Companies Responsibilities and Options When a Truck Driver

Insurance Companies' Responsibilities and Options When a Truck Driver Who is an Additional Insured Fails to Cooperate After a Claim is Made

By Eugene G. Beckham & Robert J. Beckham, Jr.
Beckham & Beckham, P.A.
North Miami Beach, Florida

This paper will address the practical ramifications of insurance policy cooperation clauses in conjunction with the required financial responsibility endorsement codified in the Code of Federal Regulations. The issues will be considered in the situation where the truck driver and the motor carrier are separate entities. The motor carrier is usually the named insured under the insurance policy and the truck driver is an additional insured.

Insurance policies give insurance companies the right to select and retain defense counsel for insured motor carriers and truck drivers. Where an insurance company is under an obligation to furnish an additionally insured truck driver with an attorney and a conflict of interest develops among the insurance company, the motor carrier or the truck driver, an insurance company should retain independent counsel for the truck driver. Where the insurance company insures both parties (plaintiff and defendant) to an accident, the insured may select their own counsel. "Even in the absence of a direct conflict of interest, an insured could not be compelled to surrender control of the defense if the insurer lacked an economic motive for a vigorous defense."

Insurance policies invariably contain clauses providing that an insured must cooperate in the adjustment and subsequent litigation of a claim. Cooperation with an insurance company is a condition precedent which must be satisfied before an insured is entitled to coverage.

Invocation of a cooperation clause as justification for forfeiture of a policy generally requires that the failure to cooperate be material and prejudice the insurance company. Courts typically strain to prevent insurance companies from avoiding defending their insureds. Courts have held that a refusal to defend waives the right to assert breach of a cooperation clause and other courts have held that providing a defense also acts as a waiver of the right to assert breach of cooperation. A timely reservation of rights can take care of these problems.

As a practical matter, an insurance company will rarely be able to deny coverage based on breach of a policy's cooperation clause. Only willful failure to cooperate is a realistic basis for denying coverage. It must also be remembered that an insurance company's duty to defend its insureds is broader than its duty to provide coverage. The duty to defend extends to additional insureds such as truck drivers.

In order to deny coverage based on breach of the duty to cooperate, an insurance company must prove that it was actually prejudiced by the failure to cooperate. Such proof is difficult to marshall. If this risky strategy is undertaken, an insured should always be specifically warned of the possible consequences of a failure to cooperate and an insurance company must be diligent is seeking cooperation and must make only reasonable requests.

Sometimes, but not often, an insured's failure to cooperate may result in such a material breach of contract that the insurance company will be relieved of its obligation to indemnify the noncooperative insured. However, the ordinary requirements of an insured's duty to cooperate are fundamentally altered by federal and state law regarding financial responsibility for those engaging in motor carrier commerce.

The Motor Carrier Act was recently substantially revised. Left intact by this revision were sections prescribing minimum financial responsibility requirements for motor carriers transporting passengers and motor carriers transporting property. This paper is limited to consideration of motor carriers transporting property.

Pursuant to the statutory requirements, the United States Department of Transportation promulgated regulations. The "Endorsement for Motor Carrier Policies of Insurance for Public Liability Under Sections 29 and 30 of the Motor Carrier Act of 1980" is also called the "MCS-90 endorsement." The Code of Federal Regulations expressly promulgates form MCS-90 which is the required insurance endorsement. The regulation provides, in part:

Endorsements for policies of insurance (Illustration I) . . . must be in the form prescribed by the FHWA and approved by the OMB.

The MCS-90 endorsement reads, in part:

[T]he 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 and whether or not such negligence occurs on any route or in any territory authorized to be served by the insured or elsewhere.

The regulation also provides a form of surety bond which also meets the financial responsibility obligations imposed by Congress. The surety bond alternative is beyond the limited scope of this paper.

The MCS-90 endorsement is required for all foreign, interstate and some intrastate motor carriers transporting property in the United States. Intrastate motor carriers are often required to comply with state insurance requirements which are modeled after these federal statutes and regulations.

The MCS-90 endorsement makes an insurance company liable for all judgments caused by any vehicle maintained, operated or used by an insured motor carrier whether or not that vehicle is named in an insurance policy. "The purpose of this provision is to create additional incentives to [motor] carriers to maintain and operate their trucks in a safe manner as well as to assure that carriers maintain an appropriate level of financial responsibility." The public policy behind the statute and regulations would seem to be that by requiring a superseding liability clause in favor of the public, the cost of damages and injuries caused by transportation of property will be borne by motor carriers and will thereby be made a part of the cost of business.

The MCS-90 endorsement further provides:

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 [insurance] company from liability or from the payment of any final judgment . . . .

Courts have held that this mandatory MCS-90 endorsement language supersedes other policy language in the rest of the insurance contract. This includes cooperation clauses in motor carrier insurance policies.

It is therefore essential to encourage and foster cooperation with insureds; their assistance is indispensable in every claim. A motor carrier is usually the named insured and its cooperation is forthcoming for the obvious reason of keeping its insurance premiums as low as possible. Truck drivers, as additional insureds, usually have similar interests in cooperating.

