United States Court of Appeals Fifth Circuit F I L E D REVISED OCTOBER 11, 2005 August 23, 2005 UNITED STATES COURT OF APPEALS FIFTH CIRCUIT Charles R. Fulbruge III Clerk
04-10324 consolidated with 04-10834
DARRELL D. MINTER, As Receiver,
Plaintiff-Counter Defendant-Appellant,
versus
GREAT AMERICAN INSURANCE COMPANY OF NEW YORK, formerly known as American National Fire Insurance Company,
Defendant-Counter Claimant-Appellee.
Appeals from the United States District Court for the Northern District of Texas
Before KING, Chief Judge, and BARKSDALE and STEWART, Circuit
Judges.
RHESA HAWKINS BARKSDALE, Circuit Judge:
In this diversity action, at issue is the summary judgment
awarded Great American Insurance Company of New York. As Receiver
for Grant Morris (judgment creditor of Jerry Lee Largent), Darrell
Minter claims Great American is liable for Morris’ state court
judgment against Largent and his employer, Hammer Trucking, Inc.,
arising out of a collision between Morris and Largent’s vehicles.
Largent was intoxicated at the time. Hammer Trucking had leased to
JTM Materials, Inc., the vehicle being driven by Largent, which was used exclusively for JTM’s benefit. Primarily at issue is whether
Largent’s intoxication at the time of the collision precludes his
being a permissive user under the omnibus clause of JTM’s primary
commercial automobile liability policy, issued by St. Paul Fire and
Marine Insurance Co., and, therefore, precludes his being an
insured under the Great American excess policy. A genuine issue of
material fact exists for that issue. Accordingly, we VACATE the
judgment in favor of Great American; REVERSE the district court’s
rulings against coverage under the omnibus clause and Minter’s
extra-contractual tort claims; AFFIRM its rulings for all other
coverage issues; and REMAND for further proceedings consistent with
this opinion.
I.
On Saturday, 9 November 1996, the tractor-trailer (the truck)
driven by Largent collided with a vehicle driven by Morris, who
sustained significant injuries. Largent pleaded guilty to driving
while intoxicated.
The truck was owned by Largent’s employer, Hammer Trucking.
On 27 June 1996, approximately four months before the collision,
Hammer Trucking leased the truck to JTM, a federal and state-
regulated motor carrier. Under the lease, Hammer Trucking, inter
alia: was to maintain control of the truck and use it for the
exclusive benefit of JTM; had a duty to properly maintain the
2 truck; and was to bear all maintenance and operating expenses
(including Largent’s salary).
Originally, the truck was parked overnight at Hammer Trucking.
Because Largent’s wife needed their car to drive to her new job,
Hammer Trucking allowed Largent to drive the truck to and from work
and park it overnight at his apartment.
On the day of the collision, Largent, who lived in Bridgeport,
Texas, was in the process of delivering the truck to a facility
near Decatur, Texas, for scheduled maintenance (consistent with
Hammer Trucking’s duties under its lease with JTM). That day,
Largent had been instructed by Don Hammer, Hammer Trucking’s owner
and president, to deliver the truck by 9:00 a.m. the next day
(Sunday, 10 November). At approximately 11:00 p.m. Saturday, 9
November, Largent drove the truck to his sister’s house, also
located in Bridgeport, in order for her to give him a ride back
from the maintenance facility in Decatur. Because his sister could
not give him a ride, Largent then decided to return to his house
and take the truck to the maintenance facility the next morning.
The collision occurred while he was returning home.
Largent had an extensive criminal record, including
convictions for DWI, reckless conduct (for which Largent was
originally charged with DWI), and felony possession of
methamphetamine (for which he served three years in prison); he
also had five citations for driving without liability insurance.
3 Morris v. JTM Materials, Inc., 78 S.W.3d 28, 51 (Tex. App.–Fort
Worth 2002, no pet. h.). When Hammer Trucking entered into its
lease agreement with JTM several months before the collision, JTM’s
safety director conducted a background check on Largent, consisting
of an “AMS Driver Report for Texas”; that background check,
however, covered only the three years preceding 12 September 1996
and did not reveal Largent’s previous offenses for DWI, reckless
conduct, methamphetamine possession, or any of his citations for
driving without liability insurance. Id. It appears that this
report and a drug screening test were the extent of JTM’s
investigation to qualify Largent as a truck driver. On the other
hand, a driving report from the Texas Department of Public Safety
would have revealed the full extent of Largent’s driving and
criminal record. Id.
JTM’s primary commercial automobile liability insurance policy
was issued by St. Paul; its excess policy, by Great American. The
St. Paul policy has a $1 million coverage limit for each accident
caused by a covered automobile; Great American’s excess coverage
became effective upon that limit’s being exhausted.
