Commercial Trucking and MCS-90 Issues in the COVID Age

commercial trucking msc 90 covid 19
 
 

 

 
One of the effects of the COVID pandemic has been an increase in the use of commercial trucking as a primary means of transportation of goods and services throughout the United States. Internet retailers in particular have seen a tremendous surge in sales which have directly resulted in a heavy reliance on intrastate and interstate commerce. In addition, as America returns to work more and more vehicles are on the road. This includes both personal and commercial autos. As a result, auto insurers are beginning to see a significant increase in personal lines and commercial auto claims.
 
 

 

Mandatory Liability Insurance Requirements for Commercial Trucking

 

 

 
There are numerous coverage and claims handling issues implicated by these types of claims. One particular area of concern

are state and federal mandatory liability insurance requirements. Specifically, most states have express mandatory limit requirements for intrastate trucking in order to protect the general public from truckers who do not maintain adequate limits. Most states have express policy form requirements on commercial trucking policies.

In addition to state requirements, there is an express federal requirement for truckers who are delivering goods on an interstate basis. This requirement is a product of the Federal Motor Carrier Act of 1980.  49 U.S.C. §3119.  Pursuant to this statute, the Secretary of Transportation adopted 49 C.F.R. §387, which in turn created the requirement for any motor carrier operating in interstate commerce to carry an MCS-90 public liability endorsement.

For those attorneys and insurers who are not familiar with the MCS-90 endorsement, the general rule and purpose behind this federal requirement is to provide protection to the public for damage and injuries resulting from trucking accidents regardless of any coverage issues under the insured’s commercial auto policy. Consistent with the federal regulation, most truckers insured under commercial auto liability policies maintain an MCS-90 endorsement as part of their auto policy.

 

MCS-90 Indemnity Coverage

 

Generally, the MCS-90 endorsement requires insurers to provide indemnity coverage up to certain stated amounts, (typically $750,000 of mandatory coverage), even if there is no coverage available under the policy itself. This coverage is mandatory regardless of whether or not the policy provides coverage. For instance, one issue that arises frequently is the situation in which the insured was not operating an “insured auto” at the time of an accident.  Although there would be no coverage for that insured under the primary coverage part, the insurer may be obligated under the MCS-90 endorsement to indemnify the insured up to the minimum limit for any bodily injury or property damage suffered by third parties as a result of the accident.

Because of this requirement insurers are often times expected to pay significant sums on a liability claim even though the accident may involve a non-insured truck, a non-insured or unlisted driver, a lapse in coverage, etc.

There are number of issues involved with the MCS-90 endorsement.  For instance, the endorsement does not require the insurer provide a defense to an insured who otherwise does not have coverage. In addition, under the regulation, commercial auto insurers are entitled reimbursement from the insured of any amounts paid as a result of the application of MCS-90.

As a result, insurers are confronted with the question of whether they should provide a courtesy defense simply to control the indemnity exposure even though under the regulation itself there is no defense obligation. There is also always the question of whether or not it is worth pursuing a reimbursement action if in fact payments are issued under the regulation in the absence of coverage.

One other issue that arises in the analysis of whether and how to apply MCS-90 is the fact that certain courts have not yet ruled on whether it applies in trip-specific situations in which the accident occurs when the driver is not engaged in interstate commerce.  There is a split of authority amongst most jurisdictions and the issue has not been elevated to SCOTUS.  Canal Ins. Co. v. YMV Transp., Inc., 867 F. Supp. 2d 1099 (W.D. Wa. 2011).  As a result, it is not entirely clear under the law whether MSC-90 coverage would be triggered if, for instance, an accident occurs during a solely in-state delivery of goods.

Finally, there is also always a concern that a commercial trucking insurer may inappropriately deny coverage and not apply the requirements of MCS-90 to a particular claim. This can be particularly problematic in states that recognize extracontractual liability.

Given the complexities of both state required forms and the application of MCS-90 for interstate trucking, it is important to be familiar with how the state and federal regulations operate. Lether Law Group represents a number of commercial trucking insurers throughout the United States. As a result, we have extensively handled claims involving the application of these regulations, particular the application of MCS-90. We have also litigated these issues and represented insurers in actions to recover benefits paid under the regulation.

If you would like to discuss specific MCS-90 issues or issues involving state required liability filings for commercial trucking, please contact our offices.

