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

Heading: We Adopt the Majority View

Text: Carolina Casualty argues we should abandon our Empire Fire framework because it is inconsistent with both the MCS-90's intended purposes and the interpretation of the endorsement by the majority of other circuits. We agree, and conclude the MCS-90 endorsement is intended to impose a surety obligation on the insurance company. Consequently, when an injured party obtains a negligence judgment against a motor carrier, an insurer's obligation under the MCS-90 endorsement is not triggered unless (1) the underlying insurance policy (to which the endorsement is attached) does not provide liability coverage for the accident, and (2) the carrier's other insurance coverage is either insufficient to meet the federally-mandated minimums or non-existent. Once the federally-mandated minimums have been satisfied, however, the endorsement does not apply. Next, we discuss the reasoning behind our change in MCS-90 interpretation and application.
Carolina Casualty correctly notes that the regulatory framework underscores the surety nature of the MCS-90 obligation. It argues the endorsement should act as a safety net to protect the public where none of a motor carrier's liability insurance policies satisfies at least a minimum amount of an injured party's judgment. We conclude the MCS-90 endorsement is intended to act as a surety for two reasons. Initially, as explained above, the regulations provide a series of alternatives for satisfying the requisite proof of a motor carrier's financial responsibility under the MCA: (1) an MCS-90 endorsement attached to an insurance policy, (2) a surety bond, or (3) FMCSA authorized self-insurance. See 49 C.F.R. § 387.7(d); Distrib. Servs., Inc., 320 F.3d at 489. Because each of these alternatives equally satisfy the public financial responsibility requirements prescribed by the FMCSA, the concepts underlying the second and third alternatives are informative in understanding the nature of the MCS-90 obligation. A surety bond, evidenced by an MCS-82 form, see 49 C.F.R. § 387.15, Illus. II, is a surety on its face. The MCS-82 form provides: This bond assures compliance by the Principal [motor carrier] with the applicable governing provisions, and shall inure to the benefit of any person or persons who shall recover a final judgment or judgments against the Principal for public liability.... If every final judgment shall be paid for such claims resulting from the negligent operation, maintenance, or use of motor vehicles in transportation subject to the applicable governing provisions, then this obligation shall be void, otherwise it will remain in full effect. Id. (emphasis added). By the express terms of the MCS-82 form, the surety's obligation under the bond is inapplicable if a final negligence judgment against a motor carrier is paid from other sources. Rather, the surety's obligation to an injured member of the public only arises if there is an unsatisfied judgment. Similarly, the third alternative of self-insurance requires a motor carrier to demonstrate to the FMCSA a financial ability to satisfy a negligence judgment. See id. § 387.309(a). As part of this option, the motor carrier must, among other things, demonstrate it has established, and will maintain, an insurance program that will protect the public against all claims to the same extent as the minimum security limits applicable to [the motor carrier].... Such a program may include, but not be limited to, one or more of the following: Irrevocable letters of credit; irrevocable trust funds; reserves; sinking funds; third-party financial guarantees, parent company or affiliate sureties; excess insurance coverage; or other similar arrangements. Id. § 387.309(a)(2). Under this approach, nothing prevents the motor carrier from obtaining liability insurance coverage from an outside insurer that would otherwise satisfy any potential negligence liability obligations for the carrier's accidents. In this way, the self-insurance option may also operate as a suretyship rather than as primary insurance coverage. This regulatory structure suggests the MCS-90 endorsement operates in much the same way as the two alternativesi.e., as a surety in the event judgment against the carrier is for some reason unsatisfied. Conceivably, the motor carrier may carry adequate insurance coverage providing recovery at least to the FMCSA prescribed minimumsfor a judgment in favor of an injured party. Or, the carrier may choose to pay the judgment out of its own pocket. In either of these cases, the purposes behind the MCS-90 are satisfied, and the endorsement is unnecessary. See id. § 387.1 (The purpose of these regulations is to ... assure that motor carriers maintain an appropriate level of financial responsibility for motor vehicles operated on public highways.). On the other hand, if, for example, the carrier fails to maintain insurance (or sufficient insurance) on a truck involved in an accident and fails to pay out of its own pocket for its liability to the injured party, the MCS-90 endorsement's purpose is clearly implicated. The endorsement in this circumstance would effectuate a minimum level of recovery for the injured party from the MCS-90 provider. The second reason for finding the MCS-90 operates as a surety is because, by its express terms, the endorsement provides that while 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, ... [t]he insured agrees to reimburse the company for any payment made by the company... that the company would not have been obligated to make under the provisions of the policy except for the agreement contained in this endorsement. Id. § 387.15, Illus. I. Nothing precludes the motor carrier from paying the judgment itself or obtaining the payment from other insurance sources. The endorsement obligates the underlying insurer to make this payment not in the motor carrier's stead, but to ensure a minimum level of satisfaction of a public liability judgment. See id. (noting the insurer's obligation is irrespective of the financial condition, insolvency or bankruptcy of the [motor carrier]). This is exactly the way a surety obligation is designed to operate. See Peter A. Alces, The Law of Suretyship and Guaranty § 1:1 (2009) (The essence of suretyship is the undertaking to answer for the debt of another. The surety's liability is coextensive with that of the debtor and arises only when the debtor fails to discharge his duties or to respond in damages for that failure.). In short, the surety concept flows naturally from the purpose and text of the governing regulatory provisions.
With this understanding of the surety nature of the MCS-90 endorsement, we move to the conditions that trigger its application. As discussed above, the relevant purpose of the Motor Carrier Act was to ensure a motor carrier's financial responsibility for negligence liability, not to preempt state insurance law or contracting principles. We thus agree with Carolina Casualty that an MCS-90 endorsement, rather than fundamentally altering the terms of the underlying insurance policy, operates to ensure payment of a minimum amount of an injured party's judgment against a negligent motor carrier. The MCS-90 endorsement comes into play, then, only where (1) the underlying insurance policy to which the endorsement is attached does not otherwise provide liability coverage, and (2) the carrier's other insurance coverage is either insufficient to satisfy the federally-prescribed minimum levels of financial responsibility or is non-existent. This conclusion flows from the language of the MCS-90 endorsement, and the nature of the coverage provided by it.