UNITED SPECIALTY INSURANCE COMPANY, Plaintiff and Respondent,

v.

Liboria Aguilar BARRIGA et al., Defendants and Appellants.

D080066

Filed April 18, 2023

APPEAL from a judgment of the Superior Court of San Diego County, Richard S. Whitney, Judge. Affirmed. (Super. Ct. No. 37-2020-00013685-CU-IC-CTL)

Attorneys and Law Firms

Su Barry; Herronlaw and Matthew V. Herron for Defendants and Appellants.

Law Offices of Daniel J. Spielfogel and Daniel J. Spielfogel for Plaintiff and Respondent.

Opinion

BUCHANAN, J.

*1 The Estate of Salvador Rosales Aguilar and the decedent’s parents, Liboria Aguilar Barriga and Aristeo Rosales Arreola (collectively the Aguilar parties), appeal from a final judgment entered after a summary judgment ruling in favor of United Specialty Insurance Company (USIC) in a declaratory relief action. Based on our de novo review and interpretation of the USIC insurance policy, we conclude that it provides no third-party liability coverage for a wrongful death action against the insured arising from a vehicle accident that occurred in Mexico, outside the policy’s defined coverage territory. Accordingly, we affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

A. Accident and Wrongful Death Action

THX Transport, LLC (THX) transports goods for customers in the United States and Mexico. Most of its business involves shipments across the border. THX subcontracts with other shipping companies in Mexico.

In July 2017, Salvador Rosales Aguilar was riding his motorcycle in Tijuana, Mexico. A tractor-trailer truck owned and insured by THX made an illegal U-turn in front of him, causing him to crash. Aguilar was transported to a hospital in San Diego, where he died eight days later.

In July 2019, the Aguilar parties filed a wrongful death action in San Diego Superior Court against THX, the truck driver, and a Mexican company with which THX subcontracted.

B. USIC Insurance Policy

At the time of the accident, THX was insured under a commercial automobile policy issued by USIC. Section II of the policy (entitled “Liability Coverage”) provides: “We will pay all sums an ‘insured’ legally must pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies, caused by an ‘accident’ and resulting from the ownership, maintenance or use of a covered ‘auto.’ ” Section III (entitled “Trailer Interchange Coverage”) separately covers damages the insured was required to pay because of “loss” to a trailer it did not own or its equipment. Section IV (entitled “Physical Damage Coverage”) separately covers “loss” to the insured’s own covered auto or its equipment.

Section V of the policy (entitled “Truckers Conditions”) sets forth specific conditions that apply “in addition to the Common Policy Conditions.” One of these is labeled “Policy Period, Coverage Territory.” It limits the policy coverage to “ ‘accidents’ and ‘losses’ occurring … [w]ithin the coverage territory.” The policy defines the “coverage territory” as follows:

“a. The United States of America;

“b. The territories and possessions of the United States of America;

“c. Puerto Rico;

“d. Canada; and

“e. Anywhere in the world if:

“(1) A covered ‘auto’ of the ‘private passenger’ type is leased, hired, rented or borrowed without a driver for a period of 30 days or less; and

“(2) The ‘insured’s’ responsibility to pay damages is determined in a ‘suit’ on the merits, in the United States of America, the territories and possessions of the United States of America, Puerto Rico, or Canada or in a settlement we agree to.”

*2 “We also cover ‘loss’ to, or ‘accidents’ involving, a covered ‘auto’ while being transported between any of these places.”

Section VI sets forth additional definitions of terms used in the policy. It defines “bodily injury” as “bodily injury, sickness or disease sustained by a person including death resulting from any of these.” It defines “loss” as “direct and accidental loss or damage.” It defines “private passenger type” to mean “a private passenger or station wagon type ‘auto’ and includes an ‘auto’ of the pickup or van type if not used for business purposes.”

The USIC policy includes endorsement form MCS-90, which is a federally required endorsement for motor carriers under sections 29 and 30 of the Motor Carrier Act of 1980. (49 U.S.C. §§ 13906, 31139.) The endorsement provides in relevant part:

“The insurance policy to which this endorsement is attached provides automobile liability insurance and is amended to assure compliance by the insured [sic], within the limits stated herein as a motor carrier of property, with Sections 29 and 30 of the Motor Carrier Act of 1980 and the rules and regulations of the Federal Highway Administration (FHA).

“In consideration of the premium stated in the policy to which this endorsement is attached, the insurer (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 asubject 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….

“However, 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 company.”

C. USIC’s Reservation of Rights Letter

In October 2019, USIC sent THX a reservation of rights letter stating that it owed no duty to defend or indemnify THX in the wrongful death action because (1) the accident did not occur within the coverage territory; and (2) THX failed to give prompt notice of the accident. However, USIC agreed to provide THX with a defense in the wrongful death action subject to a full reservation of rights.

