Court Opinion

ID: 9475539
Source: CourtListenerOpinion
Date Created: 2023-08-05 05:30:15.808459+00
Date Added: 2024-06-11T17:44:46.177316
License: Public Domain

CUDAHY, Circuit Judge,
dissenting:
The case before us could hardly be simpler or more straightforward. International’s and Occidental’s policies are unambiguous and, somewhat surprisingly, perfectly consistent with each other.1 Occidental’s policy states that, on the present facts, it provides excess coverage.2 International’s policy states that, on these same facts, it provides primary coverage.3 Insurers may thus by express contract allocate liability, and we need look no further than the insurance policies in this case.
*996I shall undertake, however, although I think it really unnecessary, to address the indemnification agreement that the district court thought pivotal and to follow the various threads of the majority opinion. In the first place, the indemnification agreement does not alter the responsibilities of the insurers as established in the policies.4 Occidental was not a party to the indemnification agreement and Occidental’s policy clearly states that it does not apply to “liability assumed by the insured under any contract or agreement.”5 In light of this clear policy language, although Broviak may enter into an indemnification agreement enforceable against himself, see Transamerican Freight Lines, Inc. v. Brada-Miller Freight Systems, Inc., 423 U.S. 28, 96 S.Ct. 229, 46 L.Ed.2d 169 (1975), he may not bind Occidental without Occidental’s consent. Hence, as I have indicated, there is no reason for us to look beyond the language of the policies.
Even absent the Occidental policy provisions that disclaim coverage of liability contractually assumed by the insured, Broviak’s agreement with Beelman could not alter Occidental’s liabilities under the policy. An insurer’s contractual obligations cannot ordinarily be altered by collateral agreements between its insured and third persons. Carolina Casualty Insurance Co. v. Underwriters Insurance Co., 569 F.2d 304, 313 (5th Cir.1978). An insurer's liability is governed by its contract with the insured, and it cannot be held to anything beyond that contractual duty. Transport Indemnity Co. v. Home Indemnity Co., 535 F.2d 232, 235 (3d Cir.1976); see Taylor v. Kinsella, 742 F.2d 709, 711-12 (2d Cir. 1984) (insurer not liable for coverage agreed to by insureds in lease agreement when lease agreement not incorporated into the policy); Occidental Fire & Casualty Co. v. Bankers & Shippers Insurance Co., 564 F.Supp. 1501, 1504 (W.D.Va.1983) (same); Insurance Co. of North America v. Continental Casualty Co., 431 F.Supp. 316, 320 n. 8 (E.D.Penn.1977), rev’d, 575 F.2d 1070 (3d Cir.1978). Of course, had Occidental’s policy explicitly provided coverage for liability contractually assumed by Broviak, then the provisions of the lease agreement would be relevant in determining whether the insurer was liable. See Pennsylvania Manufacturers’ Association Insurance Co. v. Lumbermens Mutu*997al Casualty Co., 648 F.2d 914 (3d Cir.1981). That, however, is very clearly not the case here.
In any event, the majority does not rely on the indemnification agreement but instead argues that Beelman had no underlying liability for the accident and, therefore, International cannot be liable under its insurance policy. This conclusion relies on arguments that are not before us and “facts” that have never been found. While the majority may be correct that liability on the part of the insured is, in general, a prerequisite to an insurer’s liability, and that the insurance coverage in this case extends only to sums that the insured is legally obligated to pay (a condition that we assume is found commonly in all policies of this type), the majority errs in making an independent determination of Beelman’s liability pursuant to the loaned servant doctrine.
The two insurers in this case jointly settled the underlying litigation without putting into question or deciding the liability of their respective insureds. The insurers reserved only the right to seek a determination of which policy provided primary coverage. This is totally different from the right to seek a determination that there was no risk for one of the policies to cover. Further, the parties did not raise, the district court did not address, nor has either party raised on appeal, the issue of Beelman’s liability under the loaned servant doctrine.6 Yet the majority has felt free to address this issue and to make the related factual determinations, all without finding out whether either party thought this issue existed. In addition, in pursuing a non-issue, the majority has improperly found facts on appeal.
In this connection, the majority has decided that under Illinois law Hauk was not a loaned employee and therefore Beelman (and ultimately International) could not be responsible for his alleged negligence. I do not know if this is a correct interpretation of Illinois law (and we are without the facts to make such a determination here), but even if this interpretation were correct, on the issue of Beelman’s liability the loaned servant doctrine must very likely yield to the Interstate Commerce Commission regulations and the lease language pursuant to the regulations.
The ICC regulations require:
The lease shall provide that the authorized carrier lessee shall have exclusive possession, control, and use of the equipment for the duration of the lease. The lease shall further provide that the authorized carrier lessee shall assume complete responsibility for the operation of the equipment for the duration of the lease.
49 C.F.R. § 1057.12(c)(1).7 Certain provisions in the Interstate Commerce Act also demonstrate the understanding of Congress that lessee interstate carriers were to be liable for negligent operation of the motor vehicles that they used. Thus all ICC-certified carriers are required to file with the ICC an insurance policy or other form of security “sufficient to pay ... for each final judgment against the carrier for bodily injury to, or death of, an individual resulting from the negligent operation, maintenance, or use of motor vehicles under the certificate or permit.” 49 U.S.C. *998§ 10927(a)(1). Further, the Act requires “a motor carrier ... that uses motor vehicles not owned by it to transport property under an arrangement with another party to ... obtain liability and cargo insurance. ...” 49 U.S.C. § 11107(a)(3).
