an accident that happens while this agreement is in effect. Pollution cost or expense. We'll pay amounts any protected person is legally required to pay as covered pollution cost or expense only if it results from an accident which also causes bodily injury or property damage covered by this agreement. Protected person means any person or organization who qualifies as a protected person under the Who Is Protected Under This Agreement section. Bodily injury means any physical harm, including sickness or disease, to the physical health of other persons. It includes any of the following that results at any time from such physical harm, sickness or disease: Mental anguish, injury or illness. Emotional distress. Care, loss of services, or death. Property damage means physical damage to tangible property of others, including loss of use of such property; or loss of use of tangible property of others that isn't physically damaged Rev Printed in U.S.A. Insuring Agreement 60

11 SAMPLE TRUCKERS ENDORSEMENT ISO FORM

12 SAMPLE COMMERCIAL AUTO THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. TRUCKERS ENDORSEMENT This endorsement modifies insurance provided under the following BUSINESS AUTO COVERAGE FORM This endorsement changes the policy effective on the inception date of the policy unless another date is indicated below. Endorsement effective Named Insured Countersigned by (Authorized Representative) SCHEDULE For those covered autos used in your operations as a trucker the liability cost of hire provisions in the Declarations are replaced by the following: SCHEDULE OF HIRED OR BORROWED COVERED AUTO COVERAGE AND PREMIUMS-LIABILITY COVERAGE. LIABILITY COVERAGE-RATING BASIS, COST OF HIRE-AUTOS USED IN YOUR TRUCKING OPERATIONS ESTIMATED COST OF HIRE RATE PER EACH $100 TOTAL ESTIMATED PREMIUM COST OF HIRE "Cost of hire" means the total cost you incur for the hire of "autos" you don't own (not including private passenger type autos" you-borrow or rent from members of your household, your partners; employees or agents or members of their households). The following provisions apply to those covered "autos" used in your operations as a "trucker" if gross receipts is used as a premium basis: SCHEDULE FOR GROSS RECEIPTS RATING BASIS-LIABILITY COVERAGE Estimated Yearly Gross Receipts RATES Per $100 of Gross Receipts LIABILITY COVERAGE AUTO MEDICAL PAYMENTS LIABILITY COVERAGE PREMIUMS. AUTO MEDICAL PAYMENTS TOTAL PREMIUMS MINIMUM PREMIUMS CA Copyright, Insurance Services Office, Inc., 1985, 1991 Page 1.of 5

13 SAMPLE TRUCKERS ENDORSEMENT NON-ISO FORM

14 TRUCKERS LIABILITY ENDORSEMENT This endorsement changes your Auto or Garage Liability Protection. How Your Coverage Is Changed Your Auto or Garage Liability Protection is changed to protect you in your business as a trucker. Trucker means someone in the business of transporting property by auto for hire. The following section is added to your agreement. Who Is Not Protected Under This Agreement The following persons are not protected under this agreement: 1. Any trucker or employee other than you or your employees; if the trucker is subject to motor carrier insurance laws, and complies by means other than auto liability insurance; or if the trucker doesn't have Primary Liability insurance for owners of hired autos, including the owner's employees and agents, for autos used in the trucker's business. 2. Any railroad, water or air carrier or it's employees, other than you or your employees: while this carrier is transporting a trailer that's detached from a covered auto you're using; or while the carrier is loading or unloading the trailer from any other unit of transportation. Other Insurance The Other Insurance section of your Auto or Garage Liability Protection is replaced by the following. This agreement provides primary insurance for autos you own, and excess insurance for covered autos you don't own. But this agreement provides primary insurance for any covered auto you hire or borrow, and use exclusively in your business as a trucker, under rights given to you by a government authority. This agreement provides excess insurance for any covered auto while the auto is being hired or borrowed from you by another trucker. For any covered auto that is a trailer, while connected to the power unit, insurance for that trailer is; on the same basis, primary or excess as the power unit when the power unit is a covered auto; is always excess if the power unit is not a covered auto. When this agreement and other insurance is in effect on the same basis; primary or excess, we'll only pay our share. Our share is the proportion that the limit of our policy is to the total limits of coverage of all the policies combined. Other Terms All other terms in your policy remain the same.

