For those of us of a certain age, or who grew up in certain parts of the country, hearing the term “MCS-90” might tend to conjure images of youthful summer evenings spent with friends igniting fireworks of questionable legality – perhaps even images of a detonated mailbox or two. Not to be confused with a similarly named incendiary amusement, however, the MCS-90 is an insurance endorsement mandated by federal law for interstate freight carriers.
The endorsement provides, in material part, that the insurer “agrees to pay . . . any final judgment recovered against [the insured freight carrier] 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.” (Form MCS-90, p. 2 of 3.) “[N]o 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.” (Id.) “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.” (Id.)
The “primary purpose of the MCS-90 endorsement is to assure that injured members of the public are able to obtain judgment from negligent authorized interstate carriers. Accordingly, the MCS-90 endorsement creates a suretyship by the insurer to protect the public when the insurance policy to which the MCS-90 endorsement is attached otherwise provides no coverage to the insured.” Canal Ins. Co. v. Distrib. Servs., Inc., 320 F.3d 488, 490 (4th Cir. 2003) (int’l punct. & cits. omit’d). See McGirt v. Gulf Ins. Co., 207 Fed. Appx. 305, 308 (4th Cir. 2006) (unpub’d) (the “purpose of the Motor Carrier Act of 1980 is to assure the general public that a motor carrier maintains an adequate level of financial responsibility sufficient to satisfy claims covering public liability”) (int’l punct. & cit. omit’d). “The operation and effect of the MCS-90 endorsement is a matter of federal law.” Canal Ins., 320 F.3d at 492.
Generally, the MCS-90 endorsement comes into play when a freight carrier causes injury to a third party in the course of the carrier’s freight operations; that much is common knowledge. Whether the MCS-90 endorsement is applicable in less “traditional” contexts is a matter of some debate, however, and one on which courts have reached varying conclusions. In particular, there appears to be little jurisprudence on whether the MCS-90 endorsement is implicated by towing and recovery operations related to tractor-trailer collisions performed at the behest of the police or other local authorities. The few decisions reported in this vein, and those that presently are percolating through the courts, therefore merit attention both from insured carriers and from their insurers.
Large and, frequently, excessive invoices from towing and recovery companies have become an unfortunate fact of life for freight haulers and their insurers in recent years. Depending on the terms of a freight carrier’s insurance policy, these charges may or may not be covered and, even if they are, the insurance might well be subject to certain sub-limits specified in the policy. Not only have the amounts and nature of such charges become the subject of litigation throughout the country but so, too, has the question of whether such charges fall within the bounds of standard commercial auto insurance policies. The latter question, like the former, typically is determined under state law.
But while “a [federal] court sitting in diversity hearing insurance coverage disputes must typically apply state law, ‘federal law must govern where . . . the dispute concerns the interpretation of a policy endorsement that is required by federal law and whose language is prescribed by federal regulation.’” OOIDA Risk Retention Grp., Inc. v. Griffin, No. 2:15cv98, 2016 U.S. Dist. LEXIS 57469, *21 (E.D. Va. Apr. 29, 2016) (cits. omit’d). As the “operation and effect of the MCS-90 endorsement is a matter of federal law,” Canal Ins., 320 F.3d at 492, therefore, the question of whether towing-and-recovery charges are payable pursuant to the endorsement is a question uniquely subject to decision by the federal courts.
“Under federal law, in order to determine the scope of the MCS-90’s coverage, [a] Court must first look to the plain meaning of the endorsement’s terms.” OOIDA Risk, 2016 U.S. Dist. LEXIS 57469, *22. “The language of the MCS-90 is contained in a federal regulation adopted pursuant to statutory authority and, as such, has the force of law. The interpretive analysis properly begins with the plain meaning of the statute’s language.” Am. Alternative Ins. Co. v. Sentry Select Ins. Co., 176 F. Supp.2d 550, 554 (E.D. Va. 2001). “If the language is clear and unambiguous, the inquiry ends there. Yet, where the language is ambiguous, the intent of Congress or the Agency concerning the disputed language must be resolved through application of various settled rules of construction and interpretation, including analysis of the underlying statute’s structure and purpose.” Id. at 554-55. Indeed, the “meaning of the regulation’s language must be interpreted in its statutory context. If the contextual plain meaning is unambiguous, the interpretive task is complete, as the statute must then be applied in accordance with its plain meaning.” Id. at 554 n.7. “A statute may reasonably be said to be ambiguous when its terms give rise to more than one meaning or interpretation.” Id. at 555 n.8.
“The key to resolving [an] ambiguity in the MCS-90 endorsement [therefore] is to be found in the purpose of the statute and regulations that require the endorsement. The pertinent statute states that the Secretary of Transportation is authorized to require motor carriers to file proof of financial responsibility to ‘protect the public.’” Id. at 556-57, citing 49 U.S.C. § 13906(a)(2). The U.S. Supreme Court has “cited as ‘significant aims’ of the federal rules regulating motor carriers the elimination of ‘difficulties . . . of fixing financial responsibility for damage and injuries . . . to members of the public.’” Id. at 557 (orig’l emph.), quoting Transam. Freight Lines, Inc. v. Brada Miller Freight Sys., Inc., 423 U.S. 28, 37 (1975). Thus, “Transamerican teaches that the purpose of the federal regulation of motor carriers is to ensure the safety of the public, and the promulgated regulations do not reach further than necessary to achieve that purpose.” Id.
