MCS-90 Endorsements Provide Significant Subrogation Recovery Opportunities
October, 2010
by Dean S. Rauchwerger and Michael S. Errera and Allison K. Ferrini
Introduction
In the late 1970s, Congress began a debate about the negative consequences resulting from deregulation of the trucking industry. Simultaneously, the Department of Transportation conducted a random roadside inspection of commercial motor vehicles traveling on I-80 in Pennsylvania with shocking results -- more than half of the commercial vehicles were placed out of service due to a variety of safety violations. Motor Carrier Act of 1980 (PL 96-296), House Report No. 96-1069 dated June 3, 1980, p. 43. As a result of congressional debate and the DOT's informal study, Congress passed The Motor Carrier Act of 1980, 49 U.S.C. § 13906, (hereinafter "the Act").
Analysis
Under the Act, regulations require an MCS-90 Endorsement be attached to any liability policy issued to a certified interstate carrier (49 C.F.R. § 387.1), Canal Ins. v. A & R Transp. and Warehouse, LLC, 357 Ill. App. 3d 305, 311 (1st Dist. 2005), 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. "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." Pierre v. Providence Wash. Ins. Co., 784 N.E.2d 52, 53-54 (N.Y. 2002).
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 of the payment. If the insured is a viable entity and going-concern (not bankrupt by the litigation) but denies request for repayment pursuant to MCS-90 where there is no insurance coverage afforded, subrogation recovery potential arises.
Should the subrogating insurer be forced into litigation against its insured, cases across the country 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 Ins. Co. v. N.H. Ins. Co., 63 F. Supp. 2d 128 (D.N.H. 1999) (since the subject truck was not listed on the insurance policy, it was not a covered auto under the insurance policy and reimbursement was required under MCS-90); Harco Nat'l Ins. Co. v. Bobac Trucking, Inc., 107 F.3d 733 (9th Cir. 1997) (insured, whose truck was not listed on the insurance policy, was obligated under MCS-90 to reimburse its insurer for settlement monies paid on a personal injury lawsuit); Canal Ins. Co. v. Distribution Servs., Inc., 176 F. Supp. 2d 559 (E.D. Va. 2001) (insurer that pays a claim brought against an insured whose accident-involved truck was not listed on the insurance policy is entitled to reimbursement from the insured under MCS-90); T.H.E. Ins. Co. v. Larsen Intermodal Servs., Inc., 242 F.3d 667 (5th Cir. 2001) (due to provisions of MCS-90, court granted summary judgment for insurer and required insured to reimburse the settlement monies paid by 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 and reimbursement obligations exist whether insurer pays a final judgment or settlement amount); and Powers v. Meyers, 655 N.E.2d 1358 (Ohio Ct. App. 1995) (insurer is obligated to settle a bodily injury claim arising from an accident, but the insured is obligated under MCS-90 to reimburse the insurer for settlement monies paid).
Practice Point 1: in presenting an MCS-90 Endorsement ensure that the insurance policy contains a specific reference to the incorporation of the MCS-90 Endorsement and that policy binder includes 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 and make 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 points and details are important since the construction of the provisions of an insurance policy is a question of law. Travelers Ins. Co. v. Eljer Mfg., Inc., 197 Ill. 2d 278, 292 (2001), citing Am. States Ins. Co. v. Koloms, 177 Ill. 2d 473, 479-80 (1997); Outboard Marine Corp. v. Liberty Mut. Ins. Co., 154 Ill. 2d 90, 108 (1992). A court's primary objective is to ascertain and give effect to the intent of the parties to the contract, Eljer Mfg., 197 Ill. 2d at 292, 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." Id.; see also Clarendon Am. Ins. Co. v. 69 W. Washington Mgmt. LLC, 374 Ill. App. 3d 580, 585 (1st Dist. 2007). If the words of a policy are clear and unambiguous, "a court must afford them their plain, ordinary, and popular meaning." Id. at 292-93 (emphasis in original); Outboard Marine, 154 Ill.2d at 108; Allianz Ins. Co. v. Guidant Corp., 387 Ill. App. 3d 1008, 1027 (2d Dist. 2008). The court "will not strain to find ambiguity in an insurance policy where none exists." Id. at 293, citing McKinney v. Allstate Ins. Co., 188 Ill. 2d 493, 497 (1999); see also Crum & Forster Mgrs. Corp. v. Resolution Trust Corp., 156 Ill.2d 384, 391 (1993).
Although some courts have incorporated Endorsement MCS-90 into policies as a matter of law, not all have. See Prestige Cas. Co. v. Mich. Mut. Ins. Co., 99 F.3d 1340, 1348 n. 6 (6th Cir. 1996); Travelers Ins. Co. v. Transp. Ins. Co., 787 F.2d 1133, 1139 (7th Cir. 1986); Hagans v. Glen Falls Ins. Co., 465 F.2d 1249, 1252 (10th Cir. 1972); But see, Waters v. Miller, 564 F.3d 1355 (11th Cir. 2009)(held that a Florida based truck, with a catastrophic accident in Georgia, was not covered by an MCS-90 even though involved the truck was clearly involved in interstate transportation because the proponent had not presented evidence to clearly establish the insurer knew or should have known the driver was engaged in interstate travel). At least one other court, while not incorporating the endorsement, indicated it may be read into a policy if the insurer knew it was insuring an interstate motor carrier. See Howard v. Quality Xpress, Inc., 989 P.2d 896, 900 (N.M. 1999).
Practice Point 2: 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, the insurer must faithfully consider it, giving the insured's interests at least as much respect as its own. La Rotunda v. Royal Globe Ins. Co., 87 Ill. App. 3d 446 (1980). Where the defendant-insured admits that the plaintiff-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. See, e.g., Krol, 324 Ill. App. at 485-86. "If the insurer must pay a final judgment under the 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." T.H.E. Ins. Co. v. Larsen Intermodal Servs. Inc., 242 F.3d 667, 676 (5th Cir. 2001). 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." Id.
If you have any questions on pursuing subrogation recoveries under MCS-90 endorsements, please contact Dean (drauchwerger@clausen.com), Michael (merrera@clausen.com) or Allison (aferrini@clausen.com).
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