*District Judge of the Southern District of Texas, sitting

by designation. 

1

United States Court of Appeals,

Fifth Circuit.

No. 93-7664.

INDUSTRIAL INDEMNITY COMPANY, Plaintiff-Appellee,

v.

TRUAX TRUCK LINE, INC., and Commercial Union Insurance Co.,

Defendants-Appellants.

March 1, 1995.

Appeal from the United States District Court for the Southern

District of Mississippi.

Before KING and BENAVIDES, Circuit Judges, and LAKE,* District

Judge.

BENAVIDES, Circuit Judge:

Commercial Union Insurance Company ("Commercial Insurance")

and Truax Truck Line, Inc., ("Truax") appeal the judgment entered

against them in this diversity suit, arguing that the appellee,

Industrial Indemnity Insurance Company ("Industrial Insurance"),

had coverage for a highway accident pursuant to the policy it had

issued to Ultimate Transportation, Inc., and that the theory of

unjust enrichment should not be applied to expand the coverage of

the contract issued by Commercial Insurance. The court below

granted Industrial Insurance reimbursement for payments it had made

pursuant to an endorsement attached to Ultimate's insurance policy.

Previously, in state court, Industrial Insurance had

undertaken the defense of Truax and paid a judgment and a

settlement on behalf of Truax. After having done so, it then filed
 

1The district court's disposition of the fraud and contract

claims are not challenged on appeal; however, the district

court's findings with respect to these claims have assisted us in

the determination of this appeal. 

2

suit in the court below claiming that Truax was not its insured and

seeking indemnity from Truax and also from Commercial Insurance on

the basis of fraud, contract, and unjust enrichment. The district

court rejected the claims of fraud and contract.1 The only

question is whether the district court properly granted Industrial

Insurance recovery under its unjust enrichment theory. Finding no

unjust enrichment, we reverse.

I. FACTS AND PROCEDURAL HISTORY

Industrial Insurance, the plaintiff-appellee, brought suit

against the following defendants-appellants: Commercial Insurance,

Truax, Allan Habetz, and MacKenzie Insurance Agencies. The claims

against MacKenzie were severed prior to trial, and MacKenzie is not

a party to this appeal.

After a bench trial, the district court found the facts as

follows. In 1987, Allan Habetz was vice-president and general

manager of Truax Truck Line, Inc. Habetz desired to expand the

company. Because there were insufficient funds for the additional

insurance that would be needed for such expansion, Habetz responded

to an advertisement for low-cost insurance coverage. Habetz went

to the offices of Universal Management, Inc., in Hammond,

Louisiana, and met with Jerry Byrd. Byrd explained that under

Universal's program, Truax would sublease its leased trucks to an

outfit known as Ultimate Transportation, Inc. Universal was
3

purported to be an agent for Ultimate.

It was proposed that Truax would operate under the Ultimate

ICC (Interstate Commerce Commission) permit and save on its

insurance premiums. Pursuant to the arrangement, Truax paid

Ultimate a flat rate per month per truck. Truax was to be given

authority as an agent of Ultimate for the purpose of contracting

with shippers to handle their loads.

On July 1, 1987, David Sharpley, a truck owner/operator,

entered into a one-year lease of his truck to Truax. On July 9,

1987, Ultimate, through Universal, purported to enter into an

agency agreement with Truax. On September 15, 1987, Ultimate and

Truax purportedly entered into a hold harmless and grant of

authority which they assert is part of their agency agreement.

On September 14, 1987, Truax was added as a named insured on

a certificate of insurance and endorsement in regard to the

Ultimate policy issued by Industrial Insurance. The district court

found there was a substantial question as to whether the Truax

certificate of insurance and endorsement was valid. Nevertheless,

it is undisputed that Industrial Insurance had a valid policy in

existence issued to Ultimate Transportation and that that policy

included a hired auto provision and the BMC-90 endorsement. The

endorsement requires an insurer to pay any judgment for a member of

the injured public against an insured regardless whether the

insurance policy specifically covers the vehicle. The endorsement

also provides that the insured must reimburse the insurer for any

payment made that the insurer would not have had to pay for but for
4

the endorsement.

Subsequently, on September 19, 1987, Truax leased Sharpley's

truck to Ultimate. Habetz and Commercial Insurance claim that this

lease amounts to a sublease under the original lease. Sharpley

also leased the same truck to Ultimate in a separate document.

This was claimed to be a confirmation by Sharpley of the sublease

of his truck to Ultimate.