15 SAMPLE NON-TRUCKING ENDORSEMENT ISO FORM

16 POLICY NUMBER: SAMPLE COMMERCIAL AUTO THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. TRUCKERS INSURANCE FOR NON-TRUCKING USE This endorsement modifies insurance provided under the following: BUSINESS AUTO COVERAGE FORM This endorsement changes the policy effective on the inception date of the policy unless another date is indicated below. Endorsement Effective Named Insured Countersigned by (Authorized Representative) SCHEDULE Description of covered "auto:" (If no entry appears above, information required to complete this endorsement will be shown in the Declarations.) LIABILITY COVERAGE for a covered "auto" described a. A covered "auto" while used to carry in the Schedule is changed as follows: property in any business 1. The following exclusions are added: b. A covered "auto" while used in the business This insurance does not apply to: of anyone to whom the "auto" is rented. 2. WHO IS AN INSURED does not include anyone engaged in the business of transporting property by "auto for hire who is liable for your conduct. CA Copyright. Insurance Services Office. Inc., 1985

17 SAMPLE NON-TRUCKING ENDORSEMENT NON-ISO FORM

18 NON TRUCKING USE ENDORSEMENT The StPaul This endorsement changes your Auto Liability Protection. How Your Coverage Is Changed Your Auto Liability Protection for certain autos is limited. The Auto Schedule will show which autos the limitation applies to. The following is added to the Exclusions-Claims We Won't Cover Section of your agreement. Trucking use. We won t cover injury or damage resulting from an auto that s: being used to transport property for hire; or being used in the business of anyone to whom the auto is rented. For example: insurance may not cover your personal use between loads, such as servicing the auto. We'll cover you when you use your auto for non trucking use. Who's Protected Under This Agreement The following is added to the Who's Protected section of your agreement. Who's not protected. Anyone engaged in the business of transporting property by auto for hire who is liable for your conduct isn't protected under this agreement. Other Terms All other terms of your policy remain the same. A trucking company you haul for provides insurance for you, while you're transporting property by auto for them. However that Ed Printed in U.S.A. Endorsement

19 SAMPLE MCS 90 ENDORSEMENT

20 Form MCS-90 (3182) Form Approved OMB No ENDORSEMENT FOR MOTOR CARRIER POLICIES OF INSURANCE FOR PUBLIC LIABILITY UNDER SECTIONS 29 AND 30 OF THE MOTOR CARRIER ACT OF 1980 Issued to of Dated at This day of ' 19 Amending Policy No. Effective Date Name of Insurance Company Countersigned by Authorized Company Representative The policy to which this endorsement Is attached provides primary or excess insurance; as indicated by X, for the limits shown: [ ] This insurance is primary and the company shall not be liable for amounts in excess of $ for each accident [ ] This insurance is excess and the company shall not be liable for amounts in excess of $ for each accident in excess of the underlying limit of $ for each accident. Whenever required by the FHWA or the ICC the company agrees to furnish the FHWA or the ICC a duplicate of said policy and all its endorsements. The company also agrees, upon telephone request by an authorized representative of the FHWA or the ICC, to verify that the policy is in force as of a particular date. The telephone number to call is: Cancellation of this endorsement may be effected by the company or the insured by giving (1) thirty-five (35) days notice in writing to the other party (said 35 days notice to commence from the date the notice Is mailed, proof of mailing shall be sufficient proof of notice), and (2) if the insured Is subject to 'the ICCs jurisdiction, by providing thirty (30) days notice to the ICC (said 30 days notice to commence from the date the notice is received by the ICC at its office in Washington, D.C.). Propertydamage means damage to or loss of use of tangible property. Public Liability means liability for bodily injury, property damage, and environmental restoration. 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 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 regardless of whether or not each motor vehicle is specifically described in the policy and whether or not such negligence occurs on any route of in any territory authorized to be served by the insured or elsewhere. Such insurance as is afforded, for public liability, does not apply to injury to or death of the insured's employees while engaged in the course of their employment, or property transported by the insured, designated as cargo. 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. However, all terms, conditions, and limitations in the policy to which the endorsement is attached shall remain in full force and effect as binding between the insured and the company. The insured agrees to reimburse the company for any payment made by the company on account of any accident, claim, or suit involving a breach of the terms of the policy, and for any payment that the company would not have been obligated to make under the provisions of the policy except for the agreement contained in this endorsement. It is further understood and agreed that, upon failure of the company to pay any final Judgment recovered against the insured as provided herein, the judgment creditor may maintain an action in any court of competent jurisdiction against the company to compel such payment The limits of the company's liability for the amounts prescribed In this endorsement apply separately to each accident and any payment under the policy because of any one accident shall not operate to reduce the liability of the company for the payment of final judgments resulting from any other accident. DEFINITIONS AS USED IN THIS ENDORSEMENT Accident includes continuous or repeated exposure to conditions which results in bodily injury, property damage, or environmental damage which the insured neither expected or intended. Motor Vehicle means a land vehicle, machine, truck, tractor, trailer, or semitrailer propelled or drawn by mechanical power and used on a highway for transporting property, or any combination thereof. Bodily lnjury means injury to the body, sickness, or disease to any person. Including death resulting from any of these. Environmental Restoration means restitution for the loss, damage, or destruction of natural resources arising out of the accidental discharge, dispersal, release or escape into or upon the land, atmosphere, watercourse, or body of water, of any commodity transported by a motor carrier. This shall include the cost of removal and the cost of necessary measures taken to minimize or mitigate damage to human health, the natural environment, fish, shellfish, and wildlife.