I agree with the majority that the ICC regulation and required lease language should not be controlling in this case on the issue of primary versus excess insurance coverage, see 787 F.2d at 1139-40, but these requirements of federal law are very likely controlling (and preemptive for that matter) as to any issue of Beelman’s underlying liability for damages sustained in connection with the operation of its leased trucks.8 Any other interpretation would relieve regulated over-the-road truckers of responsibility for improper operation of the trucks they use to carry freight over the public highways.9 This is simply an unimaginable result — and one that the ICC sought to preclude by regulation.10
The majority’s reliance on the requirements of the loaned servant doctrine necessarily implies a finding that the accident was caused by Hauk’s negligence and that he was not a loaned servant while driving for Beelman. The majority is correct that Occidental did not challenge before the district court the assumption that Hauk was negligent nor does it challenge on appeal International’s characterization of him as negligent. However, the issue of Hauk’s negligence was not raised by the parties either before the district court or on appeal; hence, one can hardly take Occidental’s failure to argue that Hauk was not negligent as a concession of his negligence. International’s brief does in passing characterize Hauk as negligent, but International does not argue that he was negligent or that his being characterized as such has any importance. It is blatantly unfair to hold that a party has conceded a fact by failing to deny its truth when the fact was not in issue. It may be more than likely that Hauk was negligent, but it is not our role to make such factual findings. They are the business of the district court.
Similarly, as I have noted, the loaned servant issue has not been mentioned, let alone briefed, by the parties. Once again the majority intrudes upon the district court’s factfinding role by determining that Hauk was not a loaned servant on the basis of a grossly inadequate record — without even the benefit of the parties’ arguments. The majority’s conclusion is based on speculation, not the record.11
The majority errs in concluding that the issue whether Hauk was a loaned servant may be decided, as a matter of law, solely on the basis of the lease agreement. The Illinois courts have held that the “essential criterion for determining the existence of a loaned servant relationship is that of control over the employee.” Holmes v. Saha*999ra Coal Co., 131 Ill.App.3d 666, 673, 86 Ill.Dec. 816, 821, 475 N.E.2d 1383, 1388 (1985); see Gundich v. Emerson-Comstock Co., 21 Ill.2d 117, 123, 171 N.E.2d 60, 63 (1960); Mosley v. Northwestern Steel & Wire Co., 76 Ill.App.3d 710, 719, 31 Ill.Dec. 853, 860, 394 N.E.2d 1230, 1237 (1979). The test is, as the majority notes, whether the employee becomes wholly subject to the control and direction of the second employer and free from the control of the original employer. See, e.g., Gundich, 21 Ill.2d at 123, 171 N.E.2d at 63; Mosley, 76 Ill.App.3d at 719, 31 Ill.Dec. at 860, 394 N.E.2d at 1237. In applying this test the factfinder should consider “various factors such as the manner of hiring, the mode of payment, the nature of the work, the manner of direction and supervision of the work and the right to discharge.” Mosley, 76 Ill.App.3d at 719, 31 Ill.Dec. at 860, 394 N.E.2d at 1237 (citing cases); see Gundich, 21 Ill.2d at 123, 171 N.E.2d at 63.
The majority makes some attempt to analyze these factors, but its analysis is necessarily speculative and ultimately inadequate. For example, it is true, as the majority points out, that under the agreement Broviak was responsible for paying the driver of the truck, but the mode of payment is only one of the factors to be considered and is not by itself decisive. In Mosley, cited by the majority, the employee was held to have been loaned out even though he was paid by his original employer. See American Stevedores Co. v. Industrial Commission, 408 Ill. 449, 97 N.E.2d 325 (1951); Highway Insurance Co. v. Sears Roebuck & Co., 92 Ill.App.2d 214, 235 N.E.2d 309 (1968).
The majority goes on to assert that “Broviak trained and provided the driver to operate the truck,” without telling us why this is relevant to the question whether Hauk was loaned out. If Broviak had not provided the driver, the question whether Hauk was a loaned-out employee would never have arisen. And one might assume that the original employer will usually have trained the employee (to the extent the employee has any training). In any case neither of these are among the factors considered by the Illinois courts in deciding whether the loaned servant doctrine applies.12
The majority merely notes that, in accordance with ICC regulations, “the lease stated that the lessee was to have complete responsibility for the operation of the vehicle.” In my view, the purpose of the regulations and the lease language is to preclude avoidance of liability by a motor carrier operating under ICC authority. In the face of the regulations and lease language, it is very questionable that the loaned servant doctrine could be relied on to defeat liability. If it could, and Beelman’s underlying liability were really in issue (a position that I reject), the matter would have to be addressed by the district court on remand, and the requisite facts would have to be found.
As I have noted, it is both improper and unnecessary for us to determine Beelman’s liability for Hauk’s actions. Beelman’s liability may be assumed for purposes of this proceeding. The insurance policies themselves are explicit and definitive as to which insurance is primary and which excess. The policies on their face, as well as established law, make clear that the indemnification agreement does not affect the coverage of the policies. Hence, the indemnification agreement need not be considered at all.13 Instead, the explicit provi*1000sions of the policies providing that the International insurance is primary and the Occidental insurance is excess are controlling.
Thus, for all these reasons, I believe International is primarily liable and I respectfully dissent.