Oregon Supreme Court Strikes Down $500,000 Non-Economic Damages Cap for Personal Injury Claims as Unconstitutional

On July 9, 2020, the Oregon Supreme Court issued its Opinion in Busch v. McInnis Waste Sys., Inc., Case No. SC S066098. Five of the seven justices representing the majority held that the $500,000 cap on non-economic damages for personal injury claims was unconstitutional under the Remedy Clause of Article I, Section 10 of the Oregon Constitution. This cap on damages was enacted in its current form in 1987 and is found at ORS 31.710(1). The statute provides:
Except for claims subject to ORS 30.260 to 30.300 [Actions against Public Entities] and ORS chapter 656 [Worker’s Compensation], in any civil action seeking damages arising out of bodily injury, including emotional injury or distress, death or property damage of any one person including claims for loss of care, comfort, companionship and society and loss of consortium, the amount awarded for non-economic damages shall not exceed $500,000.

In Busch, the plaintiff filed suit to seek personal injury damages against a private garbage company after he was run over by a garbage truck while a pedestrian in a crosswalk in downtown Portland. The plaintiff eventually underwent an amputation above-the-knee due to his injuries. Liability was admitted prior to trial. The jury awarded the plaintiff $10,500,000 in non-economic damages. However, the trial court reduced the non-economic damages awarded by the jury to $500,000 due to the application of ORS 31.710(1). The Court of Appeals reversed and review was accepted by the Supreme Court.

The Court’s decision in Busch follows a long line of cases addressing the constitutionality of statutory damages caps. These challenges are based on the Remedy Clause, which provides “every man shall have remedy by due course of law for injury done him in his person, property, or reputation.” In Busch, the Court confirmed that the new framework for analyzing the constitutional issues raised by all statutory damages caps was set forth in Horton v. OHSU, 359 Or 168 (2016). This new framework looks at the purpose and mechanics of the statutory scheme including the damages cap and whether a substantial remedy remained in general and as applied to the plaintiff. In Horton, the Court upheld the damages cap set forth in the Oregon Tort Claims Act, which applies to civil actions against public entities (and their employees). The Busch court used the analytical framework in Horton to distinguish the cases and strike down the damages cap proscribed in ORS 31.710(1) as applied to personal injury claims. The primary distinguishing point between the two caps is that the Oregon Tort Claims Act provided tort remedies against the State which did not exist before the Act due to sovereign immunity.

With the addition of the Busch decision, there is now more certainty regarding the application of statutory damages caps in Oregon. This is especially true in straight-forward personal injury claims involving private parties. However, because there is no bright-line rule, there remains the potential for uncertainty in other contexts.

Based on this new decision, we anticipate a significant increase in claim activity and exposures in Oregon. Lether Law Group has a number of highly experienced attorneys licensed to practice in Oregon courts. This includes shareholders Tom Lether, Eric Neal and Westin McLean. If you have any questions regarding the application of Oregon law on pending claims in that jurisdiction, please feel free to contact our offices.

Washington Insurance Commissioner Releases New Guidance to Businesses in Light of Recent Events

On June 3, 2020, Washington Insurance Commissioner Mike Kriedler advised Washington State business owners to contact their insurance providers as soon as possible if they have experienced loss or damage in association with recent occurrences of looting and vandalism taking place throughout the state.  The following is a link to the full announcement:

https://www.insurance.wa.gov/news/kreidler-advises-businesses-damaged-during-protests-file-claims-asap

The announcement included the following statements:
  • Damage to commercial property/business caused by theft, vandalism, and/or fire should be covered under a commercial property policy unless that type of loss is specifically excluded;
  • Coverage for damage to plate glass windows is dependent upon the individual policy language;
  • Business that have been temporarily closed because of the COVID-19 pandemic are not considered vacant under the terms of an insurance policy; and
  • A “war and military action” exclusion should not exclude damage caused during a protest.
 In addition, the Insurance Commissioner advised business owners to take the following immediate steps if they plan on filing a claim: 1) contact their insurance company; and 2) consider hiring professional help with debris clean up and to secure their property to protect against further damage.
This announcement is not surprising given recent events and widespread resulting property damage.However, this advisement and increase in civil disturbance claims raise numerous coverage issues.These include the potential application of coverage exclusions including the vacancy exclusion, mitigation and duty to protect from further loss requirements, and valuation issues.
In addition, the steps necessary for an insured to properly mitigate damages and protect insured property from further loss is also fact dependent and will require a careful examination of the steps taken by an insured.Whether, and to what extent, any such mitigation efforts are covered by a policy will depend on the individual policy.The potential for coverage for any such steps should be discussed with an insured early in the claim handling process.