21 LITIGATION OF TRUCK ACCIDENTS COVERAGE ISSUES BETWEEN TRUCKING AND NON-TRUCKING USE POLICIES GREGORY G. VACALA THE LITIGATION OF TRUCK ACCIDENTS The typical tractor-trailer is covered by two policies of insurance. The first, commonly known as the "Trucking Policy" covers losses when the truck is in the use of, or under dispatch to, the trucking company. Under a theory of logo liability it also covers the vehicle at any time when the vehicle displays the trucking company's logo and registration numbers. The second, commonly known as the "Non-Trucking Use Policy," covers the vehicle when the it is not under dispatch. The term "dispatch' 'is a term of art. A court's determination of that issue often is the key to resolving insurance coverage disputes in this field. In a typical scenario, there will be some dispute as to coverage between the two policies. Complicating matters further is the existence of what is commonly known as. the MCS-90 endorsement to the trucking policy. That federally required endorsement often serves to expand coverage even in situations which on their face would indicate coverage under solely the nontrucking use policy. Potentially complicating matters further is a scenario when the trucking company purchases trucking and non-trucking use policies from the same carrier. In such a situation, the loss must be handled delicately from the moment the loss is reported, in order to avoid the potential for stacking of the policies. In analyzing coverage under the policies, certain documents must be made available to coverage counsel. Initially, a form policy is required. A certified copy of the policy should be ordered and made available to coverage counsel as soon as possible, as on rare occasions the form policy differs in some ways from the certified policy. All policy endorsements should be obtained.

22 In order to analyze coverage, counsel will also need to review extrinsic evidence including the following: 1) A copy of the truck lease agreement; 2) A complete copy of the policy report; 3) Any statements from the truck driver; 4) Any information regarding the load carried and dispatch instructions. If the vehicle is operating with an empty trailer (dead-head) or without a trailer (bobtail), it is vital to provide information as to whether the vehicle was under dispatch, and what instructions the driver has received. For example, if the driver was bob-tailing, but had dropped of his trailer at an approved yard and intended to return to that full trailer after resting, courts will likely consider the vehicle to remain "under dispatch." The insurer should also contact the insured to obtain copies of any other policies potentially covering the loss. Doing so may allow the insurer to access other sources for indemnification or defense. We note that while construction of insurance policies is a matter of state law, litigation over the MCS-90 endorsement is governed by federal law. Planet Ins. Co. v. Transport Indem. Co., 823 F.2d 285,288 (9' Cir. 1987). However, many of the related issues are guided by state law, including such matters as interpretations regarding whether a vehicle was "in the use" of the trucker at the time of the accident, where courts often will look to state agency principles. As such, the following serves as an overview to the concepts involved. For particular answers, choice of law must first be addressed, followed by application of the law of the relevant jurisdiction. TRUCKING POLICIES V. NON-TRUCKING USE: BASIC POLICY PROVISIONS Trucking policies are divided into standard Insurance Services Office (ISO) and selfwritten, or non-standard policies.