In May 1997, in Texas state court, Morris filed an action
against Largent, Hammer Trucking, and (by an amended petition) JTM,
claiming, inter alia: (1) negligence and negligence per se by
Largent; (2) negligent hiring, retention, and supervision of
Largent, negligent entrustment, and vicarious liability against
4 Hammer Trucking and JTM based on respondent superior; (3) joint
enterprise, joint venture, and civil conspiracy against JTM; and
(4) Largent’s being JTM's statutory, actual, constructive, or
borrowed employee, and JTM’s being liable under the Federal Motor
Carrier Safety Regulations. The claims against JTM were severed
from those against Largent and Hammer Trucking.
Upon JTM’s being added as a defendant, it notified AON Risk
Services of Texas, Inc. AON was Great American’s agent, inter
alia, for “all usual and customary services of an insurance agent”.
In September 1998, AON forwarded a copy of Morris’ first amended
petition and a corresponding summons to St. Paul; however, AON did
not forward notice of Morris’ action to Great American. St. Paul
provided JTM a defense against Morris’ claims but did not do so for
Hammer Trucking or Largent.
JTM was awarded summary judgment shortly before the claims
against Largent and Hammer Trucking were tried. For their jury
trial in August 2000, Largent and Hammer Trucking proceeded pro se.
During trial, Morris was awarded a directed verdict on liability,
with the court ruling: at the time of the accident, Largent was
acting within the scope of his employment with Hammer Trucking and
was a permissive user of the truck. The following questions were
submitted to the jury: (1) the amount of Morris’ compensatory
damages; (2) whether Largent and Hammer Trucking acted with malice;
and (3) if so, the amount of exemplary damages. The jury awarded
5 damages jointly and severally against Hammer Trucking and Largent
for approximately $2.6 million, with very substantial pre– and
post-judgment interest; it also found they had acted with malice
and assessed exemplary damages of $1,650,000 against Largent and
$300,000 against Hammer Trucking.
The judgment against Largent and Hammer Trucking was not
appealed. As for the summary judgment awarded JTM, the Fort Worth
court of appeals: (1) vacated that judgment for part of the
vicarious liability claims and for the claims for negligent hiring,
retention, supervision, and entrustment, and remanded for trial on
those issues, Morris, 78 S.W.3d at 43, 52-53; and (2) affirmed for
respondeat superior, civil conspiracy, joint venture and joint
enterprise, id. at 57. In vacating the summary judgment awarded
JTM for part of Morris’ vicarious liability claims, the court held:
if JTM was a federally regulated motor carrier, it was liable, as
a matter of law, under the Federal Motor Carrier Safety
Regulations. Id. at 43. Importantly, in affirming JTM’s summary
judgment against Morris’ respondeat superior claim, the court held:
Largent was acting outside the scope of his employment at the time
of the collision. Id. at 48. (The record is silent concerning the
disposition of this matter on remand.)
In May 2001 (prior to the decision rendered in 2002 by the
Fort Worth court of appeals for the claims against JTM), in order
to satisfy Morris’ judgment against Largent, the state court
6 ordered Largent to turn over assets to Minter, who had been
appointed Receiver. Those assets included Largent’s claims against
St. Paul and Great American that they: (1) failed to provide a
defense; (2) failed to indemnify under their policies issued to
JTM; (3) acted in bad faith; (4) engaged in unfair insurance
practices, in violation of TEX. INS. CODE ANN. art. 21.21 (Vernon
1981 & Supp. 2004-2005); and (5) violated the Texas Deceptive Trade
Practices Act, see TEX. BUS. & COM. CODE ANN. §§ 17.46, 17.50 (Vernon
2002 & Supp. 2004-2005).
Minter filed a state court action against St. Paul, which
settled for $1.9 million (including all claims against JTM and
Hammer Trucking). (The $1 million coverage limit for JTM’s policy
was reached; apparently, the additional $900,000 was for settlement
of extra-contractual tort claims.)
In September 2002, Minter filed this diversity action against
Great American, seeking recovery of that part of Morris’ state
court judgment against Largent which had not been satisfied by the
settlement with St. Paul. Great American filed a third-party
action against AON for breach of contract and tort claims for
failure to give timely notice of Morris’ action. Great American
and Minter moved for summary judgment.
The district court awarded summary judgment to Great American,
holding: (1) based on the ruling of the Fort Worth court of
appeals concerning the summary judgment that had been awarded JTM,
7 Minter was collaterally estopped from claiming Largent was acting
within the scope of his employment at the time of the collision;
(2) Great American was not collaterally estopped from contending
Largent was not a permissive user of the truck, despite the
contrary state court judgment, because the issue had not been
“vigorously litigated” in state court; (3) concerning permission
vel non, Largent’s intoxication took his use of the truck outside
the scope of permission granted by Hammer Trucking or JTM; (4)
coverage did not exist under either the TE 9916 endorsement to, or
the “exclusive use” clause of, the St. Paul policy because Largent
had no ownership interest in the truck; (5) coverage did not exist
under the MCS-90 endorsement to the St. Paul policy because that
provision acts as an independent basis for coverage only when other
coverage is lacking; (6) accordingly, no coverage existed under the
underlying St. Paul policy, and, therefore, none existed under the
Great American excess policy; and (7) there being no coverage under
the Great American policy, Minter’s extra-contractual tort claims
failed as a matter of law. Minter v. Great Am. Ins. Co., No. 3:02-
CV-2040-K, 2004 WL 515615 (N.D. Tex. 27 Feb. 2004) (unpublished).
