Opinion ID: 170978
Heading Depth: 1
Heading Rank: 7

Heading: Nature of the Obligation

Text: Notably, the endorsement and the underlying insurance policy, while linked, impose different obligations based on different requirements. An insurance policy typically imposes an obligation to indemnify (i.e., pay without reimbursement) on the insurance company based on the policy's coverage of a particular risk. The endorsement, on the other hand, imposes an obligation on the insurance company to make payment in the first instance, based on a final judgment entered against the motor carrier and subject to possible reimbursement by that carrier. It is therefore helpful to distinguish between the two types of protection at play when a motor carrier is responsible for an accident causing injury to a member of the public. First, there is a public financial responsibility embodied in the MCS-90 (and in the other two alternatives prescribed by 49 C.F.R. § 387.7(d)): liability for a judgment rendered against a motor carrier in favor of an injured member of the public for negligence. An insurer guaranteeing a motor carrier's public financial responsibility presents a readily accessible source for satisfaction of the judgment irrespective of the ultimate apportionment of insurance liability. This liability, by itself, imparts no duty to defend or right of subrogation to the insurance company. As the endorsement makes clear, although the MCS-90 insurer may be obligated to pay a liability judgment against the motor carrier, the insurer can obtain indemnification from the insured party the motor carrier. In essence, the MCS-90 is a guarantee an injured member of the public will obtain at least a portion of his or her judgment regardless of the ultimate allocation of liability and regardless of the financial health of the motor carrier. The other type of liabilityand more widely understoodis the insurance liability. A motor carrier insures itself against possible liability in its business operations. Based on the insurance policy limits and in exchange for a premium paid, an insurance company agrees to cover the carrier (i.e., pay for certain liabilities without right of reimbursement) for the carrier's own negligence. The purpose of liability insurance is to minimize the motor carrier's risks in operating its fleet; insurance transfers a certain amount of risk from the trucking company to its insurer. Further, the insurance company providing liability insurance has a duty to defend the carrier in a lawsuit for negligence and may be ultimately on the hook for any judgment against the carrier. The insurance company has an incentive to ensure the motor carrier operates its business in a safe manner; the insurance company can increase premiums, drop its coverage, or refuse to renew the policy in response to risks raised by the motor carrier's operation. The motor carrier, having obtained liability insurance coverage, is typically obligated to pay two possible expenses: (1) the premium for the policy, and (2) any portion of a negligence judgment exceeding all applicable insurance policy limits. The insurance company in turn is obligated to pay (without right of reimbursement from the carrier) for the motor carrier's defense and liability costs covered by the policy, typically only up to the policy's stated limits. To accomplish the MCS-90's suretyship purpose, the endorsementwhen triggered reads out only those clauses in the policy that would limit the ability of a third party victim to recover for his loss. Larsen Intermodal Servs., Inc., 242 F.3d at 673 (quoting Carolina Cas. Ins. Co. v. Underwriters Ins. Co., 569 F.2d 304, 312 (5th Cir. 1978)). This purpose, however, is not implicated where there is an allocation of responsibility as between multiple insurers. Id. (But there is no need for or purpose to be served by this supposed automatic extinguishment of a clause insofar as it affects the insured or other insurers who clamor for part or all of the coverage. (quotation and brackets omitted)). The MCS-90 should not render the endorsement-insurer primary, or co-primary, as a matter of law where the underlying policy provides otherwise. See id. ([T]he MCS-90 states that `all terms, conditions, and limitations in the policy to which the endorsement is attached shall remain in full force and effect as binding between the insured and the company.'). [I]t follows that when the protection of injured members of the public is not at stake, the MCS-90 and the relevant federal regulations do not address coverage for the purpose of disputes between the insured and the insurer. Id; see Empire Fire & Marine Ins. Co. v. J. Transport, Inc., 880 F.2d 1291, 1298 (11th Cir.1989) (It is clear that while ICC regulations require the carrier, or its certified insurer, to protect the public from loss due to negligent acts, the regulations do not alter or affect the obligations between the insured and the insurer, or where there is more than one insurer, the apportionment of liability between them.). Additionally, the MCS-90 endorsement is not an ordinary insurance provision to protect the insured. The endorsement does not extinguish the debt of the insured. Travelers Indem. Co. of Ill. v. W. Am. Specialized Transp. Servs., Inc., 409 F.3d 256, 260 (5th Cir.2005). The MCS-90 endorsement instead grants the insurer the right to seek reimbursement from the insured party 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 insurance company] would not have been obligated to make under the provisions of the policy except for the agreement contained herein. 49 C.F.R. § 387.15, Illus. I; see also W. Am. Specialized Transp. Servs., Inc., 409 F.3d at 260 ([The endorsement] transfers the right to receive the insured's debt obligation from the judgment creditor to the insurer.). Such a right of reimbursement is triggered only if there is no coverage under the insurer's policy. Larsen Intermodal Servs., Inc., 242 F.3d at 673. In sum, the MCS-90 endorsement creates an obligation entirely separate from other obligations created by the policy to which it is attached. The MCS-90 defines the insurer's public financial responsibility obligation, while the underlying policy defines the insurer's insurance liability obligation. It would make no sense to jump to the insurer's MCS-90 endorsement obligation if the underlying insurance policy already provides coverage for the accident.