United States Court of Appeals

Fifth Circuit

FILED

August 23, 2005

Charles R. Fulbruge III

Clerk

REVISED OCTOBER 11, 2005

UNITED STATES COURT OF APPEALS

FIFTH CIRCUIT

04-10324

consolidated with

04-10834

DARRELL D. MINTER, As Receiver,

Plaintiff-Counter Defendant-Appellant,

versus

GREAT AMERICAN INSURANCE COMPANY OF NEW YORK, formerly known

as American National Fire Insurance Company,

Defendant-Counter Claimant-Appellee.

Appeals from the United States District Court

for the Northern District of Texas

Before KING, Chief Judge, and BARKSDALE and STEWART, Circuit

Judges.

RHESA HAWKINS BARKSDALE, Circuit Judge:

In this diversity action, at issue is the summary judgment

awarded Great American Insurance Company of New York. As Receiver

for Grant Morris (judgment creditor of Jerry Lee Largent), Darrell

Minter claims Great American is liable for Morris’ state court

judgment against Largent and his employer, Hammer Trucking, Inc.,

arising out of a collision between Morris and Largent’s vehicles.

Largent was intoxicated at the time. Hammer Trucking had leased to

JTM Materials, Inc., the vehicle being driven by Largent, which was
2

used exclusively for JTM’s benefit. Primarily at issue is whether

Largent’s intoxication at the time of the collision precludes his

being a permissive user under the omnibus clause of JTM’s primary

commercial automobile liability policy, issued by St. Paul Fire and

Marine Insurance Co., and, therefore, precludes his being an

insured under the Great American excess policy. A genuine issue of

material fact exists for that issue. Accordingly, we VACATE the

judgment in favor of Great American; REVERSE the district court’s

rulings against coverage under the omnibus clause and Minter’s

extra-contractual tort claims; AFFIRM its rulings for all other

coverage issues; and REMAND for further proceedings consistent with

this opinion. 

I.

On Saturday, 9 November 1996, the tractor-trailer (the truck)

driven by Largent collided with a vehicle driven by Morris, who

sustained significant injuries. Largent pleaded guilty to driving

while intoxicated.

The truck was owned by Largent’s employer, Hammer Trucking.

On 27 June 1996, approximately four months before the collision,

Hammer Trucking leased the truck to JTM, a federal and stateregulated motor carrier. Under the lease, Hammer Trucking, inter

alia: was to maintain control of the truck and use it for the

exclusive benefit of JTM; had a duty to properly maintain the
3

truck; and was to bear all maintenance and operating expenses

(including Largent’s salary). 

Originally, the truck was parked overnight at Hammer Trucking.

Because Largent’s wife needed their car to drive to her new job,

Hammer Trucking allowed Largent to drive the truck to and from work

and park it overnight at his apartment. 

On the day of the collision, Largent, who lived in Bridgeport,

Texas, was in the process of delivering the truck to a facility

near Decatur, Texas, for scheduled maintenance (consistent with

Hammer Trucking’s duties under its lease with JTM). That day,

Largent had been instructed by Don Hammer, Hammer Trucking’s owner

and president, to deliver the truck by 9:00 a.m. the next day

(Sunday, 10 November). At approximately 11:00 p.m. Saturday, 9

November, Largent drove the truck to his sister’s house, also

located in Bridgeport, in order for her to give him a ride back

from the maintenance facility in Decatur. Because his sister could

not give him a ride, Largent then decided to return to his house

and take the truck to the maintenance facility the next morning.

The collision occurred while he was returning home. 

Largent had an extensive criminal record, including

convictions for DWI, reckless conduct (for which Largent was

originally charged with DWI), and felony possession of

methamphetamine (for which he served three years in prison); he

also had five citations for driving without liability insurance.
4

Morris v. JTM Materials, Inc., 78 S.W.3d 28, 51 (Tex. App.–Fort

Worth 2002, no pet. h.). When Hammer Trucking entered into its

lease agreement with JTM several months before the collision, JTM’s

safety director conducted a background check on Largent, consisting

of an “AMS Driver Report for Texas”; that background check,

however, covered only the three years preceding 12 September 1996

and did not reveal Largent’s previous offenses for DWI, reckless

conduct, methamphetamine possession, or any of his citations for

driving without liability insurance. Id. It appears that this

report and a drug screening test were the extent of JTM’s

investigation to qualify Largent as a truck driver. On the other

hand, a driving report from the Texas Department of Public Safety

would have revealed the full extent of Largent’s driving and

criminal record. Id.

JTM’s primary commercial automobile liability insurance policy

was issued by St. Paul; its excess policy, by Great American. The

St. Paul policy has a $1 million coverage limit for each accident

caused by a covered automobile; Great American’s excess coverage

became effective upon that limit’s being exhausted. 

In May 1997, in Texas state court, Morris filed an action

against Largent, Hammer Trucking, and (by an amended petition) JTM,

claiming, inter alia: (1) negligence and negligence per se by

Largent; (2) negligent hiring, retention, and supervision of

Largent, negligent entrustment, and vicarious liability against
5

Hammer Trucking and JTM based on respondent superior; (3) joint

enterprise, joint venture, and civil conspiracy against JTM; and

(4) Largent’s being JTM's statutory, actual, constructive, or

borrowed employee, and JTM’s being liable under the Federal Motor

Carrier Safety Regulations. The claims against JTM were severed

from those against Largent and Hammer Trucking. 