II.
Reviewed de novo, e.g., Ford Motor Co. v. Tex. Dep’t of
Transp., 264 F.3d 493, 498 (5th Cir. 2001), a summary judgment is
appropriate when “the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
8 affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment
as a matter of law”. FED. R. CIV. P. 56(c).
“An issue is ‘genuine’ if the evidence is sufficient for a
reasonable jury to return a verdict for the nonmoving party.”
Hamilton v. Segue Software Inc., 232 F.3d 473, 477 (5th Cir. 2000)
(citation omitted). A fact-issue is material only if its
resolution could affect the action’s outcome. E.g., St. David's
Health Care Sys. v. United States, 349 F.3d 232, 234 (5th Cir.
2003).
The evidence and inferences from the summary judgment record
are viewed in the light most favorable to the nonmovant. E.g.,
Taylor v. Gregg, 36 F.3d 453, 455 (5th Cir. 1994). (Along that
line, portions of the state trial transcript are in the summary
judgment record.) Interpretation of an unambiguous insurance
contract is a question of law. E.g., Am. States Ins. Co. v.
Bailey, 133 F.3d 363, 369 (5th Cir. 1998). It is undisputed that
Texas law applies.
A.
Section II.B of the Great American excess policy defines an
“Insured” as, inter alia:
(1) Your [JTM’s] employees, other than your executive officers, but only for acts within the scope of their employment .... (5) Any other person or organization who is insured under any policy of ‘Underlying Insurance.’
9 The coverage afforded such ‘Insureds’ under this policy will be no broader than the ‘Underlying Insurance’ except for this policy’s Limit of Insurance.
(Emphasis added.) The St. Paul policy was listed in the Great
American policy’s schedule of underlying policies.
Concerning part (1) for this definition of “insured” (JTM’s
employee acting within scope of employment), Minter claims JTM
(and, therefore, Great American) is liable because Largent was
JTM’s “statutory employee” under the Federal Motor Carrier Safety
Regulations (FMCSR). See 49 C.F.R. § 383.5. As noted, the Fort
Worth court of appeals held: “if JTM is an interstate carrier,
[JTM] is vicariously liable as a matter of law for Largent’s
negligence”. Morris, 78 S.W.3d at 43 (emphasis added). Great
American contests JTM’s being an interstate carrier and therefore
subject to the FMCSR. In any event, assuming JTM is both an
interstate carrier and, therefore, vicariously liable for Largent’s
negligence, Minter must still establish Largent was an “insured” to
recover against Great American. Cf. Radman v. Jones Motor Co.,
Inc., 914 F. Supp. 1193, 1198 (W.D. Pa. 1996) (“The simple fact of
the matter is that Congress intended that ... the ICC carrier[] be
the insurer of [its leased tractor trailer drivers] with respect to
the general public.”) (emphasis deleted).
To that end, Minter claims Largent was acting within the scope
of his employment with JTM at the time of the collision. Minter
does not contend, much less demonstrate, that the district court
10 erred in ruling Minter is collaterally estopped from making this
scope-of-employment claim; accordingly, he is precluded from
asserting scope of employment here. As a result, Minter cannot
show scope-of-employment coverage under the Great American policy.
Consequently, coverage exists under that policy only if,
pursuant to part (5) for the above definition of “insured”,
coverage is established under the underlying St. Paul policy. For
doing so, Minter maintains coverage exists under four of that
policy’s provisions: (1) the omnibus/permissive-user clause
(coverage for anyone using a “covered auto” with JTM’s permission);
(2) the MCS-90 endorsement (establishing liability for federally
regulated motor carriers for injuries sustained by general public,
where no other coverage exists); (3) the exclusive use clause
(coverage for owner of a covered auto from whom JTM hires or
borrows a “covered auto” that is used exclusively in JTM’s trucking
business); and (4) the TE 99-16 endorsement (coverage for owner of
“covered auto” which JTM rents or leases). “[C]onstruction of
insurance policies is a matter of state law”. Canal Ins. Co. v.
First Gen. Ins. Co., 889 F.2d 604, 608 (5th Cir. 1989), modified by
901 F.2d 45 (5th Cir. 1990). Both parties assume that Texas law
applies; we do as well. For the following reasons, the summary
judgment awarded Great American against each of these four claims
is vacated for the omnibus clause but affirmed for the other three.
11 1.
JTM’s underlying St. Paul policy defines an “Insured” as,
inter alia, “[a]nyone ... using with [JTM’s] permission a covered
auto you own, hire, or borrow ....” (Emphasis added.) This
permissive-user clause is commonly known as an “omnibus clause”.
See BLACK’S LAW DICTIONARY 1121 (8th ed. 2004) (defining “omnibus
clause” as “[a] provision in an automobile insurance policy that
extends coverage to all drivers operating the insured vehicle with
the owner’s permission”). Great American does not contest the
truck’s being a “covered auto” under the St. Paul policy.
