Petition — Carolina Casualty Insurance v. Transport Indemnity Co.

| Office - Supreme he

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81-2157 | war 22 1982

L. STEVAS.

CLERK

No.

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1982

CAROLINA CASUALTY INSURANCE COMPANY,

Petitioner,

versus

TRANSPORT INDEMNITY COMPANY,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

Stephen E. Darling

SINKLER GIBBS & SIMONS

160 East Bay Street

Post Office Box 340

Charleston, South Carolina 29402

(803) 722-3366

Attorneys for Petitioner

QUESTION PRESENTED FOR REVIEW

(I) Do the applicable provisions of the Interstate

Commerce Act and of the Interstate Commerce

Commission rules and regulations require that an I.C.C.

certificated lessee of a tractor/trailer vehicle being used

in interstate commerce and/or its insurance carrier

provide primary protection or insurance coverage to the

vehicle, owner, operator and lessee of said vehicles

involved in a motor vehicle accident as to the traveling

public?

PARTIES

Petitioner Carolina Casualty Insurance Company was

the Defendant in the District Court and the Appellant in

the Court of Appeals. Respondent Transport Indemnity

Company was the Defendant in the District Court and

the Appellee in the Court of Appeals. Transport

Indemnity Company is a subsidiary of Transport

Underwriters Association, a publicly owned corporation.

There have been, and are, no other parties to the case.

TABLE OF CONTENTS

Questions Presented for Review

Page

Parties

Table of Authorities...

“

E: oe pete

Reports of Opinions

Jurisdicti

Statutes and Regulations Involved ....

Statement of the Case..

Argument

Conclusion

a Ogre

_ |

Appendix

Opinion of the Court of

Appeals ;

. 1A

Order of the District

Court

J t and Mandate of

the of Appeals

Judgment of the District

Court

18A

TABLE OF AUTHORITIES

Allstate Insurance Company v. Federal Insur-

ance Company, 23 Md. App. 105, 326 A.2d 29

(1974) modified on other grounds 341 A.2d 399

Page

(1975)

Argonaut Insurance Company v. National

Indemnity Company, 435 F.2d 718 (10th Cir.

1971)

Carolina Casualty Insurance Company v. The

Insurance Company of North America, 595

F.2d 128 (3d Cir. 1979)

Carolina Casualty Insurance Company v.

Underwriters Insurance Company, 569 F.2d

304 (5th Cir. 1978)

Cox v. Bond Transportation, Inc., 53 N.J. 186,

249 A.2d 579 (1969) cert. denied, 395 U.S. 9, 89

S.Ct. 1999, 35 L.Ed. 2d 450 (1969)

Hagans v. Glens Falls Insurance Company, 465

F.2d 1249 (10th Cir. 1972)

National Mutual Insurance Company v. Liber-

ty Mutual Insurance Company, 196 F.2d 597

(D.C. Cir. 1952)

Transamerican Freight Lines, Inc. v. Brada

Miller Freight Systems, Inc., 423 U.S. 28, 96

S.Ct. 229, 46 L.Ed. 2d 169 (1975)

Transport Indemnity Company v. Teter, 575

S.W. 2d 780 (Mo. 1978)

12, 13

Weeks v. Kelley, 377 A.2d 444 (Me. 1977) ..........

iii

TABLE OF AUTHORITIES (Continued)

Page

Wellman v. Liberty Mutual Insurance Com-

pany, 496 F.2d 131 (8th Cir. 1974) 2. 9

OTHER AUTHORITIES

28 U.S.C.A. Section 1254(1) 1

28 U.S.C.A. Section 1332 5

28 U.S.C.A, Section 2201 ..............-.c.cescececseceseneee- 5

49 U.S.C.A. Section 304(e) 1

49 U.S.C.A. Section 304(e\2) 12

49 U.S.C.A. Section 315 3, 11

ek oR) 8 aaa Cee 4

49 C.F.R. Section 1043.1(a) 12

49 C.F.R. Section 1057.4 10, 12

49 C.F.R. Section 1057.4(aX4) 5

49 C.F.R. Section 1057.12(d) 10, 12

iv

No.

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1982

CAROLINA CASUALTY INSURANCE COMPANY,

Petitioner,

versus

TRANSPORT INDEMNITY COMPANY,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

REPORTS OF OPINIONS

The Order of the District Court and the Opinion of the

Court of Appeals have not been reported. The complete

texts of these Opinions are set forth in the Appendix to

this Petition.

