Ooida Risk Retention Group, Inc. v. Williams, 2009 WL 2461850 (5th Cir. Aug. 12, 2009), addresses the relationship between the provisions of a commercial motor carrier policy and the Motor Carrier Safety Act (“Act”) and its implementing regulations.

Tony Moses was the sole proprietor of the “Slim Shady Express,” a commercial motor carrier. Moses engaged an independent contractor, Derrick Shamoyne Williams, as a tandem driver. While Moses was sleeping in the cab, Williams lost control of the rig on a Florida interstate, causing it to overturn and roll, crushing and killing Moses. 

Slim Shady was insured under a standard Commercial Motor Carrier Policy issued by Ooida Risk Retention Group, Inc. The Policy provided $1 million in liability coverage for tractor-trailer rigs owned and operated by Moses. The policy defined an “insureds” to encompass:

          The following are ‘insureds’:
          a. You for any covered ‘auto’.
          b. Anyone else while using with your permission a covered ‘auto’ you own, hire or borrow … .

The Policy included a separation-of-insureds clause that stated that “coverage applies separately to each insured seeking coverage or against whom a claim or suit is brought.” And the “Fellow Employee Exclusion” removed from coverage “‘bodily injury’ to any fellow ‘employee’ of the ‘insured’ arising out of and in the course of the fellow ‘employee’s’ employment or while performing duties related to the conduct of your business.”     

Moses’ family members brought a negligence suit against Williams in state court. Ooida provided a defense to Williams under a reservation of rights.

Ooida subsequently filed suit in the U.S. District Court for the Northern District of Texas to obtain a declaration that it owed no duty to defend or indemnify Williams in any underlying negligence suit against Williams. Moses’ family intervened, and the district court granted summary judgment to Intervenors. On appeal, Ooida argued that the district court erred in finding that the Policy did not exclude coverage. The Fifth Circuit reversed, finding that both men were “statutory employees” under the Act, so that the “Fellow Employee” exclusion applied to deny coverage. Ooida had no duty to defend Williams. 2009 WL 2461850, at *6.

Texas law applies the “eight corners rule, which holds that the duty to defend is determined solely from the terms of the policy and the pleadings of the third-party claimant.” 2009 WL 2461850, at *2. Conversely, “the duty to indemnify is triggered by the actual facts that establish liability in the underlying lawsuit.” Id. 

The Court determined that, under the separation-of-insureds clause, Williams, not Moses, was the “insured” for purposes of coverage. 2009 WL 2461850, at *3. On this conclusion, the court determined “because Moses [was] the party to whom ‘bodily injury’ occurred, in order for the Fellow Employee Exclusion to apply … both Williams and Moses [must] be statutory employees.” Id.

49 C.F.R. § 390.5 defines “employee” as:

[A]ny individual, other than an employer, who is employed by an employer and who in the course of his or her employment directly affects commercial motor vehicle safety. Such term includes a driver of a commercial motor vehicle (including an independent contractor while in the course of operating a commercial motor vehicle), a mechanic, and a freight handler.

An “employer” is defined as:

[A]ny person engaged in a business affecting interstate commerce who owns or leases a commercial motor vehicle in connection with that business, or assigns employees to operate it, but such terms does not include the United States, any State, any political subdivision of a State, or an agency established under a compact between States approved by the Congress of the United States. 

Id.

The Court concluded that the underlying complaint “sets out facts that establish that Williams was, at a minimum, an independent contractor.” 2009 WL 2461850, at *4. “As an independent contractor, Williams [qualified] as a statutory ‘employee.’” Id.

The court found the “question of Moses’ status as an ‘employee’ … more difficult.” Id. The Intervenors focused on the “other than an employer” language in Section 390.5 to argue that the definition of “employee” could not apply to Moses. Ooida argued that the regulatory definition of “employee” applied to any “driver of a commercial motor vehicle.” Ooida contended “that, notwithstanding the first sentence in the definition of “employee,” a driver operating a vehicle owned by a motor carrier is per se an “employee” under the regulation even if he is himself the motor carrier.” Id. 

