United States District Court,
E.D. Texas, Marshall Division.
Jason WELLS, Plaintiff,
v.
GULF INSURANCE COMPANY, Defendant.
No. 2-05-CV-162 (TJW).
March 28, 2006.
ORDER
WARD, J.
The above entitled and numbered civil action was referred to United States Magistrate Judge John D. Love pursuant to 28 U.S.C. § 636. The Report of the Magistrate Judge which contains his proposed findings of fact and recommendations for the disposition of such action has been presented for consideration. Plaintiff filed objections (# 85) to the Report and Recommendation (# 71) but the Court is of the opinion that the findings and conclusions of the Magistrate Judge are correct. Therefore, the Court hereby adopts the Report of the United States Magistrate Judge as the findings and conclusions of this Court.
Accordingly, it is ordered that Defendant, Gulf Insurance Company’s Motion for Summary Judgement (# 51) is denied. Further, pursuant to the parties’ stipulation, the Court will assume for summary judgment purposes that the MCS-90 was attached to Gulf’s policy. Accordingly, and in light of this Court’s adoption of Judge Love’s Report and Recommendation, the Court hereby grants Plaintiff Jason Wells’ Motion for Summary Judgment (# 45).
All other pending motions are hereby denied as moot.
REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
LOVE, Magistrate J.
Before the Court are Plaintiff, Jason Wells’ (“Wells”), motion for summary judgment (Doc. 45) and Defendant, Gulf Insurance Company’s (“Gulf”), cross motion for summary judgment (Doc. 51). Wells was involved in an automobile accident with a truck operated by self-insured Builder’s Transport, Inc. (“BTI”). Wells suffered extensive injuries in the accident and received a $417,771.00 judgment against BTI who has since become insolvent and unable to satisfy the judgment. Now Wells seeks to recover the judgment from Gulf who provided BTI with excess liability insurance with an attachment point of $3.782 million. Although Wells’ judgment is significantly below the attachment point, he argues that an endorsement attached to the insurance policy makes Gulf a surety under these circumstances, and Gulf must pay the judgment. For the reasons that follow, the Court RECOMMENDS that Wells motion for summary judgment (Doc. 45) be GRANTED IN PART and Gulf’s motion for summary judgment (Doc. 51) be DENIED.
BACKGROUND
As a motor carrier transporting goods in interstate commerce, BTI was subject to the terms of the Motor Carrier Act of 1980 (“MCA”). The MCA was passed to assure that carriers operating in interstate commerce would be financially responsible to members of the public injured by the carrier’s negligence. To qualify financially under the MCA, a carrier must file a bond, insurance policy, or other type of security approved by the Secretary of Transportation (“Secretary”) establishing that the carrier meets the minimum financial requirements set by the Secretary. 49 U.S.C. § 13906(a)(1). Under the regulatory scheme applicable to this case the minimum level of financial responsibility was $1 million. 49 C.F.R. § 387.9.
A carrier may provide proof of financial security by submitting to the Secretary: (1) proof of insurance; (2) proof of a guarantee; (3) a surety bond issued by a bonding company authorized to do business in the United States; or (4) proof of qualification as a self-insurer. 49 U.S.C. § 31139(e). BTI qualified as a self-insurer up to the regulatory minimum of $1 million, but secured additional coverage for liability exceeding $1 million from excess insurers Reliance Insurance Company (“Reliance”), Gulf Insurance Company, Royal Indemnity Company (“Royal”), and Federal Insurance Company (“Federal”). Reliance provided $1 million in coverage subject to a $1.782 minimum annual deductible meaning that BTI would pay the first $2.782 million and Reliance would pay the next $1 million up to $3.782 million. From there, Gulf was responsible for amounts between $3.782 and $16.782 million, and Royal and Federal were responsible for amounts in excess of $16.782 million.
After receiving his $417,771.00 judgment, Wells unsuccessfully attempted to collect from BTI who had since filed for bankruptcy. Wells then attempted to recover from excess insurer Reliance who refused the claim because the judgment was below the policy’s $2.782 attachment point. Reliance filed for declaratory judgment in the Beaumont Division of the Eastern District of Texas on October 17, 2000, but before that matter was resolved, Reliance was declared insolvent. See Order of Liquidation, Commonwealth Court of Pennsylvania, Cause No. 269 M.D.2001. On April 29, 2005, Wells filed this action against Gulf seeking enforcement of the judgment entered against BTI arguing that an endorsement attached to the policy operates to eliminate any clauses that would bar an injured member of the public from recovering under these circumstances. The endorsement known as an MCS-90 is a part of the MCA and reads, in relevant part, as follows:
The insurance policy to which this endorsement is attached provides automobile liability insurance and is amended to assure compliance by the insured, 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 (FHWA) and the Interstate Commerce Commission (ICC).