. International argues that Hauk, the truck driver, borrowed the truck from Beelman, the common carrier, and thus its policy provides only excess coverage. This argument is patently frivolous. See Defendant's Brief at 10.

. Occidental’s policy provides:
With respect to (1) any automobile of the commercial type while leased or loaned to any person or organization, other than the named insured, engaged in the business of transporting property by automobile for others, or (2) any hired private passenger automobile, or (3) any non-owned automobile, the insurance under this endorsement shall be excess insurance over any other valid and collectible insurance, whether primary, excess or contingent, available to the insured. Otherwise, the insurance under this endorsement is primary insurance.
Under this policy, Occidental’s coverage would be primary on the present facts if International did not provide any "valid and collectible” insurance. International argues that because of the indemnity agreement, Beelman was never liable for the accident and hence International’s policy was not collectible. See Defendant’s Brief at 21-23. International, however, did provide valid, collectible insurance. The indemnity agreement does not relieve Beelman of liability to the victim of the accident; rather, it merely gives it a contractual right to seek reimbursement from Broviak. International may be subrogated to any rights Beelman has against Broviak under the indemnity agreement. See Defendant’s Brief at 13-14. It does not follow, however, that, because International may seek reimbursement from Broviak under the indemnity agreement, it may also seek reimbursement from Occidental under the indemnity agreement.
It might «liso be argued that International’s policy is not "collectible,” and thus Occidental’s coverage is primary, because International’s insured, Beelman, is not liable for the accident as a matter of tort law. Such an argument could follow from the majority’s finding under Illinois’ "loaned employee” doctrine that Broviak, and not Beelman, is legally responsible for the driver's actions. International, however, has never claimed that its insured is free of tort liability due to the loaned employee doctrine but instead relies solely on the indemnification agreement in its attempt to avoid liability. Even if the parties had raised the insured’s underlying tort liability as an issue here, as is discussed below the loaned employee doctrine would not have relieved International of liability given the Interstate Commerce Commission regulations and the lease language pursuant to those regulations. See infra pp. 997-98. Finally, it is far from obvious that the existence of tort liability on the part of the insured would be required for its insurance to be considered "valid and collectible.”

. International’s policy provides:
This policy’s liability coverage is primary for any covered auto while hired or borrowed by *996you and used exclusively in your business and over a route or territory, if any, you are authorized to serve by public authority. This policy’s liability coverage is excess over any other collectible insurance for any covered auto while hired or borrowed from you by another trucker.

. See supra footnote 2.