Some truck drivers own their vehicles, while others are not owners. The failure of a non-owner truck driver to cooperate with an insurance company pursuant to a policy's cooperation clause cannot operate to deny coverage to the owner of the vehicle or the injured plaintiff under the MCS-90 endorsement.

Truck drivers' cooperation is essential for many reasons. An obvious reason that cooperation is vital is because truck drivers are invariably witnesses to each incident which may lead to a claim being made. It is also possible that uncooperative truck drivers might irritate a court resulting in pleadings being stricken and a default judgment being entered.

A less obvious, but equally important, reason truck drivers' cooperation is necessary involves removal to federal court. Federal law permits out-of-state defendants sued in another state's court system to remove that case from state court to federal court. There is a 30 day limitation on removing actions from state court to federal court where the defense may gain some tactical advantages. This 30 day period begins to run from the time when a defendant receives a copy of a pleading which shows the action is removable to federal court. It does not matter if the complaint or process is served informally or in a manner which would not support a default; it is the receipt of the pleading which is important.

Removal to federal court requires unanimity among defendants. If a defendant has received a copy of a complaint which shows an action is removable and does not file a notice of removal within 30 days of receipt, every defendants' right to removal is waived.

This rule enables a shrewd plaintiff's attorney to serve a truck driver with process (or merely provide a copy of the complaint) prior to service on a motor carrier hoping that the truck driver will not forward the papers in time for removal. As soon as a truck driver receives a copy of the complaint or summons, the 30 day time limit begins to run and a motor carrier will be unable to remove that case even though it had absolutely no knowledge of the lawsuit.

Of course, most motor carriers and truck drivers cooperate fully with defense counsel. Although truck drivers' highly mobile life-style sometimes makes immediate communication with them impractical for defense counsel, by and large, truck drivers are reliable and anxious to assist in litigation. However, truck drivers are occasionally not as cooperative as one might like. In extreme situations, a truck driver may even disappear completely without a trace leaving behind a motor carrier and insurance company to defend him and themselves without any assistance whatsoever.

A case from the United States Tenth Circuit Court out of New Mexico is particularly instructive because of the egregious fact pattern. The defendant truck driver pulled onto the right shoulder on a four lane highway. As another truck was overtaking him in the left lane, the defendant truck driver suddenly began to make a U-turn from the right hand shoulder across the highway. The two trucks collided. The defendant truck driver making the U-turn was charged with driving while intoxicated. Shortly after the accident, the defendant truck driver disappeared from the hospital. From the appellate opinion dated almost six years after the accident, it does not appear that the defendant truck driver was ever located.

The defendant truck driver was not served personally with process and the attorneys who represented him were unable to obtain any assistance from him. Of course, he did not attend trial. At the commencement of trial, defense counsel unsuccessfully attempted to withdraw from representing the defendant truck driver claiming that "the extent of [his] lack of cooperation did not become evident until [he] failed to appear at trial." The effort to withdraw was unsuccessful and a judgment was ultimately entered against the defendant truck driver and the insurance company.

On appeal, the insurance company argued that the total lack of cooperation by the defendant truck driver breached the policy's cooperation clause and it was not liable for the judgment against the defendant truck driver. The court squarely rejected the insurance company's contention.

The court expressly held that the MCS-90 endorsement superseded the requirements of the cooperation clause and upheld the award against the defendant truck driver which the insurance company was required to satisfy. The appellate court stated:

[T]he lack of cooperation defense has no merit under the insurance policy and the motor carrier endorsement attached to it . . . .

The insurer attempts to avoid liability by relying on the clause in the policy that requires insureds to cooperate with the insurer in an investigation, or defense, of a claim. . . .

The policy also contained a provision known as an Interstate Commerce Commission (ICC) endorsement [MCS-90], the operation of which . . . is dispositive on the lack of cooperation issue . . . . We have held that a standard ICC endorsement "negates any inconsistent limiting provisions in the insurance policy to which it is attached, regardless of whether a shipper or a member of the public is involved in the dispute or whether the dispute is among insurance companies."

This application of the law clearly demonstrates that it is imperative that an insurance company completely and vigorously fulfill its duty to defend a truck driver and motor carrier even when the driver is noncooperative. For no matter how uncooperative and recalcitrant a truck driver may be, an insurance company will still be liable for any judgment against that truck driver pursuant to the MCS-90 endorsement, required by federal regulation, which will supersede state law requirements. The non-cooperation of a truck driver cannot cause a motor carrier to lose its coverage as to an injured plaintiff.

Even if a motor carrier is not involved in interstate transportation of property, states have enacted their own versions of this federal law and the MCS-90 endorsement.

No matter whether a truck driver is fully cooperative or completely uncooperative, it is important for an insurance company to defend a truck driver as best it can because a judgment against a recalcitrant or noncooperative truck driver may be easily enforced against an insurance company as the MCS-90 endorsement expressly provides:

It is further understood and agreed that, upon failure of the [insurance] 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.