Therefore, at issue is whether, at the time of the collision,
Largent was using it with JTM’s permission.
As noted, although the state trial court held Largent was
acting within the scope of permission, the district court held
that, because this issue was not vigorously litigated in state
court, see Mower v. Boyer, 811 S.W.2d 560, 562 (Tex. 1991), Great
American was not collaterally estopped from re-litigating it.
Minter does not properly contest, much less demonstrate error in,
this holding; therefore, we will consider this permission issue.
In Texas, permission is defined as “consent to use the vehicle
at the time and place in question and in a manner authorized by the
owner, either express or implied”. Hartford Accident & Indem.
Corp. v. Lowery, 490 S.W.2d 935, 937 (Tex. Civ. App.–Beaumont 1973,
writ ref’d n.r.e.) (citation omitted; emphasis added). Although
12 express permission requires an affirmative statement, “implied
permission may be inferred from a course of conduct or relationship
between the parties in which there is mutual acquiescence or lack
of objection signifying consent”. Royal Indem. Co. v. H.E. Abbott
& Sons, Inc., 399 S.W.2d 343, 345 (Tex. 1966).
Pursuant to its lease with JTM, Hammer Trucking had sole
responsibility for maintaining the truck. And, it is undisputed
that, on the night of the collision, Largent had express permission
from Don Hammer to drive the truck to the maintenance facility. In
awarding summary judgment to Great American, the district court
ruled: “Driving to [Largent’s] sister’s house was outside the
scope of the permission expressly granted to [him], as he was only
given express permission to take the truck to the maintenance
yard”. Minter, 2004 WL 515615, at *6. At the state court trial,
however, Don Hammer testified that he gave Largent permission to go
to his sister’s house to secure a ride back from the maintenance
yard.
Great American contends: Largent’s proceeding to his sister’s
house was a “personal errand”; Hammer Trucking and JTM had told
Largent the truck was not to be used for personal errands; and,
therefore, Largent’s truck-use was outside the scope of the express
permission. Given that Largent asserted he had express permission
to seek a ride from his sister, and there is competent summary
judgment evidence in support, a material fact issue exists for
13 whether Largent had express permission to drive the truck to his
sister’s house. The district court erred in holding otherwise.
Even assuming Largent did not have such express permission, it
can be reasonably inferred that Hammer Trucking expected Largent to
arrange his return transportation from the maintenance facility in
Decatur. Don Hammer knew that Largent’s wife used their only car
to commute to her job at night. This was why Hammer allowed
Largent to keep the truck at his apartment – because he had no
other regular transportation to and from work. This arrangement
between Hammer Trucking and Largent suggests “a course of conduct
... between the parties in which there is mutual acquiescence ...
signifying consent”. Royal Indem. Co., 399 S.W.2d at 345.
Therefore, a material fact issue also exists for whether Largent
had implied permission to drive to his sister’s house, which was
approximately one mile from his apartment, in order to arrange his
return transportation from Decatur.
These genuine issues of material fact, however, do not compel
vacating the summary judgment awarded Great American against the
omnibus-clause issue. Even if Largent had express or implied
permission to drive to his sister’s house, another issue is whether
his intoxication placed his use of the truck outside the scope of
that permission (part of the “manner authorized”). Texas follows
the “minor deviation” rule in determining whether a vehicle’s use
is outside the scope of permission. See Coronado v. Employers’
14 Nat’l Ins. Co., 596 S.W.2d 502, 504-05 (Tex. 1979). “Under this
rule, the court must determine in each instance[,] taking into
account the extent of deviation in actual distance or time, the
purposes for which the vehicle was given, and other factors[,]
whether the deviation was ‘minor’ or ‘material.’” Id. at 504
(emphasis added).
Some deviations may be so minor that they do not create a fact
issue whether permission was revoked; other, more significant
deviations may create such an issue; and some deviations may be so
material that they revoke permission as a matter of law. Id. at
506. Along this line, the district court ruled:
Had Largent only driven the truck to his sister's house, the deviation might have been minor, as the trip was allegedly related to his bringing the truck in for maintenance at Hammer's request. However, Largent's operation of the truck while intoxicated was so far outside of the express permission granted to him by JTM and Hammer that his deviation was material as a matter of law.
Minter, 2004 WL 515615, at *7 (citation omitted; emphasis added).
Great American contends the summary judgment record
establishes: JTM had a “zero tolerance” policy regarding alcohol
use by its drivers, which it communicated to Largent in the form of
a drug and alcohol handbook; and Don Hammer expressly instructed
Largent that he was not to operate the truck after drinking
alcohol. Minter counters by noting that, in state court, JTM
admitted it had no safety policies or procedures for leased trucks
15 such as Hammer’s or for independent contractors, i.e., leased
drivers. The district court assumed JTM had expressly forbidden
Largent from operating the truck under the influence of alcohol,
despite Minter’s having presented summary judgment evidence to the
contrary. Id. at *6.