On October 5, 1987, Sharpley, driving the truck he leased,

collided with a Highway Department dump truck. The collision

killed one highway employee, Robert Evans, and injured another one,

Michael Mitchell. That same day, Sharpley informed Habetz of the

accident. Habetz attempted to report it to Byrd, but did not reach

him till the next day, October 6, 1987. The Mississippi Highway

Patrol investigated the accident, and Sharpley advised the

patrolman that he owned the truck but that it was leased to Truax.

The highway patrolman found Truax placards on both doors of the

truck but did not see any other name on the truck.

On November 3, 1987, Evans' heirs sued Sharpley and Truax in

Mississippi state court. Truax was served with summons and a copy

of the complaint filed by Evans on November 10, 1987. Habetz

called Byrd, and Byrd directed Habetz to forward the summons and

complaint to him, and then he would forward it to MacKenzie

Insurance Agency. The next day Habetz forwarded the documents to

Byrd. According to their file, MacKenzie received the documents on

November 26, 1987. The claims clerk at MacKenzie testified that

she forwarded the documents that same day by United States mail to
 

2Byrd was not called as a witness at this trial. 

 

3At the time of the accident the insurance policy issued by

Commercial Insurance to Truax did not cover Sharpley's truck; 

however, the required BMC-90 endorsement was attached to the

policy. 

5

the claims office of Industrial Insurance in San Francisco,

California.

The next known person to see the documents was an adjustor

with Industrial Insurance, Mr. Hickman, who "discovered" the

summons and complaint on his desk on December 17, 1987. The

following day, Hickman employed a law firm to represent Industrial

Insurance.

Meanwhile, on December 11, 1987, a default judgment in the

amount of $5 million had been entered against Sharpley and Truax.

Prior to that, the attorney for the Evans family had phoned Habetz

and inquired as to the liability limits of the insurance and Habetz

advised that it was $5 million. Additionally, prior to the default

judgment, the Evans' attorney had called Habetz and notified him

that no one had filed an answer in the suit. Habetz testified that

after both of those calls from the attorney, he had relayed this

information to Byrd at Universal.2

On December 29, 1987, a motion to set aside the default

judgment was filed. On February 26, 1988, a letter was sent to

Commercial Insurance informing them (for the first time) of the

accident and the lawsuit.3 On March 4, 1988, a hearing was held on

motion to set aside the default judgement. On April 21, 1988, the

state court set aside the default judgment as to Sharpley, but as
6

to Truax only the amount of damages was set aside.

On July 23, 1988, a "writ of inquiry hearing" was held in

state court at which Sharpley and Truax were represented by the law

firm hired by Industrial Insurance. Five days later, Industrial

Insurance wrote a letter to Commercial Insurance, demanding that it

assume the defense of Sharpley and Truax. Industrial Insurance

also sent a reservation of rights letter to Truax.

On August 1, 1988, the state court entered judgment on the

writ of inquiry against Truax in the amount of $418,965.50. On

August 16, 1988, Industrial Insurance paid that judgment with

interest. On November 30, 1988, the court granted Sharpley's

motion to dismiss the Evans suit as to him because Industrial

Insurance had paid the damages in full. Additionally, Industrial

Insurance settled the Mitchell claim for $70,000.

CONCLUSIONS OF THE DISTRICT COURT

In the court below, Industrial Insurance argued that the

defendants were liable on the following three theories: fraud,

contract, and the equitable theory of unjust enrichment. The court

rejected the allegation of fraud, finding that although there was

some indication that Universal Management and Ultimate were

attempting to defraud the trucking and insurance companies,

Industrial Insurance had not shown by clear and convincing evidence

that Habetz or Truax was guilty of fraud. Ultimate and Universal

were no longer in business at the time the lawsuit was filed and

were not named as defendants.

The court also rejected the contract claim against Truax.
7

Industrial Insurance argued that the insurance policy issued to

Ultimate did not cover Truax because the leases were invalid, and

thus, Truax had to reimburse Industrial Insurance pursuant to the

express requirements in the BMC-90 endorsement. The BMC-90

endorsement provides that an insured must reimburse the insurer for

any payment made but not covered under the policy. The court found

that this theory failed because the position of Industrial

Insurance was that Truax was not an insured. Additionally, relying

on Canal Insurance Co. v. First General Insurance Co., 889 F.2d 604

(5th Cir.1989), the court held that Industrial Insurance was

precluded from using the BMC-90 endorsement to obtain relief on a

contract theory from Commercial Insurance.

