No. 14267 IN THE SUPREME COURT OF THE STATE OF MONTANA 1978

TRUCK INSURANCE EXCHANGE, a reciprocal or inter-insurance exchange, Plaintiff and Appellant,

TRANSPORT INDEMNITY COMPANY, a corporation, Defendant and Respondent.

Appeal from: District Court of the Third Judicial District, Honorable Robert J. Boyd, Judgepresiding. Counsel of Record: ForAppellant: Worden, Thane and Haines, Missoula,Montana Ronald Bender argued, Missoula,Montana For Respondent: Gough, Shanahan, Johnson and Waterman, Helena,

Montana Daniel Murphy argued, Helena,Montana

Filed:

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## 2 ;jFG Submitted: December 19, 1978 Decided: 

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### 1 1979

erkMr. Chief Justice Frank I. Haswell delivered the opinion of the Court. Plaintiff appeals from an amended judgment of the powell County DistrictCourt granting summary judgment in favor of defendant on the question of liability for insurance coverage and rights of indemnification. This is a controversy between two insurance companies as to which is obliged to provide coverage and defend against property damages and personal injuries arising out of an accident that occurred on January 24, 1976,on the Racetrack overpass

near Galen,Montana. That accident involved a semitractor and trailer and a passenger car. The tractor on the semibelonged to Forest Products International,Inc. (FPI,an Oregon based contract hauler, and was being driven by oneMichael Wirkkala,

an employee and major stockholder of FPI. The trailer on the rig belonged to International Transport, Inc. (ITI),a Minnesota corporationwhich is an authorized carrier licensed by the Interstate Commerce Commission (I.C.C.). At the time of the accident, appellant Truck Insurance Exchange had an insurancepolicy in effectwith FPI and with MichaelWirkkala individually,and respondent Transport Indemnity Co. had a policy in effect covering ITI. The dispute arises over conflicting provisions in the two policies as affected by certain I.C.C. regulationsand the terms of a "haulers contract" entered into between FPI and ITI. On January 23, 1976, FPI and IT1 executed a "Single Trip

or Exempt Haulers Contract"whereby IT1 (thecarrier) retained the services of FPI (thehauler, Michael Wirkkala owner-operator) to transport an ITI-owned trailer fromOregon to Minnesota. ITI,

as a licensed carrier, is subject to regulationspromulgated by the I.C.C. FPI, as a hauler only and not a certified carrier, does not have tomeet the same I.C.C. requirements.Among the terms of the hauler's contractwere numerous provisions which the I.C.C. requires licensed carriers to include in such agreements. One of those provisions appears in the contract as paragraph 6 and reads: "During the existence of this contract,the Carrier 

### [ITI] assumes liability for bodily injuries to or the death of any person (exceptthe Hauler,or the employees,agents or servants of the Hauler) or for the loss or damages to theproperty of others

(exceptthe Hauler, or the employees, agents or servants of the Hauler) resulting from the negligent operation, maintenance or use of the vehicles described in appendixA hereof 

# . .." Both the tractor owned by FPI and Michael Wirkkala, and the trailer owned by IT1were described in appendixA of the contract. An insurancecompany that enters into a policy of insurance with a licensed carrier is required by federal statute and regulation to file with the I.C.C. a certificate of insurance conditioned to pay up to specified limits any claims against its insured carrier arising out of negligent operation of motor vehicles under the carrier's operating permit. Respondent Transport Indemnity Co., ITI's insurer,had filed such a certificate of coverage for IT1 here. As a result of the accident on January 24, 1976,various parties have filed personal injury and property damage suits naming FPI and IT1 as defendants. On April 20, 1977,appellant Truck Insurance Exchange (FPI's insurer) filed a declaratory judgment action in Powell County District Court seeking a declaration that respondent Transport Indemnity Company (ITI's insurer)was obligated to FPI by reason of the assumption of liability clause in the hauler's contract to provide coverage for and defend against any claims asserted against FPI. On June 8, 1977,respondent Transport Indemnity Co. (ITI's insurer) filed an answer denying responsibility for providing coverage for or assuming thedefense of the damages arising out of the accident and counterclaiming that all said damages were aconsequence of the negligence of FPI and that therefore appellant Truck InsuranceExchange,as FPI'S insurer, was responsible for them. The counterclaim cited several provisions from the insurancepolicy issued to FPI by Truck Insurance~xchange to support that conclusion. The cited provisions included the coverage clauseswhereby Truck Insurance Exchange bound itself topay all damages FPI became legally obligated for because of bodily injury or property damage arising out of the ownership, maintenance, or use of the vehicle towhich the insuranceapplied, and the clause giving Truck Insurance Exchange the right and duty to defend any suit against FPI on account of such bodily injury or property damage. The counterclaim also cited language from the Truck Insurance Exchange policy issued to FPI that the insuranceafforded by itwas primary insurance, and contrasted that to language in the Transport IndemnityCo. policy issued to IT1 that if at the time of an occm-mceto which the Transport Indemnity Co. insurance applied therewas in effect any other valid and collectible insurance applicable to the same occurrence, then counterclaimant Transport Indemnity's insurance was excess insurance only. As originally framed,the counterclaim included an allegation that certain language in the insurancepolicy issued to FPI by Truck Insurance Exchange also extended coverage to ITI, Transport Indemnity Cots named insured,and that therefore the policy issued to IT1by Transport IndemnityCo. was only excess insurancegiving use to no primary duty or liability on the part of Transport Indemnity Co. On appeal, the claim that IT1 is an included insured is abandoned and it is apparently conceded that IT1 isnot covered by the Truck Insurance Exchange policy because of a specific exclusion therein. (Theeffect of the excess coverage clause on the issue of which insurer is liable for primary coverage,however, is still contested.)The significant underlying theory of the counterclaim for purposes of this appeal is that ultimate responsibility for the accident lay in the negligence of Michael Wirkkala; that the Truck Insurance Exchange policy is the only policy specifically extending coverage to him; and that thereforeTruck Insurance Exchange is obligated to defend IT1 against any claims asserted against it from the accident and indemnify Transport Indemnity Co. for any settlementsor other liabilitiespaid on behalf of IT1by Transport Indemnity Co. under itspolicy with