The summary judgment record shows Don Hammer instructed
Largent to deliver the truck for scheduled maintenance before 9:00
a.m. on Sunday, 10 November 1996. Don Hammer had anticipated
delivery would probably take place the prior evening (Saturday).
Moreover, as previously stated, there is a material fact issue
whether Largent had express or implied permission to drive to his
sister’s house to arrange return transportation. As stated, we
will assume Largent (the nonmovant) did have permission.
Therefore, for summary judgment purposes, we must determine whether
Largent’s intoxication was a deviation so material that, as a
matter of law, the permission was revoked.
In Coronado, the employee/driver left work at approximately
4:15 p.m. with his work crew but, instead of taking them home, took
them to a local bar to drink beer. 596 S.W.2d at 503. They stayed
three to four hours, then proceeded to another bar “some distance”
away. Id. Upon leaving the second bar after midnight, the driver
was involved in an accident, causing a passenger’s death. Id. The
resulting wrongful death action claimed the driver was a permissive
16 user under the omnibus clause in the employer’s automobile
liability policy. Id. at 504.
The Texas Supreme Court phrased the issue as follows:
“whether an employee who was driving a company owned vehicle on a
purely personal mission after working hours” was covered under that
clause. Id. at 503 (emphasis added). The court rejected
plaintiff’s contention that, based on a supervisor’s having twice
found the employee drinking beer shortly after work, while still
using the truck, the employee had implied permission to drive while
intoxicated. Id. at 505. The court held:
[T]he eight hour deviation [at issue] ... was so gross as to be a material deviation as a matter of law. The use of the vehicle at the time of the accident was so far outside the scope of the permission granted ... for use of the vehicle that we cannot say that a fact issue is raised that his employer had impliedly consented to this use.
Id. at 506 (emphasis added). The court viewed intoxication as an
“other factor”, as opposed to a primary consideration, in
determining whether the deviation was material as a matter of law.
A similar omnibus-clause issue arose in Old Am. County Mut.
Fire Ins. Co. v. Renfrow, 130 S.W.3d 70 (Tex. 2004) (per curiam).
An employee, who had permission only to drive the company truck
home after work and to return to the job site the next morning,
drove it to visit his girlfriend approximately 40 miles away in
Saginaw, Texas. Id. at 71-72. Upon returning, the girlfriend was
17 killed in a single-vehicle accident. Plaintiffs offered evidence
that the employee commonly drove the company truck to his
girlfriend’s house and to his foreman’s house to drink beer, id. at
72, and claimed this established implied permission to use the
company truck for personal errands. The court held: as a matter
of law, the trip to Saginaw was a material deviation, because it
was so far removed from the geographic area in which the employee
had permission to drive. Id. at 73.
In Royal Indemnity, Herring employed Landers to work on his
ranch. 399 S.W.2d at 344. Landers lived there and had permission
to drive two work-trucks to perform his duties. Id. One weekend,
Herring and Landers drove to the horse races in Bronte, Texas; on
returning that afternoon, each drank two bottles of beer. Id. at
344-45. That evening, while Herring was away, Landers drove one of
the work-trucks to San Angelo, Texas (approximately 50 miles away),
on a personal errand; he bought and drank more beer on the way and,
eventually, lost control of the vehicle and ran into a building.
Id. at 345. A jury found: at the time of the accident, Landers
was driving the truck within the scope of implied permission from
Herring; and, therefore, coverage existed under the omnibus clause
of Herring’s automobile policy. Id. at 343. In reversing, the
Texas Supreme Court held:
[T]he evidence shows neither a relationship nor a prior course of conduct from which implied permission might fairly be inferred.
18 Landers was employed as a ranch hand. He had never driven one of the vehicles off the ranch except when specifically instructed to do so, and had never used any of them for a personal errand. His employer had always driven him to town whenever he wanted to go, and had no reason to believe that he intended or might need to use one of the vehicles on the evening of the accident. In view of these undisputed facts, the limited privileges Landers was allowed in the Herring house, his occasional pleasure trips with Herring, the availability of the vehicles, his use of the same on the ranch, ... and the absence of any prior instruction not to take the vehicles off the ranch, afford no basis for concluding that Landers had implied permission to use the truck for a trip to San Angelo on a personal mission.
Id. at 347 (emphasis added).
In these cases, the critical inquiry cited by the court was
the deviation in actual distance or time from the original
permission granted. Intoxication was not mentioned by the Royal
Indemnity court in finding permission lacking as a matter of law,
despite the uncontested fact that the employee/driver had consumed
several alcoholic beverages immediately prior to driving into a
building. Obviously, intoxication is an “other factor” to consider
for whether a deviation is material. See Coronado, 596 S.W.2d at
504. Indeed, it was a factor considered by the Coronado court in
holding the deviation material as a matter of law. Great American
has cited no Texas case law, however, holding that intoxication per
se revokes permission. Instead, it is an “other factor” to be
considered in determining the extent of the deviation.
