Opinion
No. 3-02-CV-1569-K.
January 10, 2005
FINDINGS AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
This insurance coverage dispute is before the court on cross-motions for summary judgment filed by (1) Republic Western Insurance Company ("RWIC"), (2) Eric Rockmore, Individually and d/b/a Rockmore's Discovery Tours, Rockmore's Discovery Coaches, Inc., and Discovery Tours of Texas Unlimited ("Rockmore" or "Rockmore Companies"), Mark Agency a/k/a Mark Insurance Agency, Inc., a Division of Chamberlin Reinheimer Insurers, Inc. a/k/a Chamberlin Insurance, Inc. ("Mark Agency"), and ABC Bus Leasing, Inc. ("ABC"), collectively referred to as "Respondents," and (3) Don Stout and Joan Stout, Individually and as Next Friends of James Nicholas Stout ("the Stouts"). At issue is whether a commercial auto insurance policy issued by RWIC to Rockmore was canceled prior to June 24, 2002, the date of a tragic bus accident that killed or seriously injured approximately 40 members of a church youth group. In the event the court determines that the policy was in effect at the time of the accident, one or more parties seek summary judgment as to whether the failure to list the bus driver, Ernest Carter, as a scheduled driver on the insurance application defeats coverage and whether ABC is an additional insured under the policy. For the reasons stated herein, the Stouts' motion for summary judgment should be granted, RWIC's motion should be denied, and respondents' motion should be granted in part and denied in part.
I.
Eric Rockmore owns various charter bus companies that are engaged in the business of transporting passengers in interstate and intrastate commerce. ( See RWIC App. at 54, 120). The Rockmore companies operate under several different names, including Odyssey Trails Odyssey Trails Charter Coaches, Inc., Rockmore's Discovery Tours, Rockmore's Discovery Coaches, Inc., and Discovery Tours of Texas Unlimited, often using the names interchangeably. ( Id. at 54, 57, 59-60, 67). At the time of the accident made the basis of this suit, Rockmore was a citizen of Texas, having moved his business operations from Milwaukee, Wisconsin in late 2001. ( See id. at 72; Resp. App. at 52-53).
On or about April 27, 2001, Rockmore asked his insurance agent, Mary Zupancic of the Mark Agency, to obtain liability insurance for his charter bus business. Zupancic submitted an application for $5 million in liability insurance to Transportation Insurance Specialists, Inc. ("TIS"), as managing general agent for RWIC, an Arizona corporation. (RWIC App. at 115-30). The application covered two buses, including a 1982 MCI Charter Bus owned by ABC and leased to Rockmore. ( Id. at 129). As part of the application, which was not signed by Rockmore or anyone on his behalf, the applicant agreed that "the insurance coverage, if provided, will apply only to those drivers and vehicles listed in the attached schedule unless otherwise provided in writing." ( Id. at 128). The only operator listed in the application was Eric Rockmore. ( Id. at 130).
TIS initially declined to provide coverage to Rockmore. However, when Zupancic resubmitted the same unsigned application on November 27, 2001, TIS agreed to issue a $5 million liability insurance policy for a total annual premium of $22,046. ( Id. at 133). An attachment to the TIS quote requires Rockmore to submit additional documentation, including a signed application, a complete list of drivers, and a driver certification form, within 30 days of binding or risk cancellation of the policy. ( Id. at 134). Rockmore was either unwilling or unable to pay the premium quoted by TIS. In an attempt to obtain a lower premium, Zupancic asked for a revised quote on the 1982 MCI Charter Bus only. TIS quoted a total annual premium of $11,113. On December 4, 2001, Zupancic accepted the revised quote on behalf of Rockmore and instructed TIS to bind coverage. ( Id. at 135). That same day, TIS confirmed by fax that the policy had been bound. ( Id. at 136). Rockmore and his agent were reminded that the policy could be canceled if a signed application, driver certification form, and other underwriting information were not received within 15 business days. ( Id.). When Rockmore failed to return the requested materials by January 10, 2002, TIS sent another letter to Zupancic instructing her to forward the missing documentation no later than January 25, 2002 in order to avoid cancellation of the policy. ( Id. at 137).
Rockmore eventually obtained liability insurance from Lancer Insurance Company. However, the Lancer policy was canceled effective November 25, 2001 for non-payment of premiums. ( See RWIC App. at 93-95).
