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Supreme Court Rules Coverage Extends To Intrastate Activity

Published on: 9/26/2007

Supreme Court of Virginia Rules Coverage Under MCS-90 Endorsement Required By Federal Motor Carrier Act Extends To Intrastate Activity

by William Ashley Burgess

The Supreme Court of Virginia's recent ruling in Heron v. Transportation Casualty Ins. Co., Record No. 031813 (September 14, 2007), expanded coverage under the MCS-90 policy endorsement required by the Federal Motor Carrier Act of 1980, to include accidents that occur in the course of purely intrastate transportation in addition to interstate activities. 

The Federal Motor Carrier Act of 1980 requires entities registered as interstate motor carriers with the Federal Carrier Safety Administration to maintain liability insurance coverage for the protection of the public.  The terms of the coverage are provided in a federally mandated form called an "MCS-90" endorsement, which becomes part of the insurance policy.  The pertinent portion of the MCS-90 endorsement language at issue in the Heron case provided in part:

In consideration of the premium stated in the policy to which this endorsement is attached, the 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 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 Heron case involved a declaratory judgment action filed by an insurer to determine  whether the coverage provided under the MCS-90 endorsement recited above, extended to accidents involving registered interstate motor carriers engaged in a purely intrastate haul.  The accident in question occurred while the insured's employee was driving a tractor-trailer registered for interstate commerce from the City of Virginia Beach, Virginia to its destination of Chesapeake, Virginia.  While traveling to Chesapeake, the insured's tractor-trailer collided with a passenger automobile resulting in the death of two of its occupants and serious and permanent injuries to the third occupant.  The parties stipulated that the policy afforded no coverage for the accident unless coverage was provided under the MCS-90 endorsement. 

The trial court determined that the language of the endorsement should be interpreted in light of the federal statutes and regulations mandating its use.  In accordance with the decisions of courts from other jurisdictions facing similar questions, the trial court ruled that the MCS-90 endorsement applied only to accidents occurring in interstate commerce.  Therefore, coverage under the MCS-90 endorsement was not available in the instant action where the driver was engaged in purely intrastate hauling at the time of the collision.

On appeal, the Supreme Court of Virginia rejected the trial court's ruling and the decisions from other jurisdictions which found that the MCS-90 endorsement coverage applied only to interstate commerce.  The Court decided to employ a "less complex" approach to resolving the coverage issue by resorting to basic principles of contract interpretation.  Since the policy endorsement language did not contain terms limiting the coverage to the use or operation of a vehicle exclusively in interstate commerce, the Court refused to read such additional terms into the endorsement.  Under the Court's reasoning, where the owner of a vehicle subject to the Federal Motor Carrier Act is subject to a claim or potential judgment for damages resulting from negligence in the operation of that vehicle, the insurer is obligated under the MCS-90 endorsement to pay any such judgment.  The fact that the occurrence happened during a purely intrastate haul would, therefore, have no impact on the available coverage.

The Heron decision seems to resolve the issue in Virginia of whether a distinction should be made between interstate and intrastate transportation when it comes to the question of coverage under an MCS-90 endorsement.  The Heron decision did not reach the issue of whether the endorsement can be amended to specifically exclude intrastate transportation.  However, a major obstacle to amending the endorsement is that its terms are strictly prescribed by the federal rules implementing the Federal Motor Carrier Act.  It should also be noted that the decision of the Virginia Supreme Court contradicts the decisions from appeals courts in other jurisdictions, such as Florida and Texas, which have held that the MCS-90 endorsement does not apply to wholly intrastate activities.

If you would like to discuss any of the issues raised by this opinion, or other coverage issues you face, please do not hesitate to contact Ashley Burgess, or any other member of the Sands Anderson Marks & Miller Risk Management team.