Upon JTM’s being added as a defendant, it notified AON Risk

Services of Texas, Inc. AON was Great American’s agent, inter

alia, for “all usual and customary services of an insurance agent”.

In September 1998, AON forwarded a copy of Morris’ first amended

petition and a corresponding summons to St. Paul; however, AON did

not forward notice of Morris’ action to Great American. St. Paul

provided JTM a defense against Morris’ claims but did not do so for

Hammer Trucking or Largent.

JTM was awarded summary judgment shortly before the claims

against Largent and Hammer Trucking were tried. For their jury

trial in August 2000, Largent and Hammer Trucking proceeded pro se.

During trial, Morris was awarded a directed verdict on liability,

with the court ruling: at the time of the accident, Largent was

acting within the scope of his employment with Hammer Trucking and

was a permissive user of the truck. The following questions were

submitted to the jury: (1) the amount of Morris’ compensatory

damages; (2) whether Largent and Hammer Trucking acted with malice;

and (3) if so, the amount of exemplary damages. The jury awarded
6

damages jointly and severally against Hammer Trucking and Largent

for approximately $2.6 million, with very substantial pre– and

post-judgment interest; it also found they had acted with malice

and assessed exemplary damages of $1,650,000 against Largent and

$300,000 against Hammer Trucking. 

The judgment against Largent and Hammer Trucking was not

appealed. As for the summary judgment awarded JTM, the Fort Worth

court of appeals: (1) vacated that judgment for part of the

vicarious liability claims and for the claims for negligent hiring,

retention, supervision, and entrustment, and remanded for trial on

those issues, Morris, 78 S.W.3d at 43, 52-53; and (2) affirmed for

respondeat superior, civil conspiracy, joint venture and joint

enterprise, id. at 57. In vacating the summary judgment awarded

JTM for part of Morris’ vicarious liability claims, the court held:

if JTM was a federally regulated motor carrier, it was liable, as

a matter of law, under the Federal Motor Carrier Safety

Regulations. Id. at 43. Importantly, in affirming JTM’s summary

judgment against Morris’ respondeat superior claim, the court held:

Largent was acting outside the scope of his employment at the time

of the collision. Id. at 48. (The record is silent concerning the

disposition of this matter on remand.) 

In May 2001 (prior to the decision rendered in 2002 by the

Fort Worth court of appeals for the claims against JTM), in order

to satisfy Morris’ judgment against Largent, the state court
7

ordered Largent to turn over assets to Minter, who had been

appointed Receiver. Those assets included Largent’s claims against

St. Paul and Great American that they: (1) failed to provide a

defense; (2) failed to indemnify under their policies issued to

JTM; (3) acted in bad faith; (4) engaged in unfair insurance

practices, in violation of TEX. INS. CODE ANN. art. 21.21 (Vernon

1981 & Supp. 2004-2005); and (5) violated the Texas Deceptive Trade

Practices Act, see TEX. BUS. & COM. CODE ANN. §§ 17.46, 17.50 (Vernon

2002 & Supp. 2004-2005). 

Minter filed a state court action against St. Paul, which

settled for $1.9 million (including all claims against JTM and

Hammer Trucking). (The $1 million coverage limit for JTM’s policy

was reached; apparently, the additional $900,000 was for settlement

of extra-contractual tort claims.) 

In September 2002, Minter filed this diversity action against

Great American, seeking recovery of that part of Morris’ state

court judgment against Largent which had not been satisfied by the

settlement with St. Paul. Great American filed a third-party

action against AON for breach of contract and tort claims for

failure to give timely notice of Morris’ action. Great American

and Minter moved for summary judgment. 

The district court awarded summary judgment to Great American,

holding: (1) based on the ruling of the Fort Worth court of

appeals concerning the summary judgment that had been awarded JTM,
8

Minter was collaterally estopped from claiming Largent was acting

within the scope of his employment at the time of the collision;

(2) Great American was not collaterally estopped from contending

Largent was not a permissive user of the truck, despite the

contrary state court judgment, because the issue had not been

“vigorously litigated” in state court; (3) concerning permission

vel non, Largent’s intoxication took his use of the truck outside

the scope of permission granted by Hammer Trucking or JTM; (4)

coverage did not exist under either the TE 9916 endorsement to, or

the “exclusive use” clause of, the St. Paul policy because Largent

had no ownership interest in the truck; (5) coverage did not exist

under the MCS-90 endorsement to the St. Paul policy because that

provision acts as an independent basis for coverage only when other

coverage is lacking; (6) accordingly, no coverage existed under the

underlying St. Paul policy, and, therefore, none existed under the

Great American excess policy; and (7) there being no coverage under

the Great American policy, Minter’s extra-contractual tort claims

failed as a matter of law. Minter v. Great Am. Ins. Co., No. 3:02-

CV-2040-K, 2004 WL 515615 (N.D. Tex. 27 Feb. 2004) (unpublished).

