Carriers Affected by the Motor Carrier Act of 1980

Summary: Prior to the deregulation of the United States trucking industry under the Motor Carrier Act of 1980, enforcement of federal financial responsibility requirements for motor carriers was entrusted exclusively to the Interstate Commerce Commission (ICC), which was eventually abolished in 1995. Under provisions of the Motor Carrier Act of 1980, financial responsibility requirements are to be enforced now by the Department of Transportation via the Federal Motor Carrier Safety Administration.

The financial requirements are imposed on for-hire and private transporters of certain hazardous cargoes in interstate (between two or more states) or intrastate (inside the boundaries of one state) commerce.

This discussion deals with the financial responsibility requirements imposed by the Motor Carrier Act of 1980 on truckers (that is, property carriers) and with the insurance method of compliance with those requirements. A main method of compliance is through the use of Form MCS 90.

Incidentally, for a discussion of the effect of the law abolishing the ICC on the federal regulatory scheme for interstate motor carriers, see Empire Fire & Marine Ins. Co. v. Liberty Mut. Ins. Co., 699 A.2d 482 (Md. App. 1997).

Topics covered:
Requirements of motor carrier act
Methods of compliance
Form MCS 90

Requirements of Motor Carrier Act

There are certain described motor carriers that are subject to the automobile liability insurance requirements. These include for hire motor carriers transporting property in interstate or foreign commerce and for hire and private motor carriers transporting hazardous materials, hazardous substances, or hazardous waste in interstate, foreign, or intrastate commerce.

Financial responsibility requirements of the Motor Carrier Act are based on the type of carriage and type of commodity transported by the motor carrier.

As for carriers subject to the Department of Transportation, there are four types of carriages listed on the schedule of limits under two overall categories: vehicles with a gross vehicle weight of 10,000 pounds or more, and vehicles with a gross vehicle weight of less than 10,000 pounds.

Type 1 carriage is for-hire transportation of nonhazardous property in interstate or foreign commerce.

Type 2 carriage is for-hire and private transportation, whether in interstate or intrastate commerce, of (1) hazardous substances as defined in Title 49 of the Code of Federal Regulations (CFR) 171.8 transported in cargo tanks, portable tanks, or hopper-type vehicles with a capacity of more than 3,500 water gallons; (2) compressed gas or liquefied compressed gas “in bulk” (i.e., in a containment system with a capacity of more than 3,500 water gallons); (3) Class A or B explosives (defined in Title 49 of the Code of Federal Regulations) transported in bulk; (4) poison gas in any quantity; or (5) “highway route controlled quantities” of radioactive materials as defined in Title 49 of the CFR 173.403. It should be noted that with respect to the transportation of the last three types of cargo in interstate or foreign commerce, financial responsibility is imposed on vehicles regardless of their gross vehicle weight rating.

Type 3 carriage is for-hire and private transportation of oil listed as a hazardous substance, or of any hazardous waste, materials, or substances (as defined in Title 49 of the CFR 171.8) not included in Type 2 or Type 3. Type 3 comprises transportation of these cargoes interstate in any quantity, and intrastate as well when they are transported in bulk.

Type 4 is for-hire and private transportation in interstate or foreign commerce of any quantity of class A or B explosives; any quantity of poison gas; or a highway route controlled quantity of radioactive materials as defined in 49 CFR 173.403.

The first three types of carriages listed are in the 10,001 pounds or more category, and the last type is in the less than 10,001 pounds category.

Truckers engaged in Type 1 carriage must establish their ability to pay liability claims for bodily injury, property damage, and environmental restoration in the amount of $750,000 (minimum) per accident. Type 3 is subject to a requirement of $1 million. Type 2 and Type 4 entail a financial responsibility requirement of $5 million per accident.

As indicated in the descriptions of Types 1, 2, 3, and 4 carriages, the degree of financial responsibility imposed on a trucker subject to the provisions of the Motor Carrier Act is affected by the status of hauled cargoes as hazardous substances or materials. Determination of that status is made by reference to the Hazardous Materials Tables found in Title 49 of the Code of Federal Regulations. The tables contain a list—subject to frequent updating and revision—of more than 15,000 materials and chemical compounds classified by the federal government as hazardous for purposes of enforcing the Motor Carrier Act. The Act places responsibility for determining the application of its provisions on motor carriers themselves. Private carriers must, even in the absence of the Motor Carrier Act, comply with laws requiring them to identify hazardous commodities they haul on their own vehicles. Shippers using common or contract carriers are similarly required, by laws other than the Motor Carrier Act, to prepare documents specifying whether the commodities to be shipped qualify as hazardous cargoes.

