The MCS-90 endorsement is one means by which an interstate motor carrier can demonstrate compliance with minimum financial requirements established by federal statute and regulations. The application of this endorsement by the courts, however, has caused a great deal of confusion and debate. This paper will address the MCS-90 endorsement; when and how it applies; and other specific issues arising thereunder.
The Motor Carrier Act of 1980
Congress passed the Motor Carrier Act of 1980 (the "MCA") which, in addition to deregulating the trucking industry and reducing barriers to entry, addressed safety issues and financial responsibility for trucking accidents.1 In particular, there was concern regarding the growing use of leased or borrowed vehicles by motor carriers to avoid financial responsibility for accidents occurring during transport in interstate commerce.2 Accordingly, in order for a "motor carrier" to operate as such, the MCA requires proof of financial responsibility demonstrating the motor carrier is "adequately insured in order to protect the public from risks created by the carrier['s] operations."3 The minimum level of financial responsibility requirements only apply to "for-hire carriers operating motor vehicles transporting property in interstate or foreign commerce" and motor carriers transporting hazardous materials.4
The MCA mandates that a commercial motor carrier may operate only if registered to do so, and registration is contingent, in part, upon the carrier's compliance with minimum financial responsibility requirements. Federal regulations require interstate carriers to maintain insurance or another 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."5
The federal regulations set forth the minimum amount of financial responsibility coverage an interstate motor carrier must maintain: (1) at least $750,000 for vehicles transporting non-hazardous cargo; (2) $1 million for those transporting oil and certain hazardous substances; and (3) $5 million for other hazardous substances and radioactive materials.6
An interstate motor carrier can establish proof of financial responsibility in one of three ways: (1) an MCS-90 endorsement; (2) a surety bond; or (3) self-insurance.7 Most interstate trucking companies obtain the MCS-90 endorsement, which was designed to eliminate the possibility of a coverage denial based on limiting provisions in the policy. The endorsement is only required when an insurance policy is used to satisfy the MCA.8
The MCS-90 Endorsement as a Surety Obligation
An insurer's obligation under the MCS-90 endorsement is "one of a surety rather than a modification of the underlying policy."9 This is key to understanding application of the MCS-90, which is "a safety net in the event other insurance is lacking."10 The Tenth Circuit has explained that "an MCS-90 insurer's duty to pay a judgment arises not from any insurance obligation, but from the endorsement's language guaranteeing a source of recovery in the event the motor carrier negligently injures a member of the public on the highways."11
The MCS-90 endorsement provides as follows:
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 [MCA] and the rules and regulations of the Federal Motor Carrier Safety Administration.
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 [MCA] 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 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 payment of final judgments resulting from any other accident.
Accordingly, the surety obligation of the MCS-90 endorsement is "one that is triggered only when (1) the underlying insurance policy to which the endorsement is attached does not otherwise provide coverage, and (2) either no other insurer is available to satisfy the judgment against the motor carrier, or the motor carrier's insurance coverage is insufficient to satisfy the federally-prescribed minimum levels of financial responsibility."12 So, for example, if a motor carrier's insurance policy did not cover an accident involving a leased vehicle, then the endorsement would be triggered such that the insurer would be required to pay a final judgment awarded against the insured. Once the federally-mandated minimum has been satisfied as against a particular motor carrier, however, that motor carrier's endorsement does not apply.13 In addition, as discussed in more depth below, the insurer may be entitled to reimbursement from its insured for any payment made under the endorsement.
No Duty to Defend Under the MCS-90
The MCS-90 does not address disputes between the insured and the insurer and, as such, "does not impose a duty to defend on the insurer where such a duty would not have otherwise existed."14 The Fifth Circuit has explained:
[T]he MCS-90 leaves unaffected any provisions of the Policy that do not impact the insurer's duty to compensate injured members of the public...[A]lthough the MCS-90 itself does not impose a duty to defend upon the insurer, neither does it negate such a duty that might fall upon the insurer under the Policy as interpreted according to state law.15
Despite there being no duty to defend under the MCS-90 endorsement, it is wise for the insurer to nonetheless offer a courtesy defense in situations where the MCS-90 might be potentially implicated. That is because if the insured is not afforded a defense, the insurer loses control of its own pocketbook. A shoddy defense may result in liability when no liability would otherwise exist. A default judgment could be entered. The insured could agree to a judgment without the insurer's knowledge. Lots of things can happen. If there is potential liability under the MCS-90, it is better to provide a defense and file a declaratory judgment action to determine the application of the MCS-90.