II.

Reviewed de novo, e.g., Ford Motor Co. v. Tex. Dep’t of

Transp., 264 F.3d 493, 498 (5th Cir. 2001), a summary judgment is

appropriate when “the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the
9

affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to a judgment

as a matter of law”. FED. R. CIV. P. 56(c). 

“An issue is ‘genuine’ if the evidence is sufficient for a

reasonable jury to return a verdict for the nonmoving party.”

Hamilton v. Segue Software Inc., 232 F.3d 473, 477 (5th Cir. 2000)

(citation omitted). A fact-issue is material only if its

resolution could affect the action’s outcome. E.g., St. David's

Health Care Sys. v. United States, 349 F.3d 232, 234 (5th Cir.

2003). 

The evidence and inferences from the summary judgment record

are viewed in the light most favorable to the nonmovant. E.g.,

Taylor v. Gregg, 36 F.3d 453, 455 (5th Cir. 1994). (Along that

line, portions of the state trial transcript are in the summary

judgment record.) Interpretation of an unambiguous insurance

contract is a question of law. E.g., Am. States Ins. Co. v.

Bailey, 133 F.3d 363, 369 (5th Cir. 1998). It is undisputed that

Texas law applies. 

A.

Section II.B of the Great American excess policy defines an

“Insured” as, inter alia:

(1) Your [JTM’s] employees, other than your

executive officers, but only for acts within

the scope of their employment .... (5) Any

other person or organization who is insured

under any policy of ‘Underlying Insurance.’
10

The coverage afforded such ‘Insureds’ under

this policy will be no broader than the

‘Underlying Insurance’ except for this

policy’s Limit of Insurance. 

 

(Emphasis added.) The St. Paul policy was listed in the Great

American policy’s schedule of underlying policies. 

Concerning part (1) for this definition of “insured” (JTM’s

employee acting within scope of employment), Minter claims JTM

(and, therefore, Great American) is liable because Largent was

JTM’s “statutory employee” under the Federal Motor Carrier Safety

Regulations (FMCSR). See 49 C.F.R. § 383.5. As noted, the Fort

Worth court of appeals held: “if JTM is an interstate carrier,

[JTM] is vicariously liable as a matter of law for Largent’s

negligence”. Morris, 78 S.W.3d at 43 (emphasis added). Great

American contests JTM’s being an interstate carrier and therefore

subject to the FMCSR. In any event, assuming JTM is both an

interstate carrier and, therefore, vicariously liable for Largent’s

negligence, Minter must still establish Largent was an “insured” to

recover against Great American. Cf. Radman v. Jones Motor Co.,

Inc., 914 F. Supp. 1193, 1198 (W.D. Pa. 1996) (“The simple fact of

the matter is that Congress intended that ... the ICC carrier[] be

the insurer of [its leased tractor trailer drivers] with respect to

the general public.”) (emphasis deleted).

To that end, Minter claims Largent was acting within the scope

of his employment with JTM at the time of the collision. Minter

does not contend, much less demonstrate, that the district court
11

erred in ruling Minter is collaterally estopped from making this

scope-of-employment claim; accordingly, he is precluded from

asserting scope of employment here. As a result, Minter cannot

show scope-of-employment coverage under the Great American policy.

Consequently, coverage exists under that policy only if,

pursuant to part (5) for the above definition of “insured”,

coverage is established under the underlying St. Paul policy. For

doing so, Minter maintains coverage exists under four of that

policy’s provisions: (1) the omnibus/permissive-user clause

(coverage for anyone using a “covered auto” with JTM’s permission);

(2) the MCS-90 endorsement (establishing liability for federally

regulated motor carriers for injuries sustained by general public,

where no other coverage exists); (3) the exclusive use clause

(coverage for owner of a covered auto from whom JTM hires or

borrows a “covered auto” that is used exclusively in JTM’s trucking

business); and (4) the TE 99-16 endorsement (coverage for owner of

“covered auto” which JTM rents or leases). “[C]onstruction of

insurance policies is a matter of state law”. Canal Ins. Co. v.

First Gen. Ins. Co., 889 F.2d 604, 608 (5th Cir. 1989), modified by

901 F.2d 45 (5th Cir. 1990). Both parties assume that Texas law

applies; we do as well. For the following reasons, the summary

judgment awarded Great American against each of these four claims

is vacated for the omnibus clause but affirmed for the other three.
12

1.

JTM’s underlying St. Paul policy defines an “Insured” as,

inter alia, “[a]nyone ... using with [JTM’s] permission a covered

auto you own, hire, or borrow ....” (Emphasis added.) This

permissive-user clause is commonly known as an “omnibus clause”.

See BLACK’S LAW DICTIONARY 1121 (8th ed. 2004) (defining “omnibus

clause” as “[a] provision in an automobile insurance policy that

extends coverage to all drivers operating the insured vehicle with

the owner’s permission”). Great American does not contest the

truck’s being a “covered auto” under the St. Paul policy.

Therefore, at issue is whether, at the time of the collision,

Largent was using it with JTM’s permission. 