23 Both trucking and non-trucking use policies typically spring from the same basic form. However, the addition of various endorsements turns the policy into either a trucking or nontrucking use policy. It is important that terms "trucking" and "non-trucking use" refer to the use of the vehicle at the time of the accident, rather than the type of vehicle covered. See Assicurazioni Generali, S.P.A. v. Glover, 195 F.3d 161 (3 rd Cir. 1999). A trucking policy will typically have two endorsements. The first is known as the MCS- 90 endorsement. This federally mandated endorsement greatly expands the duty to indemnify under the policy. As one court opined: Basically, the MCS-90 makes the insurer liable to third parties for any liability resulting from the negligent use of any motor vehicle by the insured, even if the vehicle is not covered under the insurance policy. T.H.E. Ins. Co. v. Larsen Intermodal Svcs., 242 F.3d 667 (5 th Cir. 2001). The second is a Truckers Endorsement. The Truckers Endorsement broadens the Who is an Insured section of the policy to include anyone liable for the conduct of the insured, but only to the extent of that ability. The non-trucking use policy, on the other hand, will not include the MCS-90. It will, however, include a Non-Trucking Use endorsement. That endorsement contains as a key provision the following exclusion: This insurance does not apply to:... b. A covered "auto" while used in the business of anyone to whom the "auto" is rented. See ISO Form Non-Trucking Use Endorsement. That endorsement serves to exclude coverage where the vehicle has been leased to trucking company, and is being used in the business of that trucking company. As discussed below, the endorsement may serve to bar insurance coverage where the driver is on his way to pick up a load, or whenever the tractor is otherwise in the use of the trucking company.

24 An example as to the extent of that exclusion is seen in Planet Insurance v. Transport Indemn., 823 F.2d 285 (9th Cir. 1987). There, the owner had signed a trip lease. He had delivered his equipment to the trucking company, who had approved it. He was on his way to pick up a load. At that time, however, he was not carrying the logo (name and ICC number) of the trucking company. The court found that as the trucking company had approved the equipment and had sent the driver to pick up a load, the vehicle was in the use of the trucking company. As a result, the exclusion served to bar coverage under the non-trucking use policy.

25 FEDERAL REGULATIONS AND EXCLUSIVE CONTROL BY THE LESSEE Federal Regulations dictate that the lessee shall have exclusive possession, control, and use of the equipment during the terms of the lease. Pursuant to the Code of Federal Regulation, 49 C.F.R : Exclusive possession and responsibilities. (1) The lease shall provide that the authorized carrier lessee shall have exclusive possession, control, and the use of the equipment for the duration of the lease. The lease shall further provide that the authorized carrier lessee shah assume complete responsibility for the operation of the equipment for the duration of the lease. The lease is also required to clearly specify that the authorized carrier shall maintain insurance coverage for the protection of the public. The lease further must specify who is responsible for providing any other insurance coverage for the leased equipment, including bobtail coverage. See Paragraph (j) of Conversely, the federal regulations impose no financial responsibility requirements on the lessor. See Hartford Ins. v. Occidental Fire & Cas. Co., 908 F.2d 235 (7 th Cir. 1990). Those regulations replaced what was known as Administrative Rule 4. The new rules give the lessee exclusive possession while Rule 4 provided only the right to direct and control. Courts have unanimously found that the section creates a statutory employment relationship between the lessee and the leased driver and truck when the leased motor vehicle is displaying the insignia and I.C.C. placard of the lessee. Cincinnati Ins. Co. v. Haack, 125 Ohio App. 183, 708 N.E.2d 214 (Ohio App. 1997). Further, the majority of jurisdictions hold that those sections create an irrebuttable presumption of the satisfaction of the doctrine of respondeat superior if, at the time of an accident, the lease is in effect and the lessee's D.O.T. placards (commonly known as logo ) are on the vehicle. Cincinnati Ins. Co. v. Haack, 125 Ohio App. 183, 708 N.E.2d 214 (Ohio App. 1997) following Rodriguez v. Ager, 705 F.2d 1229 (10 th Cir. 1983); Wellman v. Liberty Mut. Ins. Co., 496 F.2d 131 (8 th Cir 1974); Simmons v. King, 478 F.2d 857 (5 th Cir. 1973); Proctor v. Colonial Refrigerated Transp., Inc., 494 F.2d 89 (4 th Cir. 1974); Mellon Natl. Bank & Trust Co. v. Sophie Lines, Inc., 289