Finally, in light of the potentially severe impacts of the COVID-19 pandemic on business throughout the state and country, we expect more complicated valuation disputes.The risk of inflated claims may also increase.

Whether property damage by theft, vandalism, or fire is covered will ultimately be dependent upon the terms and conditions of the actual policy and the specific facts presented in any claim.As result, it is important that insurers proactively and thoroughly investigate each claim based on its unique facts.It will also be necessary to thoroughly and timely respond to these claims in order to avoid extracontractual exposures.

These are just a few of the potential coverage issues raised by the Insurance Commissioner’s announcement and the damage caused during by the recent civil disturbance claims.

Lether Law Group has been handling large first-party property losses for over 32 years.This includes earthquake claims, storm and hurricane losses, wildfire claims, and even a number of claims involving civil disturbances.If you would like to discuss these recent developments or any other matters, please feel free to contact us at any time.

New Federal Court Case Tests the Limits of Washington Supreme Court Ruling in Keodalah and Allows Some Claims Against Adjusters to Proceed in State Court.

As many of you likely recall, the Washington Supreme Court affirmed the trial court’s dismissal of the statutory extra-contractual claims asserted against an employee-adjuster on October 3, 2019 in Keodalah v. Allstate, 194 Wn.2d 339, 449 P.3d 1040 (2019).  However, as we noted in our newsletter discussing the opinion, the Court seemingly left open the possibility that certain extra-contractual claims could be brought against adjusters based on the common law.

In particular, we noted that the majority opinion did not address whether a common law bad faith claim against an adjuster was legally sustainable in Washington. In fact, the dissent expressed a belief that such a claim should be recognized in Washington. Further, all of the Consumer Protection Act (“CPA”) claims addressed in Keodalah were per se claims based on violations of statutes and regulations applicable to insurers. The Keodalah court did not address so-called traditional common law CPA claims based on the Hangman Ridge elements proscribing any deceptive or unfair act or practice that occurs in trade or commerce, affecting the public interest and proximately causing injury to business or property.

A recent federal court decision has once again addressed the dispute over whether adjusters can be held liable under certain extra-contractual claims post-Keodalah. In Leonard v. First Am. Prop. & Cas. Ins. Co., 2020 U.S. Dist. LEXIS 23680 (W.D. Wash. 2020), Judge Ronald B. Leighton was confronted with a Motion to Remand after First American removed the Leonards’ state court action asserting various extra-contractual claims against First American and its adjuster. The Removal was based on the premise that the claims asserted against the non-diverse adjuster were fraudulently joined and precluded by Keodalah.

In granting the Motion to Remand, Judge Leighton expressly recognized that the Keodalah court left open the possibility that a common law bad faith claim against an insurance adjuster could be a viable cause of action in Washington. He also cited to Panag v. Farmers Ins. Co. of Washington, 166 Wn.2d 27, 41-42 (2009), wherein the Court held that no contractual relationship was necessary to prevail on a CPA claim, to support the proposition that a traditional CPA claim against an insurance adjuster could also be viable. While Judge Leighton recognized that these causes of action might eventually be dismissed or precluded, he ultimately ruled that “it is better to leave such novel questions of Washington State law to Washington State courts.”

Based on Judge Leighton’s analysis in Leonard, it appears that the Supreme Court’s decision in Keodolah may have only been a partial step in addressing the viability of direct causes of action against insurance adjusters in Washington. We will likely not know with certainty what, if any, claims may be brought against adjusters in Washington until common law bad faith claims and common law CPA claims against adjusters are tested in Washington appellate courts.

If you have any questions regarding the effect of the cases discussed herein or any other issues involving Washington insurance law, please do not hesitate to contact our offices.

Washington Update

As we all continue to deal with the social, commercial, and legal fallout from the COVID-19 pandemic, the world continues to turn.  Lether Law Group hopes everyone is staying safe, healthy and positive.
New Washington Regulation

In non-coronavirus news, the Washington Office of the Insurance Commissioner has enacted a new Washington Administrative Code trade practice regulation that goes into effect on August 1, 2020.  WAC 284-30-770.  This new WAC relates to “Adverse Notification Requirements.”  Going forward, for any coverage denial, final claim payment if it is less than what the insured claimed, or cancellation, termination, etc., the letter to the insured must contain the following language:

“If you have questions or concerns about the actions of your insurance company or agent, or would like information on your rights to file an appeal, contact the Washington state Office of the Insurance Commissioner’s consumer protection hotline at 1-800-562-6900 or visit www.insurance.wa.gov. The insurance commissioner protects and educates insurance consumers, advances the public interest, and provides fair and efficient regulation of the insurance industry.”