As noted, although the state trial court held Largent was

acting within the scope of permission, the district court held

that, because this issue was not vigorously litigated in state

court, see Mower v. Boyer, 811 S.W.2d 560, 562 (Tex. 1991), Great

American was not collaterally estopped from re-litigating it.

Minter does not properly contest, much less demonstrate error in,

this holding; therefore, we will consider this permission issue. 

In Texas, permission is defined as “consent to use the vehicle

at the time and place in question and in a manner authorized by the

owner, either express or implied”. Hartford Accident & Indem.

Corp. v. Lowery, 490 S.W.2d 935, 937 (Tex. Civ. App.–Beaumont 1973,

writ ref’d n.r.e.) (citation omitted; emphasis added). Although
13

express permission requires an affirmative statement, “implied

permission may be inferred from a course of conduct or relationship

between the parties in which there is mutual acquiescence or lack

of objection signifying consent”. Royal Indem. Co. v. H.E. Abbott

& Sons, Inc., 399 S.W.2d 343, 345 (Tex. 1966). 

Pursuant to its lease with JTM, Hammer Trucking had sole

responsibility for maintaining the truck. And, it is undisputed

that, on the night of the collision, Largent had express permission

from Don Hammer to drive the truck to the maintenance facility. In

awarding summary judgment to Great American, the district court

ruled: “Driving to [Largent’s] sister’s house was outside the

scope of the permission expressly granted to [him], as he was only

given express permission to take the truck to the maintenance

yard”. Minter, 2004 WL 515615, at *6. At the state court trial,

however, Don Hammer testified that he gave Largent permission to go

to his sister’s house to secure a ride back from the maintenance

yard. 

Great American contends: Largent’s proceeding to his sister’s

house was a “personal errand”; Hammer Trucking and JTM had told

Largent the truck was not to be used for personal errands; and,

therefore, Largent’s truck-use was outside the scope of the express

permission. Given that Largent asserted he had express permission

to seek a ride from his sister, and there is competent summary

judgment evidence in support, a material fact issue exists for
14

whether Largent had express permission to drive the truck to his

sister’s house. The district court erred in holding otherwise.

Even assuming Largent did not have such express permission, it

can be reasonably inferred that Hammer Trucking expected Largent to

arrange his return transportation from the maintenance facility in

Decatur. Don Hammer knew that Largent’s wife used their only car

to commute to her job at night. This was why Hammer allowed

Largent to keep the truck at his apartment – because he had no

other regular transportation to and from work. This arrangement

between Hammer Trucking and Largent suggests “a course of conduct

... between the parties in which there is mutual acquiescence ...

signifying consent”. Royal Indem. Co., 399 S.W.2d at 345.

Therefore, a material fact issue also exists for whether Largent

had implied permission to drive to his sister’s house, which was

approximately one mile from his apartment, in order to arrange his

return transportation from Decatur. 

These genuine issues of material fact, however, do not compel

vacating the summary judgment awarded Great American against the

omnibus-clause issue. Even if Largent had express or implied

permission to drive to his sister’s house, another issue is whether

his intoxication placed his use of the truck outside the scope of

that permission (part of the “manner authorized”). Texas follows

the “minor deviation” rule in determining whether a vehicle’s use

is outside the scope of permission. See Coronado v. Employers’
15

Nat’l Ins. Co., 596 S.W.2d 502, 504-05 (Tex. 1979). “Under this

rule, the court must determine in each instance[,] taking into

account the extent of deviation in actual distance or time, the

purposes for which the vehicle was given, and other factors[,]

whether the deviation was ‘minor’ or ‘material.’” Id. at 504

(emphasis added). 

Some deviations may be so minor that they do not create a fact

issue whether permission was revoked; other, more significant

deviations may create such an issue; and some deviations may be so

material that they revoke permission as a matter of law. Id. at

506. Along this line, the district court ruled: 

Had Largent only driven the truck to his

sister's house, the deviation might have been

minor, as the trip was allegedly related to

his bringing the truck in for maintenance at

Hammer's request. However, Largent's

operation of the truck while intoxicated was

so far outside of the express permission

granted to him by JTM and Hammer that his

deviation was material as a matter of law. 

 

Minter, 2004 WL 515615, at *7 (citation omitted; emphasis added).

Great American contends the summary judgment record

establishes: JTM had a “zero tolerance” policy regarding alcohol

use by its drivers, which it communicated to Largent in the form of

a drug and alcohol handbook; and Don Hammer expressly instructed

Largent that he was not to operate the truck after drinking

alcohol. Minter counters by noting that, in state court, JTM

admitted it had no safety policies or procedures for leased trucks
16

such as Hammer’s or for independent contractors, i.e., leased

drivers. The district court assumed JTM had expressly forbidden

Largent from operating the truck under the influence of alcohol,

despite Minter’s having presented summary judgment evidence to the

contrary. Id. at *6. 

The summary judgment record shows Don Hammer instructed

Largent to deliver the truck for scheduled maintenance before 9:00

a.m. on Sunday, 10 November 1996. Don Hammer had anticipated

delivery would probably take place the prior evening (Saturday).

Moreover, as previously stated, there is a material fact issue

whether Largent had express or implied permission to drive to his

sister’s house to arrange return transportation. As stated, we

will assume Largent (the nonmovant) did have permission.