JURISDICTION

The Opinion of the Court of Appeals was decided and

entered on February 24, 1982. The jurisdiction of this

Honorable Court is invoked under 28 U.S.C.A. Section

1254(1).

STATUTES & REGULATIONS INVOLVED

49 U.S.C.A. Section 304 (e) provides as follows:

Carnouna Casuacty Insurance Company, Petrrnonen, V exsus

REGULATIONS GOVERNING USE OF

VEHICLES OWNED BY OTHERS

(e) Subject to the provisions of subsection (f) of this

section, [setting forth exceptions not here relevant]

the Commission is authorized to prescribe, with

respect to the use by motor carriers (under leases,

contracts, or other arrangements) of motor vehicles

not owned by them, in the furnishing of transporta-

tion of property -

(1) regulations requiring that any such lease,

contract, or other arrangement shail be in writing

and be signed by the parties thereto, shall specify the

compensation to be paid by the motor carrier, and

requiring that during the entire period of any such

have full direction and control of such vehicles and

will be fully responsible for the operation thereof in

Transport Inpemnrry Company, REPONDENT 3

Repealed. Pub. L. 95-473, Section 4(b), Oct. 17, 1978,

92 Stat. 1466; substituted provision codified at 49

U.S.C.A. Section 11107.

49 U.S.C.A. Section 315 reads as follows:

SECURITY FOR PROTECTION OF

PUBLIC

No certificate or permit shall be issued to a motor

zarrier or remain in force, unless such carrier

complies with such reasonable rules and regulations

as the Commission shall prescribe governing the

filing and approval of surety bonds, policies of insur-

ance, qualifications as a self-insurer or other securi-

ties or agreements, in such reasonable amount as the

Commission may require, conditioned to pay, within

the amount of such surety bonds, policies of insur-

ance, qualifications as a self-insurer or other

securities or agreements, any final judgment

recovered against such motor carrier for bodily

injuries to or the death of any person resulting from

the negligent operation, maintenance, or use of

motor vehicles under such certificate or permit, or for

loss or damage to property of others. The Commis-

sion may in its discretion and under such rules and

regulations as it shall prescribe, require any such

common carrier to file a surety bond, policies of

insurance, qualifications as a self-insurer, or other

securities or agreements, in a sum to be determined

by the Commission, to be conditioned upon such

carrier making compensation to shippers and/or

consignees for all property belong (sic.) to shippers

and/or consignees and coming into the possession of

such carrier in connection with its transportation

service. Any carrier which may be required by law to

Carnoumna Casuacty Insurance Company, Petrnoner, Versus

compensate a shipper and/or consignee for any loss,

damage, or default for which a connecting motor

common carrier is legally responsible shall be sub-

rogated to the rights of such shipper and/or

consignee under any such bond, policies of

insurance, or other securities or agreements, to the

extent of the sum so paid. The Commission may

prescribe, with respect to motor carriers operating

within the United States in the course of engaging in

transportation between places in a foreign country

or between a place in one foreign country and a place

in another foreign country, such reasonable

regulations concerning security for the protection of

the public as the Commission is authorized, by this

section, to prescribe for other motor carriers.

Repealed. Pub. L. 95-473, Section 4(b), Oct. 17, 1978,

92 Stat. 1466; substituted provision codified at 49

U.S.C.A. Section 10927.

49 C.F.R. Section 1043.1 states in pertinent part as

follows:

... HO common or contract carrier subject to Part II of

the Interstate Commerce Act shall engage in

interstate or foreign commerce, and no certificate or

permit shall be issued to such carrier or remain in

force unless and until they shall have been filed with

and accepted by the Commission. A surety bond,

certificate of insurance, proof of qualifications as a

self-insurer, or other securities or agreements, in the

amounts prescribed in Section 1043.2, conditioned to

pay any final judgment recovered against such

motor carrier for bodily injuries or the death of any

person resulting form the negligent operation,

maintenance, or use of motor vehicles in

transportation subject to Part II, Interstate

Transport INDEMNITY ComMPANY, REPONDENT 5

Commerce Act, or for the loss of or damage to

property of others.

