The Motor Carrier Act/MCS-90 Endorsement Duty to Defend When No Coverage Exists?

Under the Motor Carrier Act of 1980 ("the Act"), no motor carrier shall operate a motor vehicle unless the carrier has obtained minimum levels of financial responsibility[1] through insurance or other forms for bodily injury or death to any person due to the negligent operation, maintenance, or use of a motor vehicle in interstate travel.  The regulations and endorsements were created in an attempt to stem what certain people considered to be ongoing abuse in the trucking industry.  As the 9th Circuit Appellate Court explained, the Act's purpose was to protect members of the public against uninsured trucks.[2]  That purpose is an important one, as Court opinions are often far-reaching in their attempts to protect the public at large, but conversely, may take a more narrow view of the policy and endorsements in litigation when limited to insurers and motor carriers.  One of these areas that will be discussed below is whether an insurer must provide a defense to litigation for the motor carrier when they are withholding insurance coverage.

Proof of compliance with the Act is typically done through a surety bond, self-insurance program, or an MCS-90 endorsement.  An MCS-90 is an endorsement to insurance policies covering for-hire interstate transportation of goods or passengers which is intended to allow the to comply with the minimum financial responsibility requirements under federal statutes and regulations.  Under the endorsement, interstate transportation vehicles and drivers are "always covered" by a minimum sum to satisfy claims of injured plaintiffs even where the insurance company would normally withhold coverage due to an “uncovered auto” or “unlisted driver.”  In other words, the MCS-90 provides an injured plaintiff a pocket for recovery when the insurance policy at play would otherwise not provide coverage to the insured motor carrier.

What Must Occur for MCS-90 to Apply?

For the MCS-90 endorsement to apply, the following must occur:

1.       There must be no coverage under the insurance policy;
2.       There must be a judgment entered against the insured motor carrier;
3.       The judgment must be a “final judgment” for “negligence in operation of a motor vehicle;”
4.       There must be no source of recovery for the injured party from the insured motor carrier;
5.       The Claimant must be a third party that incurred personal injury or property damage; and
6.       The subject vehicle must have been being used in interstate commerce and the accident must have occurred in the United States.

Does the MCS-90 Endorsement Provide a Duty to Defend?

The MCS-90 endorsement does not, in and of itself, require the insurer to defend the insured motor carrier, but it also does not negate a separate duty to defend which exists under the terms of the policy.  Specifically, the endorsement provides that “no condition, provision, stipulation, or limitation contained in the policy” shall relieve the insurer from liability.  In other words, the MCS-90 endorsement requires insurers to pay judgments, but it does not create a duty to defend if no such duty otherwise exists under the policy.[3]  While the endorsement greatly expands the duty to indemnify, it has been consistently held that the policy does not expand the duty to defend.[4]  If the policy requires the insurance carrier to provide a defense, one should be provided as if there is insurance coverage.

In Harco National v. Bobac, the nation's most widely-cited opinion on this issue, an insurer refused to participate in the defense of a civil action, but did participate towards the indemnification. The court found that the MCS-90 did not include a duty to defend.  As between the motor carrier and the insurer, all limitations, endorsements, and other policy terms remain in effect.[5] This judicial intrepratation has been quoted and adopted across the Circuits, including the Fifh Circuit covering Texas.[6]  The 5th Circuit in Ooida Risk Retention Grp., Inc. v. Williams opined that a court should look only to the insurance policy to determine if the duty to defend existed as MCS-90 did not create any such duty.[7]

But if the policy does not require a defense, should the insurance company still provide one?  A gratuitous defense is often the best course of action for the insurance company.  If the insurer chooses to withhold a defense, it runs the risk of the motor carrier allowing a default judgment or consenting to a plaintiff-friendly judgment.  In the event of such a judgment, the insurance company may be on the hook for a significant sum under the judgment or the minimum coverage requirements if the plaintiff is able to prove up damages that meet or exceed the federal floor.  The insurer could find themselves satisfying a large judgmenteven though the insured motor carrier had strong liability defenses.  Following a defense-oriented procedure should enable the insurer to effectively minimize overall exposure.  However, should the insurer choose to withhold a defense from the motor carrier, there is no basis for a bad faith claim against a MCS-90 insurer since there is no duty to defend claims, but only a duty to indemnify pursuant to the endorsement.[8]

[1]   For example, the typical transportation of non-hazardous cargo requires minimum coverage of $750,000, while the transporation of more than 16 bus passengers requires $5M in mimuim coverage.

[2]   John Deere Ins. Co. v. Nueva, 229 F.3d. 853 (9th Cir. 2000).

[3]   See Harco National Ins. Co. v. Bobac Trucking, Inc., 107 F.3d. 733, 736 (9th Cir. 1997); National Am. Ins. Co. v. Central States Carriers, Inc., 785 F. Supp. 793, 797 (N.D. Ind. 1992); T.H.E. Ins. Co. v. Larsen Intermodal Services, 242 F.3d. 667 (5th Cir. 2001).

[4]   Id.

[5]   See John Deere Ins. Co. at 857.

[6]   See Ooida Risk Retention Grp., Inc. v. Williams, 579 F.3d. 472 (5th Cir. 2009); see also  T.H.E. Ins. Co. at 677.

[7]   See Ooida Risk Retention Grp., Inc. at 469.

[8]   See National R.R. Passenger Corp. (Amtrak) v. TIG Ins. Co., 178 Fed. Appx. 695 (9th Cir. 2006).

insurance coverage, sriddle