Incidentally, the Insurance Services Office (ISO) offers a Motor Carrier Coverage form and a Truckers Coverage form as methods for insureds to use in handling the liability exposures facing common carriers. For more information on the Motor Carrier form, see Motor Carrier Coverage Form; for information on the Truckers policy, see Truckers Coverage Form.

Methods of Compliance

Motor carriers whose operations fall under one of the four types of carriage for which financial responsibility requirements are imposed by the Department of Transportation may comply with those requirements either through insurance (in the form of an endorsement prescribed by the U.S. government and discussed later) or by obtaining a surety bond guaranteeing payment of liability judgments up to the required amounts. Most carriers subject to the Act comply with its financial responsibility requirements by means of insurance, arranged by attaching federally mandated Form MCS 90—Endorsement for Motor Carrier Policies of Insurance for Public Liability Under Sections 29 and 30 of the Motor Carrier Act 0f 1980—to the policy under which the motor carrier is insured against automobile liability claims. This policy is typically a Truckers Coverage form or a Motor Carrier Coverage form (as noted previously) with respect to for-hire carriers, or perhaps a Business Auto Coverage form with respect to private carriers.

The small freight vehicle has Form BMC 90 available to provide its liability coverage. The official name for this form is Motor Carrier Policies of Insurance for Automobile Bodily Injury and Property Damage Liability Under Section 10927, Title 49 of the United States Code. Form BMC 91 is a certificate of insurance that the motor carrier can use as proof of insurance when the carrier registers with the state of its principle place of business.

Form MCS 90

This endorsement begins with the following six definitions that are relevant to the coverage provided:

Accident includes continuous or repeated exposure to conditions that results in bodily injury, property damage, or environmental damage which the insured neither expected nor intended.

Motor Vehicle means a land vehicle, machine, truck, tractor, trailer, or semitrailer propelled or drawn by mechanical power and used on a highway for transporting property, or any combination thereof.

Bodily Injury means injury to the body, sickness, or disease to any person, including death resulting from any of these.

Property Damage means damage to or loss of use of tangible property.

Environmental Restoration means restitution for the loss, damage, or destruction of natural resources arising out of the accidental discharge, dispersal, release or escape into or upon the land, atmosphere, watercourse, or body of water, of any commodity transported by a motor carrier. This shall include the cost of removal and the cost of necessary measures taken to minimize or mitigate damage or potential for damage to human health, the natural environment, fish, shellfish, and wildlife.

Public Liability means liability for bodily injury, property damage, and environmental restoration.

Following the definitions section, the endorsement contains the following insuring agreement:

The insurance policy to which this endorsement is attached provides automobile liability insurance and is amended to assure compliance by the insured, within the limits stated herein, as a motor carrier of property, with Sections 29 and 30 of the Motor Carrier Act of 1980 and the rules and regulations of the Federal Motor Carrier Safety Administration (FMCSA).

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 financial responsibility requirements of Sections 29 and 30 of 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. Such insurance as is afforded, for public liability, does not apply to injury to or death of the insured's employees while engaged in the course of their employment, or property transported by the insured, designated as cargo. 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. However, all terms, conditions, and limitations in the policy to which the endorsement is attached shall remain in full force and effect as binding between the insured and the company. The insured agrees to reimburse the company for any payment made by the company on account of any accident, claim, or suit involving a breach of the terms of the policy, and for any payment that the company would not have been obligated to make under the provisions of the policy except for the agreement contained in this endorsement.

It is further understood and agreed that, upon failure of the company to pay any final judgment recovered again the insured as provided herein, the judgment creditor may maintain an action in any court of competent jurisdiction against the company to compel such payment.

The limits of the company's liability for the amounts prescribed in this endorsement apply separately to each accident and any payment under the policy because of any one accident shall not operate to reduce the liability of the company for the payment of final judgments resulting from any other accident.