Truck Insurance Exchange filed its reply to the counterclaim on July 14, 1977,admitting that the language cited in the counterclaimwas included in the policy issued to FPI by Truck Insurance Exchange but alleging that other language in the policy precluded the conclusion that Truck Insurance Exchange was liable for primary coverage. The reply did not specifywhat other language Truck Insurance Exchange relied on. Subsequent to the filing of the original pleadings, an
error in the naming of the plaintiff became apparent and amended pleadings were filed. The amended pleadings are substantially identical to the originals except for the change in name. After a period of discovery, both sidesmoved for summary judgment and submitted briefs in support of theirmotions. The brief of Truck Insurance Exchange specified the language from the policy issued by Transport Indemnity Co. onwhich Truck Insurance Exchange based its allegation that the Transport IndemnityCo. policy should be liable for coverage. The language cited emphasizes that an "insured" under the Transport IndemnityCo. policy includes the named insured and "any other person, firm or organization towhom insurance protection has been extended under the policy or made so by any provision of law". Language from each of the coverage clauses to the effect that Transport IndemnityCo. will pay all sums for which "the insured shall become legally obligated,by contract or otherwise 

# . .

# . arising out of the occupation of the named insured"was also emphasized. By tying this language to the previously mentioned assumption of liabilities clause in the hauler's contract and the federal statutes under which the I.C.C. had issued the regulations requiring such clauses, the Truck Insurance Exchange brief concluded that coverageunder the Transport IndemnityCo. policy insuring ITI,an I.C.C. regulated carrier, was extended thereby to the damages at issue by operation of law and by contract within the meaning of thepolicy. On January 19, 1978, the District Court entered an order granting summary judgment to Transport IndemnityCo., insurer of ITI,the licensed carrier. The court based itsdecision on the United States SupremeCourt case of TransamericanFreight Lines, Inc. v. Brada Miller Freight Systems, Inc. (1975),423 U.S. 28, 96 S.Ct. 229, 46 L Ed 2d 169,which held under circumstances similar to those here that the party responsible in law (here, under the I.C.C. regulations, ITI, insured by Transport Indemnity Co.) may seek indemnity from the party responsible in fact

(here,FPI and MichaelWirkkala, insured by Truck Insurance Exchange)

# . A petition for rehearingwas subsequently filed by Truck InsuranceExchange,alleging that the case relied on was distinguishable and that under the provisions of thepolicies and all the circumstancespresent here Michael Wirkkala was an included insured under the Transport Indemnity Co. policy against whom Transport Indemnity had no claims for the reason that there isno subrogation or indemnificationby an insurer against its

own insured. The petition for rehearingwas denied, and judgment was entered for Transport Indemnity Co. on February 9,1978. The judgment ordered that Truck Insurance Exchange "isobligatedby its policy to defend and indemnify IT1 for any settlements, judgments,attorney fees and expenses incurred in connection with the civil actions instituted as a result of the accident of January 24, 1976." An amended judgment filed February 27, 1978,corrected the judgment to reflect that Truck Insurance Exchange's liabilitywas only to the extent of itspolicy limits. From that amended judgment,Truck Insurance Exchange has brought this appeal. The issueswe find controlling, togetherwith the determinative arguments and authorities, are as follows: Issue I. Did the District Court err in relying on Transamerican Freight Lines Inc. v. Brada Miller Freight Systems, Inc.