19 In the light of Largent’s driving record’s containing a
history of alcohol offenses, as well as a drug felony, JTM’s
failure to request that driving record from the Texas Department of
Public Safety, Largent’s being instructed by Don Hammer not to
drink and drive, and its being disputed whether JTM informed
Largent of its “zero tolerance” policy, a genuine issue of material
fact exists for whether Largent’s intoxication placed his use of
the truck outside the scope of permission. This situation is
distinguishable from Coronado, Renfrow, and Royal Indemnity,
because Largent was not engaged in a purely personal errand at the
time of the accident. Moreover, those cases involved significant
geographical and time deviations from the scope of permission
granted to operate the vehicles. Even if the drive to Largent’s
sister’s house was a deviation, it was certainly not as significant
geographically or time-wise as those in Coronado, Renfrow, and
Royal Indemnity.
Based on the summary judgment record, it appears that JTM and
Don Hammer did not exercise reasonable care in investigating
Largent’s background, and there is no evidence that either had
knowledge of Largent’s propensities toward operating a motor
vehicle while intoxicated. Nevertheless, the lack of evidence on
this point is not determinative. In the light of the summary
judgment record, and as contended by Minter, a jury could find that
Largent’s use of the truck was within the scope of permission
20 granted by Don Hammer. Similarly, a jury could find Largent’s
intoxication revoked permission. For example, a genuine issue of
material fact exists for whether Don Hammer’s instruction not to
drink and drive, without more, caused Largent’s driving while
intoxicated to be outside the scope of permission. Obviously, to
hold Largent’s violating this instruction, alone, is a material
deviation that, as a matter of law, places his driving outside the
scope of permission, would be well beyond any Texas state law
precedent. In any event, on this summary judgment record, genuine
issues of material fact preclude reaching that Erie-question.
2.
The MCS-90 motor carrier endorsement for the underlying St.
Paul policy states in relevant 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 .... 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
21 the financial condition, insolvency or bankruptcy of the insured.
This endorsement must accompany “any liability policy issued to a
registered motor carrier pursuant to 49 U.S.C. §§ 13906(a)(1),
31139(b)(2) and 49 C.F.R. § 387”. T.H.E Ins. Co. v. Larson
Intermodal Servs., Inc., 242 F.3d 667, 670 (5th Cir. 2001).
Essentially, “the MCS-90 [endorsement] makes the insurer liable to
third parties for any liability resulting from the negligent use of
any motor vehicle by the insured, even if the vehicle is not
covered under the insurance policy”. Id. at 671. Interpretation
of this endorsement is governed by federal law. See Canal Ins.,
889 F.2d at 610.
Minter claims this endorsement enlarges broadly the definition
of an insured under the St. Paul policy and that the public policy
rationale underpinning the MCS-90 endorsement is present here:
ensuring a registered motor carrier has an independent financial
responsibility to pay for losses sustained by the general public
that arise from its trucking operations. See id. at 611; Travelers
Ins. Co. v. Transp. Ins. Co., 787 F.2d 1133, 1140 (7th Cir. 1986).
Great American counters: the endorsement is not applicable
because it is not attached to the Great American policy; the
coverage limit under the St. Paul primary insurance, to which the
endorsement was attached, has been exhausted; and the public policy
rationale cited by Minter is not present precisely because Morris
22 received the maximum amount of coverage under the St. Paul policy
($1 million).
The MCS-90 endorsement is, “in effect, suretyship by the
insurance carrier to protect the public – a safety net”. T.H.E
Ins., 242 F.3d at 672 (quoting Canal Ins. Co. v. Carolina Cas. Ins.
Co., 59 F.3d 281, 283 (1st Cir. 1995)). Thus, an insurer’s
responsibilities under the endorsement are triggered when the
policy to which it is attached does not provide coverage to the
insured. Id. As stated, the St. Paul policy not only provided
coverage but provided the maximum amount under the policy. Because
the St. Paul policy exhausted its coverage limit, coverage does not
exist under the MCS-90 endorsement; therefore, this endorsement
does not provide coverage under the Great American policy. See id.
at 672 (“[T]he insurer’s obligations under the MCS-90 are triggered
[only] when the policy to which it is attached provides no coverage
to the insured.”).
3.
The next claimed coverage is under the St. Paul policy’s
“exclusive use” clause. An “insured” is “[t]he owner or anyone
else from whom you [JTM] hire or borrow a covered auto ... while
[it]: (1) [i]s being used exclusively in your business as a
trucker; and (2) [i]s being used pursuant to operating rights
granted to you by a public authority”. (Emphasis added.)
23 Minter is acting as Receiver for claims by Largent, not Hammer
Trucking, against Great American; for coverage under this clause,
Minter must establish that Largent was the owner or person from
whom JTM hired or borrowed the truck. Minter contends: because
Largent had sole custody of the truck at his home, JTM was
essentially borrowing the truck from him when he performed JTM’s
maintenance duties. Needless to say, this contention is wholly
without merit.
The lease governing the truck’s use lists Hammer Trucking, not
Largent, as the “Owner-Operator Lessor”. Largent’s name does not
appear in the lease. Hammer Trucking allowed Largent to keep the
truck at his residence simply as an accommodation for Largent’s
lack of transportation to and from work. There is no evidence in
the record that Hammer Trucking intended to convey any ownership
interest to Largent.
