Financial responsibility means having insurance policies or surety bonds sufficient to satisfy the minimum public liability requirement. Public liability means liability for bodily injury, property damage and environmental restoration. Environmental restoration means restitution for the loss, damage or destruction of natural resources arising out of an accidental discharge of toxic or other environmentally harmful materials of liquids.
The MCS-90 Endorsement;
The MCS-90 is a result of the Motor Carrier Act of 1980, carrier deregulation was a part of a sweeping deduction in price controls, entry controls and collective price setting in US transportation that started in the 1970’s and ended when President Carter signed it into law on 7/1/1980.
It was envisioned to be a sweeping de-regulation of the trucking, railroad and airline industries to remove 45 years of excessive & inflationary Government restrictions and red tape and to have an anti-inflationary effect to reduce consumer costs and to conserve hundreds of millions of gallons of fuel.
Congress meantime became concerned with increased truck traffic & non-conformance with trucking regulations and began a debate (of course) to address these concerns. At the same time, the DOT conducted a random roadside inspection of commercial vehicles traveling on I-80 in Pennsylvania and the results were pretty staggering. More the HALF of the commercial vehicles were placed out of service due to safety violations.
As a result of the debate and the informal study, Congress passed the MCA of 1980 (the Act) which by 1990 resulted in the number of licensed carriers exceeded 40,000 – more then double the number in 1980.
The MCS-90 Endorsement: No Coverage? No Problem!
In order to get the trucking & insurance industries compliant with the Act’s mandated levels of financial responsibility, Congress created the MCS-90 endorsement. It is essentially an endorsement that makes the insurer a surety to the public.
The Act requires the MCS-90 endorsement to be attached to ANY liability policy issued to motor carriers operating commercial vehicles that are transporting property in interstate or foreign commerce. (49 C.F.R. 387.3, 387.7)
The form is attached to a truckers coverage form, commercial auto form or business auto policy, depending on the form used by the insurer. Usually, when a loss occurs, the motor carrier’s vehicle is listed in the declarations or is otherwise covered by the policy and the insurance contract itself provides the necessary coverage to protect the public. Occasionally, as a result of underwriting errors, policy terms, insolvency or illegal trucking operations, a vehicle will have no coverage and the MCS-90 endorsement is triggered.
The purpose of the endorsement is to ensure adequate levels of insurance in the event of an accident involving a member of the public on the environment. The MCS-90 creates a surety-ship by the insurer to protect the public when the insurance policy to which the MCS-90 is attached otherwise provides no coverage to the insured. (Canal Ins Co v Distribution Servs., Inc. 5th Cir. 2001)
In effect, the endorsement shifts the risk of loss for accidents occurring in the course of interstate commerce away from the public by guaranteeing that an injured party will be compensated even if the insurance carrier has a valid defense based on a condition in the policy. So Coverage Defenses DO NOT APPLY – the insurer is ultimately on the hook for any final judgment.
The MCS-90 does not however create any obligation on the part of the insurer to defend it’s insured for claims not covered by the policy, however a failure to defend may result in a default judgment and then the MCS-90 endorsement creates absolute liability on the part of the insurer to satisfy the judgment up to the policy limits listed on the endorsement.
Subrogation is Allowed:
If the insurer ultimately pays on a judgment where no coverage exists, there is a clause in the endorsement that “the insured agrees to reimburse the company for any payment made on account of any accident, claim or suit involving a breach of the terms of said 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 the endorsement” (49 C.F.R. 387.15)
In theory the insurer can recover from the insured but they cannot commence recovery efforts until after they make payment, which is often years after the loss and the insured can file bankruptcy or transfer it’s assets to avoid paying any judgment the insurer receives.
Some MCS-90 Interpretations:
The MCS-90 creates a duty to indemnify an insured for non-covered autos operated under the motor carrier’s authority (John Deere Ins. Co v Nueva, 95h Cir 2000)
Without a lease between an owner/lessor and motor carrier/lessee, an insurer will not be required to indemnify the motor carrier for any judgment against the owner/lessor (Jackson v O’Shields, 5th Circ 1996)
The obligations of an insurer to indemnify it’s insured also extend to any liability deductibles or self-insured retentions the insured may carry.
( David N Nissenberg, The Law of Commercial Trucking: Damages to Persons and Property 3rd Ed 2003)