Therefore, for summary judgment purposes, we must determine whether

Largent’s intoxication was a deviation so material that, as a

matter of law, the permission was revoked. 

In Coronado, the employee/driver left work at approximately

4:15 p.m. with his work crew but, instead of taking them home, took

them to a local bar to drink beer. 596 S.W.2d at 503. They stayed

three to four hours, then proceeded to another bar “some distance”

away. Id. Upon leaving the second bar after midnight, the driver

was involved in an accident, causing a passenger’s death. Id. The

resulting wrongful death action claimed the driver was a permissive
17

user under the omnibus clause in the employer’s automobile

liability policy. Id. at 504.

The Texas Supreme Court phrased the issue as follows:

“whether an employee who was driving a company owned vehicle on a

purely personal mission after working hours” was covered under that

clause. Id. at 503 (emphasis added). The court rejected

plaintiff’s contention that, based on a supervisor’s having twice

found the employee drinking beer shortly after work, while still

using the truck, the employee had implied permission to drive while

intoxicated. Id. at 505. The court held: 

[T]he eight hour deviation [at issue] ... was

so gross as to be a material deviation as a

matter of law. The use of the vehicle at the

time of the accident was so far outside the

scope of the permission granted ... for use of

the vehicle that we cannot say that a fact

issue is raised that his employer had

impliedly consented to this use.

 

Id. at 506 (emphasis added). The court viewed intoxication as an

“other factor”, as opposed to a primary consideration, in

determining whether the deviation was material as a matter of law.

A similar omnibus-clause issue arose in Old Am. County Mut.

Fire Ins. Co. v. Renfrow, 130 S.W.3d 70 (Tex. 2004) (per curiam).

An employee, who had permission only to drive the company truck

home after work and to return to the job site the next morning,

drove it to visit his girlfriend approximately 40 miles away in

Saginaw, Texas. Id. at 71-72. Upon returning, the girlfriend was
18

killed in a single-vehicle accident. Plaintiffs offered evidence

that the employee commonly drove the company truck to his

girlfriend’s house and to his foreman’s house to drink beer, id. at

72, and claimed this established implied permission to use the

company truck for personal errands. The court held: as a matter

of law, the trip to Saginaw was a material deviation, because it

was so far removed from the geographic area in which the employee

had permission to drive. Id. at 73.

In Royal Indemnity, Herring employed Landers to work on his

ranch. 399 S.W.2d at 344. Landers lived there and had permission

to drive two work-trucks to perform his duties. Id. One weekend,

Herring and Landers drove to the horse races in Bronte, Texas; on

returning that afternoon, each drank two bottles of beer. Id. at

344-45. That evening, while Herring was away, Landers drove one of

the work-trucks to San Angelo, Texas (approximately 50 miles away),

on a personal errand; he bought and drank more beer on the way and,

eventually, lost control of the vehicle and ran into a building.

Id. at 345. A jury found: at the time of the accident, Landers

was driving the truck within the scope of implied permission from

Herring; and, therefore, coverage existed under the omnibus clause

of Herring’s automobile policy. Id. at 343. In reversing, the

Texas Supreme Court held: 

[T]he evidence shows neither a relationship

nor a prior course of conduct from which

implied permission might fairly be inferred.
19

Landers was employed as a ranch hand. He had

never driven one of the vehicles off the ranch

except when specifically instructed to do so,

and had never used any of them for a personal

errand. His employer had always driven him to

town whenever he wanted to go, and had no

reason to believe that he intended or might

need to use one of the vehicles on the evening

of the accident. In view of these undisputed

facts, the limited privileges Landers was

allowed in the Herring house, his occasional

pleasure trips with Herring, the availability

of the vehicles, his use of the same on the

ranch, ... and the absence of any prior

instruction not to take the vehicles off the

ranch, afford no basis for concluding that

Landers had implied permission to use the

truck for a trip to San Angelo on a personal

mission.

Id. at 347 (emphasis added). 

In these cases, the critical inquiry cited by the court was

the deviation in actual distance or time from the original

permission granted. Intoxication was not mentioned by the Royal

Indemnity court in finding permission lacking as a matter of law,

despite the uncontested fact that the employee/driver had consumed

several alcoholic beverages immediately prior to driving into a

building. Obviously, intoxication is an “other factor” to consider

for whether a deviation is material. See Coronado, 596 S.W.2d at

504. Indeed, it was a factor considered by the Coronado court in

holding the deviation material as a matter of law. Great American

has cited no Texas case law, however, holding that intoxication per

se revokes permission. Instead, it is an “other factor” to be

considered in determining the extent of the deviation. 
20

In the light of Largent’s driving record’s containing a

history of alcohol offenses, as well as a drug felony, JTM’s

failure to request that driving record from the Texas Department of

Public Safety, Largent’s being instructed by Don Hammer not to

drink and drive, and its being disputed whether JTM informed

Largent of its “zero tolerance” policy, a genuine issue of material

fact exists for whether Largent’s intoxication placed his use of

the truck outside the scope of permission. This situation is

distinguishable from Coronado, Renfrow, and Royal Indemnity,

because Largent was not engaged in a purely personal errand at the

time of the accident. Moreover, those cases involved significant

geographical and time deviations from the scope of permission

granted to operate the vehicles. Even if the drive to Largent’s

sister’s house was a deviation, it was certainly not as significant

geographically or time-wise as those in Coronado, Renfrow, and

Royal Indemnity.