Neither the letter accompanying the revised quote dated December 4, 2001 nor the second notice sent to Zupancic on January 10, 2002 seeks a complete list of drivers from Rockmore. ( See RWIC App. at 136-37).
Rockmore never returned the underwriting information requested by TIS. Nevertheless, on or about February 4, 2002, RWIC issued a $5 million commercial auto liability insurance policy for the period from December 4, 2001 to December 4, 2002. ( Id. at 138-39). Although the policy was issued to Rockmore Discovery Coaches as the named insured, the definition of "insured" includes "[a]nyone else while using with your permission a covered `auto' you own, hire or borrow[.]" ( Id. at 144). The policy further provides that "[t]hese declarations, together with the business auto coverage form provisions and endorsements, if any, issued to form a part thereof, complete the above numbered policy." ( Id. at 138). Another clause in the contract specifies that "[t]his policy contains all the agreements between you and us concerning the insurance afforded." ( Id. at 155). Significantly, the application for insurance, driver certification form, and other underwriting information requested from Rockmore are not referenced in, attached to, or otherwise made part of the policy.
The policy excludes coverage for employees "if the covered `auto' is owned by that `employee' or a member of his or her household." (RWIC App. at 144). That exclusion is not applicable here.
Several endorsements to the policy are relevant to the disposition of the pending summary judgment motions. One endorsement, entitled "Wisconsin Changes — Cancellation and Nonrenewal," provides, in pertinent part:
We may cancel this policy by mailing or delivering to the first Named Insured written notice of cancellation at least 10 days before the effective date of the cancellation.
If this policy has been in effect for less than 60 days and is not a renewal policy, we may cancel for any reason.
If this policy has been in effect for 60 days or more or is a renewal of a policy we issued, . . . we may cancel this policy only for one or more of the following reasons:
a. The policy was obtained by material misrepresentation;
b. There has been a substantial change in the risk we originally assumed, except to the extent that we should have foreseen the change or considered the risk in writing the policy;
c. There have been substantial breaches of contractual duties, conditions or warranties; or
d. Nonpayment of premium.
If this policy has been in effect for 60 days or more or is a renewal of a policy we issued, the notice of cancellation will state the reason for cancellation.
( Id. at 167).
The policy also contains an "Endorsement for Motor Carrier Policies of Insurance for Public Liability Under Section 18 of the Bus Regulatory Reform Act of 1982," commonly referred to as an MCS-90 endorsement. This federally-mandated endorsement requires the insurer to pay any judgment recovered against the insured, within the limits of liability, resulting from negligence in the operation, maintenance, or use of motor vehicles subject to the financial responsibility requirements of the Bus Regulatory Reform Act. ( See id. at 172). With respect to cancellation, the MCS-90 endorsement provides:
Cancellation of this endorsement may be effected by the company or the insured by giving (1) thirty-five (35) days notice in writing to the other party (said thirty-five days notice to commence from the date of notice is mailed, proof of mailing shall be sufficient proof of notice), and (2) if the insured is subject to the ICC's jurisdiction, by providing thirty (30) days notice to the ICC (said thirty days notice to commence from the date the notice is received by the ICC at its office in Washington, D.C.).
The Interstate Commerce Commission ("ICC") was abolished by Congress in 1995. See ICC Termination Act, 109 Stat. 803 (1995). Thereafter, the authority to regulate motor carriers was transferred to the Department of Transportation and its agency, the Federal Motor Carriers Safety Administration ("FMCSA"). See 49 U.S.C. § 13501, et seq.
On February 25, 2002, 84 days after the effective date of the RWIC policy, TIS notified Rockmore that the policy would be canceled effective April 27, 2002 for "Underwriting Reasons — Signed Application UM Form, Photos, Signed Driver Certification Form, Maintenance Records, Mechanic." ( Id. at 176). TIS mailed the cancellation notice to "Rock ware Discovery Coaches, Inc." at "1367 W. Clark Street 606 N. 7th Street, Milwaukee, WI 53206," the address listed in the policy. ( See id. at 138, 177) (emphasis added). A copy of the notice also was sent electronically to the Federal Motor Carriers Safety Administration ("FMCSA") in Washington, D.C. In March 2002, the cancellation notice mailed to Rockmore was returned to TIS marked "unclaimed." ( Id. at 177). Further investigation by TIS revealed that Rockmore had relocated his business operations to Texas. ( Id. at 179-80). Although RWIC issued an endorsement on March 26, 2002 changing the insured's mailing address to "P.O. Box 170428, Dallas, Texas 75201," there is no evidence that the cancellation notice was ever sent to Rockmore at that address.
