MCS-90 Is a Surety Agreement Different from the Insurance Policy
Barry Zalma

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An insurer and tort claimants dispute the insurer's maximum theoretical liability under a surety agreement. In Wesco Insurance Company v. Edward Eugene Rich, as wrongful death beneficiary of LaDonna C. Rich, Deceased; Edward Shayne Rich, as wrongful death beneficiary of LaDonna C. Rich, Deceased, No. 22-60283, United States Court of Appeals, Fifth Circuit (January 12, 2023) resolved the dispute over the limits created by the federally required MCS-90 endorsement.

The MCS-90 is surety endorsement that Wesco Insurance Company included with a liability-insurance policy that it issued to Sam Freight Solutions, LLC. The insurance policy provides up to $1,000,000 in insurance coverage for a specific "covered auto," a 2012 Volvo Tractor (and certain trailers attached thereto). The MCS-90 surety endorsement, on the other hand, is a policy endorsement by which Wesco, by the endorsement's terms, assumed up to "$750,000" in liability for "any final judgment recovered against Sam Freight for public liability resulting from negligence in the operation" of any vehicle.
The MCS-90 Endorsement is Not Insurance.

Instead, it "creates a suretyship, which obligates an insurer to pay certain judgments against the insured . . ., even though the insurance contract would have otherwise excluded coverage."

FACTS

On July 29, 2018, LaDonna Rich died in an automobile collision involving a 2010 Freightliner. The Defendants are her beneficiaries, and they filed a wrongful-death suit against Sam Freight in Mississippi state court. The insurance policy (as distinct from the MCS-90 surety endorsement) that Sam Freight purchased from Wesco does not name the 2010 Freightliner as a covered auto. Therefore, the Wesco policy does not independently offer coverage for the collision.

The issue before the Fifth Circuit was the amount of coverage that the MCS-90 endorsement would provide in the event of a judgment against Sam Freight. The Beneficiaries argued that the MCS-90 endorsement would provide up to $1,000,000 in coverage, while Wesco argued that $750,000 would be the maximum available amount.

The district court granted summary judgment for Wesco, declaring that the MCS-90 endorsement unambiguously provides that Wesco shall not be liable for amounts in excess of $750,000. While this appeal was pending, the parties reached a settlement agreement under which Wesco agreed that it "will pay" whichever of the two amounts the Fifth Circuit determined the surety agreement to require.

Since the MCS-90 is a "federally mandated" endorsement the operation and effect of a federally mandated endorsement is a matter of federal law.

As a result the Fifth Circuit’s analysis focused on the plain language of the endorsement. To the extent that Mississippi substantive law governs any residual questions, such as those regarding only the policy, construction of an insurance policy is a question of law, which we the Fifth Circuit was required to review.

The insurance policy offers coverage of up to $1,000,000 per accident, but only for "covered autos." The parties agreed that the 2010 Freightliner was not a "covered auto" under the insurance policy's definition of that term.

The MCS-90 endorsement makes Wesco "liable," as a surety, for up to "$750,000 for each accident." The endorsement applies "regardless of whether or not each motor vehicle is specifically described in the policy."

The MCS-90 attached to the Wesco policy consists of a fill-in-the-blank form that provides spaces for the parties to identify, among other things: the insurer's name, the insured for whom the insurer is acting as surety, and the policy number that the endorsement supplements. In this case, the following amount appears in the blank space on the MCS-90: "[T]he company shall not be liable for amounts in excess of $750,000 for each accident." As a result, Wesco agreed to provide $1 million in insurance coverage for Sam Freight's covered autos, but only $750,000 in public liability coverage for all other vehicles.

The defendants argued that number that appears in the blank space ($750,000) is a "change" of the policy. But, it is a change, only if the Beneficiaries are otherwise correct that the MCS-90 and the insurance policy must have identical coverage limits.

The MCS-90, for instance, contains the following language:

"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 [Sam Freight] ...." [emphasis added]

The language quoted above sets up an unambiguous distinction between the policy and the endorsement. Likewise, the words "this endorsement" show that the liability limit described "herein" is the limit that appears in the endorsement, not the policy.

Neither the policy nor the endorsement required Wesco to provide suretyship liability in the exact same amount that it offers insurance coverage. The MCS-90's plain text limits Wesco's suretyship liability to $750,000.

The District Court’s decision was affirmed.

ZALMA OPINION

The MCS-90 endorsement is a creation of federal law. It is not insurance. It is an act of Congress to require an insurer to indemnify a person injured by a trucker insured who did not pay a premium for the insurance of a specific vehicle it was operating. Sam Freight identified a single vehicle when it acquired insurance from Wesco with limits of liability up to $1 million. The MCS-90 endorsement - compelled by federal law - limited the exposure of Wesco, acting as a surety not an insurer, up to $750,000. The language of the MCS-90 was clear and unambiguous and if the wrongful death beneficiaries received a judgment up to or more than $750,000 Wesco would be required to pay no more than $750,000 and any additional damages would be the responsibility of Sam Freight.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected]

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Barry Zalma, Esq., CFE is available at http://www.zalma.com and [email protected]

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Go to the Insurance Claims Library – https://lnkd.in/gWVSBde.