"Up to" Federally-Mandated Limits
MCS-90 as to Primary Policy Limits
One issue that often arises in relation to the MCS-90 is what happens when the amount of the endorsement exceeds the minimum financial requirements. In that case, the insurer must pay the face amount of the policy. This is based on the language in the endorsement stating that "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." Because the language of the endorsement does not alter the limits of the underlying contract, the insurer must pay up to the policy limits and then seek reimbursement for that amount from its insured.
Assume a motor carrier is required to be insured up to $750,000 but increases its limits to $1 million. If the MCS-90 endorsement is triggered as to that motor carrier, the insurer would have to pay the policy limits of $1 million, even though the amount is greater than the federal requirements. The insurer, however, can then seek to recover the amount paid from its insured-motor carrier. But what if two motor carriers insured by the same insurer are involved in the same collision? Does the endorsement apply to each injured person, thereby increasing the policy limits depending on the number of injured people? No, the MCS-90 applies on a per-accident basis.
This was the situation in Carolina Cas. Ins. Co. v. Estate of Karpov. There, the motor carrier and its driver set off a chain-reaction collision that led to the deaths of four individuals and injured numerous others.16 Carolina Casualty insured both the carrier and the driver with policy limits of $1 million for any one accident. Attached to the policy was an MCS-90 endorsement that likewise provided that Carolina Casualty's maximum liability per accident was $1 million.17
The injured parties argued that the limits applied on a per-person basis because of the following language in the federal regulations: "The security must be sufficient to pay not more than the amount of the security, for 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..."18 Essentially, the injured parties sought $1 million each from the motor carrier based on this language.
The court, however, ruled differently, adopting the reasoning of a case affirmed by the Fourth Circuit on appeal:
With respect to the statute, it provides that "the security must be sufficient to pay, not more than the amount of the security." The clear meaning of this statement is that whatever amount is to be paid will not exceed the amount of the security which has been established by the statute or the policy itself. This would mean that if the actual amount of the security is the minimum required by the statute, then the limit of potential liability for an insurer would be $750,000. However, if as in this case, the insured voluntarily elects to obtain a security in a larger amount, such as $1 million, then that amount becomes the limits of potential liability for the insurer for claims resulting from a single accident.19
The same outcome was reached in another case involving an MCS-90 endorsement that included a limit of $5 million when the requisite minimum limits were only $1.5 million.20 Relying on Karpov, the court held that "the face of the endorsement specifically provides that Plaintiff shall not be liable for amounts in excess of $5,000,000 per accident" regardless of whether the van at issue was specifically described in the policy.21 As such, to the extent the endorsement governed the accident, the $5 million limit applied.22
Importantly, both of these cases involved MCS-90 forms that specifically included the above written-in amounts in the first box below:
Only one case could be found referencing an MCS-90 endorsement that was left blank, but the court's language is only dicta. There, the court looked to the Schedule of Limits contained in the endorsement itself to determine the minimum requirements applicable to the motor carrier.23 However, another court may simply fill in the amount of the policy limits, which could be above the minimum requirements, thereby increasing the exposure to the insurer.
MCS-90 on Excess Policies
What happens when an MCS-90 endorsement is mistakenly attached to an excess policy? If the motor carrier is financially solvent, must the excess carrier step into its shoes and pay based upon the endorsement? Not according to the Sixth Circuit.
In Kline v. Gulf Ins. Co., the motor carrier self-insured for $1 million, which was the minimum amount for the type of cargo it transported.24 The carrier also had an excess policy for $1 million and an umbrella for any claims above $3 million from two insurers. The umbrella policy included an MCS-90 endorsement, which Gulf (the excess insurer) admitted was a mistake because the motor carrier self-insured up to the minimum requirements.