On June 24, 2002, the 1982 MCI Charter Bus leased from ABC slammed into a concrete pillar supporting an overpass on Interstate Highway 20 in Kaufman County, Texas. The driver, Ernest Carter, a Rockmore employee, and four teenage members of a church youth group died in the crash. Approximately 35 other passengers, including 14-year old Nick Stout, were injured. The day after the accident, RWIC issued an endorsement canceling the policy effective April 27, 2002. ( Id. at 175).
Shortly after the bus accident, multiple lawsuits were filed against Rockmore and ABC in Texas state court. Rockmore and ABC timely notified RWIC of those claims and demanded a defense and indemnification under the terms of the policy. RWIC denied coverage, but eventually agreed to defend Rockmore and ABC in the underlying litigation subject to a reservation of rights. On July 23, 2002, RWIC filed this declaratory judgment action against Rockmore in federal district court seeking a determination that the policy had been canceled effective April 27, 2002 or, in the alternative, that there is no coverage because Ernest Carter was not a scheduled or approved driver. ( See Plf. Sec. Am. Compl. at 11-12, ¶¶ 23-24). The case is before the court on cross-motions for summary judgment with respect to the threshold issues of cancellation and coverage. These issues have been fully briefed by the parties and the motions are ripe for determination.
Federal subject matter jurisdiction is proper because RWIC and Rockmore are citizens of different states and the amount in controversy exceeds $75,000, exclusive of interest and costs. See 28 U.S.C. § 1332(a)(1). Although other parties subsequently intervened in this declaratory judgment action, their citizenship does not defeat diversity jurisdiction. See W.R. Grace Co. v. Continental Casualty Co., 896 F.2d 865, 871 (5th Cir. 1990).
II.
Summary judgment is proper when there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). A dispute is "genuine" if the issue could be resolved in favor of either party. Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). A fact is "material" if it might reasonably affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). Cases involving the interpretation of insurance policies are particularly appropriate for summary disposition. See Principal Health Care of Louisiana v. Lewer Agency, Inc., 38 F.3d 240, 242 (5th Cir. 1994); Snyder General Corp. v. Great American Insurance Co., 928 F.Supp. 674, 677 (N.D. Tex. 1996) (Kaplan, M.J.), aff'd, 133 F.3d 373 (5th Cir. 1998).Where, as here, a case is presented by way of cross-motions for summary judgment, each movant has the burden of producing evidence to support its motion. A movant who bears the burden of proof at trial must establish "beyond peradventure all of the essential elements of the claim or defense to warrant judgment in his favor." Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986). By contrast, a party seeking summary judgment who does not have the burden of proof at trial need only point to the absence of a genuine fact issue. See Duffy v. Leading Edge Products, Inc., 44 F.3d 308, 312 (5th Cir. 1995). Once the movant meets its initial burden, the non-movant must show that summary judgment is not proper. See Duckett v. City of Cedar Park, 950 F.2d 272, 276 (5th Cir. 1992). The parties may satisfy their respective burdens by tendering depositions, affidavits, and other competent evidence. See Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir), cert. denied, 113 S.Ct. 82 (1992). All evidence must be viewed in the light most favorable to the party opposing the motion. See Rosado v. Deters, 5 F.3d 119, 122 (5th Cir. 1993). However, conclusory statements, hearsay, and testimony based merely on conjecture or subjective belief are not competent summary judgment evidence. Topalian, 954 F.2d at 1131.
III.
Three discrete issues are presented by the parties in their summary judgment motions: (1) whether the RWIC policy, including the MCS-90 endorsement, was canceled effective April 27, 2002; (2) whether the failure to list Ernest Carter as a scheduled driver on the application for insurance defeats coverage; and (3) whether ABC is an additional insured under the policy. The court will address the cancellation and coverage issues in turn.
A.
