On September 3, 2009, the United States Court of Appeals of the Tenth Circuit (encompassing the Rocky Mountain states issued a major decision on the applicability of the MCS-90 Endorsement. In a unanimous opinion, the full Court held that the MCS-90 Endorsement only applies where the underlying insurance policy does not provide coverage for the motor carrier’s accident and the motor carrier’s insurance coverage is either not sufficient to satisfy the federally-prescribed minimum levels of financial responsibility or is non-existent.

Prior to this September 3 decision, both the United States District Court for the District of Utah and a three-judge panel of the Tenth Circuit followed the previous Tenth Circuit case of Empire Fire & Marine Ins. Co. v. Guaranty Nat’l Ins. Co. and held that the MCS-90 endorsement was triggered even though another insurance policy already provided coverage for the underlying accident. Thus, even though the injured member of the public had already been protected by insurance coverage of at least $750,000, these courts concluded that the MCS-90 was triggered to provide an additional level of protection.

After the full court agreed to rehear the case, Carolina Casualty, the issuer of the MCS-90, supported by amicus curiae, the Trucking Industry Defense Association, argued that the MCS-90 endorsement simply functions as a surety bond (not insurance coverage) and thus applies only when other coverage is lacking. Accordingly, because other insurance coverage had already been provided to protect the injured motorist, Carolina Casualty and Amicus argued that coverage was not lacking and thus the MCS-90 endorsement should not be triggered to cover the underlying loss. In analyzing the issue, the Tenth Circuit agreed with Carolina Casualty and Amicus and remarked that “the surety concept flows naturally from the purpose and text of the governing regulatory provisions. Accordingly, the Court held that because another policy had already satisfied the minimum federally required amount of $750,000, the injured motorist was precluded from seeking additional recovery under the MCS-90 endorsement attached to the Carolina Casualty policy.

This decision is of major importance to the truck insurance industry. In situations where the motor carrier’s policy does not provide coverage (for example due to failure to schedule the vehicle on the policy), but where another policy (such as that of the truck’s lessor or owner-operator) covers the loss, plaintiffs in the Tenth Circuit will no longer be able to argue that the motor carrier’s MCS-90 should apply. Moreover, the impact of the Yeates case will reverberate beyond the Tenth Circuit. Empire Fire had stood as the seminal case supporting an expansive interpretation of the MCS-90, and it had been relied on by numerous state and federal courts. Now that it has been overruled, insurers and motor carriers have ample room to argue that many pro-plaintiff MCS-90 cases across the country should be similarly overturned.

The Yeates case is also good news for motor carriers because an insurer who pays a judgment under the MCS-90 retains a right to seek reimbursement from the motor carrier. Conversely, if no payment is made under the MCS-90, the motor carrier is not liable for reimbursement to the insurer.

SML was honored to have played a role in this industry victory. Rob Moseley, Kurt Rozelsky and Matt Staab filed an Amicus Brief on behalf of TIDA, which was followed by the Court granting the Petition for Rehearing En Banc.