MCS-90 Recovery: Illinois Appellate Court Limits Use Of Estoppel To Create Primary Liability
December 23, 2011
On December 23, 2011, an Illinois Appellate Court issued the attached decision affirming the award of summary judgment to plaintiff Clarendon National Insurance Company in a subrogation action against its insured, All Modes, a motor carrier, for failure to fulfill its MCS-90 reimbursement obligations. Clarendon had reserved its rights and then made payments on behalf of All Modes for an accident involving a non-covered auto -- as required by an MCS-90 policy endorsement. MCS-90 endorsements are required by federal law (the Motor Carrier Act of 1980) in all insurance contracts between insurers and motor carriers and require insurers to pay third parties for damages caused by an insured even though there is no coverage under the policy and the insurer would otherwise not be obligated to pay. Clarendon then sought reimbursement from the insured under the terms of that same MCS-90 endorsement. However, All Modes claimed that it had been led to believe the auto was a covered vehicle because Clarendon had paid out on a significantly smaller claim involving that same vehicle just a year prior and failed to reserve any rights or seek reimbursement in that prior action. The Court rejected All Modes' argument that estoppel should be used to create primary liability under the Policy. The Court noted that Illinois recognizes that estoppel can be used within an action to create liability when an insurer defends the insured without reserving its rights and with knowledge of facts that would provide a defense to coverage. However, the Court held that this estoppel does not extend to future claims in which a proper reservation of rights is issued. The Court also agreed that, even were the exception applicable here, All Modes failed to meet its burden of evidencing the elements of estoppel. Clausen Miller's Dean Rauchwerger, Michael Errera and Allison Ferrini successfully achieved summary judgment before the trial court and Joseph Ferrini successfully briefed the case before the appellate court. If you wish to discuss MCS-90 subrogation opportunities or related coverage issues, please contact us.