The foregoing language must be in the same font and size of the text of the rest of the letter and must appear either on page 1 or at the end of the letter.

Although the WAC does not go into effect for a couple of months, Lether Law Group is recommending that the above language be added to outgoing adverse claims correspondence immediately.

Also, although technically this WAC would not apply to ROR letters, it may be prudent to add the language to those correspondence as we often find that policyholders will argue that an ROR letter is tantamount to a denial.

New Washington Caselaw

In other developments, on May 7, 2020, the Washington State Supreme Court issued a decision reaffirming its long-held jurisprudence on the duty to defend.  Robbins v. Mason County Title Ins. Co., 2020 Wash. LEXIS 288.

In Robbins, the insureds sought defense and indemnity from the title insurance provider on their property in a dispute with a local Native American tribe over the tribe’s claim that it had the right to harvest shellfish on the insureds’ property.  The title insurer denied coverage and refused to defend the insureds.  The denial was based on the title insurer’s conclusion that the tribe’s claim was an “easement” and that “[a] treaty between the federal government and a Native American Indian tribe is not a record that imparts constructive notice pursuant to Washington law.” Robbins, 2020 Wash. LEXIS 288, *5.

The Robbins’ then sued in Mason County Superior Court alleging breach of contract and bad faith.  The Superior Court granted summary judgment in favor of the insurer.  The Court of Appeals reversed, finding that not only was there a defense obligation, but also finding that the title insurer had acted in bad faith as a matter of law when it denied the defense.  The Supreme Court accepted review of the Court of Appeals decision.

The Supreme Court affirmed, holding that the insurer breached the duty to defend in bad faith.  The primary basis for the Supreme Court’s ruling is based on its prior decision in Am. Best Food, Inc. v. Alea London, Ltd., 168 Wn.2d 398, 229 P.3d 693, 2010 Wash. LEXIS 250.  Where there is uncertainty in Washington law as to whether a defense is required, an insurer may not adopt its own interpretation of Washington law in order to justify denial of a defense.  Because the title insurer in Robbins adopted its own interpretation of the law on a subject that the Washington Court’s had not addressed, the insurer placed its interests ahead of those of its insureds and acted in bad faith.

This result is frankly not too surprising.  The Washington Supreme Court has been consistent on its stance on the duty to defend for the better part of the past two decades.

“If the insurer is unsure of its obligation to defend in a given instance, it may defend under a reservation of rights while seeking a declaratory judgment that it has no duty to defend. Grange Ins. Co. v. Brosseau, 113 Wn.2d 91, 93-94, 776 P.2d 123 (1989). A reservation of rights is a means by which the insurer avoids breaching its duty to defend while seeking to avoid waiver and estoppel. ‘When that course of action is taken, the insured receives the defense promised and, if coverage is found not to exist, the insurer will not be obligated to  pay.’ ”

Truck Ins. Exch. v. VanPort Homes, 147 Wn.2d 751, 761, 58 P.3d 276, 282, 2002 Wash. LEXIS 718, *14.

There is, however, one aspect of the Robbins decision that is novel and should be highlighted.  The Washington Courts have long held that the duty to defend is triggered by the filing of a Complaint against an insured and the insured’s tender of that lawsuit to its insurer.  VanPort, supra., Woo v. Fireman’s Fund Ins. Co., 161 Wn.2d 43, 164 P.3d 454, 2007 Wash. LEXIS 555.

The insurer in Robbins argued that it could not have breached the duty to defend because the tribe’s harvest-rights claim had not been filed as a civil action, but merely was set forth in a demand letter to the insureds.  The Supreme Court rejected that argument based on the insurer’s policy language, which stated that the insurer would defend any “claim or suit” to which the insurance applies.  There has always been some ambiguity in Washington law regarding this issue and now the Supreme Court appears to have firmly resolved the issue.  Insurers with “claim or suit” language should be prepared to assign defense counsel even when the claims against their insureds have not been formalized in a lawsuit.

If you would like to discuss these recent developments in Washington law or any other matters, please feel free to contact us at any time.