Pump the Brakes: Indiana Rules MCS-90 Endorsement Does Not Apply to Intrastate Trips

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In Progressive Southeastern Ins. Co. v. B&T Bulk, LLC, No. 21S-CT-496, 2022 Ind. LEXIS 131, the Supreme Court of Indiana (Supreme Court) reversed a decision of the Court of Appeals of Indiana (Court of Appeals), ruling that Form MCS-90 (MSC-90) endorsements on insurance policies do not apply to purely intrastate trips. In reversing the decision of the Court of Appeals, the court found that the Indiana Legislature’s incorporation of the federal Motor Carrier Act of 1980 (MCA) into the state code did not expand the MCA’s scope to include intrastate trips.

MCS-90 endorsements, which are required by the Federal Motor Carrier Safety Administration, are obtained by interstate motor carriers to meet the minimum levels of financial responsibility ($750,000 for standard transportation and $5 million for the transportation of hazardous materials) required by the MCA. In issuing an MCS-90 endorsement the insurer “agrees to pay… any final judgment recovered against the insured for public liability resulting from negligence in the operation of motor vehicles…regardless of whether or not each motor vehicle is specifically described in the policy.” Accordingly, if an MCS-90 endorsement applies, the insurer may be liable for any final judgment even if the specific vehicle involved in the accident is not listed on the policy.

The underlying cause of action involved B&T Bulk, LLC (B&T), an Indiana trucking corporation with an insurance policy provided by Progressive Southeastern Insurance Company (Insurer). The policy included an MCS-90 endorsement in compliance with the MCA. On December 4, 2017, B&T’s employee drove a semi-truck and trailer to pick up a load of concrete within Indiana on a purely intrastate trip. The semi-truck and trailer were not specifically listed on the policy. On the way to pick up the load, the truck crossed the median, striking and killing another driver on State Road 25.

The deceased’s estate initiated a wrongful death action against B&T. B&T turned to Insurer to defend and indemnify B&T. Insurer moved for a declaratory judgment that: 1) it did not have a duty to defend and indemnify B&T since the vehicle was not listed specifically on the policy; and 2) its exposure was limited to the extent of the MCS-90 endorsement’s application to the incident on December 4. Following a motion for summary judgment, the trial court found that Insurer did not have a duty to defend/indemnify B&T, but that the MCS-90 endorsement applied to the incident—making Insurer liable for any final judgment. Insurer appealed, making two arguments, namely: 1) because the incident occurred during an intrastate trip, not an interstate trip, the requirements of the MCA did not apply, and 2) the MCS-90 endorsement did not apply because the vehicle had not yet picked up the cargo prior to the accident and was not “transporting property.” On appeal to the Court of Appeals, the court noted that Indiana Code section 8-2.1-24-18(a) states: “[the MCA regulations] are incorporated into Indiana law by reference, and…must be complied with by an interstate and intrastate motor carrier of personal property throughout Indiana.” Thus, the Court of Appeals found that the MCS-90 endorsement applied to trip at issue.

The Supreme Court reversed the Court of Appeals, finding that by its plain language, the MCA does not to apply to intrastate trips transporting non-hazardous property. The Supreme Court also found that the incorporation of the MCA into state law did not expand the MCA’s scope, and therefore would not extend to intrastate trips.

To determine whether the MCA applied to the trip at issue, the Court turned, initially, to Section 30 of the MCA, which applies to “motor carriers transporting property ‘in the United States between a place in a State’ and (A) ‘a place in another State’; (B) ‘another place in the same State through a place outside of that State’; or (C) ‘a place outside of the United States’”. 49 U.S.C. § 31139(b)(1); 49 C.F.R. § 387.3(a). In addition to interstate trips, the court observed that these “regulations apply when a motor carrier transports hazardous property.”

The court then noted that there are three different approaches to determining whether an MCS-90 endorsement applies to a particular trip: the “trip-specific” approach (which tests whether the employee was transporting property on an interstate trip at the time of loss), the “fixed-intent-of-the-shipper” approach (which tests whether the trip was interstate or intrastate based on the shipper’s fixed and persisting transportation intent at the time of the shipment), and the “public-policy” approach (which applies the MCS-90 endorsement when the court finds it aligns with the public policy behind the MCA). The court rejected the public-policy approach, and noted that under either remaining approach, the MCA clearly did not apply to the facts of the underlying action.

After determining the underlying trip was purely an intrastate trip, the court then addressed whether Indiana’s incorporation of the MCA expanded the MCA regulations to apply to purely intrastate trips. The court observed that Indiana’s incorporation statute “incorporates [the relevant regulation] in full and does not amend any subparts or provide alternate definitions for ‘interstate’ or ‘intrastate.’” The court noted that elsewhere in the incorporated regulation, specifically related to the transport of hazardous property, “intrastate” is explicitly mentioned. Because “intrastate” is defined in one section of the statute, and not another, the court stated that the plain reading of the language requires a finding that because “intrastate” was not included elsewhere “the financial responsibility requirements do not apply to intrastate motor carriers transporting non-hazardous property.” The court observed that if the legislature had intended to apply the requirements of the MCA to all intrastate trips, it could have done so. Because it did not, the court did not have the discretion to “choose which subparts to apply, which to ignore, and which to amend.”

To reach its decision, the court acknowledged that its ruling was in contradiction to the holding of Sandberg Trucking, Inc. v. Johnson, 76 N.E.3d 178 (Ind. Ct. App. 2017). In Sandberg, “the court reasoned that it would be absurd to hold that the general assembly ‘went to the trouble of adopting federal regulations and specifically making them applicable to intrastate commerce while simultaneously adopting one that nullified the entire adoption.’” The court found that under the Sandberg approach, the court “would have to read each provision of each regulation and determine when replacing ‘interstate’ with ‘intrastate’ made sense with our understanding of the legislature’s policy goals.” The court “declined to impose [its] own value judgments for those the legislature could have enacted but did not” and overruled Sandberg to the extent it contradicted the opinion in this matter.

Subrogation professionals should always be mindful of state statutes regarding MCS-90 endorsements. While the MCS-90 endorsement applies to interstate travel, the applicable state legislature may have adopted the MCA to apply to purely intrastate trips. However, professionals must be mindful of how the state adopted the federal standards. If the incorporation creates inherent contradictions, it may, ultimately, not apply.

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