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 in any territory authorized to be served by the insured or elsewhere ….. It is understood and agreed that no condition, provision, stipulation, or limitation contained in the policy, this endorsement, or any other endorsement thereon, or violation thereof, shall relieve the company from liability or from the payment of any final judgment, within the limits of liability herein described, irrespective of the financial condition insolvency or bankruptcy of the insured. 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 the company. The insured agrees to reimburse the company 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 company would not have been obligated to make under the provisions of the policy except for the agreement contained in this endorsement.
It is further understood and agreed that, upon failure of the company to pay any final judgment recovered against the insured as provided herein, the judgment creditor may maintain an action in any court of competent jurisdiction against the company to compel such payment.
Following the close of discovery, Wells moved for summary judgment (Doc. 45), but Gulf contends that genuine issues of material fact exist concerning whether the MCS-90 endorsement was attached to the policy and whether all of Plaintiff’s damages are recoverable under the MCS-90. Further, Gulf moved for summary judgment on the grounds that Wells’ judgment does not trigger the MCS-90, the MCS-90 is unenforceable, and because Plaintiff’s claim is barred by limitations. The Court finds that Wells motion for summary judgment should be granted as to every issue except whether the MCS-90 was attached to the policy.
SUMMARY JUDGMENT STANDARD
Summary Judgment is proper if the movant demonstrates there are no genuine issues of material fact. Topalian v. Ehrman, 954 F.2d 1125 (5th Cir.1992) citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). Such a showing entitles the movant to summary judgment as a matter of law. Summary judgment is proper, “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Contested facts preclude summary judgment if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). However, although all the evidence and all reasonable inferences to be drawn therefrom are considered in the light most favorable to the nonmovant, the nonmoving party may not rest on the mere allegations or denials of his or her pleadings, but must respond by setting forth specific facts indicating a genuine issue for trial.” Rushing v. Kansas City Southern Ry. Co., 185 F.3d 496, 505 (5th Cir.1999), cert. denied.
The substantive law will identify what facts are material. Anderson, 477 U.S. at 250. While fact questions are considered with deference to the nonmovant, Reid v. State Farm Mutual Auto.Ins.Co., 784 F.2d 577, 578 (5th Cir.1986), a dispute as to a material fact is genuine only if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson, 477 U.S. at 248.
ANALYSIS
The MCS-90 Covers Plaintiff’s Judgment
The parties each move for summary judgment on the issue of whether the MCS-90 renders Gulf liable for Wells’ judgment. The Court finds that it does. The Policy provides for an attachment point of $3.782 million, but the MCS-90 compels Gulf to act as a surety where necessary to accomplish the MCA’s clear goal of protecting the public. McGirt, 399 F.Supp.2d at 659; Canal Ins. Co. v. Distribution Services, Inc., 320 F.3d 488 (4th Cir.2003).
The interpretation of the MCS-90 is a matter of federal law. Minter v. Great American Insurance Co. of New York, 423 F.3d 460, 470 (5th Cir.2005); Carter v. Vangilder, 803 F.2d 189, 191 (5th Cir.1986). The MCS-90 provides that the insurer agrees to pay any final judgment resulting from the carrier’s negligence notwithstanding any, “condition, provision, stipulation, or limitation contained in the policy, this endorsement, or any other endorsement thereon.” By reading out provisions that would prevent payment of the judgment the MCS-90 essentially creates a “suretyship by the insurance carrier to protect the public–a safety net.” T.H.E. Ins. Co. v. Larsen Intermodal Svcs., Inc., 242 F.3d 667, 672 (5th Cir.2001)(quoting Canal Ins. Co. v. Carolina Cas. Ins. Co., 59 F.3d 281, 283 (1st Cir1995)). However, the endorsement does not, “render the insurer primary as a matter of law.” T.H.E. Ins., 242 F.3d at 672; Carolina Cas. Ins. Co. v. Underwriters Ins. Co., 569 F.2d 304, 312 (5th Cir.1978). Only when the attached policy does not provide coverage to the insured is the MCS-90 triggered. Minter, 423 F.3d at 470.