The Court agreed with Ooida, finding that the “language of the … Act resolves the question:

[A]n operator of a commercial motor vehicle (including an independent contractor when operating a commercial motor vehicle), a mechanic, a freight handler, or an individual not an employer, who—

(A) directly affects commercial motor vehicle safety in the course of employment; and

(B) is not an employee of the United States Government, a State, or a political subdivision of a State… 49 U.S.C. § 31132(2). 

2009 WL 2461850, at *5. “The disjunctive use of ‘or’ created a distinction between an “operator of a commercial motor vehicle” and a non-employer individual who directly affects commercial motor vehicle safety in the course of employment, strongly suggesting that the statutory definition of ‘employee’ is broad enough to include owner-operators such as Moses, while in the course of driving a commercial motor vehicle.” Id. On this interpretation, the court concluded that “a sole proprietor operating a motor vehicle can be an ‘employee’ under the federal motor carrier regulations.” Id. 

The court addressed “whether Moses was driving in tandem with Williams in this case” and thus “operating the motor vehicle.” Id. “The underlying complaint [did] not establish Moses’ role in the truck at the time of the accident; thus, determination of his status as tandem driver [required] consideration of evidence outside the eight corners of the complaint and the Policy.” Id.   

The court concluded that the case was within limited exception to the eight corners rule, that is, there were “readily ascertainable facts, relevant to coverage, that do not overlap with the merits or engage the truth or falsity of any facts alleged in the underlying case.” 2009 WL 2461850, at *6. “The fact relevant to whether Moses [was] an ‘employee’ under Section 390.5 – whether he was tandem-driving with Williams, and thus ‘operating a commercial motor vehicle’ – does not implicate Williams’ negligence in the underlying suit, does not contradict any of the allegations of the pleadings, and controls the question of policy coverage.” Id. 

Applying the exception, the court found it “clear from the record that Moses was tandem driving with Williams on the night the accident occurred.” Id. The court based its finding on Williams’ deposition testimony that was uncontradicted by the underlying complaint. Williams had testified that Moses had started the job and collected Williams “along the way.” Id.    

On this finding, the court held that “Moses [was] a statutory ‘employee’ under Section 390.5 and the Fellow Employee exclusion applies to negate Ooida’s duty to defend in the underlying suit.” Id. 

The court further held that Ooida had no duty to indemnify Williams pursuant to the MCS-90 Endorsement to the Policy. The Endorsement is required by federal law and provides, inter alia, that the insurer agrees to pay within the policy limits “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 … the Act.” In sum, even in the absence of an employer, a sole proprietor asleep in his own truck can be an “employee” and an “operator of a commercial motor vehicle.” 2009 WL 2461850, at *7. The endorsement excludes coverage for “injury or death of the insured’s employees while engaged in the course of their employment … .” Id. 

The court explained that the “question before us is thus whether the ‘separation of insureds’ clause … operates to make Williams the ‘insured’ in the context of the MCS-90 Endorsement.” Id. The court found that the clause did not have this application:

The federal regulation that requires the MCS-90 Endorsement clearly defines the “insured” 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.” [Emphasis added.] 49 C.F.R. § 387.5. The Federal Motor Carrier Safety Administration has issued regulatory guidance emphasizing that “Form MCS-90…[is] not intended, and do[es] not purport, to require a motor carrier’s insurer or surety to satisfy a judgment against any party other than the carrier named in the endorsement or surety bond or its fiduciary.” Federal Motor Carrier Safety Administration, Regulatory Guidance for Forms Used to Establish Minimum Levels of Financial Responsibility of Motor Carriers, 70 FR 58065-01 (October 5, 2005). Thus, Moses, as the named insured, is the “insured” for purposes of applying MCS-90 Endorsement.

2009 WL 2461850, at *8.