ARE INDEPENDENT CONTRACTORS COVERED: A REVIEW OF MOTOR CARRIERS FINANCIAL RESPONSIBILITY

Transcription

1 ARE INDEPENDENT CONTRACTORS COVERED: A REVIEW OF MOTOR CARRIERS FINANCIAL RESPONSIBILITY Seth G. Gausnell Rabbitt, Pitzer & Snodgrass, P.C. 100 South Fourth Street, Suite 400 St. Louis, Missouri DOC;11

2 Seth Gausnell received a B.S. in Business Administration from the University of Kansas at Lawrence in 1983 and received his J.D. in 1985 from Saint Louis University Law School. He was admitted to the Bar in Missouri in 1986; the Bar in Kansas in 1987; and the Bar in Illinois in He is also admitted to practice in the United States District Court in both the Eastern District of Missouri and the Southern District of Illinois, as well as the United States Court of Appeals for the Eighth Circuit. His Martindale-Hubbell rating is AV. He is a member of the Bar Association of Metropolitan St. Louis, The Missouri Bar, Illinois State Bar Association and Missouri Organization of Defense Lawyers. He participated in the Missouri Organization of Defense Lawyers Trial Academy in 1993 and the International Association of Defense Counsel's Trial Academy in Boulder, Colorado in 1994 and has lectured at seminars on transportation liability and broker/agent liability DOC;12

3 I. INTRODUCTION Traditionally, an employer is not liable for the negligent acts of an independent contractor. However, that tradition does not necessarily apply to the interstate trucking industry. As we will examine, the federal government has been regulating this industry for some time, and in exercising its regulatory powers deemed an independent contractor as a statutory employee, at least in the world of interstate motor carriers. This topic will seek to address coverage issued with regards to independent contractors, and examine the reasoning why the federal government enacted the laws and regulations it did. II. COMMON LAW To understand why the federal government amended the Motor Carrier Act in such a manner, one must examine the common law regarding independent contractors and vicarious liability. An independent contractor, at common law, is an individual who in the pursuit of an independent business, undertakes to do a specific piece of work for other persons, using his own means and methods, without submitting himself to their control and all of its details. See Consumers Country Mutual Insurance Co. v. PW & Sons Trucking, Inc., et al., 307 F.3d 362 (Fifth Cir. 2002), quoting Thompson v. Travelers Indem. Co. of R.I., 789 S.W.2d 277, 278 (Tex. 1990). The distinction between an employee and an independent contractor at common law is important when assessing liability for a negligent act or omission. An employer is vicariously liable through the theory of respondeat superior for the negligent acts and/or omissions of its employees, acting in the course and scope of his or her employment. State ex rel. McHaffie v. Bunch, 891 S.W.2d 822, 826 (Mo. 1995). However, the same is generally not true when the worker is an independent contractor. Typically, an employer is not vicariously liable for the negligent acts or omissions of the independent contractor. Zueck v. Oppenheimer Gateway Properties, Inc., 809 S.W.2d 384 (Mo. 1991). In Missouri, an employer is liable for the negligent action of an independent contractor only when the employer did not exercise reasonable care in hiring a competent independent contractor. Lonero v. Dillick, et al., 208 S.W.3d 323 (Mo.Ct.App. 2006). An exception to this general rule is if the injury arises from an inherently dangerous activity. Id. In said situation, the employer will be liable for the independent contractor s negligence. Id. In determining whether a worker is an independent contractor or an employee, one must look to the common law of the jurisdiction in which he or she is practicing. Texas, for example, holds that the test to determine whether a worker is an employee or an independent contractor is whether DOC;13