Finally, the court granted Industrial Insurance recovery on

its claim that Truax and Commercial Insurance were unjustly

enriched as a result of Industrial Insurance paying the Evans'

judgment and Mitchell's settlement. The court further awarded

Industrial Insurance its attorneys' fees.

II. ANALYSIS

A. WHETHER TRUAX WAS UNJUSTLY ENRICHED.

Truax and Commercial Insurance argue that Truax and Sharpley

were insured under the policy issued by Industrial Insurance to

Ultimate. Thus, they argue that the payments made by Industrial

Insurance did not result in unjust enrichment.

It is undisputed that Ultimate Transportation had a valid

insurance policy in existence on October 5, 1987, that was issued

by Industrial Insurance and that policy included a hired auto
 

4In its brief, however, Industrial admits that both it and

Commercial Union were liable to members of the public under the

BMC-90 endorsement. 

 

5See Carolina Casualty Insurance v. Underwriters Insurance

Co., 569 F.2d 304, 313-14 (5th Cir.1978) (to determine coverage,

this Court looks to the express terms of the policy and can look

to lease agreements and ICC regulations). 

8

provision, along with the required BMC-90 endorsement. The dispute

is whether Sharpley's truck, which was leased to Truax and

"subleased" to Ultimate, was covered under the hired auto

provision.

The district court opined that Industrial Insurance

"mistakenly" paid the judgment pursuant to the BMC-90 endorsement.4

Apparently the district court found that the payment by Industrial

Insurance was "mistaken" because Truax did not transfer exclusive

possession and control and use of the truck to Ultimate pursuant to

the leases, and thus, the leases violated certain ICC regulations.

Bench Opinion at 684-88 (citing 49 C.F.R. Section 1057.11(c)). As

the appellants point out, the trial court did not specifically

address the coverage provided by Industrial Insurance, but seemed

to assume that if Ultimate's leases violated ICC regulations, then

Industrial Insurance had no coverage of the accident.

The parties are in vigorous dispute regarding whether the

leases were valid and whether Truax was covered under the hired

auto provision of Ultimate's insurance policy.5 Assuming without

deciding that Industrial Insurance did not have coverage of the

accident in question, it must be determined whether Truax was

unjustly enriched. The Mississippi Supreme Court has opined as
9

follows on the concept of unjust enrichment:

The Restatement of Restitution ... provides, if payment is

made, even by mistake, to a creditor of a third person to

satisfy a just debt of that third person, the payor has no

right of restitution of or from the third party. Restatement

of Restitution § 14(1) (1936). Accord, United States v.

Bedford Associates, 713 F.2d 895, 905 (2nd Cir.1983),

Equilease Corp. v. Hentz, 634 F.2d 850, 853 (5th Cir.1981),

and Strubbe v. Sonnenschein, 299 F.2d 185, 191-92 (2nd

Cir.1962). To be sure, this is not so if the third person has

procured the mistake or participated in or caused a breach of

some duty imposed in law, but where nothing like this has

happened, the enrichment is not unjust and the payor must

instead look to the party whose debt has been paid, through

subrogation or some such theory.

Omnibank v. United Southern Bank, 607 So.2d 76, 92 (Miss.1992).

In the case at bar, the district court, without citation of

authority, found that Truax had been unjustly enriched:

The third theory of recovery by Industrial Indemnity is

one of unjust enrichment and is asserted against Truax and

Commercial Union. Its argument against Truax is that since

Truax had the exclusive possession, control, and use of the

equipment at the time of the accident and was required to

assume complete responsibility therefor under the ICC

regulations, that Truax was liable ultimately for the damages

that it caused; that Industrial Indemnity mistakenly paid

those damages on behalf of Truax; and therefore that Truax

was unjustly enrichment and should be reimbursed. The Court

agrees with Industrial Indemnity and will hold that Industrial

Indemnity is entitled to indemnity under the theory of unjust

enrichment against Truax....

Bench Opinion at 693 (emphasis added).

Although the district court found that Truax was unjustly

enriched, it did not determine whether Truax procured the "mistake"

or participated in or caused a breach of some duty imposed in law.

