For insurers seeking to boost the bottom line, significant recovery opportunities exist under form MCS-90, the Endorsement for Motor Carrier Policies of Insurance for Public Liability under sections 29 and 30 of the Motor Carrier Act of 1980. What follows below is a discussion of MCS-90, including a historical primer. We will also discuss recovery strategies and practicalities for reimbursing insurers for payments made where the insurer would otherwise have no payment obligations.
In the late 1970s, Congress debated the negative consequences of the trucking industry deregulation. Simultaneously, the Department of Transportation (DOT) conducted a random roadside inspection of commercial motor vehicles traveling on Interstate 80 in Pennsylvania with shocking results─more than half of the commercial vehicles were placed out of service because of a variety of safety violations. As a result of congressional debate and the DOT’s informal study, Congress passed the Motor Carrier Act of 1980 (the Act).
The first regulations regarding financial responsibility were promulgated by the Interstate Commerce Commission (ICC). This explains why financial responsibility endorsements often are referred to as "ICC Endorsements." In 1995, however, Congress abolished the ICC, in part, because of its competing jurisdiction with the DOT. Today, most of the responsibilities, duties, and powers related to motor carrier safety, including administration of financial responsibility laws, are vested with a sub agency of the DOT, known as the Federal Motor Carrier Safety Administration (FMCSA). The changes in oversight had little impact on the substance of the original financial responsibility regulations promulgated by the ICC; only the forms and procedures changed.
The minimum insurance requirements for private and "for hire" motor carriers are set out in title 49 of the Code of Federal Regulations (CFR). Subject to certain exceptions, these regulations stipulate that no motor carrier shall operate a commercial motor vehicle in interstate commerce until the motor carrier has first obtained and has in effect the minimum levels of financial responsibility established by the FMCSA. To obtain U.S. DOT operating authority, a carrier must establish financial responsibility through insurance, bond, or self-insurance with limits that depend on the carriage and the commodity being transported. There are different coverage requirements depending on the gross weight of the vehicle, the cargo being carried (for example, hazardous materials), and whether the carrier is for hire or private.
When a licensed motor carrier leases or borrows a truck and hires a driver, the lessee must assume control and responsibility of the leased equipment for the trip, according to the CFR. Insurance policies of the owner and the operator of the tractor, owner of the trailer or the lessee could be implicated. Thus, a common coverage issue is which policy, among several, responds to the accident. When a negligent operator, owner or lessee appears to lack insurance coverage, however, an understanding of state and federal financial responsibility requirements is vital because these requirements may provide payment to injured parties, irrespective of insurance coverage. It is under this scenario that opportunities for subrogation recovery arise.
Opening the Recovery Door
Motor carriers must meet certain financial responsibility requirements through the purchase of insurance and by filing proof of insurance with the applicable government agencies. Endorsements to trucking insurance policies, for example, evidence a motor carrier meets financial responsibility laws. Under the Act, these endorsements are mandatory.
Specifically, pursuant to the Act and related regulations, a MCS-90 Endorsement must be attached to any liability policy issued to a certified interstate carrier, according to the CFR and Canal Insurance v. A&R Transportation and Warehouse LLC, to comply with the Act’s mandated levels of financial responsibility. The MCS-90 is essentially an endorsement that makes the insurer a surety to the public. As stated in Pierre v. Providence Wash. Insurance Co., “In effect, the endorsement shifts the risk of loss for accidents occurring in the course of interstate commerce away from the public by guaranteeing that an injured party will be compensated even if the insurance carrier has a valid defense based on a condition in the policy.”
Even where there is a valid coverage defense, the MCS-90 Endorsement requires the insurance carrier to defend, and if possible settle, or pay a judgment for bodily injury claims. Following settlement or payment of a judgment, the insurer can seek reimbursement. If the insured is a viable entity and going concern, but denies request for repayment, pursuant to MCS-90 where there is no insurance coverage afforded, then subrogation recovery potential arises.
The peculiar nature of the MCS-90 endorsement grants the judgment creditor the right to demand payment directly from the insurer, and simultaneously grants the insurer the right to demand reimbursement from the insured, according to Travelers Indemnity Co. of Ill. v. Western American Specialized Transportation Services Inc. Though a right of reimbursement is triggered where there is no coverage under the policy, MCS-90 does not alter the existing policy obligations between the insured and the insurer. In T.H.E. Insurance Co. v. Larsen Intermodal Services Inc., due to provisions of MCS-90, the court granted summary judgment for the insurer and required the insured to reimburse the settlement monies paid by the insurer to settle a personal suit that involved a truck that the insured did not disclose, list, or request for inclusion on the insurance policy before the accident occurred. Reimbursement obligations exist whether the insurer pays a final judgment or settlement amount. Once the insurer has settled its insured’s obligation, it is entitled to reimbursement.
