Source: http://cabfinancial.com/articles/travelers-v-western-american-specialized-transportation-services/
Timestamp: 2019-04-21 16:09:32+00:00

Document:
Nobel Insurance Company, Defendant-Cross Defendant-Appellee.
This is an attempt by an excess insurance carrier to recover from a primary insurer. The district court granted summary judgment in favor of the primary carrier, and we affirm.
In 1997 Dixie Carriere was injured when her automobile and a truck owned and operated by Richard Barnett collided. Barnett was operating the truck in the course and scope of his employment with Western American Specialized Transportation Services, Inc. (Western). The accident occurred in Louisiana and Barnett and Carriere are Louisiana residents. Western is a Delaware corporation with its principal place of business in Louisiana.
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 and whether or not such negligence occurs on any route or in any territory authorized to be served by the insured or elsewhere….
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 the financial condition, insolvency or bankruptcy of the insured…. The insured agrees to reimburse the company for any payment made by the company on account of any accident, claim, or suit involving a breach of the terms of the policy, and for any payment that the company would not have been obligated to make under the provisions of the policy except for the agreement contained in the endorsement.
It is further understood and agreed that, upon failure of the company to pay any final judgment recovered against the insured as provided herein, the judgment creditor may maintain an action in any court of competent jurisdiction against the company to compel such payment.
The last two sentences from the endorsement excerpt quoted above are unusual provisions for an insurance policy rider or endorsement, in that they (1) expressly grant the judgment creditor the right to seek direct payment from the insurer, and (2) entitle the insurer to seek reimbursement from the insured for any payment made under the endorsement.
Carriere and her husband and children (the Carrieres) brought a Louisiana state court action against Barnett, Western, and Nobel. [FN3] After a jury trial the state court awarded a judgment of $2,674,540 to the Carrieres. Nobel deposited its $1 million in policy limits plus interest into the registry of the court.
After the state court judgment, the Carrieres attempted to collect the remainder of their judgment from Travelers. Travelers initiated the pending federal declaratory judgment action against the Carrieres, Barnett, Western, and Nobel. Travelers sought a declaratory judgment that its excess policy did not cover any liability of the defendants in the state court action.
If the Court finds that Travelers provides coverage or financial responsibility on behalf of Western American and Barnett, Travelers would be subrogated to the rights of its Insureds, Western American and Barnett, for claims that Nobel, as the primary insurer of Western American and Barnett, breached the duties to defend and settle all claims against its insureds with reasonable prudence and good faith.
The cross-claim then alleges that Nobel breached its duties to its insureds in several specific respects. For our purposes, the claims are premised on the theory that Travelers is subrogated to the rights of the insureds and can sue for the alleged negligence of Nobel in breaching a duty to the insureds to defend prudently the state court suit and settle it within the policy limits.
By summary judgment the district court ruled that the MCS-90 endorsement in the Travelers policy applied to the state judgment in favor of the Carrieres. [FN4] The Carrieres argued below, the district court held, and the parties to this appeal do not dispute, that the MCS-90 endorsement was the only basis on which the excess policy covered the Carriere accident and resulting judgment. [FN5] After this interlocutory ruling Travelers settled with the Carrieres for $1.55 million. The court then ruled in a second summary judgment that Travelers had no claim against Nobel, [FN6] the subject of the pending appeal.
Whether the MCS-90 obligation is most accurately described as one of suretyship, “in effect” a suretyship, or “akin” to suretyship, the result is the same and Travelers became subrogated to the rights of the Carrieres as judgment creditors of the insured parties, with a right to reimbursement from the insureds. The peculiar nature of the MCS-90 endorsement, granting the judgment creditor the right to demand payment directly from the insurer, and simultaneously granting the insurer the right to demand reimbursement from the insured, is inconsistent with allowing the insurer to stand in the shoes of the insured under a subrogation theory, and in effect sue on behalf of the insured for injury to the insured. The MCS-90 endorsement is “in effect, suretyship by the insurance carrier to protect the public–a safety net,” [FN9] and not an ordinary insurance provision to protect the insured. The endorsement does not extinguish the debt of the insured; it transfers the right to receive the insured’s debt obligation from the judgment creditor to the insurer.
FN1. See 49 C.F.R. § 387.9 (2004).
FN2. See 49 U.S.C. § § 13906(a)(1), 31139(b); 49 C.F.R. § § 387.7, 387.15 (2004). So far as we can tell from the records and briefs, the primary policy did not include the MCS-90 endorsement, so the excess policy was not a strict “following form” excess policy that mirrored precisely the underlying primary policy. However, our analysis does not turn on whether Nobel’s primary policy also contained the MCS-90 endorsement.
FN3. Because Louisiana has a direct action statute, the Carrieres were allowed to name Nobel as a party defendant in their state court suit. See La.Rev.Stat. Ann. § 22:655(B) (West 2004).
FN4. Travelers Indem. Co. of Ill. v. W. Am. Specialized Transp. Serv., Inc., 235 F.Supp.2d 522 (W.D.La.2002).
FN6. Travelers Indem. Co. of Ill. v. W. Am. Specialized Transp. Co., 317 F.Supp.2d 693 (W.D.La.2004).
FN7. See id. at 698, where the court discussed T.H.E. Ins. Co. v. Larsen Intermodal Servs., Inc., 242 F.3d 667, 672 (5th Cir.2001) (noting that “[t]he First Circuit has aptly described the obligation placed upon the insurer by the MCS-90 as one of suretyship”) and other circuit court decisions.
FN8. La. Civ.Code Ann. art. 3035 (West 2005).
FN9. T.H.E. Ins. Co., 242 F.3d at 672 (quoting Canal Co. v. Carolina Cas. Ins. Co., 59 F.3d 281, 283 (1st Cir.1995)).
FN10. Great Southwest Fire Ins. Co. v. CNA Ins. Cos., 557 So.2d 966, 971 (La.1990).

References: § 387
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