Based on the summary judgment record, it appears that JTM and

Don Hammer did not exercise reasonable care in investigating

Largent’s background, and there is no evidence that either had

knowledge of Largent’s propensities toward operating a motor

vehicle while intoxicated. Nevertheless, the lack of evidence on

this point is not determinative. In the light of the summary

judgment record, and as contended by Minter, a jury could find that

Largent’s use of the truck was within the scope of permission
21

granted by Don Hammer. Similarly, a jury could find Largent’s

intoxication revoked permission. For example, a genuine issue of

material fact exists for whether Don Hammer’s instruction not to

drink and drive, without more, caused Largent’s driving while

intoxicated to be outside the scope of permission. Obviously, to

hold Largent’s violating this instruction, alone, is a material

deviation that, as a matter of law, places his driving outside the

scope of permission, would be well beyond any Texas state law

precedent. In any event, on this summary judgment record, genuine

issues of material fact preclude reaching that Erie-question. 

2.

The MCS-90 motor carrier endorsement for the underlying St.

Paul policy states in relevant part:

In consideration of the premium stated in

the policy to which this endorsement is

attached, the insurer (the company) agrees to

pay, within the limits of liability described

herein, any final judgment recovered against

the insured for public liability resulting

from negligence in the operation, maintenance

or use of motor vehicles subject to the

financial responsibility requirements of

Sections 29 and 30 of the Motor Carrier Act of

1980 regardless of whether or not each motor

vehicle is specifically described in the

policy .... 

It is understood and agreed that no

condition, provision, stipulation, or

limitation contained in the policy, this

endorsement, or any other endorsement thereon,

or violation thereof, shall relieve the

company from liability or from the payment of

any final judgment, within the limits of

liability herein described, irrespective of
22

the financial condition, insolvency or

bankruptcy of the insured. 

This endorsement must accompany “any liability policy issued to a

registered motor carrier pursuant to 49 U.S.C. §§ 13906(a)(1),

31139(b)(2) and 49 C.F.R. § 387”. T.H.E Ins. Co. v. Larson

Intermodal Servs., Inc., 242 F.3d 667, 670 (5th Cir. 2001).

Essentially, “the MCS-90 [endorsement] makes the insurer liable to

third parties for any liability resulting from the negligent use of

any motor vehicle by the insured, even if the vehicle is not

covered under the insurance policy”. Id. at 671. Interpretation

of this endorsement is governed by federal law. See Canal Ins.,

889 F.2d at 610.

Minter claims this endorsement enlarges broadly the definition

of an insured under the St. Paul policy and that the public policy

rationale underpinning the MCS-90 endorsement is present here:

ensuring a registered motor carrier has an independent financial

responsibility to pay for losses sustained by the general public

that arise from its trucking operations. See id. at 611; Travelers

Ins. Co. v. Transp. Ins. Co., 787 F.2d 1133, 1140 (7th Cir. 1986).

Great American counters: the endorsement is not applicable

because it is not attached to the Great American policy; the

coverage limit under the St. Paul primary insurance, to which the

endorsement was attached, has been exhausted; and the public policy

rationale cited by Minter is not present precisely because Morris
23

received the maximum amount of coverage under the St. Paul policy

($1 million).

The MCS-90 endorsement is, “in effect, suretyship by the

insurance carrier to protect the public – a safety net”. T.H.E

Ins., 242 F.3d at 672 (quoting Canal Ins. Co. v. Carolina Cas. Ins.

Co., 59 F.3d 281, 283 (1st Cir. 1995)). Thus, an insurer’s

responsibilities under the endorsement are triggered when the

policy to which it is attached does not provide coverage to the

insured. Id. As stated, the St. Paul policy not only provided

coverage but provided the maximum amount under the policy. Because

the St. Paul policy exhausted its coverage limit, coverage does not

exist under the MCS-90 endorsement; therefore, this endorsement

does not provide coverage under the Great American policy. See id.

at 672 (“[T]he insurer’s obligations under the MCS-90 are triggered

[only] when the policy to which it is attached provides no coverage

to the insured.”). 

3.

The next claimed coverage is under the St. Paul policy’s

“exclusive use” clause. An “insured” is “[t]he owner or anyone

else from whom you [JTM] hire or borrow a covered auto ... while

[it]: (1) [i]s being used exclusively in your business as a

trucker; and (2) [i]s being used pursuant to operating rights

granted to you by a public authority”. (Emphasis added.) 
24

Minter is acting as Receiver for claims by Largent, not Hammer

Trucking, against Great American; for coverage under this clause,

Minter must establish that Largent was the owner or person from

whom JTM hired or borrowed the truck. Minter contends: because

Largent had sole custody of the truck at his home, JTM was

essentially borrowing the truck from him when he performed JTM’s

maintenance duties. Needless to say, this contention is wholly

without merit. 