Accordingly, “the contractual duties of insurers to provide coverage for a loss should not be altered unless necessary to protect the public. Indeed, there is a presumption against federal laws and regulations unnecessarily intruding into the realm of traditional state responsibilities such as the regulation of insurance.” Id. “Consistent with this presumption and with the purpose of the endorsement’s parent federal legislation, the MCS-90 endorsement should be construed and applied only to protect members of the public injured by interstate motor carriers from uncompensated losses. . . .” Id.
According to this statement of the law, then, the MCS-90 endorsement should only come into play “to protect members of the public injured by interstate motor carriers” from “uncompensated losses.” “Injured by interstate motor carriers” would seem to suggest that the MCS-90 only operates in the event of some sort of bodily injury or property damage sustained by a third part – right? Not necessarily, at least according to federal regulations. One of the “statutory provision[s] granting the Secretary of Transportation authority to set minimum levels of financial responsibility for transporting property in interstate commerce is concerned with ‘public liability, property damage, and environmental restoration.’” Id. at 557 n.12, quoting 49 U.S.C. § 31139(b)(1). Those terms are defined by federal regulation: “public liability” means “liability for bodily injury or property damage and includes liability for environmental restoration”; “environmental restoration” is defined as “restitution for the loss, damage, or destruction of natural resources arising out of the accidental discharge, dispersal, release or escape into or upon the land, atmosphere, watercourse, or body of water of any commodity transported by a motor carrier. This shall include the cost of removal and the cost of necessary measure[s] taken to minimize or mitigate damage to human health, the natural environment, fish, shellfish, and wildlife.” 49 C.F.R. § 387.5 (emph. supp’d).
There do not appear to be any reported decisions from anywhere in the United States, either from federal courts or from state courts, in which towing-and-recovery charges have been held to be recoverable pursuant to the MCS-90 endorsement. There is, however, an unreported decision from the U.S. District Court for the Western District of Oklahoma, Environmental Cleanup, Inc. v. Ruiz Transportation, LLC, in which an environmental remediation company’s charges were held to be recoverable under the MCS-90 endorsement. There, the insured trucking company, Ruiz Transportation, was hauling electrical transformers from Mexico to Kansas when its tractor-trailer was involved in a single-vehicle crash, “spilling hundreds of gallons of transformer oil and diesel fuel on the highway and surrounding areas.” Env’l Cleanup, Inc. v. Ruiz Transp., LLC, No. CIV-15-867R, 2017 U.S. Dist. LEXIS 72707, *4 (W.D. Okla. May 12, 2017). Ruiz engaged a remediation company, Environmental Cleanup, Inc. (“ECI”), to perform environmental remediation services at the scene of the wreck over a period of four days. ECI’s work included “shipp[ing] samples of contaminated soil to a testing site, remov[ing] and deliver[ing] several tons of contaminated soil to a disposal facility, and subsequently swapp[ing] out the contaminated soil for several tons of uncontaminated soil – all to the tune of approximately $112,000.” Id.
Ruiz refused to pay ECI for its work, and ECI sued Ruiz. Ruiz did not defend the lawsuit, and ECI obtained a default judgment against it. ECI then sought to recover its judgment, in the amount of $126,431.10, against Ruiz’ insurer, Global Hawk Insurance Company, under the MCS-90 endorsement in Global Hawk’s policy issued to Ruiz. ECI argued that the endorsement “clearly cover[ed] the judgment rendered against Ruiz Transportation” because it “expressly provides that the insurer agrees to pay for final judgments recovered against the insured for public liability resulting form the negligent operation of covered vehicles.” Id., *5 (orig’l emph.). As the “endorsement specifically defines public liability to include environmental restoration,” id. (orig’l emph.), and “‘environmental restoration’ is broadly defined [in the endorsement] as ‘restitution for the loss, damage, or destruction of natural resources arising out of the accidental discharge, dispersal, release or escape into or upon the land . . . of any commodity transported by a motor carrier,’” id., ECI “contend[ed] this [incident was] precisely the type of accident contemplated by the MCS-90 Endorsement.” Id.
The court agreed with ECI, holding that “the very purpose of the [Motor Carrier Act] is to ‘assure that motor carriers maintain an appropriate level of financial responsibility for motor vehicles operated on public highways.’” Id., *10. Although the court did not parse the terms defined in the endorsement the way that ECI did, the court made clear that it agreed that the endorsement’s plain language implicated insurance coverage for the environmental cleanup services provided by ECI.