D. Declaratory Relief Action

In March 2020, USIC filed this declaratory relief action against THX, the Aguilar parties, and others. The complaint sought a judicial determination that USIC owed no duty to defend or indemnify THX in the wrongful death action brought by the Aguilar parties. THX failed to respond to the complaint and a default was entered against it.

E. Summary Judgment Motion

In July 2021, USIC filed a motion for summary judgment or summary adjudication of issues. USIC argued that it had no duty to defend or indemnify under the THX policy because: (1) the accident did not occur within the coverage territory; and (2) THX failed to provide USIC with notice of the accident or loss.

*3 In opposition, the Aguilar parties argued: (1) the “loss” occurred within the coverage territory because Aguilar died in San Diego; (2) the policy provided coverage for transportation between the United States and “anywhere in the world”; (3) the coverage territory definition in the Truckers Conditions portion of the policy was not clear and conspicuous; (4) USIC had a duty to indemnify under the MCS-90 endorsement; and (5) USIC was not prejudiced by THX’s alleged failure to give prompt notice.

In their statement of undisputed facts, the Aguilar parties admitted that the truck was not a “private passenger” type as defined in the USIC policy.

F. Summary Judgment Ruling

The trial court issued a tentative ruling in favor of USIC, which it confirmed after hearing arguments at the hearing.

The court concluded that “coverage was limited to the territories and possessions of the United States of America, Puerto Rico, and Canada” and “[i]t is undisputed the accident occurred in Mexico.” The court further found that the “anywhere in the world” language of the policy by its terms applied only to “private passenger” type vehicles, and “it is undisputed this case did not involve a ‘private passenger’ type auto because it was a tractor-trailer unit used for business purposes.” The court rejected the theory that there was a covered “loss” just because Aguilar ultimately died in the United States. The court also found that the policy’s definition of the coverage territory was sufficiently conspicuous. Finally, with respect to the MCS-90 endorsement, the trial court concluded that it was subject to the same territorial limitations as the rest of the policy.

The court entered a final judgment declaring that there was no coverage and that USIC had no duty to defend or indemnify THX in the wrongful death action as a matter of law. The Aguilar parties filed a timely notice of appeal.

DISCUSSION

I

In the trial court, the Aguilar parties made five separate arguments for coverage under the USIC policy. On appeal, they only pursue two of these arguments: (1) their “loss” was suffered within the coverage territory because Aguilar died in the United States; and (2) there is coverage under the MCS-90 endorsement. We review these issues de novo in a summary judgment appeal. (Ryan v. Real Estate of Pacific, Inc. (2019) 32 Cal.App.5th 637, 642.)

A. No Third-Party Liability Coverage for Accident Outside Coverage Territory

The Aguilar parties first argue that the Truckers Conditions of the policy provide coverage for “ ‘accidents’ and ‘losses’ occurring … [w]ithin the coverage territory.” Because Aguilar was transported to a hospital in the United States and died there after the accident, they assert that they suffered a covered “loss” within the coverage territory. We disagree.

Interpretation of an insurance policy is a question of law. (Palmer v. Truck Ins. Exchange (1999) 21 Cal.4th 1109, 1115.) Insurance policies are contracts to which the ordinary rules of contractual interpretation apply. (Ibid.) We must generally give the terms used in the policy their ordinary and popular meaning. (Ibid.) We must also interpret those terms in context and give effect to every part of the policy, with each clause helping to interpret the other. (Ibid.) A policy provision is ambiguous only if it is susceptible to two or more reasonable constructions when considered within the context of the policy as a whole. (Ibid.) We will resolve any ambiguity in favor of the insured to protect the insured’s reasonable expectation of coverage. (Ibid.)

*4 Based on our review of the USIC policy as a whole, we conclude that there is no third-party liability coverage for an accident that occurred in Mexico. We begin with the overall structure of the policy. The policy contains three separate coverage sections, immediately followed by the additional Truckers Conditions. The three coverage sections are Liability Coverage, Trailer Interchange Coverage, and Physical Damage Coverage. The only coverage applicable here is the Liability Coverage.

The Liability Coverage applies to judgments against the insured (THX) for damages for bodily injury or property damage “caused by an ‘accident’ ” from the use of a covered auto. The operative language of this Liability Coverage does not use the word “loss”—it only refers to damages for bodily injury or property damage caused by an “accident.” By contrast, the word “loss” is used in connection with the separate Trailer Interchange Coverage (for damages the insured must pay for “loss” to a trailer it does not own) and Physical Damage Coverage (for “loss” to the insured’s own auto or equipment).

The Truckers Conditions immediately following these three coverage sections set forth additional conditions applicable to all three types of coverage. One of these additional conditions limits coverage to “ ‘accidents’ and ‘losses’ … [w]ithin the coverage territory.” This is the provision the Aguilar parties rely on in asserting that Aguilar’s death in the United States constituted a “loss” in the covered territory.