26 F.2d 473 (3 rd Cir. 1961). According to the majority view, where the vehicle carries the trucking company logo, liability attaches even if the driver is on a task entirely of his own at the time of the accident. Cincinnati Ins. Co. v. Haack, 125 Ohio App. 3d 183, 708 N.E.2d 214 (Ohio App. 1997). Under that majority view, however, the lessee can argue that the motor vehicle was not actually being used in its service and pursue indemnification or contribution from the lessorowner, the driver, or their insurance carriers. Cincinnati Ins. Co. v. Haack, 125 Ohio App. 3d 183, 708 N.E.2d 214 (Ohio App. 1997). Although a lessee cannot escape liability to an injured party, explicit indemnification agreements in a lease agreement do not offend public policy and may be enforceable. Transamerican Freight Lines, Inc. v. Brada Miller Freight Systems, Inc., 423 U.S. 28, 96 S.Ct. 229, 46 L.Ed 169 (1975). As a result, under that majority rule, if a lease is in place and the vehicle is carrying the placard of the lessee, than the insurer for the lessee is primarily responsible for the loss. In such a situation, that insurer may then seek contribution on its own from another insurer, i.e the nontrucking use insurer. Cincinnati Ins. Co. v. Haack, 125 Ohio App.3d 183, 708 N.E.2d 214 (Ohio App. 1997). As the Seventh Circuit pointed out in Hartford v. Occidental, the existence of additional policies of insurance affects only the ultimate distribution of liability, and not of the duty of the lessee to compensate the injured party. Even under that view, however, there is authority that not all accidents involving leased vehicles carrying the placard fall under the coverage of the trucking policy. In Rosenberry v. Balboa Ins. Co., 90 Ohio App.3d 33 (Ohio App. 1993), a lessor completed a delivery, dropped off a trailer, and then went to a bar. A friend of the lessor then drove the lessor and was involved in a one vehicle accident, injuring the lessor/passenger. At the time of the accident, the vehicle was under permanent lease and was carrying the placard of the lessee. The Court ruled that the irrebuttable presumption was for the benefit of the public at large, and not for the lessor. As such, the lessor was not in the protected class and the presumption was not applicable. The minority view takes the position that display of the lessee's I.C.C. placard creates only a

27 rebuttable presumption of the lessee's liability for the leased driver and truck which maybe rebutted by applying traditional principles of respondeat superior. Cincinnati Ins. Co. v. Haack, 125 Ohio App. 183, 708 N.E.2d 214 (Ohio App. 1997) following, Gudgel v. S. Shippers, Inc., 387 F.2d 723 (7 th Cir 1967); John B. Barbour Trucking Co. v. Texas, 758 S.W.2d 684 (Tex. App. 1988). THE MCS 90 ENDORSEMENT Insurance policies issued to trucking companies engaged in interstate commerce are required to contain an endorsement known as the MCS-90. That powerful endorsement provides that the insurer will pay any judgment entered against the insured trucking company. Often, the presence of that endorsement will void any potential policy defenses, including late notice. A. History and Background According to the Federal Department of Transportation (DOT) regulations, no motor carrier shall operate a motor vehicle until the carrier has obtained minimum levels of financial responsibility, as set forth in the Federal Regulations. 49 C F.R See 49 C.F.R for minimum levels. In accordance with that requirement, the DOT provides that policy endorsements and surety bonds must be in a form approved by the OMB. That endorsement must specify that it will remain in effect continuously until terminated. 49 C.F.R The regulations also provide the form for the endorsement. The regulations and endorsements were created in an attempt to stem what certain people considered to be an abuse in the trucking industry. According to the New York Appellate Division, the regulations were created to stem the unregulated use of non-owned vehicles that threatened both public safety and the vitality of the trucking industry. Pierre v. Providence Washington Ins. Co., 286 A.D.2nd 139,730 N.Y.S. 2 nd 550 (N.Y. 2001), following Integral Ins. Co. v. Lawrence Fulbright Trucking, 930 F.2d 258, 261. According to the New York court, A practice developed in the interstate trucking industry wherein a licensed interstate motor carrier would use non-owned equipment, leased from the owner and operated by an owner lessor not subject to the regulations applicable to licensed interstate carriers. By so doing, the licensed interstate motor carrier attempted to avoid liability for the negligence of the operator of the equipment by claiming that the operator