Kline obtained a $3.2 million judgment but could not collect from the self-insured motor carrier because it declared bankruptcy.25 She did, however, collect $1 million from the excess insurer and $200,000 from the umbrella insurer.26 She then sought to collect the $2 million that remained unsatisfied from Gulf, arguing that the MCS-90 operated to satisfy that portion of the unpaid judgment.27 Essentially, Kline argued that the endorsement increased Gulf's liability by amending its insurance policy.28
The Court, however, concluded that the MCS-90 endorsement was inapplicable, in part because "the purpose of the [MCS-90] endorsement is to give full security for protection of the public up to the limits prescribed by [federal regulation]."29 Because the carrier self-insured to the minimum regulatory amount, the endorsement's "public policy purpose was not implicated." As Kline had already collected $1.2 million of the judgment, the recovery exceeded the minimum level of financial responsibility. Accordingly, the purposes underlying the MCA and the regulatory regime had been served, and the MCS-90 did not operate to make Gulf liable on any amount its policy did not otherwise mandate.30
1 See Nat'l Specialty Ins. Co. v. Martin-Vegue, 644 Fed.App. 900, 906 (11th Cir. 2016), citing Carolina Cas. Ins. Co. v. Yeates, 584 F.3d 868, 873 (10th Cir. 2009).
2 See Canal Ins. Co. v. Distribution Servs., 320 F.3d 488, 489 (4th Cir. 2003).
3 Yeates, 584 F.3d at 875; see also 49 U.S.C. § 31139(b), (f); 49 C.F.R. § 387.7(a).
4 49 C.F.R. § 387.3.
5 49 C.F.R. §§ 387.301(a), 387.7.
6 Id. at § 387.9.
7 Yeates, 584 F.3d at 875, citing Canal Ins. Co. v. Distrib. Servs., Inc., 320 F.3d 488, 489 (4th Cir. 2003).
8 See Wells v. Gulf Ins. Co., 484 F.3d 313, 315 (5th Cir. 2007).
9 Yeates, 584 F.3d at 878.
10 Id., citing Canal Ins. Co. v. Carolina Cas. Ins. Co., 59 F.3d 281, 283 (1st Cir. 1995) (holding the endorsement to be a "suretyship by the insurance carrier to protect the public – a safety net – but not insurance relieving... [another] insurer. On the contrary, it simply covers the public when other coverage is lacking."); see also Kline v. Gulf Ins. Co., 466 F.3d 450, 455-56 (6th Cir. 2006) (same); Canal Ins. Co. v. Underwriters at Lloyd's London, 435 F.3d 431, 442 n.4 (3rd Cir. 2006) (same); Harco Nat'l Ins. Co. v. Bobac Trucking Inc., 107 F.3d 733, 736 (9th Cir. 1997); Occidental Fire & Cas. Co. of N.C. v. Int'l Ins. Co., 804 F.2d 983, 986 (7th Cir. 1986).
11 Yeates, 584 F.3d at 878 (emphasis in original).
12 Id. (emphasis added), citing e.g., Kline, 466 F.3d at 455-56; Underwriters at Lloyd's London, 435 F.3d at 442 n.4; Minter v. Great Am. Ins. Co. of N.Y., 423 F.3d 460, 470 (5th Cir. 2005).
13 Id. at 879; see also Herrod v. Wilshire Ins. Co., 499 Fed. Appx. 753, 758 (10th Cir. 2012).
14 T.H.E. Ins. Co. v. Larsen Intermodal Servs., Inc., 242 F.3d 667, 677 (5th Cir. 2001).
15 Id; see also OOIDA Risk Retention Group, Inc. v. Williams, 579 F.3d 469, 478 n. 6 (5th Cir. 2009) (MCS-90 relates solely to duty to indemnify, not duty to defend).
16 559 F.3d 621, 622 (7th Cir. 2009).
18 Id. (emphasis in original).
19 Id. at 624 (emphasis added), citing Hamm v. Canal Ins. Co., 10 F.Supp.2d 539, 544 (M.D.N.C. 1998), aff'd, 178 F.3d 1283 (4th Cir. 1999).
20 See Lincoln Gen. Ins. Co. v. Pacheco, 2012 WL 12539325 (W.D. Tex. March 2, 2012).
21 Id. at *4.
23 Auto-Owners Ins. Co. v. Munroe, 614 F.3d 322, 327 (7th Cir. 2010); but see Canal Ins. Co. v. Shelter Ins. Co., 2010 WL 4447566, at * 4 (D. Idaho Oct. 28, 2010) (questioning whether a blank MCS-90 endorsement attached to a policy failing to provide the federally-required minimum coverage is valid or can be triggered).
24 466 F.3d 450, 451 (6th Cir. 2006).
25 Id. at 452.
27 Id. at 453.
28 Id. at 452.
29 Id. at 455 (emphasis added).
30 Id. at 456.
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