Gulf does not dispute that the MCA is designed to protect the public, but argues that the mechanisms MCA provides to for that protection are the financial responsibility requirements alone. In the case of self-insured authorized carriers, Gulf argues that the regulatory scheme places the risk that the carrier will be able to satisfy judgments arising from its negligence on the public. See 46 Fed.Reg. 30974 (1981). This characterization may be accurate in some cases as where a self-insured carrier does not maintain any further security against judgments for its negligence beyond its self-insured status, but that is not the situation before the Court. BTI obtained excess liability coverage and, if the MCS-90 was incorporated into the Policy, secured a suretyship that shifted the risk in some circumstances to Gulf.
Furthermore, Gulf maintains that, “[n]o authority holds an ‘excess’ insurer responsible from ‘dollar one’ when the ‘primary’ insurer is unable to respond despite the express limits of the MCS-90,” and urges the Court to follow the lead of the Commonwealth Court of Pennsylvania and the District Court for the Western District of Michigan in finding that the MCS-90 does not require excess insurers to “drop down,” and satisfy judgments from the first dollar. (Gulf Motion for Summary Judgment, p. 38; Doc. 51); See August 23, 2005 Memorandum Opinion and Order, No. 269 M.D.2001, Commonwealth Court of Pennsylvania; Kline v. Gulf Ins. Co., 2005 WL 2206458,(W.D.Mich.2005). However, Kline is distinguishable and Gulf’s declaration ignores McGirt v. Royal Insurance Company of America (cite omitted), which the Court finds to be factually on all fours with the case at bar and in accord with the Fifth Circuit view that, “the policy embodied in the statutes and regulations was to assure that injured members of the public would be able to obtain judgments collectible against negligent authorized carriers.” Canal Ins. Co. v. First General Ins. Co., 889 F.2d 604, 611 (5th Cir.1989).
In Kline, a $3.2 million judgment was entered against an insolvent motor carrier self-insured up to $1 million who carried excess insurance with Reliance and Gulf. Therefore, the first $1 million was uncollectible, the second $1 million satisfied the deductible under the Reliance excess policy and was uncollectible, Reliance paid the third $1 million, Gulf’s attachment point was $3 million so it paid the final $200,000. Plaintiff sought to collect the remaining $2 million from Reliance and Gulf. The Court refused to order the excess insurers to pay that amount because Plaintiff had recovered the regulatory minimum $1 million. Therefore, the policy goal of protecting the public was fulfilled and the MCS-90 was never activated.
The Commonwealth Court of Pennsylvania found, “that there is no support in statute or case law to justify a fundamental change in the contractual terms of a policy whereby an excess insurer under a self-insured retention policy becomes a primary insurer.” August 23, 2005, Memorandum Opinion and Order at 4. After researching this issue, the Court disagrees with the Commonwealth Court of Pennsylvania’s conclusion, and would point out that it made that statement before the Court in McGirt handed down its decision.
McGirt addressed a situation encompassing facts almost identical to this case and the Court in that case found that the MCS-90 required payment of the plaintiff’s judgment. McGirt, 399 F.Supp.2d at 669-670. The Court is in agreement with the Court in McGirt that, “[t]he effect, then of an MCS-90 endorsement attached to any policy, be it primary, excess or umbrella, is to act as a surety, in the absence of payment by the insured or another insurer, of regulatory minimum, in this case $1 million.” McGirt 399 F.Supp.2d at 666-667. Thus, the MCS-90 requires Gulf to act as a surety as to Wells’ judgment.
MCS-90’s Enforceability
As discussed above, the MCA requires motor carriers operating in interstate commerce to meet minimum levels of financial responsibility. If the carrier elects to satisfy this obligation by obtaining insurance it must maintain a certificate illustrating that it has obtained compliant insurance and must retain proof of its financial responsibility in the form of an MCS-90. 49 C.F.R. § 387.7(d). However, BTI chose to illustrate its financial responsibility by qualifying as a self-insurer and, therefore, no certificate of insurance was filed with the Secretary and no MCS-90 was necessary for the regulatory minimum security of $1 million. As the MCS-90 is required for a carrier that secures insurance to satisfy the regulatory minimum, Gulf argues that the MCS-90 is unenforceable as a legal nullity because BTI qualified as a self-insurer and the MCS-90 was unecessarily attached to the excess policy. The Court disagrees.