Construing the policy as a whole, however, we conclude that the phrase “ ‘accidents’ and ‘losses’ ” as used in this provision refers back to either “accidents” falling within the Liability Coverage or “losses” falling within the Trailer Interchange Coverage or Physical Damage Coverage. In other words, this provision of the Truckers Conditions limits the policy’s Liability Coverage to “accidents” occurring within the coverage territory and limits the policy’s Trailer Interchange Coverage and Physical Damage Coverage to “losses” occurring within the coverage territory. Because this case only involves the policy’s Liability Coverage for liability resulting from an accident, and because it is undisputed that the accident occurred in Mexico outside the coverage territory, there is no coverage under the plain language of the policy.

The Aguilar parties’ contrary interpretation would read the territorial provision of the Truckers Conditions in isolation is if it were a free-standing coverage provision for all types of accidents and losses occurring within the coverage territory. But it is not a separate coverage provision. The Truckers Conditions are additional conditions that apply to the coverages set forth in the preceding sections of the policy. We must consider the policy as a whole and construe its language in context, rather than interpreting one provision in isolation. (Employers Reinsurance Co. v. Superior Court (2008) 161 Cal.App.4th 906, 919.) Construing the territorial limits of the Truckers Conditions by reference to the preceding coverage provisions they apply to, we conclude that the policy is not reasonably susceptible to the interpretation advanced by the Aguilar parties.

Our holding is consistent with the decision in Jones v. State Farm Mutual Automobile Ins. Co. (2004) 268 Va. 396 (601 S.E.2d 645). In that case, the plaintiffs sustained physical injuries in a motor vehicle accident in St. Maarten (in the Netherlands Antilles), but incurred medical expenses in both St. Maarten and the United States. (Id. at p. 398.) Their automobile insurance policies each had similar territorial limitations, including one that limited coverage “ ‘to accidents and losses which occur … [w]ithin the policy territory’ ”—which the policy defined as the United States, its territories and possessions, Puerto Rico, or Canada. (Id. at p. 398, fn. 1.) The plaintiffs conceded that these territorial limitations were clear and unambiguous, but argued that there was coverage because some of their medical expenses were incurred in the United States. (Id. at p. 400.) However, the Virginia Supreme Court rejected this argument on the ground that it would “alter the terms of the insurance contract by judicial fiat and arbitrarily add to the policy additional and unmeasured insurance risks involved for driving in St. Maarten or any other foreign country or territory which is not a part of the insurance contract.” (Ibid.)

*5 We agree with this holding. “Territorial limitations are ubiquitous to the insurance industry as a means of allowing the insurer to make actuarial assessments of policy risks.” (Marchitelli, Construction and Application of Insurance Policies’ Coverage Territory Clauses Excluding Occurrences Within or Without United States (2016) 10 A.L.R.7th Art. 7.) Extending the plain language of USIC’s policy to an accident occurring outside the coverage territory in a foreign country would expose it to risks not contemplated by the contract of insurance.

In sum, the plain meaning of the policy is that the Liability Coverage does not apply to an accident that occurred in Mexico. The mere fact that Aguilar ultimately died in a hospital in the United States does not trigger Liability Coverage for an accident that occurred outside the defined coverage territory. The insured “could not reasonably have expected coverage from this policy for liability arising out of a vehicular collision in Mexico.” (Foremost Ins. Co. v. Eanes (1982) 134 Cal.App.3d 566, 572 [enforcing similar territorial coverage provision].)

B. No Coverage Under MCS-90 Endorsement

The Aguilar parties alternatively contend that there is coverage under the MCS-90 endorsement. They assert that the Motor Carrier Act of 1980 and the implementing regulations require that the MCS-90 endorsement apply to foreign commerce, and that the endorsement is not limited to negligence occurring in the United States. Once again, we disagree.

The Motor Carrier Act of 1980 and its implementing regulations require motor carriers to demonstrate that they are in some way insured against damage they cause. (Castro v. Budget Rent-A-Car System, Inc. (2007) 154 Cal.App.4th 1162, 1175, fn. 7 (Castro).) A motor carrier can fulfill its responsibility by (1) a federal form MCS-90 endorsement attached to its insurance policy; (2) a surety bond; or (3) self-insurance. (Ibid.) If the motor carrier chooses the form MCS-90 endorsement, it must use the form prescribed by federal regulations. (49 C.F.R. § 387.15.) The primary purpose of the MCS-90 endorsement is to assure that injured members of the public will be able to obtain judgment from negligent interstate carriers. (Castro, at p. 1175, fn. 7.) “Federal law applies to the operation and effect of the MCS-90 endorsement.” (Century-National Ins. Co. v. Global Hawk Ins. Co. (2012) 203 Cal.App.4th 1458, 1464 (Global Hawk).)

As the trial court noted, the MCS-90 endorsement explicitly 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 company.” Thus, the provision of the Truckers Conditions limiting the coverage territory remains in effect under the MCS-90 endorsement, unless the endorsement provides otherwise. (See Aerojet-General Corp. v. Transport Indemnity Co. (1997) 17 Cal.4th 38, 50, fn. 4 [endorsement controls in case of conflict between it and body of policy].)