Finally, Section 49 C.F.R. Section 1057.4(a)(4) provides in

pertinent part as follows:

(a) Coniract requirements. The contract lease, or

other arrangement for the use of such equipment:

(4) Exclusive possession and responsibilities. Shall

provide for the exclusive possession, control, and use

of the equipment, and for the control, and use of the

equipment, and for the complete assumption of

responsibility in respect thereto, by the lessee for the

duration of said contract, lease or other

arrangement.

This provision was modified in some respects; 44

F.R. 4681, Jan. 23, 1979; compare 49 C.F.R. Section

1057.12(d)(1981).

STATEMENT OF THE CASE

Carolina Casualty Insurance Company (Carolina)

instituted this action for declaratory judgment pursuant

to the Declaratory Judgments Act, 28 U.S.C.A. Section

2201 et seq., seeking declaratory relief and monetary

damages. This claim arises out of a dispute between two

insurance companies, Carolina and Transport

Indemnity Company (Transport), as to the nature and

extent of their respective coverages available to a leased

tractor/trailer rig, its owner, operator, and lessee.

Transport interposed an Answer and Counterclaim and

thereafter the matter was presented to the District Court

under a Stipulated Statement of Facts and separate

Proposed Findings of Fact and Conclusions of Law.

Jurisdiction of the District Court was established under

28 U.S.C.A. Section 1332.

6 Carnouina Casuacty Insurance Company, Petrnonen, Versus

A motor vehicle accident occurred on August 20, 1977,

on U.S. Highway 78 in or near Summerville, South

Carolina, when a tractor/trailer driven by John Driggers

rear-ended a 1977 Ford pickup truck and then collided

with a 1976 Chevrolet as the two passenger vehicles were

stopped at a traffic light. The cause of the accident was

the negligence of Driggers. Driggers was operating a

1974 Kenworth tractor, pulling a 1974 American trailer.

The Kenworth tractor and American trailer, together

hereinafter referred to as the “truck” were owned by

Richard P. McElmurray who had hired and was the

regular employer of Driggers. On the date of the accident,

the truck and its driver were leased to Refrigerated

Transport Company, Inc. (Refrigerated) pursuant to a

trip lease. The trip lease did not contain any indemnifica-

tion agreement applicable to the facts of this case.

Carolina issued to McElmurray its Combination Auto-

mobile Policy number AC 18 20 00 and Transport issued

its Occupational Comprehensive Liability and Compre-

hensive Physical Damage Policy number 4003150 and an

umbrella policy number 4003150-X to Refrigerated. All of

these policies were in full force and effect at the time of

the subject accident.

As a result of the accident, numerous claims and two

law suits brought against Earl Myers, Jr. (in one law

suit), John Mosley Driggers and Richard P. McElmurray

were instituted. The claims and law suits were settled

under a complete reservation of rights between the two

parties, Carolina and Transport, to claim indemnity,

each from the other. All settlements were reasonable and

under a complete reservation of rights by both parties.

Ultimately, Carolina paid claims totalling $12,264.17

and incurred $1,918.00 in attorney's fees, costs and dis-

Transport INDEMNiTY ComPaANy, REPONDENT 7

bursements resulting therefrom. Transport paid claims

totalling $3,110.81 and incurred adjustment expenses of

$1,078.17.

At the time of the accident giving rise to this case,

Richard P. McElmurray had made the filing required by

the South Carolina Public Service Commission and

Carolina’s policy was appropriately endorse? to reflect

that fact. The truck involved was operating under the

Interstate Commerce Commission (I.C.C.) authority

granted to Refrigerated (Transport’s named insured) and

the Transport policies were appropriately endorsed to

reflect that fact. At the time of the accident, Refrigerated

had supervision and control over the truck and its driver,

Driggers. Transport’s policy had no omnibus clause

providing for coverage to anyone other than the named

insured.

Carolina contended that because of the I.C.C. statutes

and rules and regulations Refrigerated and its insured,

Transport, provided primary coverage to protect the

public against the negligence of Refrigerated,

McElmurray and Driggers. Transport asserted that it

provided coverage only for Refrigerated and that, in any

event, its coverage would be secondary as to thet of

Carolina but as to Refrigerated only.

The District Court found that unless there were a provi-

sion of law which required insurance protection to be

extended to the driver Driggers by Transport, Transport

provided Driggers no coverage since he was not a namec

insured under its policy. The Court then went on to find

that no provision of law required that Driggers be

covered by Transport and that the I.C.C. certificated

motor carrier answer to the public and not to owners,

lessors, or their employees, or their insurance carriers.