As a preliminary matter, the court must decide if a choice-of-law analysis is necessary. A federal court sitting in diversity must apply the choice-of-law rules of the forum state. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941). Texas has adopted the "most significant relationship" test in contract cases. See Mitchell v. Lone Star Ammunition, Inc., 913 F.2d 242, 249 (5th Cir. 1990), citing Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 420-21 (Tex. 1984). Under this test, the court must consider: (1) the place of the contract; (2) the place where the contract was negotiated; and (3) the location of the subject matter of the contract. Maxus Exploration Co. v. Moran Brothers, Inc., 817 S.W.2d 50, 53 (Tex. 1991), citing RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 188 (1971). Although the policy lists a Milwaukee, Wisconsin address for Rockmore Discovery Coaches and contains several Wisconsin-specific endorsements, RWIC argues that Texas has the "most significant relationship" to this case because, inter alia, Rockmore currently lives in Texas, operated his charter bus business in Texas, and instructed his insurance agent to forward all communications to him in Texas. RWIC also points out that the bus accident occurred in Texas and the underlying lawsuits were filed in Texas. ( See RWIC MSJ Br. at 8-11, ¶¶ 26-25). As further support for the application of Texas law, RWIC relies on Tex. Ins. Code art. 21.42, which provides:
Any contract of insurance payable to any citizen or inhabitant of this state by an insurance company or corporation doing business within this state shall be held to be a contract made and entered into under and by virtue of the laws of this state relating to insurance, and governed thereby, notwithstanding such policy or contract of insurance may provide that the contract was executed and the premiums and policy (in case it becomes a demand) should be payable without this state, or at the home office of the company or corporation issuing the same.
TEX. INS. CODE ANN. art. 21.42 (Vernon Supp. 2004).
Respondents counter that a choice-of-law analysis is unnecessary because Wisconsin and Texas have similar laws governing the cancellation and coverage issues presented in this case. (Resp. MSJ Br. at 11, ¶ 34). See W.R. Grace Co. v. Continental Casualty Co., 896 F.2d 865, 874 (5th Cir. 1990), citing Keene Corp. v. Insurance Co. of North America, 667 F.2d 1034, 1041 (D.C. Cir. 1981), cert. denied, 102 S.Ct. 1644 (1982) ("If the laws of the states do not conflict, then no choice-of-law analysis is necessary."). Indeed, both Wisconsin and Texas law require strict compliance with the cancellation provisions of an insurance policy, limit the permissible reasons for canceling a policy that has been in effect for more than 60 days, and require that a cancellation notice expressly state the reasons for cancellation. See generally, TEX.INS. CODE ANN. art. 21.49-2A WIS.STAT. § 631.36 (2004). Because there is no material conflict between Wisconsin and Texas law, the court will analyze the summary judgment motions under Texas law as suggested by RWIC.
While respondents maintain that Texas and Wisconsin law do not conflict on the issues relevant to the instant motions, they do not necessarily agree with RWIC's choice-of-law analysis.
B.
RWIC first contends that the insurance policy issued to Rockmore was canceled effective April 27, 2002. Under Texas law, cancellation is an affirmative defense which must be proved by the insurer at trial. See Shaller v. Commercial Standard Insurance Co., 309 S.W.2d 59, 66 (Tex. 1958); Anchor Casualty Co. v. Crisp, 346 S.W.2d 364, 367 (Tex.Civ.App.-Amarillo 1961, no writ). Therefore, in order to obtain summary judgment, RWIC must conclusively establish that it complied with the requirements for sending a cancellation notice and that its stated reason for cancellation was proper.1.
The RWIC policy contains a special Wisconsin endorsement governing the procedures for cancellation and nonrenewal. Under this endorsement, RWIC may cancel the policy by "mailing or delivering to the first Named Insured written notice of cancellation at least 10 days before the effective date of cancellation." (RWIC App. at 167). The general cancellation provisions of the policy, which are not superseded by the special endorsement, require RWIC to mail or deliver the cancellation notice to the named insured at his last known mailing address. Proof of mailing is sufficient proof of notice. Upon cancellation, RWIC must refund any unearned premiums on a pro rata basis, but "[t]he cancellation will be effective even if we have not made or offered a refund." ( See id. at 155). These policy provisions comply with Texas law. See TEX. INS. CODE ANN. art. 21.49-2A(d) (written notice of cancellation must be delivered or mailed to first-named insured at address shown in the policy "not less than the 10th day before the date on which the cancellation takes effect").