Key language from MCS-90 includes a mandatory payment requirement for the insurer and a reimbursement from the insured provision, where no coverage is afforded. It stipulates, “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 the Motor Carrier Act of 1980.” This is so 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.
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. It is also agreed that the insured will reimburse 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 the endorsement.
Should the subrogating insurer be forced into litigation against its insured, there are cases across the country to be referenced where courts have granted judgment against an insured for reimbursement under the MCS-90 Endorsement. Case authorities for enforcement of the MCS-90 Endorsement’s reimbursement policy include Northland Insurance Co. v. N.H. Insurance Co. In this case because the subject truck was not listed on the insurance policy, it was not covered under the insurance policy and reimbursement was required. In Harco National Insurance Co. v. Bobac Trucking Inc., the insured, whose truck was not listed on the insurance policy, was obligated to reimburse its insurer for settlement monies paid on a personal injury lawsuit. According to Canal Insurance Co. v. Distribution Services Inc., the insurer that pays a claim brought against an insured whose accident-involved truck was not listed on the insurance policy is entitled to reimbursement. In Powers v. Meyers, the insurer is obligated to settle a bodily injury claim arising from an accident, but the insured is obligated to reimburse the insurer for settlement monies paid. Of course the T.H.E. Insurance Co. case, mentioned earlier, is another example.
Have Paper Work in Order
In presenting a MCS-90 Endorsement, ensure that the insurance policy contains a specific reference to the incorporation of the MCS-90 Endorsement. The policy binder should include the applicable MCS-90 Endorsement form, signed by both the insured and insurer’s representative, with the correct policy number and policy period included on the endorsement.
Ensuring these details are clearly met only proves to strengthen the insurer’s case, making issues more clear-cut when the insured fails to do what is required under the policy, such that no coverage is ultimately afforded. These finer details are important because construction of the provisions of an insurance policy is a question of law. 1 A court’s primary objective is to ascertain and give effect to the intent of the parties to the contract, while construing the policy as a whole and “tak[ing] into account the type of insurance purchased, the nature of the risks involved, and the overall purpose of the contract,” according to the findings of Travelers Insurance Co. vs. Eljer Manufacturers Inc. If the words of a policy are clear and unambiguous, then “a court must afford them their plain, ordinary, and popular meaning,” states the court in Allianz Insurance Co. v. Guidant Corp. The court “will not strain to find ambiguity in an insurance policy where none exists,” as explained in McKinney v. Allstate Insurance Co. and Crum &Forster Managers Corp.
Although some courts have incorporated MCS-90 Endorsement into policies as a matter of law, not all have. Prestige Casualty Co. v. Mich. Mutual Insurance Co.; Travelers Insurance Co. v. Transportation Insurance. Co.; and Hagans v. Glen Falls Insurance Co. are solid examples.
Waters v. Miller, however, held that a Florida based truck, with a catastrophic accident in Georgia, was not covered by MCS-90 even though the truck was clearly involved in interstate transportation. The reason being that the proponent had not presented evidence to clearly establish that the insurer knew or should have known the driver was engaged in interstate travel. At least one other court, Howard v. Quality Xpress Inc., while not incorporating the endorsement, indicated it may be read into a policy if the insurer knew it was insuring an interstate motor carrier.
An insurer can be proactive and attempt to settle a claim, rather than risk a more significant trial verdict, and still seek a reimbursement under MCS-90.
In Illinois, for example, courts have held that if an opportunity appears to settle within the policy limits, thereby protecting the insured from excess liability, then the insurer must faithfully consider it, giving the insured’s interests at least as much respect as its own. In La Rotunda v. Royal Globe Insurance Co., the insured admits that the insurer paid a settlement of its claim brought by a third-party as required by statute and within the policy limits, arguments attacking the reasonableness of that settlement payment amount are not necessarily available to the defendant-insured. “If the insurer must pay a final judgment under MCS-90, there is no reason why it could not seek a favorable settlement rather than risk litigating to a final judgment that could be more onerous,” according to T.H.E. Insurance Co. case.
Moreover, “the reimbursement provision of the MCS-90 permits the insurer to recover any payment, not just final judgments, that the insurer would not have been obligated to pay except for the agreement contained in the MCS-90.”
Subrogating insurers can maximize recoveries by mining MCS-90 Endorsement claims. Where no coverage exists, the reimbursement opportunity comes alive. Insurers should be mindful of opportunities to seek reimbursement from their insureds for monies paid to satisfy a judgment or settlement where there are no underlying coverage obligations. Like all recovery pursuits, attention to cost-benefit considerations and the collectible assets/“deep pockets” of the target are vital. Upon identifying asset viable insureds facing reimbursement liabilities, MCS-90 recovery potential exists, boosting the subrogation bottom-line.
1 Travelers Insurance Co. v. Eljer Manufacturing Inc., 197 Ill. 2d 278, 292 (2001), citing American States Insurance Co. v. Koloms, 177 Ill. 2d 473, 479-80 (1997); Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 108 (1992)