4 the employer has the right to control the progress, details and methods of operations of the employee s work. See Consumers Country Mutual Insurance Co., 307 F.3d 362. III. FEDERAL MOTOR CARRIER ACT The Federal Motor Carrier Act of 1980 was enacted into law as a result of Congress desire to limit confusion as to liability arising from accidents caused by leased vehicles. James R. Lilly, Insurance Coverage and Conflicting Interpretations of the MCS-90, Defense Counsel Journal October Despite some bureaucratic changes and restructuring, the regulations have remained largely intact since Id. In the trucking industry, owner/operators are usually not licensed as motor carriers but perform services under contract to licensed carriers. Commodity Carriers, Inc. v. Federal Motor Carrier Safety Administration, 434 F.3d 604 (DC 2006), citing Study of Interstate Commerce Commission Regulatory Responsibilities Pursuant to Section 210(a) of the Trucking Industry Regulatory Reform Act of 1994, 1994 WL , at *52, (internal quotations omitted). They act as independent contractors who lease their equipment with themselves as drivers to trucking companies for a period of time. Id. It is common practice for motor carriers who operate under the authority of the ICC, i.e. authorized carriers, to lease equipment from independent contractors who are not regulated by the ICC. Prestige Casualty Company v. Michigan Mutual Insurance Company, 99 F.3d 1340, 1342 (6th Cir. 1996). An authorized carrier is a person authorized to engage in the transportation of property as a common or contract carrier under the provisions of 49 U.S.C , 10922, 10923, 10928, 10931, or C.F.R (a). Prior to the enactment of the original Motor Carrier Act, and all of its amendments, motor carriers utilized the traditional, common law theory of vicarious liability with regards to the employer/independent contractor relationship to avoid safety regulations governing equipment and drivers. Prestige Casualty Company, 99 F.3d at Typically, motor carries would hire these independent contractors instead of using their own vehicles or employees. As the drivers were not employees, the motor carrier would not be vicariously liable under common law for the negligent acts or omissions of the driver. This created confusion among the general public as to which entity was financially responsible for injury resulting from operation of the commercial vehicle. Id. As seeing these practices as a threat to the trucking industry and against the public s interest, Congress expanded the administrative rule making power of the ICC to promulgate regulations governing all aspects of the non-owned equipment by authorized carriers. Id. at Therefore, Congress gave the power to the ICC to eliminate the motor carrier s DOC;14

5 common law liability protection and allowed them to mandate that the motor carrier be responsible for the all vehicles in its employ regardless of common law distinctions. Federal law requires that if an authorized carrier enters into a lease with an independent contractor, the lease shall hold that the authorized carrier is an exclusive possession, control, and use of the equipment for the duration of the lease, and assumes complete responsibility for the operation of the equipment for the duration of the lease. 49 U.S.C ; 49 C.F.R The Motor Carrier Act also holds that 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 a person resulting from the negligent operation, maintenance or use of motor vehicles under the carrier s license. 49 U.S.C ; 49 C.F.R To satisfy the financial responsibility requirement, an authorized carrier must procure a bond, insurance policy, or other type of security sufficient to pay, not more than the amount of the security, for each final judgment against the carrier for bodily injury to, or death of, an individual resulting from the negligent operation, maintenance, or use of its motor vehicles. Id. The purpose of these regulations is 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. James R. Lilly, Insurance Coverage and Conflicting Interpretations of the MCS-90, Defense Counsel Journal October Where a carrier establishes proof of financial responsibility through an insurance policy, the MCS-90 endorsement must be included. 49 CFR The Federal government has required that all insurance policies issued to motor carriers include a MCS-90 Endorsement. Id. The MCS- 90 Endorsement states, in part: 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 or in any territory authorized to be served by the DOC;15

6 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. Id. The endorsement mandates that the policy shall cover any vehicle used by the motor carrier regardless of whether the vehicle is actually owned by the motor carrier. Along with the endorsement, a definition of an employee relevant to the Motor Carrier Law was codified in a further attempt to eliminate the motor carriers attempts to circumvent liability. An employee is defined as any individual, other than an employer, who is employed by an employer and who in the course of his or her employment directly affects commercial motor vehicle safety. 49 CFR The section goes on to state that the term employee includes a driver of a commercial motor vehicle (including an independent contractor while in the course of operating a commercial motor vehicle), a mechanic, and a freight handler. Id. By eliminating the common law employee/independent contractor distinction, the definition prevents the motor carriers from using the independent contractor relationship to avoid liability exposure at the expense of the public. IV. THE EXTENT OF THE MCS-90 ENDORSEMENT The MCS-90 Endorsement does not extend as far as some courts would like. See Wellman v. Liberty Mutual, 496 F.2d. 131, 139 (8th Cir 1974). It will generally not expand who is an insured under the policy. James R. Lilly, Insurance Coverage and Conflicting Interpretations of the MCS-90, Defense Counsel Journal October The motor carrier is vicariously liable to the general public as a result of the negligent acts of its employee, including an independent contractor, when operating a commercial vehicle under the motor carrier s ICC number. Id. Most courts have held that the coverage stopped there, and that no coverage is directly afforded to the independent contractor. Id. Therefore, to avail oneself of the mandated insurance coverage, a member of the general public seeking legal redress would need to specifically name the motor carrier as a defendant. While this opinion is the majority, some jurisdictions found that limiting the MCS-90 Endorsement only to the named insured would defeat the purpose of the endorsement. Id. In Wellman v. Liberty Mutual, plaintiff dismissed the motor carrier from his state court action for personal injury, and elected to continue his action against the independent contractor, among others. Wellman, DOC;16

