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Transportation Law Update: A Primer On The MCS-90 Endorsement

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.

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] 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."[2]

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.[3]

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.[4] 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.[5]

Courts generally consider an insurer's obligation under the MCS-90 endorsement as "one of a surety rather than a modification of the underlying policy."[6] This is key to understanding application of the MCS-90, which is "a safety net in the event other insurance is lacking."[7] 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."[8]

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."[9] Once the federally-mandated minimum financial amounts have been satisfied, the endorsement does not apply.[10]

It is important to note that 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."[11] 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.[12]

The majority of circuits also hold that the MCS-90 endorsement does not affect the obligations between joint insurers.[13] "The rationale behind the majority view is that the purpose of the MCS-90 endorsement, like the [MCA], is to protect the public, and therefore, the MCS-90 endorsement does not control the allocation of loss among insurers."[14] As the Fifth Circuit explained:

[The MCS-90] endorsement accomplishes its purpose by reading out only those clauses in the policy that would limit the ability of a third party victim to recover for his loss. But there is no need for or purpose to be served by this supposed automatic extinguishment of [a] clause insofar as it affects the insured or other insurers who clamor for part or all of the coverage. Instead, the MCS-90 states 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." Therefore,…if an insurer's policy contained the [MCS-90] endorsement, it would not render the insurer primary as a matter of law. [T]he [MCS-90] endorsement is not implicated for the purpose of resolving disputes among multiple insurers over which insurer should bear the ultimate financial burden of the loss.[15]

Another issue that often arises in relation to the MCS-90 is 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 can pay up to the face limit of the policy and seek reimbursement for that amount.[16]

In addition to the above, the general rule is that the MCS-90 endorsement gives the insurer the right to seek reimbursement from the insured for "any payment" the insurer is required to pay only by reason of the endorsement, which the insurer would not otherwise have to pay under the policy. Some exceptions to this rule exist, however. For instance, a California court held that a trucking company's liability insurer was required to reimburse the injured party's insurer for payment of uninsured motorist benefits.[17] Similarly, an Oklahoma court held that the MCS-90 is triggered when the underlying policy applies to the claim but is "grossly inadequate to cover a plaintiff's damages."[18]

A thorough understanding of the MCS-90 endorsement and its application is important in determining whether an insurer is on the hook for its insured when the latter injures a member of the public. Many courts have rendered contradictory opinions regarding the endorsement, adding to the confusion among insured motor carriers, their insurance carriers, and the public alike.

[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] 49 C.F.R. §§ 387.301(a), 387.7.

[3] Id. at § 387.9.

[4] Yeates, 584 F.3d at 875, citing Canal Ins. Co. v. Distrib. Servs., Inc., 320 F.3d 488, 489 (4th Cir. 2003).

[5] See Wells v. Gulf Ins. Co., 484 F.3d 313, 315 (5th Cir. 2007).

[6] Yeates, 584 F.3d at 878.

[7] 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).

[8] Yeates, 584 F.3d at 878 (emphasis in original).

[9] 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).

[10] Id. at 879.

[11] T.H.E. Ins. Co. v. Larsen Intermodal Servs., Inc., 242 F.3d 667, 677 (5th Cir. 2001).

[12] 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).

[13] See Canal Ins. Co. v. Distribution Servs., Inc., 320 F.3d 488, 492 (4th Cir. 2003) ("The federal courts of appeals which have considered the issue now before us are split, with the majority holding that the MCS-90 endorsement does not control the allocation of loss among insurers."); Carolina Cas. Ins. Co. v. Underwriters Ins. Co., 569 F.2d 303, 313 (5th Cir. 1978) ("ICC policy factors are frequently determinative where protection of a member of the public or a shipper is at stake, but those factors cannot be invoked by another insurance company which contracted to insure a specific risk and which needs no equivalent protection."); see also T.H.E. Ins. Co. v. Larsen Intermodal Servs., Inc., 242 F.3d 667, 672 (5th Cir. 2001); Carolina Cas. Ins. Co. v. Transport Indem. Co., 533 F.Supp. 22, 25 (D.S.C. 1981), aff'd, 676 F.2d 690 (4th Cir. 1982); Travelers Ins. Co. v. Transport Ins. Co., 787 F.2d 1133, 1140 (7th Cir. 1986).

[14] Canal Ins. Co. v. Distrib. Servs., Inc., 320 F.3d 488, 492 (4th Cir. 2003).

[15] T.H.E. Ins. Co. v. Larsen Intermodal Servs., Inc., 242 F.3d 667, 673 (5th Cir. 2001) (internal quotation marks and citations omitted) (second alteration in original).

[16] 466 F.3d 450, 451 (6th Cir. 2006).

[17] 203 Cal.App.4th 1458, 138 Cal.Rptr.3d 363 (Cal.Ct.App. [1st Dist.] 2012, rev. denied).

[18] 2017 WL 2080270, at *3 (W.D. Okla. May 12, 2017).