Nothing in the MCS-90 endorsement expands coverage beyond the rest of the policy’s coverage territory. By its terms, the standard MCS-90 endorsement in the USIC policy only applies to 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 ….” (Italics added.) Thus, the endorsement applies only if the transportation was subject to these statutory requirements, which are codified at title 49 United States Code sections 13906 and 31139.

*6 The Fifth Circuit has squarely ruled “that [United States Code] Section 31139 and the MCS-90 endorsement extend minimum financial responsibility only to the portions of transportation by a motor carrier or private carrier occurring within the United States.” (Canal Indem. Co. v. Galindo (5th Cir. 2009) 344 Fed.Appx. 909, 911 (per curiam) (Canal), italics added; see also Lincoln General Ins. Co. v. De La Luz Garcia (5th Cir. 2007) 501 F.3d 436, 440–442 (Lincoln General) [reaching the same conclusion for nearly identical MCS-90B endorsement for motor carrier of passengers]; Lyles v. FTL Ltd., Inc. (2018) 339 F.Supp.3d 570, 576 [“a motor vehicle is not subject to” these financial responsibility requirements “if it is involved in an accident while traveling outside of the United States”].)

In Canal, the Fifth Circuit found no coverage under endorsement MCS-90 for a vehicle accident that occurred in Mexico, and agreed with the reasoning of the magistrate and district court reaching the same result. (Canal, supra, 344 Fed.Appx. at p. 911; see also Canal Indem. Co. v. Galindo (W.D. Tex., Feb. 2, 2009, No. 2:07-CV-070) 2009 WL 10669138 [magistrate’s report and recommendation]; Canal Indem. Co. v. Galindo (W.D. Tex., March 25, 2009, No. DR-07-CV-070-AML/DG) 2009 WL 10669159 [district court order accepting magistrate’s report and recommendation].) The Aguilar parties cite no contrary authority.

As the Fifth Circuit concluded, this conclusion is compelled by the plain language of the controlling federal statute. Title 49 of the United States Code, section 31139(b)(1) provides:

“The Secretary of Transportation shall prescribe regulations to require minimum levels of financial responsibility … for the transportation of property by motor carrier or motor private carrier … in the United States between a place in a State and–

“(A) a place in another State;

“(B) another place in the same State through a place outside of that State; or

“(C) a place outside the United States.”

By its terms, this statute applies only to the portion of any such transportation “in the United States.” (49 U.S.C. § 31139(b)(1).) Another provision of the statutory scheme similarly provides:

“The Secretary [of Transportation] … [has] jurisdiction … over transportation by motor carrier and the procurement of that transportation, to the extent that passengers, property, or both are transported by motor carrier–

“(1) between a place in–

“(A) a State and a place in another State;

“(B) a State and another place in the same State through another State;

“(C) the United States and a place in a territory or possession of the United States to the extent the transportation is in the United States;

“(D) the United States and another place in the United States through a foreign country to the extent the transportation is in the United States; or

“(E) the United States and a place in a foreign country to the extent the transportation is in the United States.” (49 U.S.C. § 13501, italics added.)

The plain meaning of these statutory provisions is that the financial responsibility requirements of the Motor Carrier Act of 1980 do not apply to transportation occurring outside the United States. Because the MCS-90 endorsement applies only to motor carrier transportation subject to these financial responsibility requirements, it does not cover an accident occurring outside the United States. (Canal, supra, 344 Fed.Appx. at p. 911; see also Lincoln General, supra, 501 F.3d at pp. 440–442.) We are bound by federal law in construing the MCS-90 endorsement. (Global Hawk, supra, 203 Cal.App.4th at p. 1464.) We must therefore conclude that the MCS-90 endorsement provides no coverage for an accident that occurred in Mexico.

DISPOSITION

*7 The judgment is affirmed. Respondent is awarded its costs on appeal.

WE CONCUR:

O’ROURKE, Acting P. J.

IRION, J.

All Citations

Not Reported in Cal.Rptr., 2023 WL 2978978

© 2023 Thomson Reuters. No claim to original U.S. Government Works.  

End of Document

OOIDA RISK RETENTION GROUP, INC., Plaintiff,

v.

CHARITY CONTRACT HAULING, LLC; Lamar Charity; Mario Van McIlwain; Daniel Loyal; and, Wendy Loyal, Defendants.

1:20cv259

Signed March 30, 2023

Attorneys and Law Firms

Jon M. Hughes, Michael Patrick Johnson, McMickle Kurey & Branch, LLP, Alpharetta, GA, for Plaintiff.

Timothy J. Pavone, The Law Offices of Attorney Timothy J. Pavone, PLLC, Charlotte, NC, for Defendant Mario Van McIlwain.

Douglas B. Abrams, Noah B. Abrams, Abrams & Abrams, P.A., Raleigh, NC, for Defendants Daniel Loyal, Wendy Loyal.

MEMORANDUM OPINION AND ORDER

THOMAS D. SCHROEDER, Chief District Judge.