4.
Finally, in one paragraph of its brief, Minter claims coverage
under the TE 99-16 endorsement to the underlying St. Paul policy.
That endorsement modifies the definition of “covered auto” to
include any automobile JTM hired, borrowed or leased. It also
states: “While any covered auto ... is rented or leased to [JTM]
and is being used by [JTM] or for [JTM], its owner or anyone else
from whom [JTM] rent[s] or lease[s] it is an insured ....”
(Emphasis added.)
24 As with the “exclusive use” clause, Minter must establish it
was Largent, not Hammer Trucking, from whom JTM rented or leased
the truck. As he did for that clause, Minter contends that,
because the truck was a leased vehicle being used by Largent to
perform JTM’s non-delegable duty of maintenance, coverage exists
under this endorsement.
As discussed above, however, there is no evidence that Largent
had any ownership interest in the truck. That Largent’s use of the
truck at the time of the accident may have been related to JTM’s
non-delegable duty of maintenance is immaterial in deciding
coverage vel non under this endorsement. Some form of ownership
interest is required for coverage under this endorsement.
B.
For Largent’s claims, and based on the foregoing, the only
possible coverage is under the St. Paul policy as a permissive
user. Great American maintains that, even if Minter can satisfy
that standard, it is not liable for the state court judgment for
any one of three reasons: (1) it did not receive notice of the
state court action until after entry of judgment; (2) that action
did not involve an “actual trial”; and (3) there was no
“occurrence” within the meaning of the policy. After having raised
these affirmative defenses in its answer to plaintiff’s first
amended complaint, see FED. R. CIV. P. 12(b), Great American raised
them in its summary judgment motion. It was not necessary for the
25 district court to address them because it held coverage did not
exist.
1.
Concerning its not receiving notice of the state court action
until eight months after entry of judgment, Great American does not
dispute that AON, its agent, received notice of Morris’ action.
Great American maintains, however: AON accepted loss-notice
provisions on behalf of JTM, the insured, not Great American, the
insurer; and, therefore, AON’s receipt of notice was insufficient
to constitute constructive notice to Great American. Moreover,
Great American contends the agency agreement provided no authority
for AON to accept loss notices on behalf of Great American.
The agency agreement granted AON authority to act as Great
American’s agent to: “(a) issue and deliver policies, bonds,
certificates, endorsements and binders; (b) cancel policies and
obligations; and (c) provide all usual and customary services of an
insurance agent on all contracts of insurance ...”, as well as
accept premiums on behalf of Great American. At the time of the
collision, and during the original state court proceeding, Texas
had two classifications for insurance agents: “local recording
agents” and “solicitors”. See TEX. INS. CODE ANN. art. 21.14 (Vernon
1981), amended by Acts 2001, 77th Leg., ch. 703, § 3.01, eff. 1
Sept. 2001. A “local recording agent” was defined as one who
“solicits insurance, has the power to write policies of insurance,
26 binds the insurer on risks, and collects premiums on behalf of the
insurer”. TIG Ins. Co. v. Sedgwick James, 276 F.3d 754, 760 (5th
Cir. 2002) (citing TEX. INS. CODE ANN. art. 21.14 (Vernon Supp.
2001)). Under the terms of the agency agreement, AON was Great
American’s “local recording agent”. Minter asserts several times
that AON held that position; Great American never disputes this.
A “recording agent is closest to the principal, and his
actions will always bind the principal”. Id. (citation omitted).
Great American does not dispute AON had previously forwarded
several of JTM’s loss notices to it. Moreover, both counsel for
Great American and an officer at AON (a licensed “local recording
agent”) admitted it is customary for an insurance agent to receive,
on behalf of its principal, notice of lawsuits. Therefore, AON had
both actual and apparent authority to accept loss notices on behalf
of Great American.
It is a fundamental rule of agency law that notice to the
agent constitutes notice to the principal. See, e.g., Elite
Towing, Inc. v. LSI Fin. Group, 985 S.W.2d 635, 642-43 (Tex.
App.–Austin 1999, no pet. h.). Accordingly, Great American’s lack-
of-notice defense fails as a matter of law.
Great American cites three Texas Supreme Court decisions for
the proposition that the underlying judgment arising out of Morris’
state court action is unenforceable because it did not result from
27 an “actual trial”. See State Farm Lloyds Ins. Co. v. Maldonado,
963 S.W.2d 38 (Tex. 1998); Trinity Universal Ins. Co. v. Cowan, 945
S.W.2d 819 (Tex. 1997); State Farm Fire & Cas. Co. v. Gandy, 925
S.W.2d 696 (Tex. 1996). In Maldonado, the defendant did not appear
for trial; his lawyer neither contested the plaintiff’s evidence of
liability and damages nor cross-examined any witnesses. 963 S.W.2d
at 40. Similarly, in Cowan, the defendant in the underlying trial
did not appear or present any defense. 945 S.W.2d at 821.