28 was an independent contractor. Pierre. The purpose of the amendment is thus to protect members of the public against uninsured trucks. John Deere Ins. Co. v. Nueva, 229 F.3d 853 (9 th Cir. 2000). That purpose is extremely important, as Courts often will reach far to protect the public at large, but conversely, may take a more narrow view of the policy and endorsements in litigation limited to insurers and insureds, or between insurers. B. Sample Endorsement Language (Emphasis Added) 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 prescribed 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 financial responsibility requirements in Section 29 and 30 of the Motor Carrier Act of 1980 regardless of whether or not such motor vehicles are specifically described in the policy and whether or not such negligence occurs on any route or in any territory authorized to be served by the insured or elsewhere. Such insurance as is afforded for public liability, does not apply to injury or death of the insured s employees while engaged in the course of their employment, or property transported by the insured, designated as cargo. 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, irrespective of the financial condition, insolvency o r bankruptcy of the insured. However, all terms, conditions, and limitations in the policy to which this endorsement is attached are to remain in full force and effect as binding between the insured and the Company, and the insured agrees to reimburse the Company for any payment made by the Company on account of any accident, claim, or suit involving a breach of the terms of the policy, and for any payment that the Company would not have been obligated to make under the provisions of the policy except for the agreement contained in this endorsement. It is understood and agreed that, upon failure of the Company to pay any final judgment recovered against the insured as prescribed herein, the judgment creditor may maintain an action in any court of competent jurisdiction against the Company to compel such payment.

29 C. Filing requirements: Timely filing and cancellation of MCS 90 with federal government An MCS-90 is an endorsement form required by DOT as part of its requirement for financial responsibility for interstate trucking companies. See Howard v. Guaranty Insurance Co., 128 N.M. 79, 989 P.2d 896 (N.M. App. 1999). Participation in interstate transportation of products subjects carriers to compliance with DOT regulations. Id., See C.F.R (a). If a company engages in interstate trucking, then the cancellation of any policy must comply with DOT directives. However, if the company does not engage in interstate trucking, then only state directives must be complied with. In order to cancel a policy and endorsements under DOT directives, thirty five days notice must be given. See 49 C.F.R (b)(1). Further, thirty days notice must be given to the FMCSA (the notice to commence from the date the notice is received by the FMCSA at its office in Washington, DC). 49 C.F.R , illus. I (1998). Where a trucking company engages in interstate commerce, but the insurer is unaware of the interstate trucking, there is some authority to suggest that the DOT requirements are not applicable. See Howard v. Guaranty Insurance Co., 128 N.M. 79, 989 P.2d 896 (N.M. App. 1999). As a practical matter, however, the insurer may be put in a stronger position by providing the required notice when in doubt. POLICY DEFINITIONS OF "INSURED": THE IMPACT OF MCS-90 ON SCHEDULED VERSUS NON-SCHEDULED VEHICLE Any analysis of liability coverage must start with the insured persons section of the policy. That section defines insureds under the policy. Further, the Declarations of the policy will dictate whether certain vehicles are covered. Commercial auto policies typically contain various designations for "covered auto." Section 1 of the ISO form lists possible designations, ranging from any autos to specifically described autos to non-owned autos only.