After qualifying as financially responsible under the applicable regulations, BTI sought excess insurance from several carriers and both BTI and Gulf were free to enter into any arrangement they saw fit. If the excess policy contained the MCS-90 endorsement, Gulf offers no reason that the Court should not enforce the contract that the parties entered into. The fact that BTI was not legally required to attach the MCS-90 to the excess policy does not render the MCS-90 unenforceable if it is attached. Further, Gulf cites no authority indicating that the MCS-90 may not be incorporated as an endorsement into an insurance policy obtained in excess of the regulatory minimum. Accordingly, if the MCS-90 was incorporated into the Policy, the Court will enforce whatever effect it has on the Policy. See McGirt v. Royal Insurance Company of America, 399 F.Supp.2d 655, 661 (D.Md.2005).
Was the MCS-90 Attached to the Policy?
Gulf claims that there is a genuine issue of material fact regarding whether the MCS-90 was incorporated into the Policy and supports its contention with three arguments. First, Gulf argues that it did not receive a separate premium for the MCS-90. Considering that the MCS-90 exposes the insurer to additional risk, Gulf insists that it would have collected an additional premium from BTI had the MCS-90 been a part of the policy. This argument is not terribly compelling because the MCS-90 states that it is incorporated, “in consideration for the premium stated in the policy to which this endorsement is attached.” Were the MCS-90 attached as an endorsement amending the underlying policy it would become a part of that policy and, presumably, the insurance company would collect one premium for the entire policy. Gulf’s argument assumes that a distinct premium would have been collected for the MCS-90 had it been attached to the policy, which seems like an implausible assumption. With the information before it, the Court is not persuaded that the absence of a premium for the MCS-90 establishes that the MCS-90 was not incorporated into the Policy. However, Gulf’s remaining two arguments raise a genuine issue of material fact. The arguments are closely related so the Court will consider them together.
The MCS-90 is a separate document that would, presumably, be attached to the back of an insurance policy at the time the policy was issued. It was Gulf’s practice to list the attached endorsements in the main policy, but the Policy in this case does not contain a listing for an MCS-90. Although the MCS-90 could have been attached later, Gulf insists that were that the case, the endorsement would bear an endorsement number, a counter-signature and the underwriting file would contain correspondence forwarding the endorsement to the broker and reinsurer. See Deposition of Karin Zimmerly, p. 59, In. 9. Wells counters that the MCS-90 must have been attached because another endorsement cancelled the original MCS-90, but Gulf maintains that the cancellation only establishes that a Gulf representative believed that the MCS-90 was in effect.
The fact that the endorsement was not listed on the Policy could have been an oversight, as could the absence of a countersignature, endorsement number, and correspondence to the broker and reinsurer. Further, the MCS-90 could have been mistakenly cancelled. Wells’ evidence is not particularly compelling and certainly cannot foreclose a genuine issue of material fact regarding whether the MCS-90 was actually attached to the Policy. Therefore, Wells’ motion for summary judgment is DENIED as to the issue of whether the MCS-90 was attached to the Policy.
MCS-90 Covers Wells’ Entire Judgment
The goal of the regulatory scheme also requires that the Court reject Gulf’s argument that the MCS-90 does not authorize Wells to collect damages for diminished earning capacity, mental anguish or pre- and post-judgment interest awarded in the underlying judgment. The MCS-90 covers judgments, “recovered against the insured for public liability,” where public liability includes “liability for bodily injury, property damage, and environmental restoration,” bodily injury is defined as, “injury to the body, sickness, or disease to any person,” and property damage is defined as “[d]amage to or loss of use of tangible property.” Wells argues that his damages should be covered because they result from his “bodily injury.”
The Texas Supreme Court has held that bodily injuries under a commercial general liability insurance policy do not include injuries that are solely mental in nature, but did not offer guidance further narrowing the definition. Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 823 (Tex.1997)(“Bodily injury” within liability coverage of homeowners’ insurance policy does not contemplate purely emotional injuries or pure mental anguish, but requires injury to physical structure of human body); see also Fielder Road Baptist Church v. Guideone Elite Ins. Co., 139 S.W.3d 384, 390 (Tex.App.–Fort Worth 2004, pet. granted)(finding that allegations of emotional injuries arising from physical injury supported a claim for “bodily injury” under insurance policy). In light of the purpose of the MCS-90, the Court is inclined to interpret “bodily injury” broadly enough to include the entire judgment including past and future economic damages and interest arising from Wells’ physical injuries.