*1 This is an action by Plaintiff OOIDA Risk Retention Group, Inc. (“OOIDA”) for a declaratory judgment, pursuant to 28 U.S.C. § 1391, regarding insurance coverage relating to a vehicle accident that is the subject of a pending state court lawsuit. Before the court are two dispositive motions by OOIDA. First, OOIDA moves for summary judgment against Defendants Mario van McIlwain, who was the driver of the truck in the underlying accident, and Daniel and Wendy Loyal (the “Loyals”), who were the injured parties in the accident. (Doc. 42.) The Loyals do not oppose the motion for summary judgment, but McIlwain has not responded. (Doc. 46.) Second, OOIDA moves for default judgment against Defendants Charity Contract Hauling, LLC., (“Charity Hauling”), McIlwain’s alleged employer at the time of the accident, and Lamar Charity, its vice president. (Doc. 44.) Neither Charity Hauling nor Lamar Charity has appeared in this case. For the reasons explained below, both motions will be granted.

I. BACKGROUND

The facts, briefly stated, are alleged to be as follows:

In March 2019, OOIDA issued an automobile liability policy (the “Policy”) to Charity Hauling. (Doc. 1 ¶ 10; Doc. 1-1.) OOIDA contends that the Policy only covers the following vehicles used by Charity Hauling: a 1999 Freightliner tractor, a 2015 Freightliner tractor, and a 2000 Strick/DV trailer. (Doc. 1 ¶ 14.)

On May 17, 2019, McIlwain, while working for Charity Hauling, was driving a 2020 HINO box truck (the “truck”), which collided with a 2017 Ford Explorer driven by Daniel Loyal. (Doc. 1 ¶¶ 17-18.) At the time of the collision, the truck had been leased to Charity Hauling and Lamar Charity and was delivering goods on behalf of both. (Doc. 1-2 at 6.)

The Loyals filed a lawsuit in Orange County, North Carolina, on November 4, 2019, against McIlwain, Charity Hauling, and Lamar Charity, among others, seeking damages for injuries arising out of the accident (the “state court lawsuit”). (Doc. 1 ¶ 20; Doc. 1-2.) On March 18, 2020, OOIDA filed this declaratory judgment action against Charity Hauling, Lamar Charity, McIlwain, and the Loyals, seeking a declaration that it has no duty to defend or to indemnify Charity Hauling, Lamar Charity, or McIlwain as to the state court lawsuit. (Doc. 1 ¶¶ 25-26, 30-31.) OOIDA argues this is because the Policy covers neither the truck as a “covered auto” nor Charity Hauling, Lamar Charity, or McIlwain as insureds under the Policy. (Doc. 1 ¶¶ 24-25, 29-31.) Further, while the Policy also has an MCS-90 endorsement,¹ and while OOIDA alleges in the complaint that the MCS-90 endorsement is not applicable (Doc. 1 ¶¶ 34-35), after mediation with the Loyals OOIDA now concedes that the endorsement applies but argues that it does not create a duty to defend any party in the state court lawsuit (Doc. 43 at 9). The Loyals, who are the injured plaintiffs in the state court lawsuit, agree that the Policy raises no duty to defend or to indemnify related to the accident. (Doc. 46.) Further, except for McIlwain’s answer filed in this case (as noted below), the record contains no indication that anyone has asserted that OOIDA bears either a duty to defend anyone in the state court lawsuit or a duty to indemnify any judgment that might result from it. The complaint, summary judgment motion, and motion for default judgment all lack any indication that any party has demanded that OOIDA defend or indemnify it. Importantly, neither Charity Hauling, to whom the Policy was apparently issued (see Doc. 1-1 at 4, 10), nor Lamar Charity has appeared in the present action. McIlwain only filed an answer. In it, his second defense contends that the complaint should be dismissed to permit the matters to proceed in the state court lawsuit. (Doc. 17 at 2.) And while McIlwain’s answer prays for a judgment declaring a duty to defend him, it is only in response to OOIDA’s complaint in this case. (Id. at 5.)

II. ANALYSIS

A. Standing

*2 An insurer seeking a declaratory judgment must demonstrate that it faces a concrete injury sufficient to show standing. “The ‘irreducible constitutional minimum of standing’ requires the petitioner to allege a concrete injury that is ‘actual or imminent, not conjectural or hypothetical.’ ” Trustgard Insurance Co. v. Collins, 942 F.3d 195, 199 (4th Cir. 2019) (citing Lujan v. Defs. Of Wildlife, 504 U.S. 555, 560 (1992)). Otherwise, a federal court potentially exceeds its constitutional authority outlined in Article III of the Constitution and runs the risk of rendering nothing more than an advisory opinion. Id. (citing Spokeo, Inc. v. Robins, 578 U.S. 330, 337-38 (2016); MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 126 (2007).) Thus, a plaintiff bears the burden of showing it has standing. See Overbey v. Mayor of Baltimore, 930 F.3d 215, 226-27 (4th Cir. 2019). And even if standing is demonstrated, a court must consider whether it should exercise its discretionary jurisdiction under the Declaratory Judgment Act. Trustgard, 942 F.3d at 201-02 (citing Wilton v. Seven Falls Co., 515 U.S. 277, 289-90 (1995); Nautilus Ins. Co. v. Winchester Homes, Inc., 15 F.3d 371, 376-77 (4th Cir. 1994)).