TIS mailed a written notice of cancellation to "Rock ware Discovery Coaches" at "1367 W. Clark Street 606 N. 7th Street, Milwaukee, WI 53206" on February 25, 2002. The notice advises that insurance will cease on April 27, 2002, which is more than 10 days after the notice was sent. (RWIC App. at 176). Although the cancellation notice was returned to TIS marked "unclaimed," actual receipt is not a condition precedent to cancellation where the policy requires only that the insurer mail the notice to the insured. See American Casualty Co. v. Conn, 741 S.W.2d 536, 540 (Tex.App.-Austin 1987, no writ); Willis v. Allstate Insurance Co., 392 S.W.2d 799, 802 (Tex.Civ.App.-Dallas 1965, writ ref'd n.r.e.). Similarly, that the notice was addressed to "Rock ware Discovery Coaches" instead of "Rockmore Discovery Coaches" and incorrectly lists two street addresses does not render it invalid. See Brewer v. Maryland Casualty Co., 245 S.W.2d 532, 534 (Tex.Civ.App.-San Antonio 1952, writ ref'd n.r.e.) (close identity between name on policy and name on cancellation notice sufficient to inform insured of cancellation); U.S. Fire Insurance Co. v. Fletcher, 423 S.W.2d 89, 91 (Tex.Civ.App.-Houston [14th Dist.] 1967, writ ref'd n.r.e.) (where policy provides that coverage may be canceled by mailing notice to address listed in policy, cancellation is effected by mailing notice to that address even if address is incorrect).
Respondents attempt to create a fact issue by arguing that TIS did not send the cancellation notice to Rockmore at his "last known mailing address." In his deposition, Rockmore testified that he notified Mary Zupancic of the Mark Agency that he had relocated to Dallas, Texas and ceased business operations in Wisconsin. (Resp. App. at 52-53). Other evidence of record suggests that RWIC may have learned in January 2002 that Rockmore had moved to Texas. ( Id. at 146). However, there is no evidence that TIS or RWIC had any address for Rockmore, other than the Wisconsin address listed in the policy, until March 26, 2002 when his mailing address was changed by endorsement. (RWIC App. at 174). The court therefore determines that RWIC complied with the requirements for sending a cancellation notice.
2.
The RWIC policy sets forth the permissible reasons for cancellation. Because the policy was in effect for more than 60 days, RWIC may cancel the policy only if:
a. The policy was obtained by material misrepresentation;
b. There has been a substantial change in the risk we originally assumed, except to the extent that we should have foreseen the change or considered the risk in writing the policy;
c. There have been substantial breaches of contractual duties, conditions or warranties; or
d. Nonpayment of premium.
( Id. at 167). This cancellation provision is consistent with Texas law. See TEX. INS. CODE ANN. art. 21.49-2A(c) (listing permissible grounds for cancellation of insurance policy in effect for more than 60 days). In addition, the policy requires "the notice of cancellation [to] state the reason for cancellation." (RWIC App. at 167). See also TEX. INS. CODE ANN. art. 21.49-2A(g). RWIC must strictly comply with these requirements in order to effect cancellation of the policy. See Jones v. Ray Insurance Agency, 59 S.W.3d 739, 748 (Tex.App. — Corpus Christi 2001, writ denied); Cruz v. Liberty Mutual Insurance Co., 853 S.W.2d 714, 717 (Tex.App.-Texarkana), rev'd on other grounds, 883 S.W.2d 164 (Tex. 1993).
a.
The notice sent to Rockmore states that the policy was being canceled for "Underwriting Reasons — Signed Application UM Form, Photos, Signed Driver Certification Form, Maintenance Records, Mechanic." (RWIC App. at 176). RWIC maintains this is a permissible ground for cancellation because the failure to provide a signed insurance application and a driver certification form resulted in a "substantial change in risk."
Respondents argue that the cancellation notice is defective because "underwriting reasons" is not a permissible reason for canceling the policy. ( See Resp. MSJ Br. at 13, ¶ 39). However, an insurer is not required to track the language of the policy or use any "magic words." A notice of cancellation is sufficient if the stated reason falls within one of the permissible grounds for cancellation. See Gulf Insurance Co. v. Cherry, 704 S.W.2d 459, 462 (Tex.App.-Dallas 1986, writ ref'd n.r.e.) (no specific form of notice is required so long as an ordinary person in the exercise of ordinary care would understand that the policy is canceled).