Notably, the court rejected Global Hawk’s argument that because its insurance contract provided separate insurance for pollution liability limited to $10,000 that was the limit of its contractual liability: even though the MCS-90 endorsement, by its terms, provides 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 the company” (Ins. Contr., MCS-90 End., p. 2 of 3), the court reasoned that by holding the MCS-90 applicable to the environmental cleanup costs up to the full statutory coverage limit of $750,000 did “not alter the terms of the policy or increase Global Hawk’s actual liability.” Env’l Cleanup, 2017 U.S. Dist. LEXIS 72707, *13. According to the court, that was because the “endorsement is no more than a surety obligation, which is why it provides that ‘[t]he insured agrees to reimburse the company for any payment made by the company . . . that the company would not have been obligated to make under the provisions of the policy except for the agreement contained in the endorsement.’” Id. (orig’l emph.) (cit. omit’d). “In other words, ‘the peculiar nature of the MCS-90 endorsement grants the judgment creditor the right to demand payment directly from the insurer, and simultaneously grants the insurer the right to demand reimbursement from the insured.’” Id., quoting Canal Ins. Co. v. U’writers at Lloyd’s, London, 435 F.3d 431, 442 (3d Cir. 2006). “Consequently, the endorsement ‘presents neither a windfall for the motor carrier, nor does it alter the motor carrier’s coverage under its other insurance policies.’” Id. (cit. omit’d).
Environmental Cleanup thus stands as non-binding authority that a claimant – such as a towing company – could cite to support an argument that towing-and-recovery charges in connection with a tractor-trailer wreck are compensable under the MCS-90 endorsement. There are some distinguishing characteristics to Environmental Cleanup, however; first and foremost, it did not involve a towing company, and the plaintiff there was not seeking payment for towing-and-recovery charges. On the contrary, the plaintiff, ECI, was seeking payment solely for environmental remediation services it had performed, and those services squarely fit the endorsement’s definition of “environmental restoration” work. As such, ECI’s claim for payment was for “public liability” as expressly defined in the endorsement, because “public liability” includes “environmental restoration.”
Another case in which the question of whether towing-and-recovery charges, specifically, fall within the scope of the MCS-90 endorsement was recently adjudicated in the District of New Jersey, though the court in that case did not render a decision on the question before the case was settled and voluntarily dismissed. See Superior Towing & Transp., LLC v. J. B. Hunt Transp., Inc., No. 3:21cv900, 2023 U.S. Dist. LEXIS 157706 (D.N.J. Sept. 6, 2023). In that case, the court had ordered discovery to determine whether the towing and recovery charges in question fell within the endorsement’s scope. As the District of New Jersey observed, to “the extent any suretyship exists [under the endorsement], it is not without bound. The expressed language of Form MCS-90 limits the obligation to ‘any final judgment recovered against the insured for public liability resulting from negligence in the operation, maintenance or use of motor vehicles.’” See id., *2 (orig’l emph.) For that reason, a “limited period of discovery [was] warranted to determine . . . what part, if any, of the [default] judgment against [the insured trucking company] was ‘for public liability resulting from negligence in the operation, maintenance or use of motor vehicles.’” Id., *2-*3. The parties ultimately resolved their dispute before the court had an opportunity to decide whether the default judgment at issue fell within the bounds of the MCS-90 endorsement, however.
To the extent that a towing company’s invoice includes charges for environmental remediation, the key question is whether such charges are for “environmental restoration” as defined by federal regulation: “restitution for the loss, damage, or destruction of natural resources arising out of the accidental discharge, dispersal, release or escape into or upon the land, atmosphere, watercourse, or body of water of any commodity transported by a motor carrier. This shall include the cost of removal and the cost of necessary measure[s] taken to minimize or mitigate damage to human health, the natural environment, fish, shellfish, and wildlife.” 49 C.F.R. § 387.5 (emph. supp’d). Because the regulation’s definition of “environmental restoration” focuses on spillage of commodities transported by a freight carrier, more commonplace remediation charges such as the cleanup of spilled diesel fuel arguably do not implicate the MCS-90 endorsement. Here again, however, there appears to be no case law providing guidance one way or the other.
Both interstate freight carriers and their insurers should be aware of the potential for towing and recovery charges to implicate the MCS-90 endorsement, given the dearth of case law dealing with this question. Importantly, this is not a question of which insurers and their insureds need be at odds – quite the contrary, as the MCS-90 creates a suretyship on the part of the insurer rather than a true insurance obligation, meaning that any money paid out by the insurer pursuant to the MCS-90 endorsement is recoverable by the insurer from its insured. See Canal Ins., 320 F.3d at 490. Thus, both the insurance industry and the freight-hauling industry have a shared interest in properly limiting the MCS-90 endorsement’s scope to that which it plainly states: protecting those injured by interstate freight haulers from uncompensated losses. A judicial interpretation of the endorsement thus limiting it would make for quite a bang, indeed.
If you have questions about this article or about towing claims in general, contact Kevin Streit (kstreit@setlifflaw.com) at (804) 377-1270, or Steve Setliff (ssetliff@setlifflaw.com) at (804) 377-1261.
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