Central to the application of coverage under a policy endorsed with form MCS 90 is the insuring agreement's statement 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.” An insurer's liability under the endorsed policy is therefore absolute as respects claimants, subject to the limit ($750,000, $1 million, or $5 million, depending on the type of carriage involved in the insured's operations) for which the endorsement is written. Courts have generally upheld “absolute liability” provisions similar to those of form MCS 90 in connection with other kinds of statutorily imposed financial responsibility. Typical cases are Hindel v. State Farm Mut. Auto Ins. Co. of Bloomington, Ill., 97 F.2d 777 (7th Cir. 1938) and Continental Casualty Company v. Shankel, 88 F.2d 819 (10th Cir. 1937), both involving I.C.C. financial responsibility requirements; and U.S. Casualty Co. v. Timmerman, 180 A. 629 (Ct. of Chanc. of NJ 1935), an influential decision upholding an insurer's absolute liability to a claimant under the New Jersey financial responsibility law.

And as a corollary to the imposition of absolute liability on the insurer, the insured under form MCS 90 agrees to reimburse the insurer for any payment the latter would not have had to make under the terms of the basic policy. For a case interpreting this reimbursement provision in the context of an insurer seeking reimbursement from its insured, see T.H.E. Ins. Co. v. Larsen Intermodal Service, Inc., 242 F.3d 667 (5th Cir. 2001).

The limits of the company's liability for the amounts prescribed in this endorsement apply separately to each accident, and any payment under the policy because of any one accident shall not operate to reduce the liability of the company for the payment of final judgments resulting from any other accident.

The declarations section of form MCS 90, besides identifying insurer and insured and carrying a space for countersignature by an authorized company representative (the agent), provides for designation of the endorsement's limit of liability and the application of that limit on either a primary or an excess basis. Specification of coverage as primary or excess is necessary because Department of Transportation rules for compliance with the Motor Carrier Act's financial responsibility requirements allow the mandated limits of liability to be achieved through aggregation; that is, layering of coverage among a number of insurers. (Aggregation can be an important option in arranging coverage amounts as large as those required for some types of carriage when a single insurer is unwilling to write the entire amount.)

The insurer providing coverage under form MCS 90 agrees to furnish the FMCSA with a duplicate of the policy as endorsed and to verify that coverage is in force in response to an authorized telephone request from either federal agency. (The Department of Transportation does not require a filing by motor carriers or their insurers documenting the existence of required coverage.)

Thirty-five days' notice in writing to the other party is required for cancellation of coverage under form MCS 90 on the part of either the insurer or the insured. Unless cancelled with appropriate notice or replaced by a new policy of insurance, coverage under form MCS 90 remains continuously in effect.

Lynch v. Yob, 768 N.E.2d 1158 (Ohio 2002) serves as a very good summary review of MCS 90; the case also cites other legal decisions to help understand this federal insurance policy.

This case concerned the scope of insurance coverage relating to a traffic accident in which two automobile occupants died and that was caused by the admitted negligence of the operator of a tractor-trailer rig. The specific issue for consideration when the case got to the Ohio Supreme Court was whether coverage was available on the trailer under MCS 90 even though the operator of the rig was not an insured under the terms of the trailer's main commercial auto policy.

The state supreme court began its review of the case by detailing the facts of the Motor Carrier Act of 1980 and the development of the endorsement MCS 90. The court then cited decisions from federal courts that have considered the applicability of the endorsement in situations factually similar to this case before it—John Deere Ins. Co. v. Nueva, 229 F3d 853 (9th Cir. 2000) and Adams v. Royal Indem. Co., 99 F.3d 964 (10th Cir. 1996). The court felt that these cases established the rule that MCS 90 should be read to eliminate any limiting clauses in the underlying policy that restricted the scope of coverage. In other words, the purpose of MCS 90 is to assure that injured members of the public are able to obtain judgment from negligent authorized interstate carriers, and if to attain this purpose means that an underlying insurance policy is to be modified so as to insure the availability of insurance to the public, that is how MCS 90 will be interpreted. The Ohio Supreme Court said that the key rationale behind MCS 90 is the protection of the public and that required finding that coverage is available here even though the negligent party did not actually qualify as an insured under the terms of the underlying commercial auto policy. However, John Deere and Adams have since been superseded by regulation, effective September 24, 2013. As noted in the case of McCombs v. National Casualty Co., 229 F .3d 853 (N.D. Ill. 2013), the term “insured” in the MCS-90 Endorsement is to be defined as “the motor carrier named in the policy of insurance, surety bond, endorsement, or notice of cancellation, and also the fiduciary of such motor carrier.”