A similar argument was rejected by the Texas Court of Appeals in Kino Express, Inc. v. Consumers County Mutual Insurance Co., 990 S.W.2d 784 (Tex.App.-Austin 1999, no writ). In that case, Consumers canceled a commercial automobile liability insurance policy issued to Kino, a package delivery service, because the insured violated a policy provision authorizing the insurer to "make inspections and surveys at any time" relating to "insurability and the premiums to be charged." Consumers maintained that Kino's failure to cooperate with inspectors, including the refusal to provide information about its drivers and vehicles, constituted an "increase in hazard" within the meaning of the policy and Texas law. In reversing summary judgment in favor of Consumers, the court of appeals held:
The summary-judgment record shows in substance that Consumers accepted the risk and issued the policy without knowing the material factors pertaining to Kino's drivers, automobiles, and operations, or the degree of hazard they created in the aggregate. When Consumers' attempts to obtain information about those factors were unsuccessful owing to Kino's want of cooperation, . . . Consumers cancelled the policy in a letter dated some 138 days after the effective date of the policy. The record shows prima facie a lack of cooperation. The record does not show prima facie that the hazard was enlarged beyond what it was on the effective date of the policy; a fortiori, the record does not show such an increase as a matter of law. It shows instead that Consumers never had the information necessary to assess the hazard and resulting risk at either point in time.Kino Express, 990 S.W.2d at 788 (emphasis in original).
Here, Rockmore failed to provide RWIC with a signed application and a driver certification form. This information arguably was necessary for RWIC to initially assess the hazard and resulting risk. However, like the insurer in Kino Express, RWIC issued the policy to Rockmore without ever having received this underwriting information. The policy was in effect for 84 days before RWIC issued a notice of cancellation. Whatever significance the signed application and driver certification form may have had on RWIC's initial assessment of risk, it cannot be said that Rockmore's failure to submit those documents "substantially change[d] the risk [RWIC] originally assumed."
b.
RWIC further argues that Rockmore's failure to provide the requested underwriting information constitutes a "material misrepresentation" and a "breach of contractual duties, conditions, or warranties." Under Texas law, a misrepresentation may consist of either an untrue statement or the omission of a necessary statement. See Essex Insurance Co. v. Redtail Products, Inc., 1999 WL 627379 at *5 (N.D. Tex. Aug. 17, 1999), aff'd, 213 F.3d 636 (5th Cir. 2000). RWIC does not allege, much less prove, that Rockmore made any false statements prior to the issuance of the insurance policy. Instead, RWIC contends that Rockmore implicitly represented he would submit a signed application and a driver certification form by accepting coverage. The court rejects this strained argument. Although Rockmore, through his insurance agent, was repeatedly warned that the failure to provide this underwriting information may result in cancellation of the policy, there is no evidence that Rockmore ever represented he would furnish the missing documents. The December 4, 2001 letter instructing TIS to bind coverage does not constitute an explicit or implicit representation to that effect.
Nor does the failure to submit underwriting information amount to a "breach of contractual duties, conditions, or warranties." In support of this argument, RWIC relies on a boilerplate attachment to the quote provided by TIS on November 28, 2001. This attachment requires Rockmore to furnish a signed and fully completed application, a complete list of drivers, and a driver certification form within 30 days of binding. (RWIC App. at 134). However, neither the quote nor the attachment is signed by Rockmore or his insurance agent. Moreover, even if Rockmore agreed to provide this information, the attachment is not part of the insurance contract. The policy provides that "[t]hese declarations, together with the business auto coverage form provisions and endorsements, if any, issued to form a part thereof, complete the above numbered policy." ( Id. at 138). Another clause in the contract specifies that "[t]his policy contains all the agreements between you and us concerning the insurance afforded." ( Id. at 155). Because Rockmore was not contractually obligated to provide any additional underwriting information to RWIC, the policy cannot be canceled for that reason.
RWIC also relies on the affidavit of Michael Sean Quinn, an insurance expert, to justify cancellation of the policy. According to Quinn:
Republic's cancellation of its contract of issuance [sic] with Rockmore conforms to the cancellation provisions in the policy and is hence valid. Based upon the provisions of the Policy itself, the cancellation was justified on the basis stated in the Policy, and the specific Policy provisions allowing for cancellation due to a material misrepresentation and a substantial breach of contractual duties, conditions, or warranties. Rockmore's failure to provide the underwriting materials, including the signed application, constituted material misrepresentation and there have been substantial breaches of contractual duties, conditions, or warranties.