The lease governing the truck’s use lists Hammer Trucking, not

Largent, as the “Owner-Operator Lessor”. Largent’s name does not

appear in the lease. Hammer Trucking allowed Largent to keep the

truck at his residence simply as an accommodation for Largent’s

lack of transportation to and from work. There is no evidence in

the record that Hammer Trucking intended to convey any ownership

interest to Largent. 

4.

Finally, in one paragraph of its brief, Minter claims coverage

under the TE 99-16 endorsement to the underlying St. Paul policy.

That endorsement modifies the definition of “covered auto” to

include any automobile JTM hired, borrowed or leased. It also

states: “While any covered auto ... is rented or leased to [JTM]

and is being used by [JTM] or for [JTM], its owner or anyone else

from whom [JTM] rent[s] or lease[s] it is an insured ....”

(Emphasis added.) 
25

As with the “exclusive use” clause, Minter must establish it

was Largent, not Hammer Trucking, from whom JTM rented or leased

the truck. As he did for that clause, Minter contends that,

because the truck was a leased vehicle being used by Largent to

perform JTM’s non-delegable duty of maintenance, coverage exists

under this endorsement. 

As discussed above, however, there is no evidence that Largent

had any ownership interest in the truck. That Largent’s use of the

truck at the time of the accident may have been related to JTM’s

non-delegable duty of maintenance is immaterial in deciding

coverage vel non under this endorsement. Some form of ownership

interest is required for coverage under this endorsement. 

B.

For Largent’s claims, and based on the foregoing, the only

possible coverage is under the St. Paul policy as a permissive

user. Great American maintains that, even if Minter can satisfy

that standard, it is not liable for the state court judgment for

any one of three reasons: (1) it did not receive notice of the

state court action until after entry of judgment; (2) that action

did not involve an “actual trial”; and (3) there was no

“occurrence” within the meaning of the policy. After having raised

these affirmative defenses in its answer to plaintiff’s first

amended complaint, see FED. R. CIV. P. 12(b), Great American raised

them in its summary judgment motion. It was not necessary for the
26

district court to address them because it held coverage did not

exist.

1.

Concerning its not receiving notice of the state court action

until eight months after entry of judgment, Great American does not

dispute that AON, its agent, received notice of Morris’ action.

Great American maintains, however: AON accepted loss-notice

provisions on behalf of JTM, the insured, not Great American, the

insurer; and, therefore, AON’s receipt of notice was insufficient

to constitute constructive notice to Great American. Moreover,

Great American contends the agency agreement provided no authority

for AON to accept loss notices on behalf of Great American.

The agency agreement granted AON authority to act as Great

American’s agent to: “(a) issue and deliver policies, bonds,

certificates, endorsements and binders; (b) cancel policies and

obligations; and (c) provide all usual and customary services of an

insurance agent on all contracts of insurance ...”, as well as

accept premiums on behalf of Great American. At the time of the

collision, and during the original state court proceeding, Texas

had two classifications for insurance agents: “local recording

agents” and “solicitors”. See TEX. INS. CODE ANN. art. 21.14 (Vernon

1981), amended by Acts 2001, 77th Leg., ch. 703, § 3.01, eff. 1

Sept. 2001. A “local recording agent” was defined as one who

“solicits insurance, has the power to write policies of insurance,
27

binds the insurer on risks, and collects premiums on behalf of the

insurer”. TIG Ins. Co. v. Sedgwick James, 276 F.3d 754, 760 (5th

Cir. 2002) (citing TEX. INS. CODE ANN. art. 21.14 (Vernon Supp.

2001)). Under the terms of the agency agreement, AON was Great

American’s “local recording agent”. Minter asserts several times

that AON held that position; Great American never disputes this. 

A “recording agent is closest to the principal, and his

actions will always bind the principal”. Id. (citation omitted).

Great American does not dispute AON had previously forwarded

several of JTM’s loss notices to it. Moreover, both counsel for

Great American and an officer at AON (a licensed “local recording

agent”) admitted it is customary for an insurance agent to receive,

on behalf of its principal, notice of lawsuits. Therefore, AON had

both actual and apparent authority to accept loss notices on behalf

of Great American. 

It is a fundamental rule of agency law that notice to the

agent constitutes notice to the principal. See, e.g., Elite

Towing, Inc. v. LSI Fin. Group, 985 S.W.2d 635, 642-43 (Tex.

App.–Austin 1999, no pet. h.). Accordingly, Great American’s lackof-notice defense fails as a matter of law. 

2.

Great American cites three Texas Supreme Court decisions for

the proposition that the underlying judgment arising out of Morris’

state court action is unenforceable because it did not result from
28

an “actual trial”. See State Farm Lloyds Ins. Co. v. Maldonado,

963 S.W.2d 38 (Tex. 1998); Trinity Universal Ins. Co. v. Cowan, 945

S.W.2d 819 (Tex. 1997); State Farm Fire & Cas. Co. v. Gandy, 925

S.W.2d 696 (Tex. 1996). In Maldonado, the defendant did not appear

for trial; his lawyer neither contested the plaintiff’s evidence of

liability and damages nor cross-examined any witnesses. 963 S.W.2d

at 40. Similarly, in Cowan, the defendant in the underlying trial

did not appear or present any defense. 945 S.W.2d at 821.