30 As such, it is necessary as an initial matter to compare the vehicle involved in the accident with the scheduled list of autos. However, as discussed below, the failure of a insurer or insured to schedule the vehicle may not mean that coverage is inapplicable. The MCS-90 endorsement does not contain its own definition of insured. As a result, where the dispute is between an injured party and a trucking company or insurer, courts, pursuant to the MCS-90 endorsement, often will extend coverage beyond the named insured. The insurer's obligations under the endorsement may be triggered when the policy to which it is attached provides no coverage to the insured. See T.H.E. Ins. Co. v. Larsen Intermodal SVCS, 242 F.3d 667 (5 th Cir. 2001). According to the United States Court of Appeals, 2 nd Circuit, in Integral Ins. Co. v. Lawrence Fulbright Trucking Co., 930 F.2d 258 (2 nd Cir. 1991), there are only two requirements for a duty to indemnify under the MCS-90. First, there must be a final judgment against the insured. Second, the judgment must arise out of negligent operation, maintenance, or use of the vehicle. Integral. According to the court in Pierre, limiting liability under the MCS-90 to judgments against the named insured would defeat the purpose of the endorsement. Pierre. Some courts have gone further, and expanded insured to the permissive user of any vehicles owned, hired, or borrowed by the named insured, regardless of whether the vehicle is described in the policy. See Pierre, Adams v. Royal Indem. Co., 99 F.3d 964, John Deere Ins. Co. v. Nueva, 229 F.3d 853 (9 th Cir. 2000). John Deere is a clear example of the type of case in which coverage has been expanded. There, a bus was rear-ended by a semi. The accident resulted in a total loss of the bus and personal injuries to the bus driver. The Court sought to decide whether the MCS-90 provided a duty to indemnify a permissive user of the semi. In that case, the tractor trailer was owned by the driver and another individual. They were uninsured. However, the trailer was insured by John Deere. The policy covering the trailer contained the MCS-90 endorsement. The court classified the tractor as a non-scheduled vehicle under the trailer policy. The John Deere court looked to the policy behind the MCS-90 endorsement and found that one policy was to avoid, through inadvertence or otherwise some vehicles being left off the

31 policy, to the detriment of the public. The court found that, under the MCS-90, the policy cannot limit coverage to those vehicles listed in the policy. John Deere at 859. The court found that the MCS-90 negates a limitation that only users of covered autos are insureds. Id. However, since the purpose of the endorsement is to protect the public at large, its terms usually will not be read broadly in disputes between carriers. For example, if there is more than one carrier potentially providing coverage, the MCS-90 endorsement generally will not be read to so that the MCS-90 carrier is primary to other carriers. See Occidental Fire & Cas. Co. of North Carolina v. Interstate Ins. Co., 804 F.2d 983 (7 th Cir. 1986), Carter v. Vangilder, 803 F.2d 189 (5 th Cir. 1986). The endorsement provides that no condition, provision, stipulation,. or limitation contained in the policy shall relieve the insurer from liability. That clause has been interpreted to defeat many coverage limitations, including a denial of coverage due to late notice. Miller v. Harco Nat. Ins. Co., 241 F.3d 1331, 1333 (11 th Cir. 2001) (decision based in part on Georgia state law that insurer is subject to insurance provisions regarding third-party victims, regardless of notice to insurer). The endorsement also is not relevant to disputes strictly between the insurer and the insured, where the claimant has been compensated for the loss. A key example is the endorsement's own provision that the insured is obligated to reimburse the insurer for any claim the insurer would not be obligated to make, but for the endorsement. Further, while the endorsement greatly expands the duty to indemnify, it has been held consistently that the policy does not expand the duty to defend. See Harco National Ins. v. Bobac Trucking, Inc., 107 F.3d 733, 734 (9th Cir. 1997); John Deere Ins. Co v. Nueva, 229 F.3d 853, 857 (9 th Cir. 2000). In Harco National v. Bobac, an insurer refused to participate in the defense of a civil action, but did participate towards the indemnification. The court found it undisputed that the MCS-90 did not include a duty to defend. Harco at 735. The court further found that, pursuant to that endorsement, the insured was obligated to reimburse the insurer for amounts expended towards the indemnification. The court found that the reimbursement provision was inconsistent with a duty to defend. Harco at 736. As between the insured and the insurer, all limitations, endorsements, and other policy terms remain in effect. See John Deere Ins. Co. at 857.

32 AVOIDING DUPLICATIONS OF COVERAGE: QUESTIONS OF PRIORITY IN INSURANCE TRUCKING LITIGATION In order to avoid a potential stacking, or duplication of coverage, you must look to the limits of insurance and other insurance policy provisions. A. Policies Issued by Same Company Where trucking and non-trucking use policies are issued by the same company, both the limits of insurance and other insurance policy provisions must be examined. In the typical scenario, the limits of insurance provision will be common to both policies, and will provide that regardless of the number of claims or insureds, the most the insurer will pay is the limit of insurance for liability coverage found in the Declarations. Further, the policies will provide similar other insurance provisions providing that the policies provide pro rata sharing of the loss. Although it has been argued that the other insurance provision effectively provides for stacking of coverage, this argument can be avoided by proper claims handling. Courts have found that pro rata sharing clauses in two different policies are inapplicable where the policies are not intended to cover the same loss, and therefore are not intended to apply on the same basis. See Equity Mutual Ins. v. Insurance Co. of North America, 602 S.W.2d 904 (Mo.App. 1980). Where a company has written both a trucking and a non-trucking use policy, and has paid the policy limits under the non-trucking use policy, the MCS-90 cannot be used to provide a double recovery. The plain language of the endorsement ties the insurer to the amount of the endorsement, and not to the amount of the judgment against the insured. As a result, it is important for the insurer to promptly evaluate the facts, and make a determination as to which policy provides coverage. In seeking too stack policies, the claimant will look to any confusion in that regard as proof that a different risk is covered and that as such, both policies provide coverage. The applicable policy number should be indicated on all relevant