7 F.2d. at 139. Following a default judgment against the independent contractor, plaintiff sought to enforce the judgment against the motor carrier. Id. The Eighth Circuit found that since there was no judgment of liability against the motor carrier, the policy does not extend the insurance coverage solely to the independent contractor. Id. Plaintiff would have succeeded against the motor carrier through vicarious liability, but the motor carrier was not a party to the suit. Id. The Eighth Circuit noted with dismay that the law did not require that coverage be extended to the driver at all times, but was limited to the provisions of the act. Id. The motor carrier s policy is not the primary insurance by matter of law merely as a result of the MCS-90 Endorsement. 569 F.2d 304. In Carolina Casualty Ins. Co. v. Underwriters Ins. Co., an independent contractor was involved in an accident as a result of his own negligence. Id. The insurer for the independent contractor attempted to escape liability by claiming that the motor carrier s insurance was primary as a matter of law pursuant to the MCS-90 Endorsement. Id. at 312. The Court rejected the independent contractor s argument stating that the purpose of the endorsement was to assure the public and shippers that the certified carriers have independent financial responsibility. Id. Similarly, the Missouri Court of Appeals found that no public policy reason exists to rule that the MCS-90 Endorsement automatically makes a policy afford primary coverage when the only question is which company should recompense the injured party as per the two companies independent agreement. See Great West Casualty Company v. Mallinger Truck Line, Inc., et al., 640 S.W.2d 479 (Mo.App.Ct. 1982). The Supreme Court, in Transamerican Freight Lines, Inc. v. Brada Miller Freight Systems, Inc., et. al., held that the control and responsibility requirement does not prohibit an agreement by the independent contractor to indemnify the motor carrier for loss caused by the independent contractor s negligence. Transamerican Freight Lines, Inc. v. Brada Miller Freight Systems, Inc., 423 U.S. 28 (1975). V. TERMINATION OF LEASE TERMINATES VICARIOUS LIABILITY A motor carrier s vicarious liability only arises in the first instance, when there is a lease entered into between the motor carrier and the independent contractor. While this lease is in effect, federal law requires that the motor carrier be completely responsible for said vehicle and maintain a certain level of surety. However, once the lease is terminated, so is any vicarious liability under the Motor Carriers Act. Ross v. Wall Street Systems, et al., 400 F.3d 478, 480 (6th Cir. 2005) DOC;17

8 VI. INDEPENDENT CONTRACTORS CANNOT RECOVER AGAINST MOTOR CARRIERS As noted above, an employee in terms of the Motor Carrier Act is a driver of a commercial motor vehicle (including an independent contractor while in the course and scope of operating a commercial vehicle.) 49 C.F.R The MCS-90 Endorsement provides insurance for liability to the general public, but specifically excludes employees of the motor carrier. 49 C.F.R Therefore, an independent contractor is not covered under the MCS-90 endorsement, and barring some other provision of the policy, is not able to recover for his injuries under the motor carrier s liability policy. In Perry v. Harco National Insurance Company, plaintiff attempts to recover for the wrongful death of her husband, who died while operating a leased vehicle for the defendantmotor carrier. Perry v. Harco National Insurance Company, 129 F.3d 1072, 1073 (9th Cir. 1997). Plaintiff argued that the definition of an employee under the motor carrier act only applied to prevent the motor carrier from using common law to escape liability. Id. Moreover, the definition did not apply when the driver of the commercial vehicle was seeking redress from the motor carrier. Id. The Ninth Circuit rejected plaintiff s argument holding that the law clearly defined an independent contractor as an employee and that the insurance coverage did not extend to employees of the motor carrier. Id. at The Fifth Circuit followed the Ninth Circuit s lead and rejected a similar argument in Consumers County Mutual Insurance Company v. PW & Sons. Consumers County Mutual Insurance Company, 307 F.3d at 363. The Fifth Circuit rejected the notion that the term employee should be given different meanings under an insurance policy depending on the context in which it is used. Id. at 366. Furthermore, the Court went on to state that the policy was not ambiguous as to the term employee. Id. at 367. VII. CONCLUSION For years, motor carriers attempted to escape liability by leasing vehicles from independent owner/operators and utilizing common law theories of independent contractors and vicarious liability. Noting the threat to the general public, Congress through the Motor Carrier Act mandated that all authorized carriers be financially responsible for any vehicle in its operation, under its license, whether specifically owned by the motor carrier or leased from an owner/operator and for the negligent acts of its employees including independent contractors. To afford oneself of the benefit of the MCS-90 Endorsement, a member of the public injured in an accident must sue the proper party, DOC;18

9 namely the motor carrier. If the independent contractor is sued additionally, and carries additional coverage, a review of the policies must be conducted to determine which insurance is primary. The motor carrier s policy, with the federally mandated MCS-90 endorsement, is not primary as a matter of law. Essentially, the MCS-90 Endorsement was enacted by Congress to ensure that some responsible party is identifiable and financially responsible, and to halt the motor carriers from hiding behind their independent contractors DOC;19