Opinion ID: 170978
Heading Depth: 1
Heading Rank: 2

Heading: Regulatory and Legal Framework

Text: We begin with an explanation of the MCS-90 endorsement and its associated regulations. We then address the competing legal analyses of the endorsement, including our approach in Empire Fire. Finally, with this background in mind, we adopt the majority approach and apply it to the facts of this case.
As part of its push to deregulate the trucking industry, increase competition, reduce entry barriers, and improve quality of service, Congress passed the Motor Carrier Act of 1980(MCA), 49 U.S.C. § 10101 et seq. See H.R.Rep. No. 96-1069 (1980), as reprinted in 1980 U.S.C.C.A.N. 2283; see also Deimling, Gregory G. et al., The MCS-90 Book: Truckers Versus Insurers and the Government Makes Three 13 (2004). According to the House Report accompanying the MCA, the intent of this legislation [was] to overhaul outmoded and archaic regulatory mechanisms, while retaining the pluses of an industry that has worked by simply conducting itself under the `rules of the game.' H.R.Rep. No. 96-1069, at 2, as reprinted in 1980 U.S.C.C.A.N. at 2284. Nevertheless, while the legislation was aimed at reducing regulatory barriers in the interstate motor carrier industry, some legislators fear[ed] that increased safety problems [would] result from the expanded entry provided in [the MCA] and that increased entry [would] open the highways to truckers who might have little concern for the safe operation and maintenance of their vehicles, thereby posing a threat to those who share the highways with them. Id. at 6, as reprinted in 1980 U.S.C.C.A.N. at 2288. The MCA, therefore, included provisions addressing these concerns as well as the abuses that had arisen in the interstate trucking industry which threatened public safety, including the use by motor carriers of leased or borrowed vehicles to avoid financial responsibility for accidents that occurred while goods were being transported in interstate commerce. Canal Ins. Co. v. Distrib. Servs., Inc., 320 F.3d 488, 489 (4th Cir.2003); Empire Fire, 868 F.2d at 362; [2] see also 16 Couch on Insurance § 226:10 (3d ed. 2008) (The relationships in the trucking business are often complicated and usually involve multiple policies. For example, one entity can own the tractor while another entity owns the trailer, with both of these entities having contractual arrangements with another party, the trucking company.). The MCA and the subsequent regulations promulgated by the Federal Motor Carrier Safety Administration (FMCSA) [3] require interstate motor carriers to obtain a special endorsement ... providing that the insurer will pay within policy limits any judgment recovered against the insured motor carrier for liability resulting from the carrier's negligence, whether or not the vehicle involved in the accident is specifically described in the policy. Ill. Cent. R.R. v. Dupont, 326 F.3d 665, 666 (5th Cir.2003). In particular, the MCA provides that a commercial motor carrier may operate only if registered to do so, 49 U.S.C. § 13901, and must be willing and able to comply with ... [certain] minimum financial responsibility requirements, [4] id. § 13902(a)(1) (emphasis added). The regulations promulgated pursuant to the MCA require proof of financial responsibility by one of three methods: (1) Endorsement(s) for Motor Carrier Policies of Insurance for Public Liability under Sections 29 and 30 of the Motor Carrier Act of 1980 (Form MCS-90) issued by an insurer(s); (2) A Motor Carrier Surety Bond for Public Liability under Section 30 of the Motor Carrier Act of 1980 (Form MCS-82) issued by a surety; or (3) A written decision, order, or authorization of the Federal Motor Carrier Safety Administration authorizing a motor carrier to self-insure under § 387.309, provided the motor carrier maintains a satisfactory safety rating as determined by the Federal Motor Carrier Safety Administration.... 49 C.F.R. § 387.7(d)(1)-(3). In other words, a motor carrier can establish proof of the requisite financial responsibility in one of three ways(1) by an MCS-90 endorsement, (2) by a surety bond, or (3) by self-insurance. See Distrib. Servs., Inc., 320 F.3d at 489. The regulations also denote the specific forms necessary to establish compliance with the financial responsibility requirements. Specifically, the MCS90 form is set forth in 49 C.F.R. § 387.15. [5]
The language of the MCS-90 endorsement and the underlying regulations evince several key conclusions with respect to the financial responsibility requirements. [6] First, the financial responsibility provisions require motor carriers to demonstrate they are adequately insured in order to protect the public from risks created by the carriers' operations. See id. §§ 387.1, 387.7. From the express language of the Motor Carrier Act and the regulations, these provisions are intended to impose a mandatory requirement that motor carriers obtain a minimum level of liability insurance, depending on the cargo they carry. See id. § 387.9. Second, the provisions were designed to ensure the collectability of a judgment not to relieve the injured member of the public from the requirement that he or she obtain a final judgment of legal liability against the motor carrier and its insurers as a prerequisite. See id. § 387.15, Illus. I ([T]he insurer ... agrees to pay, within the limits of liability described herein, any final judgment recovered against the insured for public liability resulting from negligence .... (emphasis added)). Third, an MCS-90 endorsementas one of the acceptable methods of demonstrating financial responsibilityis ambiguous with respect to how it interacts with the underlying insurance policy. The endorsement states that no condition, provision, stipulation, or limitation contained in the policy, this endorsement, or any other endorsement thereon, or violation thereof, shall relieve the [insurance company] from liability or from the payment of any final judgment, within the limits of liability herein described. Id. On one hand, this provision may suggest the endorsement modifies the underlying policy to the extent the policy is inconsistent. But on the other hand, the endorsement further provides 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. Id. It is precisely this ambiguity that has created the confusion about the effect of an MCS-90 endorsement on an injured party's right to recover a negligence judgment against a motor carrier. The tension between these competing clauses in the MCS-90 endorsement leads to confusion because courts are typically confronted with two determinations involving the endorsement that must be resolved contemporaneously: (1) the proper allocation of insurance liability among multiple insurers and the motor carrier, and (2) any possible public financial responsibility because of a shortfall in available sources for satisfaction of a judgment against the motor carrier, at least up to the prescribed minimum amount under the regulations. When we decided Empire Fire over 20 years ago, the MCS-90 landscape was sparse. Since then, our reasoning in Empire Fire has been relegated to a minority position. See Appleman on Insurance Supp. to § 4467 (Supp.2008) (describing the circuit split and the various approaches). To better explain our decision today, we provide a brief summary of the competing approaches to the interpretation and application of the MCS-90 endorsement.