~ Carouna Casuacty Insurance Company, Petrnoner, Versus

The Court held as a matter of law that Transport has no

coverage for the accident in question since its insured,

Refrigerated, was not sued. Further, the Court found in

order to avoid circuity of action that Carolina’s policy

should be held primary. Based upon its findings, the

District Court awarded Transport $4,188.98 against the

Plaintiff on Transport’s Counterclaim. The Court of

Appeals, in a per curiam decision, affirmed the Order of

the lower court for the reasons advanced by the District

Court in its Opinion.

ARGUMENT AND REASONS

FOR GRANTING THE WRIT

The decision below should be reviewed because it is in

conflict with the decisions of other Federa! Courts of

Appeals on the same matter and decides a federal

question in a way in conflict with a State Court of last

resort.

A number of cases have addressed the issue of the

impact of I.C.C. statutes and rules and regulations upon

coverage disputes between insurers of truck lessees and

lessors. One line of cases relied upon by Carolina holds

that insurers of truck lessees are primarily liable as a

matter of public policy and law. Hagans v. Glens Falis

Insurance Company, 465 F.2d 1249 (10th Cir. 1972);

Argonaut Insurance Company v. National Indemnity

Company, 435 F.2d 718 (10th Cir. 1971); Allstate

Insurance Company v. Federal Insurance Company, 23

Md.App. 105, 326 A.2d 29 (1974) modified on other

grounds 341 A.2d 399 (1975); Weeks v. Kelley, 377 A.2d

444 (Me. 1977).

Another line of cases urged by Transport is in direct

conflict and reaches the opposite result. Carolina

Casualty Insurance Company v. The Insurance

Transport INDEMNrTY ComMPANY, REPONDENT y

Company of North America, 595 F.2d 128 (3d Cir. 1979);

Carolina Casualty Insurance Company v. Underwriters

Insurance Company, 569 F.2d 204 (5th Cir. 1978);

National Mutual Insurance Company v. Liberty Mutual

Insurance Company, 196 F.2d 597 (D.C. Cir. 1952); Trans-

port Indemnity Company v. Teter, 575 S.W.2d 780 (Mo.

1978); Wellman v. Liberty Mutual Insurance Company,

496 F.2d 131 (8th Cir. 1974). These two lines of cases reach

opposite and irreconcilable conclusions on the question

of whether a truck lessee’s coverage is always primary as

a matter of law by virtue of the Interstate Commerce Act

and applicable rules and regulations. The decision of the

Fourth Circuit in the instant case aligns itself with those

decisions from the Third, Fifth, Eighth and D.C. Circuits,

as well as the Missouri Court. Carolina submits that the

holdings from the Tenth Circuit, the State of Maryland

and the State of Maine are more correctly decided.

In Hagans, supra, the United States Court of Appeals

for the Tenth Circuit held that the I.C.C. certificated

carrier’s insurer was the primary insurer and could not

avoid its responsibility by relying upon the terms and the

provisions contained in a collateral lease agreement

between the motor carrier and the lessor. Citing the

Argonaut decision, the Court held that the I.C.C. endorse-

ment, although not expressly referring to other insurance

provisions, said that no condition, provision, stipulation

or limitation of the policy shall relieve the company (the

lessee’s insurer) from liability and that the [I.C.C.

endorsement imposed primary liability. The teaching of

Argonaut was that the lessee’s insurer is the primary

insurer as a matter of law such holding obviously being

grounded upon public policy.

In Argonaut v. National Indemnity Company, supra,

the Tenth Circuit held that an I.C.C. endorsement on a

10 Carouna Casuacty Insurance Company, Petrnoner, Versus

lessee’s policy had the effect of making the lessee’s

company the primary insurer. The I.C.C. endorsement

imposed primary liability and eliminated any need for

consideration of the effect of identical other insurance

clauses.