In determining whether to proceed, the court must determine if the case is ripe for adjudication. OOIDA is seeking a declaration that it has no duty either to defend or to indemnify the parties in this case. District courts must be careful to “distinguish between the duty to defend and the duty to indemnify in determining whether each issue posed in a declaratory-judgment is ripe for adjudication.” Adm. Ins. Co. v. Niagara Transformer Corp., 57 F.4th 85, 93 (2d Cir. 2023) (collecting cases). Pursuant to North Carolina law, the duty to defend is “broader than [the] obligation to pay damages incurred by events covered by a particular policy.” Wm. C. Vick Const. Co. v. Great Am. Ins. Co., 52 F. Supp. 2d 569, 575 (E.D.N.C. 1999) (citing Waste Management of Carolinas, Inc. v. Peerless Ins. Co., 340 S.E.2d 374, 377 (N.C. 1986)), aff’d sub. nom. Wm. C. Vick Const. Co. v. Great American Ins. Co., 213 F.3d 634 (4th Cir. 2000) (unpublished).

The duty to defend arises “when the claim against the insured sets forth facts representing a risk covered by the policy.” Id. (citing Fieldcrest Cannon, Inc. v. Fireman’s Fund Ins. Co., 477 S.E.2d 59, 66 (N.C. App. 1996)). This is determined by what North Carolina courts call the “comparison test,” where “the pleadings are read side–by–side with the policy to determine whether the events as alleged are covered or excluded.” Waste Mgmt. of Carolinas, 340 S.E.2d at 378. “[T]he facts alleged [in the pleadings] are to be taken as true and compared to the language of the insurance policy.” Kubit v. MAG Mut. Ins. Co., 708 S.E.2d 138, 144 (N.C. App. 2011) (quoting Harleysville Mut. Ins. Co. v. Buzz Off Insect Shield, L.L.C., 692 S.E.2d 605, 610 (N.C. 2010)). “When the pleadings state facts demonstrating that the alleged injury is covered by the policy, then the insurer has a duty to defend, whether or not the insured is ultimately liable.” Waste Mgmt. of Carolinas, 340 S.E.2d at 377. This is true even if the facts alleged in the complaint are groundless, false, or fraudulent accusations. Id. at 378. Only “if the facts are not even arguably covered by the policy” can an insurer be excused from its duty to defend. Kubit, 708 S.E.2d at 144 (citing Waste Mgmt. of Carolinas, 340 S.E.2d at 378). “If the facts, as alleged in the complaint, could support liability under the policy, then a duty to defend arises on the insurer’s part … [and] any doubt as to coverage is to be resolved in favor of the insured.” Peerless Ins. v. Strother, 765 F. Supp. 866, 869 (E.D.N.C. 1990) (citing Waste Mgmt. of Carolinas, 340 S.E.2d at 694). Even where the complaint fails to assert claims falling within the coverage provided, an insurer’s duty to defend may still be found where the insurer knows or could reasonably ascertain facts that, if proven, would be covered by the policy. Waste Mgmt. of Carolinas, 340 S.E.2d at 377. However, the inverse is not true. New NGC, Inc. v. Ace Am. Ins. Co., 105 F. Supp. 3d 552, 568 (W.D.N.C. 2015) (citing St. Paul Fire & Marine Ins. Co. v. Vigilant Ins. Co., 724 F. Supp. 1173, 1179 (M.D.N.C. 1989) (noting that an insurer may not exonerate itself of liability by concluding that no coverage exists despite the allegations of the complaint), aff’d, 919 F.2d 235 (4th Cir. 1990)). Whether there is a duty to defend is a question of law. Great West Casualty Co. v. Packaging Corp. of Am., 444 F. Supp. 3d 664, 673 (M.D.N.C. 2020).

*3 In contrast, “an insurer’s duty to indemnify will depend on resolution of facts alleged in the complaint.” Great West, 444 F. Supp. 3d at 674 (citing Penn-Am. Ins. Co. v. Coffey, 368 F.3d 409, 413 (4th Cir. 2004)). To that end, courts have held that a “duty to indemnify is generally resolved after the underlying lawsuit.” Id. (citing Trustgard, 942 F.3d at 200) (other citations omitted). However, if the court determines that there is no duty to defend after reviewing the complaint in the underlying lawsuit and accepting all the facts as true, it necessarily follows that “the court may also reach the conclusion that there is no duty to indemnify as well.” Great West, 444 F. Supp. 3d at 674.