33 correspondence. Further, a denial of coverage letter should be sent on the policy deemed to be factually inappropriate to the loss. B. Policies Issued by different companies Where the policies are written by different companies, the analysis will be strictly one of local law interpreting the "other insurance" provisions. Moreover, even where an insurer has an obligation to indemnify under an MCS-90 endorsement, it is vital to review the policies themselves to determine if any coverage defenses exist. The initial question must be whether each policy provides coverage, and whether that analysis remains true where one insurer is seeking to assert its rights against another insurer. Where the court does find coverage under two. competing policies, the question will then become whether one policy is primary and the other excess. In deciding whether a policy is primary or excess, the court will look to the other insurance provisions. most cases: The ISO form policy contains the following Other Insurance provisions, which are relevant to a. This Coverage Form's liability Coverage is primary for any covered auto while hired or borrowed by you and used exclusively in your business as a trucker and pursuant to operating rights granted to you by a public authority. This Coverage Form s Liability Coverage is excess over any other collectible insurance for any covered auto while hired or borrowed from you by another trucker. *** c. Except as provided in paragraph a. and b. above, this Coverage Form provides primary insurance for any covered auto you own and excess insurance for any covered auto you don't own. *** e Regardless of the provisions of paragraphs a., b. and c. above, this Coverage Form's Liability Coverage is primary for any liability assumed under an insured contract. f. When this Coverage Form and any other Coverage Form or policy covers on the same basis, either excess or primary, we will pay only our share. Our share is the proportion that the Limit of Insurance of our Coverage Form

34 bears to the total of the limits of all the Coverage Forms and policies covering on the same basis. Under those provisions, where a court find that a trucking and non-trucking use policy each provide coverage, it is likely that the non-trucking use, issued to the truck owner, will be found to have primary coverage on the basis of provision c. Further, where the dispute is between insurers regarding which policy is primary, the MCS- 90 cannot be read to expand coverage where one truckers policy excludes coverage, or does not list the subject vehicle. See John Deere Ins. Co. v. Truckin' USA, 122 F.3d 270 (5 th Cir. 1997). In Canal Insurance Co. v. First General Ins. Co., 889 F.2d 604 (5 th Cir. 1989), the court was faced with a situation where Canal Insurance defended litigation and paid judgments pursuant to a reservation of rights. Canal claimed that the tractor and trailer were not scheduled autos. Pursuant to the MCS-90 endorsement, Canal acknowledged its duty to indemnify, but sought to be reimbursed by First General, who also denied that the vehicle was a schedule vehicle under its policy. Initially, the court agreed that the tractor and trailer were not listed on the Canal policy. The court concluded that the insuring language did not provide coverage for the accident. Further, the court concluded that the vehicle was a scheduled vehicle under the First General policy. The court reviewed the language of the endorsement and the history of the MCS-90, and concluded that the Canal policy did not provide primary coverage for the accident. Significantly, the court ruled: Where, as here, a policy does not provide coverage for non-listed vehicles except to third-party members of the public through operations of ICC form endorsement BMC 90, the policy provides no coverage for purposes of disputes among insurers over ultimate liability. As a result, the court found that First General s policy provided coverage, and Canal s did not, for purposes of discussion between the two insurers. The court then was faced with the issue of whether, as Canal did not have a duty to defend pursuant to the MCS-90, whether it undertook the defense as a volunteer and as a result was barred from recovery. Applying Mississippi law, but with logic that most courts likely will accept, the court ruled that as First General breached its duty to defend, it could not contest paying the cost of defense.