In the Weeks case, the Supreme Judicial Court of Maine

held that the regulations of the I.C.C. in a lease agree-

ment that unequivocally mandated that the lessee’s

insurer assume full responsibility for the operation of the

leased equipment operated to require the lessee to bear

the financial consequences of any negligence in the oper-

ation of the leased equipment while being used in the

lessee’s business. In the absence of any indemnification

agreement in the lease providing otherwise, the lessee’s

insurer remained contractually as well as statutorily

responsible for the injuries sustained by the travelling

public as a result of the negligent operation of the equip-

ment. The Court noted that I.C.C. regulations had the full

force and effect of law. The Court pointed out that the

applicable regulation, 49 C.F.R. Section 1057.4 [now

Section 1057.12(d)] mandated that a trip lease be in

writing and provide for the exclusive possession, control

and use of the equipment and for the complete

assumption of responsibility in respect thereto by the

lessee. The Court held that the lessee’s liability was not

premised on traditional concepts of master-servant or

employer-employee relationships but, rather, liability

arose by virtue of the I.C.C. regulations which were given

their plain and ordinary meaning obligating the lessee to

assume complete responsibility in respect to the leased

equipment.

The cases cited above, upon which Transport relies,

generally hold that an I.C.C. endorsement does not

relieve the lessor’s carrier of responsibility to pay claims

Transport Lwoemnrry Company, REPONDENT ll

against its insured. However, Carolina submits that this

argument ignores the purpose of the I.C.C. rules and

regulations and that Interstate Commerce Act to protect

the public against the negligent acts of vehicles operated

in interstate commerce. If Transport’s position is

accepted, there are numerous situations in which the

travelling public would be left unprotected. Such situa-

tions arise if the owner and driver have no insurance; if

the owner’s and/or driver’s insurance has been cancelled

for some reason; if the owner’s and/or driver’s insurance

has lapsed; if the owner and driver had no insurance and

were not financially able to satisfy a judgment; and/or if

the owner and/or driver’s insurer had some policy

defense such as noncooperation, failure to report the

claim, etc.... Thus, the I.C.C. rules and regulations, with

their overriding policy of protecting the public, create a

certain and set primary insurer, i.e. the lessee’s insurance

company, to provide protection in all cases to the public

in accidents in which the negligence of an I.C.C.

certificated lessee driver causes and accident.

Carolina additional’~ submits that the Fourth Circuit

Court of Appeals decided an important question of

federal law which has not been but should be settled by

this Court. The cases earlier cited demonstrate the

conflicts among the Federal Courts of Appeals and State

Courts concerning the issue involved in this case. The

issue presented is one of federal law controlled by the

interpretation of the Interstate Commerce Act and

Interstate Commerce Commission rules and regulations.

49 U.S.C.A. Section 315, a part of the Interstate

Commerce Act, concerns security for the protection of the

public ard provides generally that an I.C.C. certificated

motor carrier shall comply with the rules and regulations

of the Interstate Commerce Comission which shall

12 Caroumna Casuacty InsunANCce Company, Petrnoner, Versus

govern the filing and approval of surety bonds, policies of

insurance, qualifications as a self-insurer, or other

securities or agreements conditioned to pay any final

judgment recovered against such motor carrier for bodily

injuries to, or the death of, any person resulting from the

negligent operation, maintenance or use of the motor

vehicle under such certificate or permit.

49 C.F.R. Section 1043.1(a), promulgated pursuant to

the above statute, dictates that no I.C.C. certificated

carrier shall engage in interstate or foreign commerce

without such certificate of insurance, proof or

qualification as a self-insurer or other securities or agree-

ments conditioned to pay any final judgment recovered

against such motor carrier for the negligent operation,

maintenance or use of vehicles engaged in interstate

transportation.

The Interstate Commerce Act at 49 U.S.C.A. Section

304(eX2) requires that leased vehicles be under the

complete control and responsibility of the I.C.C.

certificated lessee and that such lessee will be fully

responsible for the operation thereof in accordance with

applicable laws and regulations as if it were the owner of

such vehicle. Rules and regulations establish that a lease

for the vehicle must provide that control and responsibil-

ity for operation of the equipment shall be that of the

lessee during the period for which the vehicle and driver

are leased. 49 C.F.R. Section 1057.12(d) [formerly Section

1057.4].

The driver of said vehicle is treated as a statutory

employee of the lessee for whom the franchised or certifi-

cated motor carrier lessee becomes responsible when the

driver is engaged in activities of the motor carrier. Trans-

american Freight Lines, Inc. v. Brada Miller Freight

Transpoat Inpemniry Company, REPONDENT 13

Systems, Inc., 423 U.S. 28, 96 S.CT. 229, 46 L.Ed. 2d 169

(1975); Cox v. Bond Transportation, Inc., 53 N.J. 186, 249

A.2d 579 (1969) cert. denied, 395 U.S. 9, 89 S.Ct. 1999, 35

L.Ed. 2d 450 (1969); Weeks v. Kelley, supra.