. The majority argues that the policy’s exclusion of contractually assumed liabilities is superseded by provision (d) of the "truckmen’s endorsement.” The truckmen’s endorsement, from which the majority selectively quotes, provides excess insurance for automobiles while leased or loaned. The policy exclusion, on the other hand, provides that the insurance does not apply to liability assumed by the insured under any contract or agreement. Clearly, therefore, the truckmen’s endorsement does not conflict with, much less supersede, the exclusion.
The fundamental flaw in the majority’s reasoning is that it does not recognize the difference between liabilities created because an automobile is leased (for which excess insurance is provided by the truckmen’s endorsement) and liability created by a particular provision in the lease agreement (which is excluded from coverage). They are not the same thing. Broviak could have leased his truck to Beelman without including an indemnification clause in the lease agreement. While Occidental contemplated providing excess insurance for liablity that resulted merely because Broviak leased an automobile to Beelman, it did not contemplate providing insurance for any liability that Broviak voluntarily assumed in a specific provision of the lease. The "foreseeability" of an indemnity agreement is irrelevant. An insurer is not obliged to cover all "foreseeable" risks, especially when those risks are within the control of the insured. The policy informed Broviak that it would not cover liability created by an indemnification agreement. Broviak should have refrained from agreeing to that clause in the lease, or sought other insurance to cover the risk that he voluntarily assumed. Broviak’s actions, therefore, caused any "gap" in the coverage; the insurance policy was not inherently flawed, as the majority would lead us to believe. Truck Ins. Exch. v. Liberty Mutual Ins. Co., 102 Ill.App.3d 24, 57 Ill.Dec. 503, 428 N.E.2d 1183 (1981), cited by the majority, is inapplicable here because Occidental’s insurance contract does not incorporate the lease agreement.

. It is striking that the majority is willing to conclude that Occidental waived the argument that the court should not rely on the lease agreement to shift liability to Occidental, but closes its eyes to the much larger waiver issue here.

. The regulations also prescribe an endorsement for motor carrier policies, providing that: “Within the limits of liability ... it is further understood and agreed that no condition, provision, stipulation, or limitation contained in this policy ... shall relieve the [insurance] Company from liability____" ICC Form B.M.C. 90; see Travelers Ins. Co. v. Transport Ins. Co., 787 F.2d 1133, 1139 (7th Cir.1986). In accordance with this prescription, International’s insurance policy contained the following provision:
[I]t is further understood and agreed that no condition, provision, stipulation, or limitation contained in the policy, or any other endorsement, by the insured, shall relieve the company from liability hereunder or from the payment of any such final judgment, irrespective of the financial responsibility or lack thereof or insolvency or bankruptcy of the insured.

. The language from Travelers quoted by the majority addresses the issue whether the ICC statute and regulations necessarily require the ICC carrier to assume primary liability. Although International is not primarily liable by virtue of the ICC regulations, we may still consider Beelman’s assumption of "complete responsibility” for the operation of the leased truck when deciding whether it is liable under state (as impacted by federal) law.

. The majority acknowledges that the Supreme Court and this circuit have allowed a shifting of primary liability from the lessee to the lessor only where "it is clear that there are sufficient funds available to safeguard the public." Travelers, 787 F.2d at 1140. See supra p. 986. Yet by focusing on the ■ insureds' underlying tort liability, the majority’s reasoning would release International from all liability under its policy even if Broviak possessed no insurance at all to compensate the public for injuries inflicted through the operation of the leased trucks.

. I see no need to address the question whether the loaned servant doctrine might operate to exculpate the lessor in situations in which the doctrine’s otherwise exculpatory impact on the lessee is preempted by federal law.

. The majority rather lamely asserts that its analysis is not speculative because "the facts are not in dispute." The problem is that we do not have sufficient facts before us, disputed or undisputed, to determine whether Hauk is a loaned employee. Further, the facts that are before us are "undisputed" only in the sense that neither party has argued or briefed the loaned servant issue. The entire theory involving an alleged loaned servant is one of the majority’s own concoction.

. On another point, it is pure speculation that Broviak has the power to discharge the driver. It does not necessarily follow that because Broviak selected, trained and paid the driver, he also had the power to discharge the driver under the circumstances of this case. For example, in Mosley the original employer had selected, paid and presumably trained the employee, yet the second employer had the power to discharge. Similarly, in Highway Insurance, although Nu-gents selected and paid the employees, Sears (the second employer) had the right to fire them. The employees were held to have been loaned out to Sears.

. The majority, however, holds that Occidental waived any argument that the indemnification agreement could not be considered. The issue of the lease agreement was first raised in the defendant’s trial brief. International argued that the lease agreement should be incorporated *1000into the insurance policies. Apparently, Occidental never filed a reply brief and thus did not avail itself of the opportunity to argue against defendant's position. On appeal, however, International did not argue that Occidental had waived the right to make arguments concerning the lease agreement. A defense of waiver can itself be waived by not being reused. See Lynk v. LaPorte Superior Court No. 2, 789 F.2d 554, 565 (7th Cir.1986). However this may be, it is unthinkable that Occidental’s failure to argue the issue at the trial level could compel us to accept International's obviously defective argument here.