Notwithstanding complete and willful breach of a cooperation clause in an insurance policy by a truck driver, an insurance company will remain liable to a plaintiff by virtue of the MCS-90 endorsement. The MCS-90 endorsement expressly authorizes an action against an insurance company to compel payment of proceeds.

Even though the MCS-90 endorsement is effective to nullify the cooperation clause as to third parties (i.e., plaintiffs), the endorsement provides that an insurance policy remains effective between an insurance company and insureds. The MCS-90 endorsement also contains the following language:

[A]ll 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 [insurance] company. The insured agrees to reimburse the company for any payment made by the company on account of any accident, claim, or suit involving a breach of the terms of the 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 this endorsement.

This language provides a right of indemnity against an insured (e.g., motor carrier and truck driver) for any payment an insurance company may be required to make to a plaintiff.

Given this express reservation of rights creating indemnity liability, there would seem to be no reason why a motor carrier which hired an employee truck driver or engaged an independent contractor truck driver might not be held liable under the vicarious liability theory of respondeat superior or under direct negligence theories such as negligent entrustment, hiring and retention. It is conceivable that a motor carrier might be found liable to an insurance company for breach of an insurance policy's cooperation clause by a truck driver it hired or engaged.

This underscores the importance of motor carriers selecting responsible truck drivers. Not only is a responsible truck driver important in safely and timely delivering goods which are entrusted to his care, when the inevitable accidents do occur, a truck driver must be responsible in cooperating with the insurance company and legal counsel in order to present the best defense possible.

Obviously, conflicts of interest may arise among insurance companies, motor carriers and truck drivers when issues of non-cooperation are raised. The possibility of indemnity from the insured motor carrier and truck driver under the MCS-90 endorsement makes this a salient issue when an insurance company faces liability for a non-cooperative truck driver. In this regard, it is important for insurance companies to recognize the ethical obligations of an attorney defending a trucking accident case.

Defense counsel for the truck driver and motor carrier cannot be involved in planning such indemnity claims and cannot assist an insurance company in such an endeavor. Even though an insurance company is paying defense counsel's fees, the insured truck driver and motor carrier are the attorney's clients and it is the clients (truck driver and motor carrier) to whom counsel owes fiduciary loyalty and not the insurance company. So long as there is no conflict, counsel defending against a plaintiff may cooperate fully with the insurance company but if a conflict arises, an attorney's duties to the clients (truck driver and motor carrier) must be paramount.

If breach of an insurance policy's cooperation clause becomes apparent, it would be the ethical duty of counsel to try and protect the clients (truck driver and motor carrier) from a possible suit by the insurance company which is paying the attorney's fees. This situation is rife with ethical conflicts and is to be avoided not only by attorneys but by insurance companies as well.

If an insurance company is contemplating such an indemnity action it should never inform counsel it has hired to defend a truck driver and motor carrier. Of course this may not be possible if the insurance company takes the prudent precaution of notifying the insured in writing that it considers the insured is not complying with a policy's cooperation clause.

Not informing defense counsel of the potential conflict will also enable defense counsel to try and limit the damage for which indemnity liability may arise to the smallest possible sum. There is nothing certain once a case is put in litigation and even a case with complete noncooperation may somehow resolve favorably so that any potential indemnity action is unnecessary.

Thus, if a possible indemnity action is contemplated under the MCS-90 endorsement in the future, it is imperative that counsel for the truck driver and motor carrier be left completely in the dark about such matters. This is not to suggest that information should be withheld from defense counsel. The adage, "knowledge is power" is true and defense counsel having devised the legal strategy and tactics is in the best position to pick and choose which information is pertinent and which is not. This simply means that if an insurance company is considering an indemnity action against its insureds, it should keep that possibility to itself.


The MCS-90 endorsement supersedes all cooperation clauses in the policy as to third parties. Any judgment against a truck driver or motor carrier, no matter how uncooperative, will be enforceable against the insurance company in any court of competent jurisdiction.

If the non-cooperation of an insured (truck driver or motor carrier) causes an insurance company to pay a third party, that insurance company may seek indemnification from its insured pursuant to the express terms of the MCS-90 endorsement. This could mean a motor carrier as well as a non-cooperative truck driver may become liable for breach of an insurance policy's cooperation clause after an insurance company's payment to a plaintiff.

As a practical matter, the indemnification rights reserved in the MCS-90 endorsement may not be as effective as an insurance company might wish. There is always the refuge of bankruptcy court where such potentially large debts may be discharged completely and without recourse. It is a fact that many motor carriers and especially truck drivers are not wealthy and are frequently "judgment proof."

The possibility that a motor carrier may ultimately become liable for a loss paid by its insurance company because of a truck driver's breach of an insurance policy's cooperation clause underscores the vital importance of engaging and hiring responsible truck drivers; ones who obey the law, including court rules, and will fully cooperate in litigation.