(1975),423 U.S. 28, 96 S.Ct. 229, 46 L Ed 2d 169,as authority for its order of summary judgment on the circumstances present here? We conclude that it did. While the Brada decision involved the same federal statutes and regulations as here with respect to motor carriers' use under leases ofmotor vehicles not owned by them, 49 U.S.C. §304(e), 49 C.F.R. §1057.4(a)(4), a close reading of the case indicates it isnot controlling. It is true that in Brada the court said: "Althoughone party is required by law to have control and responsibility for conditions of the vehicle, and to bear the consequences of any negligence", (referring to I.C.C. licensed carriers, and the duties imposed on them by the federal statutes and regulations), "theparty responsible in law to the injured or damaged person may seek indemnity from the party responsible in fact." Brada, 423 U.S. at 40, 96 S.Ct. at 235, 46 L Ed 2d at 179. However,distinguishing facts and other language in the opinion limiting its scope do not permit the broad conclusion Brada was cited for here that any I.C.C. carrier can ignore its statutory assumption of liability and seek indemnity from the negligent party anytime.InBrada both parties were authorized carriers. Transamerican apparently had more business than its equipment could handle, while Brada had some spare equipment. Transamerican therefore leased a rig fromBrada, to be operated by a Brada driver but over Transamerican's roubes and under Transamerican's operating authority. The lease,as required by the I.C.C. regulations,recited that Transamerican, the certified carrier,had responsibility for the operation of the equipment "in respect to the public, shippers,and I.C.C." In addition,the lease contained a separate paragraph in which Brada, the lessor, specifically agreed to indemnify Transamerican for any claims or losses arising out of negligent operation of the vehicle by the Brada driver. The narrow question before the Court was whether the indemnification agreementwas void and ineffectiveas contrary to the public policy behind the I.C.C. regulations (thatlicensed carrierswould be responsible in fact,aswell as in law, for the actions of borrowed drivers). The Court pointed out that: "The regulationsdo not expresslyprohibit an indemnification agreement between the lessor and the lessee. In fact they neither sanctionnor forbid it." Brada, 423U.S. at 39-40, 96 S.Ct. at 235, 46 L Ed 2d at 178. The Court concluded: "Wehold only that thepresence in an equipment lease of an indemnification clause directed to the lessor's negligence isnot in conflictwith the safety concerns of the Commission or with the regulations it has promulgated." Brada, 423 U.S. at 41, 96 S.Ct. at 236, 46 L Ed 2d at 179. Thus, reliance on Brada as authority here was inappropriate. Here, there was no specific undertaking in the lease by the lessor to indemnify the lessee authorized carrier. To cite Brada as blanket authority for indemnification in the absence of such a specific agreement is to circumvent the I.C.C. regulationsplacingprimary responsibility on the carrier. Issue 11. Does the Transport IndemnityCo. policy includeMichaelWirkkala as an insured so that no rights of indemnity or subrogation can arise in favor of Transport Indemnity Co.? We hold that it does. There is no right of subrogation in favor of an insurance company against its own insured. Home InsuranceCo. v. Pinski Brothers, Inc. (1972),160Mont. 219, 500 P.2d 945. This is true both as to the named insured and as to any party to whom coverage is extended under the terms of thepolicy; an additional insured is entitled to the sameprotection as the named insured. Cf. American Surety Company of N.Y. v. Canal Ins. Co. (4thCir. 1958), 258 F.2d 934. Respondent Transport Indemnity Co.'s brief concedes that the terms of the additional insured endorsement in thepolicy it issued to IT1 extend coverage to FPI. Respondent is adamant, however, that the endorsementdoes not extend coverage to Michael Wirkkala. Therefore, respondentargues,Transport Indemnity Co. isnot barred from indemnificationby Wirkkala by the rule that

an insurer cannot seek indemnity from its own insured. Respondent's argument that the endorsementdoes not extend coverage to Wirkkala is based on an erroneous premise. The pertinent language in the endorsement is: "It is hereby understood and agreed that the insurance

# ... is extended to any person or organization (hereinafter called CONTRACTOR) as an additional INSUREDbut onlywith respect to the ownership, operation, maintenance or use of AUTOMOBILES whether owned or nonowned by CONTRACTOR which are contracted to the NAMED INSURED under a written supplemental lease or contract subject to all terms and conditions of thepolicy to which this endorsement is attached