Statute of Limitations
Gulf argues that Wells’ suit is time barred because he brought it after the applicable four year statute of limitations expired. The parties generally agree that a four year statute of limitations applies, but disagree about when the limitations period began to run. Gulf argues that its obligation to pay is the event that triggered the limitations’ period to run, and that obligation arose when Wells’ first received his judgment on April 11, 2000, more than four years before this suit was filed on April 29, 2005. Gulf alternatively identifies several later events that could have triggered its obligation but rejects Wells’ argument that Reliance’s insolvency on October 3, 2001 is the event that triggered its obligation to pay.
Neither the MCA nor the MCS-90 contains an express limitations period applicable to this case, so the Court must look to the most analogous Texas limitations period. Graham County Soil & Water Conservation Dist. v. U.S. ex rel. Wilson, ante,–U.S.–, 125 S.Ct. 2444, 2448–L.Ed.2d–, — U.S. —-, 125 S.Ct. 2444, 162 L.Ed.2d 390, 2005 WL 1421316 (2005); North Star Steel Co. v. Thomas, 515 U.S. 29, 33-34, 115 S.Ct. 1927, 132 L.Ed.2d 27 (1995). Chapter 16 of Texas Civil Practice & Remedies Code sets limitations periods based on the type of action. The agreement between the parties consists of both an insurance contract and an endorsement that transforms Gulf’s role from insurer to surety when necessary to protect an injured member of the public. In either case, this action is subject to a residual four year limitations period where the limitations period begins to run, “the day the cause of action accrues.” Tex. Civ. Prac. & Rem.Code § 16.051.
When an action accrues is a matter of law. Burke v. Insurance Auto Auctions Corp., 169 S.W.3d 771, 776 (Tex.App.–Dallas 2005, pet. denied); Wexler v. Household Credit Services, Inc., 106 S.W.3d 277, 279 (Tex.App.–Dallas 2003, no pet.). Generally speaking, a cause of action accrues when facts exist that authorize a claimant to seek a judicial remedy. Schneider Nat. Carriers, Inc. v. Bates, 147 S.W.3d 264, 279 (Tex.2004); see also Lowenberg v. City of Dallas, 168 S.W.3d 800, 802 (Tex.2005)(holding that a cause of action accrues when a wrong produces an injury). Wells’ cause of action arises from Gulf’s obligation under the MCS-90, which, in the event that no other source of payment is available, reads out clauses or limitations preventing payment of the judgment. T.H.E. Ins. Co. v. Larsen Intermodal Services, Inc., 242 F.3d 667, 672 (5th Cir.2001). The Policy provided excess coverage to BTI with an attachment point of $3.782 million, but upon Reliance’s insolvency, the MCS-90 eliminated the excess coverage language and obligated Gulf to satisfy Wells’ judgment. Thus, Gulf’s obligation to pay was conditioned upon BTI and Reliance’s insolvencies.
Under Texas law, a cause of action under a conditional contract does not begin to run until the condition occurs. Thigpen v. Thigpen, 563 S.W.2d 868 (Tex.Civ.App.–San Antonio 1978, writ ref’d n.r.e.) Dunn v. Reliance Life & Acc. Ins. Co. of America, 405 S.W.2d 389 (Tex.Civ.App.1966, writ ref’d n.r.e.); Pitts v. Wetzel, 498 S.W.2d 27, 27 (Tex.App.–Austin, 1973, writ refused n .r.e.); Bowers v. Bowers, 99 S.W.2d 334 (Tex.Civ.App.1936, wr.dism.). Gulf’s obligation to pay Wells’ judgment did not arise until Reliance became insolvent on October 3, 2001. As the statute of limitations did not begin to run until that date, this action is timely.
CONCLUSION
For the foregoing reasons, the Court RECOMMENDS that Plaintiff’s motion for summary judgment (Doc. 45) be DENIED as to the issue of whether the MCS-90 was attached to the Policy, but otherwise GRANTED, and Defendant’s motion for summary judgment (Doc. 51) be DENIED.
So ORDERED and SIGNED this 1st day of March, 2006.