Moreover, that case was decided on other grounds. Id. Gandy
involved a
settlement arrangement between the plaintiff and some of the defendants ... by which the settling defendants agree[d] to pay the plaintiff a certain amount of money and to participate in the trial against the nonsettling defendants, and the plaintiff agree[d] to release the settling defendants from liability and, if the judgment against a nonsettling defendant [was] large enough, to repay the settlement amount.
925 S.W.2d at 709 (citation omitted). These types of agreements
were held void as a matter of public policy. Id. at 710.
Great American maintains this action is similar to Maldonado
and Cowan because Largent failed to: answer discovery requests;
respond to Morris’ motion for partial summary judgment on
liability; participate in the pretrial hearing; participate in jury
selection; make an opening statement; cross-examine any of Morris’
witnesses or object to his evidence; call witnesses or otherwise
28 introduce any evidence in his defense; or make a closing argument.
Therefore, according to Great American, the underlying state trial
was not an “actual trial” because liability and damages were not
“vigorously litigated”.
First, all three decisions are factually distinguishable from
the situation at hand. Unlike Gandy, there is no evidence of
collusion between the plaintiff and defendants. Moreover, this
case is not similar to either Maldonado or Cowan because Don
Hammer, pro se, defended himself and Largent, his co-defendant.
In any event, and for the reasons given supra, Great American
had constructive notice of the action against JTM, Hammer Trucking,
and Largent. In Ridgway v. Gulf Life Ins. Co., 578 F.2d 1026 (5th
Cir. 1978) (per curiam), an excess carrier had notice of an action
against its insured, yet failed to provide a defense. In a
subsequent action by the insurer to collaterally attack the
judgment against its insured, our court adopted the following from
the district court’s opinion: “The principle is well-established
that if a liability insurer with notice of a suit and duty to
defend it fails to do so, it is bound by the judgment in that
suit”. Id. at 1029. Moreover, our court ruled that it made no
difference whether an insurer had the duty to defend or the right
to defend; it was sufficient that the insurer had “the right to
defend and had adequate notice of a claim under the terms of this
policy”. Id. We hold similarly that, because Great American had
29 constructive notice of the underlying action against JTM, Largent,
and Hammer Trucking, as well as the right to defend, it is
precluded from collaterally attacking the state court judgment.
Finally, Great American contends that, because the state court
jury found Largent acted with malice, there was no “occurrence”
under its policy. There, “occurrence” is defined as “an accident,
including continuous or repeated exposure to conditions which occur
during the policy period which unexpectedly and unintentionally
results in ‘injury’”. (Emphasis added.) A finding of malice in
Texas requires, inter alia, that “the actor has actual, subjective
awareness of the risk involved ....” TEX. CIV. PRAC. & REM. CODE ANN.
§ 41.001(7)(B)(ii) (Vernon 1997), amended by Acts 2003, 78th Leg.,
ch. 204, § 13.02, eff. 1 Sept. 2003. Great American claims
Largent’s collision with Morris could not have been an “accident”
because Largent was aware of the risk of driving while intoxicated.
Cowan, the one case cited by Great American, is easily
distinguishable. There, a photo lab technician intentionally
copied revealing photographs of Cowan and showed them to a friend,
who also knew Cowan. 945 S.W.2d at 820-21. The court held that,
because copying the photographs was intentional, it was not an
“occurrence” under the policy. Id. at 827-28.
Obviously, Cowan did not concern a commercial automobile
liability policy. Moreover, it dealt with an intentional act.
30 There has been no allegation that Largent intentionally caused the
collision with Morris. Absent authority on point, we decline to
hold that intoxication results in “no occurrence” under a
commercial motor liability policy. (During oral argument, Great
American admitted such a holding would be “a red letter day” in
Texas insurance law.)
C.
As noted, in addition to breach of contract, Minter presented
tort claims for bad faith, malice, and violations of the Texas
Insurance Code and the Texas Deceptive Trade Practices Act.
Concomitant to its holding coverage did not exist under either the
St. Paul or Great American policies, the district court held these
claims failed as a matter of law. Minter, 2004 WL 515615, at *10.
Because material fact issues preclude finding no coverage under the
underlying St. Paul omnibus clause, we reverse these rulings
against Minter’s tort claims.
III.
In sum, any recovery by Minter against Great American’s excess
policy must have its basis in the omnibus clause for the underlying
St. Paul policy; genuine issues of material fact exist for whether
Largent was a permissive user under that clause. On the other
hand, Minter has failed to establish coverage under the “exclusive
use” clause or the MCS-90 or TE 99-16 endorsements to that policy.
Great American’s affirmative defenses fail as a matter of law.
Summary judgment against Minter’s extra-contractual tort claims is
31 vacated. Accordingly, the judgment in favor of Great American is
VACATED; the underlying rulings in favor of Great American are
AFFIRMED in PART and REVERSED in PART; and this matter is REMANDED
for further proceedings consistent with this opinion.
VACATED; AFFIRMED IN PART and REVERSED IN PART; REMANDED