# . .

# .." Transport Indemnity Co. argues that by this endorsement the coverage of their policy is extended only to persons or organizations who contract with the named insured (ITI) for the lease ofmotorvehicles. Thus, respondent argues, since the lease contract was only between IT1 and FPI and not between IT1 and Wirkkala, coverage is not extended to Wirkkala. This conclusion improperly construes the language of the endorsement. The endorsement does not refer to "personsor organizations contractingwith the named insured" (asTransport Indemnity argues). Rather, it refers to "automobiles

# . . . contracted to the named insured" (Emphasisadded.), and extends coverage to "any person or organization

# ...with respect to the ownership, operation,maintenance or use" of the contracted automobiles. Theproper interpretation of that language clearly extends coverage to both FPI and Wirkkala regardless of whose name appears on the contract leasing the vehicle to ITI. This conclusion is buttressed by the fact that Transport Indemnity Co.'s interpretation of the endorsement would render it substantially meaningless in that FPI, the contracting party, could

never itself "operate, maintain,or use" the vehicle, but could do so only through its agents or employees who would never ordinarily be direct parties to the contract. We conclude, therefore,that the Transport Indemnity Co. policy does run to Michael Wirkkala by its own terms under the additional insured endorsement and that respondent isbarred from seeking indemnification from him. Issue 111. Do federal statutes and regulations automatically impose responsibility for primary coverage on the insurer of the I.C.C. carrier as amatter of law? We find that they do not. 49 U.S.C. S315 and 49 C.R.F. §1043.l(a) provide that no I.C.C. certificate or permit shallbe issued to amotor carrier unless it has filed with the I.C.C. proof that the carrier is insured against any liabilitiesarising out of operations under its certificateor permit. In this case,Transport Indemnity Co.,ITI's insurer, filedwith the I.C.C. and attached to the policy issued to IT1 the following certificateof endorsement (in pertinent part): "Inconsideration of thepremium stated in the policy to which this endorsement is attached, the Company hereby agrees to pay,within the limits of liability hereinafter provided, any final judgment recovered against the insured for bodily injury to or death of any person,or loss of or damage to property of others

# . . .resulting from negligence in the operation,maintenance, or use of motor vehicles under certificate of public convenienceand necessity or permit issued to the insured by the Interstate Commerce Commission

# . ..

"Withinthe limits of liability

# .. . it is further understood and agreed that no condition, provision, stipulation, or limitation contained in the policy



# . .. shall relieve the Company from liabilityhereunder 

# ...." Truck InsuranceExchange has taken the position throughout this

case that because Transport Indemnity Co. filed the above quoted endorsement, as required by the federal statutesand regulations, it is liable for primary coverage as amatter of law. Transport Indemnity Co. counters that the federal statutesand regulations are not determinative and do not absolve Truck InsuranceExchange of the contractual responsibility to provide primary coverage for FPI and Michael Wirkkala under the policy it issued to them. There is a plethora of case law involving disputes between insurers (onfacts similar to those involved here) as to what effect the I.C.C. regulationshave on coverage and rights of subrogation and indemnity. The authority ismainly from federal court decisions. Many cases stand for the proposition that the I.C.C. encorsementdoes impose primary liability as amatter of law on the insurer of the licensed carrier under whose permit a vehicle is in use at the time of an accident. Cf. Argonaut Insurance Co. v. National Indemnity Co. (10thCir. 1971), 435 F.2d 718; Hagans v. Glen Falls InsuranceCo. (10thCir. 1972), 465 F.2d1249; Ryder Truck Lines v. Carolina Cas. Ins. Co. (Ind-App.1978), 372N.E.2d 504; Allstate InsuranceCo. v. Federal InsuranceCo.

Conversely, there are also numerous cases that reject thenotion that the I.C.C. regulations are determinative. Cf. Allstate InsuranceCo. v. LibertyMutual InsuranceCo. (3rdCir. 1966), 368 F.2d 121;Wellman v. Liberty Mutual InsuranceCompany (8thCir. 1974), 496 F.2d 131;Vance Trucking Company v. Canal InsuranceCompany (D.S.C. 1966) 249 F.Supp. 33, aff'd (4thCir. 1968), 395 F.2d 391,Cert. denied, 393 U.S. 845, 89 S.Ct. 129, 21 L Ed 2d 116 (holding that I.C.C. regulations are not designed to

excuse a party from liability hemight otherwise have). Themost recent decision in the area, and one of the best reasoned, is also one that closely parallels many of the facts present here. Carolina Cas. Ins. Co. v. Underwriters Ins. Co.

