MCS-90 Endorsements: Indemnity Obligations Subject to Stowers?

Thompson Coe Houston attorney Raymond Kutch achieved a dismissal on behalf of Progressive Commercial Casualty Insurance Company (“Progressive”) in a declaratory judgment casualty insurance coverage case arising from the death of two young men who drove a truckload of steel parts from Laredo, Texas to Missouri. The trial court determined that the policy’s MCS-90 endorsement is not subject to Texas’s Stowers duty to settle on behalf of an insured because the Fifth Circuit treats MCS-90 endorsements as a suretyship rather than an indemnity relationship between the insured and insurer.

Background

The case arose when one of the decedents agreed to accompany his friend, who was making the drive from Texas to Missouri for his mother’s company ESD Transport. The original load carrier and Progressive Insured, Xpress Transport Logistics, LLC (“Xpress”), had initially agreed to haul the steel load but re-brokered the load to ESD Transport. The men picked up the load and started their drive to Missouri. At some point during the trip, the original driver’s friend took the wheel. The truck rolled, killing both men. The families of both men sued Xpress and other defendants in Texas state court.

Under a full reservation of rights, Progressive provided Xpress a defense in the underlying state court action. Settlement demands were made in the underlying litigation, but no final judgment or order of dismissal had been entered. Progressive filed a declaratory judgment action against Xpress and the two decedents seeking a declaratory judgment that Progressive had no duty to defend or indemnify Xpress and that the MCS-90 insurance endorsement did not apply to the claims in the underlying state court action. The estate for the driver at the time of the accident counterclaimed for a declaratory judgment that Progressive had a duty under the MCS-90 endorsement to accept and pay a settlement offer that is reasonable and within the MCS-90 policy limits.

Analysis

A MCS-90 endorsement is a statutorily created “safety net” for the public and not an ordinary insurance provision to protect the insured. The Fifth Circuit treats the MCS-90 endorsement as a suretyship rather than an indemnity obligation. A suretyship is a three-party relationship where the surety undertakes to perform to an obligee if the principal fails to do so. The reasons behind a duty to settle in the indemnity-insurance context, in which the insurer has a duty to defend and indemnify the insured, do not apply to the MCS-90 endorsement context, in which the insurer owes only an obligation to pay the remaining debt of an insured after the insured’s debt has been established. The responsibility to satisfy the remaining debt of an insured is triggered only after a final judgment in the underlying case. Because Progressive has a duty to pay the debt of its Insured Xpress that remains only after a final judgment is entered against Xpress, Progressive did not owe a duty to settle under the Policy’s MCS-90 endorsement.

Conclusion

The trial court dismissed counter-plaintiff’s declaratory judgment action holding that Progressive did not have a duty to settle within the limits of the policy’s MCS-90 endorsement because the MCS-90 endorsement is not an indemnity obligation but rather a suretyship that can only be triggered if an insured’s debt remains after a final judgment is entered against the insured. The MCS-90 endorsement does not create a duty to settle within its limits.

NOTE: The coverage aspects of the case against Xpress are still pending.