Moreover, that case was decided on other grounds. Id. Gandy

involved a 

settlement arrangement between the plaintiff

and some of the defendants ... by which the

settling defendants agree[d] to pay the

plaintiff a certain amount of money and to

participate in the trial against the

nonsettling defendants, and the plaintiff

agree[d] to release the settling defendants

from liability and, if the judgment against a

nonsettling defendant [was] large enough, to

repay the settlement amount.

 

925 S.W.2d at 709 (citation omitted). These types of agreements

were held void as a matter of public policy. Id. at 710. 

Great American maintains this action is similar to Maldonado

and Cowan because Largent failed to: answer discovery requests;

respond to Morris’ motion for partial summary judgment on

liability; participate in the pretrial hearing; participate in jury

selection; make an opening statement; cross-examine any of Morris’

witnesses or object to his evidence; call witnesses or otherwise
29

introduce any evidence in his defense; or make a closing argument.

Therefore, according to Great American, the underlying state trial

was not an “actual trial” because liability and damages were not

“vigorously litigated”. 

First, all three decisions are factually distinguishable from

the situation at hand. Unlike Gandy, there is no evidence of

collusion between the plaintiff and defendants. Moreover, this

case is not similar to either Maldonado or Cowan because Don

Hammer, pro se, defended himself and Largent, his co-defendant. 

In any event, and for the reasons given supra, Great American

had constructive notice of the action against JTM, Hammer Trucking,

and Largent. In Ridgway v. Gulf Life Ins. Co., 578 F.2d 1026 (5th

Cir. 1978) (per curiam), an excess carrier had notice of an action

against its insured, yet failed to provide a defense. In a

subsequent action by the insurer to collaterally attack the

judgment against its insured, our court adopted the following from

the district court’s opinion: “The principle is well-established

that if a liability insurer with notice of a suit and duty to

defend it fails to do so, it is bound by the judgment in that

suit”. Id. at 1029. Moreover, our court ruled that it made no

difference whether an insurer had the duty to defend or the right

to defend; it was sufficient that the insurer had “the right to

defend and had adequate notice of a claim under the terms of this

policy”. Id. We hold similarly that, because Great American had
30

constructive notice of the underlying action against JTM, Largent,

and Hammer Trucking, as well as the right to defend, it is

precluded from collaterally attacking the state court judgment.

3.

Finally, Great American contends that, because the state court

jury found Largent acted with malice, there was no “occurrence”

under its policy. There, “occurrence” is defined as “an accident,

including continuous or repeated exposure to conditions which occur

during the policy period which unexpectedly and unintentionally

results in ‘injury’”. (Emphasis added.) A finding of malice in

Texas requires, inter alia, that “the actor has actual, subjective

awareness of the risk involved ....” TEX. CIV. PRAC. & REM. CODE ANN.

§ 41.001(7)(B)(ii) (Vernon 1997), amended by Acts 2003, 78th Leg.,

ch. 204, § 13.02, eff. 1 Sept. 2003. Great American claims

Largent’s collision with Morris could not have been an “accident”

because Largent was aware of the risk of driving while intoxicated.

Cowan, the one case cited by Great American, is easily

distinguishable. There, a photo lab technician intentionally

copied revealing photographs of Cowan and showed them to a friend,

who also knew Cowan. 945 S.W.2d at 820-21. The court held that,

because copying the photographs was intentional, it was not an

“occurrence” under the policy. Id. at 827-28.

Obviously, Cowan did not concern a commercial automobile

liability policy. Moreover, it dealt with an intentional act.
31

There has been no allegation that Largent intentionally caused the

collision with Morris. Absent authority on point, we decline to

hold that intoxication results in “no occurrence” under a

commercial motor liability policy. (During oral argument, Great

American admitted such a holding would be “a red letter day” in

Texas insurance law.)

C.

As noted, in addition to breach of contract, Minter presented

tort claims for bad faith, malice, and violations of the Texas

Insurance Code and the Texas Deceptive Trade Practices Act.

Concomitant to its holding coverage did not exist under either the

St. Paul or Great American policies, the district court held these

claims failed as a matter of law. Minter, 2004 WL 515615, at *10.

Because material fact issues preclude finding no coverage under the

underlying St. Paul omnibus clause, we reverse these rulings

against Minter’s tort claims.

III.

In sum, any recovery by Minter against Great American’s excess

policy must have its basis in the omnibus clause for the underlying

St. Paul policy; genuine issues of material fact exist for whether

Largent was a permissive user under that clause. On the other

hand, Minter has failed to establish coverage under the “exclusive

use” clause or the MCS-90 or TE 99-16 endorsements to that policy.

Great American’s affirmative defenses fail as a matter of law.

Summary judgment against Minter’s extra-contractual tort claims is
32

vacated. Accordingly, the judgment in favor of Great American is

VACATED; the underlying rulings in favor of Great American are

AFFIRMED in PART and REVERSED in PART; and this matter is REMANDED

for further proceedings consistent with this opinion. 

VACATED; AFFIRMED IN PART and REVERSED IN PART; REMANDED