(RWIC App. at 12-13, ¶ 10). This testimony consists of nothing more than unsupported legal conclusions and is not competent summary judgment evidence. See Owen v. Kerr McGee Corp., 698 F.2d 236, 240 (5th Cir. 1983).
3.
The RWIC policy also contains a standard MCS-90 endorsement. Under federal law, an interstate motor carrier operating under a permit issued by the Secretary of Transportation must file a bond, insurance policy, or other type of security "sufficient to pay, not more than the amount of the security, for each final judgment against the [carrier] for bodily injury to, or death of, an individual resulting from the negligent operation, maintenance, or use of [its] motor vehicles . . ." 49 U.S.C. § 13906(a)(1). The purpose of this statute is to ensure that a motor carrier has independent financial responsibility to pay for losses sustained by the general public arising out of its operations. See Travelers Insurance Co. v. Transport Insurance Co., 787 F.2d 1133, 1139 (7th Cir. 1986). In furtherance of this purpose, the Department of Transportation requires private interstate motor carriers to maintain at least $5 million in liability insurance and obtain proof of such insurance in the form of an MCS-90 endorsement. See 49 C.F.R. §§ 387.7(a), (d) 387.9. The MCS-90 endorsement provides, in pertinent part:
In consideration of the premium stated in the policy to which this endorsement is attached, the insurer (the company) agrees 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 Section 18 of the Bus Regulatory Reform Act of 1982 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 the financial condition, insolvency, or bankruptcy of the insured.
(RWIC App. at 172). Succinctly stated, 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. T.H.E. Insurance Co. v. Larsen Intermodal Services, Inc., 242 F.3d 667, 672 (5th Cir. 2001). Some courts, including the Fifth Circuit, have aptly described the obligation placed upon the insurer by the MCS-90 endorsement as one of suretyship. Id., quoting Canal Insurance Co. v. Carolina Casualty Insurance Co., 59 F.3d 281, 283 (1st Cir. 1995) ("[W]e consider the ICC endorsement to be, in effect, suretyship by the insurance carrier to protect the public — a safety net . . . [I]t simply covers the public when other coverage is lacking.").
When an insurance policy is amended by an MCS-90 endorsement, coverage under the endorsement remains in effect unless and until it is canceled in a manner prescribed by federal law. See, e.g. John Deere Insurance Co. v. Nueva, 229 F.3d 853, 856 (9th Cir. 2000), cert. denied, 122 S.Ct. 1063 (2002); Canal Insurance Co. v. First General Insurance Co., 889 F.2d 604, 610 (5th Cir. 1989), modified on other grounds, 901 F.2d 45 (5th Cir. 1990); Ford Motor Co. v. Transport Indemnity Co., 795 F.2d 538, 545 (6th Cir. 1986); In re Yale Express Systems, Inc., 362 F.2d 111, 114 (2d Cir. 1966). In order to effect cancellation of an MCS-90 endorsement, the insurer must provide at least 35 days written notice to the insured and at least 30 days written notice to the FMCSA at its offices in Washington, D.C. See 49 C.F.R. §§ 387.7(b)(1) 387.313(d). This notice requirement operates independently of any other policy provision. See Northland Insurance Co. v. New Hampshire Insurance Co., 63 F.Supp.2d 128, 130 (D.N.H. 1999).
An MCS-90 endorsement is subject to automatic cancellation, notwithstanding failure to comply with these notice requirements, if the insured purchases "replacement" insurance. See 49 C.F.R. § 387.7(c).
In this case, RWIC mailed a cancellation notice to Rockmore on February 25, 2002 — only 32 days before the MCS-90 endorsement was allegedly canceled by the FMCSA on March 28, 2002. While acknowledging that no court has ever upheld the cancellation of an MCS-90 endorsement on less than 35 days written notice to the insured, RWIC invites this court to hold that the late notice sent to Rockmore was effective to cancel the endorsement at the end of the time limit set out in the policy. ( See RWIC MSJ Br. at 23-24, ¶ 67). The court declines to rewrite the federal regulations in the manner suggested by RWIC. Even if coverage does not exist under the RWIC policy for some reason, the MCS-90 endorsement remains in effect.