(5thCir. 1978), 569 F.2d 304. In Carolina Cas. the court held: 

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# . . . the endorsement does not make (the insurer of the licensed carrier) the primary insurer as a matter of law

# .. . I.C.C. policy factors are frequentlydeterminative where protection of a member of thepublic or a shipper is at stake,but those factors cannot be invoked by another insurance company which has contracted to insure a specific risk and which needs no equivalent protection." 569 F.2d at 313. We find that reasoning persuasive and adopt it as controlling. Issue IV. Should one of the insurershere be responsible for primary coverage and the other for excess or should coverage be prorated between them? We conclude that coverage should be prorated. To this point, two things have been determined:

(a)Michael Wirkkala is insured under both policies involved here (as an additional insured under the additional insured endorsement in the Transport Indemnity Co. policy, and as

a named insured under the Truck InsuranceExchange policy). Thus,Transport Indemnity Co. is not entitled to indemnification fromMichael Wirkkala and cannot shiftprimary liability to Truck Insurance Exchange on that ground. (b)There is a fairly even split of authority onwhether I.C.C. regulations automatically impose primary coverage on the insurer of the certified carrier as a matter of law. The line of reasoningwe find persuasive holds that they do not. Thus, Truck Insurance Exchange cannot shiftprimary liability to Transport Indemnity Co. on that ground. The upshot is that both insurance companies have legitimate arguments that the other should be primarily responsible. Truck Insurance Exchange argues that by reason of the terms of the lease contract between IT1 and FPI,where in paragraph 6 IT1 assumes liability for negligent operation of the vehicles, Truck IndemnityCo. as ITI's insurer is absolutely liable for primary coverage. Truck Indemnity Co. replies that it is not a party to and thereforenot bound by the terms of that contract. "It is well settled that disputes of this sort hinge principally on the express terms of the policy and an insurer's contractual obligations cannot ordinarily be altered by collateral agreementsbetween its insured and third persons." Carolina Cas., 569 F.2d 313. 

### - The express terms of the Transport Indemnity Co. policy state that if at the time of an occurrence towhich the insurance applies there is in effect other insurance applicable to the same occurrence, then Transport Indemnity'spolicy provides excess coverage only. The express terms of the Truck Insurance Exchange policy, on the other hand, state that where other insurance is applicable, the amount of Truck InsuranceExchange's liability shallnot be reduced by the existence of such other insurance. Thus,Truck Insurance Exchange provides primary coverage."However, it is equallywell settled that a court

can look to outside sources--such as lease agreements and I.C.C. regulations--to define the status of persons who are covered by the insurance contract." Carolina Cas., 569 ~.2d at 314. In addition to the assumption of liability by Transport Indemnity's insured in the hauler's contract, the I.C.C. endorsement attached to the Transport Indemnity Co. policy specifies that "no condition, provision, stipulation or limitationcontained in the policy shall relieve the Company from liabilityhereunder." Thus, the excess coverage clause, at least up to the limits of liability specified in the I.C.C. endorsement, is negated and ineffective to relieve Transport IndemnityCo. fromprimary coverage. Taking into considerationall of the above factors,we conclude that both insurers have obligated themselves to provide primary coverage. Coverage should be prorated between them in accordancewith the limits of liability applicable in each policy. In conclusion,we note that although Truck Insurance Exchange itself moved for summary in the District Court, on appeal it argues that summary judgment is improper because genuine issues of fact exist as to Michael Wirkkala's negligence. Transport Indemnity Co. replies that Truck InsuranceExchange proceeded in the District Court as if no genuine issues of fact were present and cannot nowbe heard to argue that summary judgment isprecluded. Having determined that neither party is entitled to summary judgment against the other because both provide primary coverage,we have rendered this issuemoot. The order of the District Court granting summary judgment in favor of Transport IndemnityCo. is vacated. The cause is remanded with instructions to enter a declaratory judgment: (a)That Transport Indemnity Co. provides primary coverage to ITI,FPI, and ~ichael Wirkkala and Truck Insurance Exchangeprovidesprimary coverage to FPI and Michael Wirkkala; (b) That if Michael Wirkkala was the negligentparty, then coverage for any settlementsor judgments should be prorated between Truck Insurance Exchange and Transport Indemnity Co. based upon the applicablepolicy limits in each policy; (c)That if the insurers contest the negligence of their insureds, then the contestant or contestants are obligated to defend their insureds against the claims pending in the District Court, each insurer to be responsible for its own attorney fees and costs and any judgments returned against its insureds. Reversed and remanded.

Chief Justice

We concur?