Here, the duty to defend claims are ripe for adjudication. An underlying lawsuit has been pending in state court for nearly four years. (Doc. 1-2.) The Loyals named McIlwain, Lamar Charity, and Charity Hauling as parties (Doc. 1-2 at 1), and Charity Hauling held an insurance policy with OOIDA (Doc. 1-1). Pursuant to North Carolina law, the filing of the state court lawsuit can trigger a duty to defend, particularly now that OOIDA has actual notice of it. See Kubit, 708 S.E.2d at 154 (adopting the “majority rule” and holding that “in North Carolina, the duty to defend arises when an insurer receives actual notice of the underlying action.”) Based on these facts, the court finds it has jurisdiction to determine whether a duty to defend exists against OOIDA.

B. Court’s Discretion

A court must also determine whether it should exercise its discretion to decide the declaratory judgment action. See Trustgard, 942 F.3d at 201. Whether the court should do so is subject to the same legal analysis but can turn on whether the question is sufficiently concrete. An insurer who contends it has no duty to defend generally can either defend a claim tendered to it under a reservation of rights or seek a declaratory judgment that it has no obligation to defend. Trustguard, 942 F.3d at 200 (citing Medical Assur. Co., Inc. V. Hellman, 610 F.3d 371, 381-82 (7th Cir. 2010)). While there is no evidence that any Defendant has tendered the defense of the state court lawsuit to OOIDA, OOIDA has actual notice of it, which is sufficient under North Carolina law to trigger the duty to defend. Kubit, 708 S.E.2d at 154. The court should therefore exercise its discretion to decide the declaratory judgment action.

C. Duty to Defend and Indemnify

OOIDA seeks a declaratory judgment by default against Charity Hauling and Lamar Charity and by summary judgment against McIlwain.

Default is available pursuant to Federal Rule of Civil Procedure 55 and Local Rule 7.3(k)² upon a showing that the defendant failed to defend a claim. When a motion for default judgment is unopposed, the court must exercise “sound judicial discretion” to determine whether to enter it. United States v. Williams, No. 1:17-cv-00278, 2017 WL 3700901, at *1 (M.D.N.C. Aug. 25, 2017) (internal quotation marks omitted). Upon the entry of default, the defaulted party is deemed to have admitted all well-pleaded allegations of fact, but not conclusions of law, contained in the complaint. J & J Sports Prods., Inc. v. Romenski, 845 F. Supp. 2d 703, 705 (W.D.N.C. 2012). The party moving for default judgment must still show that the defaulted party was properly served, Md. State Firemen’s Ass’n v. Chaves, 166 F.R.D. 353, 354 (D. Md. 1996),³ and that the “unchallenged factual allegations constitute a legitimate cause of action,” Agora Fin., LLC v. Samler, 725 F. Supp. 2d 491, 494 (D. Md. 2010). See Romenski, 845 F. Supp. 2d at 705 (noting that default judgment is proper when “the well-pleaded allegations in the complaint support the relief sought”).

*4 Summary judgment is warranted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). “A genuine issue of material fact exists ‘if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.’ ” Basnight v. Diamond Developers, Inc., 146 F. Supp. 2d 754, 760 (M.D.N.C. 2001) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). In determining a motion for summary judgment, the court views the “evidence in the light most favorable to the non-moving party, according that party the benefit of all reasonable inferences.” Id. Summary judgment should be denied “unless the entire record shows a right to judgment with such clarity as to leave no room for controversy and establishes affirmatively that the adverse party cannot prevail under any circumstances.” Guessford v. Pa. Nat’l Mut. Cas. Ins. Co., 983 F. Supp. 2d 652, 659 (M.D.N.C. 2013) (quoting Campbell v. Hewitt, Coleman & Assocs., Inc., 21 F.3d 52, 55 (4th Cir. 1994)).

While the movant bears the initial burden of demonstrating the absence of a genuine dispute of material fact, once that burden has been met, the non-moving party must demonstrate the existence of a genuine dispute of material fact. Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514, 521 (4th Cir. 2003); Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586–87 (1986). A mere scintilla of evidence is insufficient to circumvent summary judgment. Anderson, 477 U.S. at 252; Dash v. Mayweather, 731 F.3d 303, 311 (4th Cir. 2013) (“[T]he nonmoving party must rely on more than conclusory allegations, mere speculation, the building of one inference upon another, or the mere existence of a scintilla of evidence.”); see also Felty v. Graves-Humphreys Co., 818 F.2d 1126, 1128 (4th Cir. 1987) (noting that there is an affirmative duty for “the trial judge to prevent ‘factually unsupported claims and defenses’ from proceeding to trial” (citation omitted)). Trial is unnecessary if “the facts are undisputed, or if disputed, the dispute is of no consequence to the dispositive question.” Mitchell v. Data General Corp., 12 F.3d 1310, 1315–16 (4th Cir. 1993).