Nonetheless, the court's statements in the context of rejecting the

claim of fraud against Truax indicate that the court did not find

Truax procured the "mistake":

The Court finds that although there is indication that
 

6Pursuant to the terms of the endorsement, Commercial Union

then could have recovered from Truax any amount that was not

10

Universal Management and Ultimate were engaged in some type of

fraudulent scheme to defraud not only Industrial Indemnity but

also the trucking companies from which it solicited business,

that the plaintiff has not proved by clear and convincing

evidence, which is required in regard to proof of fraud, that

Habetz or Truax Truck Lines was guilty of any fraud and

accordingly finds that the Plaintiff has failed to prove its

allegations under its theory of fraud as to Habetz and Truax.

Additionally, we note that Truax paid a substantial amount

(approximately $1500 per month) to Universal in order to be covered

under Ultimate's insurance policy, and Industrial Insurance does

not dispute that it received a premium from Ultimate for the hired

auto coverage. We are inclined to agree with the district court's

observation that Universal and Ultimate may have engaged in a

scheme to defraud Industrial and Truax. Accordingly, because the

district court refused to find any wrongful conduct on the part of

Truax as alleged by Industrial Insurance, and because the court

found not only that Industrial Insurance had failed to prove that

Truax was guilty of any fraud, but also (at least implicitly) found

that Truax was a victim of this scheme, the finding of unjust

enrichment cannot be upheld.

B. WHETHER COMMERCIAL INSURANCE WAS UNJUSTLY ENRICHED.

It is undisputed that the insurance policy issued by

Commercial Insurance to Truax in effect at the time of the accident

did not cover Sharpley's truck. However, pursuant to the BMC-90

endorsement attached to that policy, Commercial Insurance could

have been held liable for a judgment against Truax up to the

$750,000 policy limit.6 The court below found:
covered by the policy. 

11

that since Commercial Union was responsible under the

endorsement for any judgment and claims against Truax while

operating this truck, since it was in the exclusive

possession, control, and use of Truax and further, since

Industrial Indemnity had, in effect, paid the obligation of

Commercial Union, Commercial Union has been unjustly enriched

by the payment of Industrial Indemnity.

Bench Opinion at 694 (emphasis added).

This Court has explained that "[w]here ... a policy does not

provide coverage for nonlisted vehicles except to third-party

members of the public through operation of ICC form endorsement BMC

90, the policy provides no coverage for purposes of disputes among

insurers over ultimate liability." Canal Insurance Co. v. First

General Insurance Co., 889 F.2d 604, 611 (5th Cir.1989). The court

below, in its analysis of the contract claim against Commercial

Insurance, acknowledged the holding in Canal, and stated that

"[t]he Court's understanding of this part of Canal is that

Industrial Indemnity may not use the endorsement coverage in order

to obtain relief from Commercial Union." Bench Opinion at 692-93.

Nevertheless, as set forth above, the district court found that

Commercial Insurance had been unjustly enriched because it would

have been liable under the endorsement.

Apparently recognizing this conflict in the district court's

opinion, Industrial Insurance argues that it does not seek to

recover from Commercial Insurance under the "endorsement but under

the equitable doctrine of unjust enrichment for claims which

Commercial should have paid because of the BMC endorsement." This
 

7Industrial also argues that Canal is distinguishable

because, in that case, one of the insurance companies provided

coverage without regard to the BMC-90 endorsement, and in this

case, neither of the insurance companies provide coverage without

the endorsement. We find this to be a distinction without a

difference. 

 

8This is especially true in light of Industrial's admission

that "[it] is not disputed by either insurer that the BMC-90

endorsement would render either Industrial or Commercial

responsible for the claims asserted by the members of the

public." 

12

argument is not persuasive.7 Industrial Insurance seeks through

the back door what this Court has not allowed through the front

door. Indeed, this Court has observed that the policy behind the

endorsement is to assure that injured members of the public would

be able to satisfy judgments against negligent truckers. Canal,

889 F.2d at 611. "[T]his policy has no application to coverage

disputes among insurers." Id. Moreover, it strains logic to find

that, as a matter of Mississippi law, because Industrial Insurance

complied with this federal policy, Commercial Insurance was

unjustly enriched.8 Finally, Commercial Union did absolutely

nothing to incur liability for Industrial's payment under an unjust

enrichment theory. Accordingly, the district court's finding that

Commercial Insurance was unjustly enriched cannot stand.

CONCLUSION

For the reasons set forth above, we REVERSE the district

court's judgment awarding Industrial Insurance recovery on its

unjust enrichment claims and RENDER a take nothing judgment in

favor of Commercial Insurance and Truax. REVERSED AND RENDERED.