The only evidence that the MCS-90 endorsement was canceled by the FMCSA on March 28, 2002 is a statement contained in the Affidavit of Theresa Hornbeck, an employee of TIS. (RWIC App. at 7, ¶ 7). The Stouts correctly point out that Hornbeck's testimony is not based on personal knowledge and constitutes hearsay. ( See Stout MSJ Br. at 10-11). Consequently, the court will not consider whether the MCS-90 endorsement was, in fact, canceled by the FMCSA. Nor will the court consider the legal conclusion offered by Michael Sean Quinn that RWIC's purported cancellation of the MCS-90 endorsement conforms to applicable federal regulations and "hence is valid." (RWIC MSJ App. at 13, ¶ 11). See Owen, 698 F.2d at 240.
C.
In the event the court determines that the policy was in effect at the time of the accident, RWIC maintains that Rockmore's failure to list Ernest Carter as a scheduled driver on the application for insurance breached a warranty made as a condition precedent to coverage. The application submitted by Rockmore provides, in relevant part:
By letter dated June 18, 2002, just six days before the accident, Rockmore asked the Mark Agency to add Carter as a driver to the RWIC policy. (Resp. App. at 175-76). It is not clear whether this request was ever forwarded to RWIC.
I hereby apply for a policy of insurance as set forth in this application on the basis of statements contained herein.
* * * *
I hereby agree that the insurance coverage, if provided, will apply only to those drivers and vehicles listed in the attached schedules unless otherwise provided in writing.
* * * *
I hereby declare that the statements made in this application and the contents of the other documents supplied are true and correct and agree that any policy of insurance that may be issued will be based on the warranties and representations contained therein. I understand that this policy may be declared null and void if this submission package contains any information that is incomplete, false or misleading.
(RWIC App. at 128). As previously discussed, Rockmore never signed the application. Nor is the application part of the insurance contract. The policy itself does not contain a provision limiting coverage to only those drivers listed in the application and approved by RWIC. To the contrary, the policy covers Rockmore Discovery Coaches and "[a]nyone else while using with your permission a covered `auto' you own, hire or borrow." ( Id. at 144). It is undisputed that the bus involved in the accident was a "covered auto" and that Carter drove the bus with Rockmore's permission. The fact that Carter was not listed as a scheduled driver in the application does not defeat coverage and the corresponding duty to defend.
RWIC cites Old Reliable Fire Insurance Co. v. Alduro-Raynes Arabians, Inc., 717 S.W.2d 124 (Tex.App. — Houston [14th Dist.] 1986, writ ref'd n.r.e.), to support its argument that Rockmore breached a warranty made as a condition precedent to coverage by failing to list Carter as a scheduled driver on the application for insurance. However, the warranty language in Old Reliable was contained in the body of the policy. Id. at 127 ("It is further warranted by the insured that at commencement of this insurance, he is the sole owner of each animal hereby insured unless specifically stated in the attached application, schedule or endorsement."). By contrast, the alleged warranty in the instant case appears in a separate document that is not referenced in, attached to, or otherwise made part of the insurance contract.
D.
Finally, ABC moves for summary judgment on the ground that it is an additional insured under the RWIC policy. The only evidence offered to support this claim is: (1) a statement made by counsel for TIS in a prior pleading that "[n]o party in this litigation denies that ABC is an additional insured;" and (2) two fax communications from the Mark Agency to TIS confirming that ABC is an additional insured and a loss payee. ( See Resp. App. at 125, 169). Such paltry evidence does not establish "beyond peradventure" that ABC is an additional insured under the RWIC policy, particularly absent an endorsement to that effect.RECOMMENDATION
The court determines that RWIC's purported cancellation of the commercial auto insurance policy and the MCS-90 endorsement issued to Rockmore Discovery Coaches failed to comply with the provisions of the policy and applicable state and federal law. Rockmore's failure to list Ernest Carter as a scheduled driver on the application for insurance does not defeat coverage or the corresponding duty to defend. There is insufficient evidence to establish as a matter of law that ABC is an additional insured under the policy. Accordingly, the Stouts' motion for summary judgment should be granted, RWIC's motion for summary judgment should be denied, and respondents' motion for summary judgment should be granted in part and denied in part.A copy of this report and recommendation shall be sent to all counsel of record. Any party may file written objections to the recommendation by January 24, 2005. The failure to file written objections shall bar the aggrieved party from appealing the factual findings and legal conclusions of the magistrate judge that are accepted or adopted by the district court, except upon grounds of plain error. See Douglass v. United Services Automobile Association, 79 F.3d 1415, 1417 (5th Cir. 1996).