In the state court lawsuit, the Loyals allege several claims against McIlwain, Lamar Charity, and Charity Hauling. Against McIlwain they allege negligence and wanton conduct (Doc. 1-2 at 29-33), and against Lamar Charity and Charity Hauling they allege vicarious liability for the actions of McIlwain, as well as negligence and wanton conduct (Doc. 1-2 at 39-44). The Loyals also seek damages from all the defendants in the state court lawsuit for loss of consortium. (Doc. 1-2 at 50-51.)

OOIDA contends that the Motor Carrier Coverage Form in the Policy only grants insurance for “Covered Autos.” (Doc. 1 ¶ 12; see Doc. 1-1 at 57 (listing the three covered vehicles).) The Policy provides in pertinent part:

A. COVERAGE

We will pay all sums an “insured” legally must pay as damages because of “bodily injury” or “property damage” to which this insurance applies caused by an “accident” and resulting from the ownership, maintenance or use of a covered “auto”.

* * *

We will have the right and duty to defend any “insured” against a “suit” asking for such damages…. However, we have no duty to defend any “insured” against a “suit” seeking damages for “bodily injury” or “property damage” … to which this insurance does not apply. We may investigate and settle any claim or “suit” as we consider appropriate. Our duty to defend or settle ends when the Liability Coverage Limit of Insurance has been exhausted by payment of judgments or settlements.

(Doc. 1-1 at 30.)

The complaint in the state court lawsuit alleges that McIlwain was driving a 2020 HINO box truck, which collided with the Loyals’ automobile. (Doc. 1 ¶¶ 17-18.) The Policy’s Schedule of Covered Autos does not list that truck, and thus OOIDA contends it has no duty to defend Charity Hauling. (See Doc. 1-1 at 57.) Further, the Policy defines an “insured” as only those who are in some manner operating or owning a “covered auto” or “anyone liable for the conduct of an ‘insured.’ ” (Doc. 1-1 at 30.) Therefore, OOIDA contends, neither McIlwain nor Lamar Charity are “insureds” pursuant to the Policy, and OOIDA has no duty to defend them. (Doc. 1 ¶¶ 23-27.) Finally, OOIDA notes, and the Loyals concede, that the MCS-90 endorsement does not create a duty to defend. (Doc. 43 at 9.)

*5 The comparison test makes clear that the alleged claims could not possibly fall within the Policy and OOIDA therefore has no duty to defend McIlwain, Lamar Charity, or Charity Hauling in the state court lawsuit. The truck McIlwain was allegedly driving during the accident is not a “covered auto” under the Policy to give rise to an insuring obligation. Further, neither McIlwain nor Lamar Charity is an “insured” for this accident under the Policy. Moreover, the court agrees that the MCS-90 endorsement, which operates as a surety bond even where there is no coverage under the Policy and which OOIDA concedes applies, does not create a duty to defend. Titan Indemnity Co. v. Gaitan Enters., Inc., 237 F. Supp. 3d 343, 349 (D. Md. 2017) (noting that federal courts have consistently stated that the MCS-90 endorsement does not create a duty to defend claims which are not covered by the policy but only by the endorsement) (citing Harco Nat’l Ins. Co. v. Bobac Trucking, 107 F.3d 733, 735–36 (9th Cir. 1997); Carolina Ca. Ins. Co. v. Yeates, 584 F.3d 868, 883 (10th Cir. 2009); T.H.E. Ins. Co. v. Larsen Intermodal Servs., Inc., 242 F.3d 667, 677 (5th Cir. 2001)).

Because the court finds that OOIDA has no duty to defend the Defendants, it necessarily follows that there can be no duty to indemnify them. See Great West, 444 F. Supp. 3d at 674. The court will therefore grant OOIDA’s motions.

III. CONCLUSION

For the reasons stated,

IT IS THEREFORE ORDERED that OOIDA’s motion for summary judgment seeking a declaratory judgment that it has no duty to defend or indemnify McIlwain and the Loyals (Doc. 42) is GRANTED;

IT IS FURTHER ORDERED that OOIDA’s motion for default judgment seeking a declaratory judgment that it has no duty to defend or indemnify Charity Hauling and Lamar Charity (Doc. 44) is GRANTED; and

IT IS FURTHER ORDERED that this action be DISMISSED.

All Citations

Slip Copy, 2023 WL 2711408

Footnotes

1. The MCS-90 endorsement is for motor carrier policies of insurance for public liability under sections 29 and 30 of the Motor Carrier Act of 1980 and provides in pertinent part: 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. (Doc. 1-1 at 26.)  
2. Local Rule 7.3(k) states: “If a respondent fails to file a response within the time required by this rule, the motion will be considered and decided as an uncontested motion, and ordinarily will be granted without further notice.”
3. Here, OOIDA has demonstrated by a preponderance that it has properly served Defendants Charity Hauling and Lamar Charity by publication, pursuant to North Carolina Rule of Civil Procedure 4(e) and (j1), after both refused OOIDA’s process server’s attempts at personal service on multiple occasions. (Docs. 23, 24.) The Clerk of Court properly entered default thereafter. (Docs. 26, 27.)   

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