The I.C.C. rules and regulations obviously require that

insurance or some other form of security be provided by

the lessee to protect the public when the truck and driver

are under the full dominion, control and supervision of

the lessee. Based upon the I.C.C. rules and regulations,

and I.C.C. policy endorsements (Form BMC 90), Carolina

submits that Transport cannot relieve itself from lia-

bility because the federal law and regulations require

Transport to provide protection to the public.

This Honorable Court has not addressed the precise

issue here involved: and the varying and conflicting

effects given to the statutory, regulatory and contractual

provisions at issue by the State and Federal Courts

necessitate the intervention of this Court to determine

the important question of federal law involved. The Peti-

tioner submits that the vesting of exclusive possession,

dominion and control of the lessor’s equipment and the

assumption of complete responsibility for the operation,

maintenance and use of the equipment by Transport’s

insured, Refrigerated, requires Transport to provide

primary protection to the public. The provisions of law

cited in the Interstate Commerce Commission Act and

LC.C. regulations above mandate that Transport

provide insurance coverage for McElmurray and

Driggers as well as Refrigerated in relation to the

accident giving rise to this case. See Transamerican

Freight Lines, Inc. v. Brada Miller Freight Systems, Inc.,

supra.

In order to encourage a uniform understanding of obli-

gations of truck lessees and lessors to the public and

14 Carouna Casuacty Insurance Company, Petrnonen, Versus

among themselves and to provide uniform and full pro-

tection to the public as well as resolving conflicts among

the Courts of Appeals and State Courts, this Court should

determine the issues presented by this case and find that

the I.C.C. rules and regulations and Interstate Commerce

Act require an LC.C. truck lessee’s insurer provide

primary coverage to the leased truck, owner and driver of

said motor vehicle.

CONCLUSION

For the foregoing reasons, the Petitioner urges that

this Honorable Court grant its Petition for Writ of

Certi :

Respectfully submitted,

Stephen E. Darling

SINKLER GIBBS & SIMONS

160 East Bay Street

Post Office Box 340

Charleston, South Carolina 29402

Attorneys for Petitioner

APPENDIX

INDEX TO APPENDIX

Page

Opinion of the Court of Appeals .1A

Order of the District Court .... 3A

Judgment and Mandate of the Court of Appeals... 16A

Judgment of the District Court 18A

APPENDIX 1A

APPENDIX A

No. 81-1782

UNITED STATES COURT OF APPEALS

FOURTH CIRCUIT

CAROLINA CASUALTY INSURANCE COMPANY

Appellant,

v

TRANSPORT INDEMNITY COMPANY,

Appellee.

Appeal from the United States District Court for the

District of South Carolina, at Charleston. Faicon B.

Hawkins, District Judge.

Argued February 4,1982 Decided February 24, 1982

Before WINTER, Chief Judge, HALL, Circuit Judge, and

MICHAEL,* District Judge.

Stephen E. Darling (Sinkler, Gibbs & Simons on brief) for

Appellant; Wade H. Logan, III (Keating L. Simons, III,

Holmes, Thomson, Logan & Cantrell on brief) for

Appellee.

*Honorable James Harry Michael, Jr., United States

District Judge for the Western District of Virginia,

sitting by designation.

2A Can. Casvanty Ins. Co., Perrmonen, v. Taansronr Inpem. Co., Resronpentr

PER CURIAM:

Thie action was instituted to determine the rights,

duties and liabilities of two insurers with regard to one

another arising out of a motor vehicle accident. Carolina

Casualty Insurance Company (Carolina) is the insurer of

a truck owner and persons operating the truck with his

permission. Transport Indemnity Company (Transport)

is the insurer of the holder of an I.C.C. certificate which

leased the insured truck. The driver of the truck was the

statutory employee of the lessee. While on a trip

conducted under the authority of the lessee’s I.C.C. certif-

icate, he was involved in an accident either as a result of

his negligence or under circumstances where both

insurers agree that it was proper to settle the claims of

third parties.

The district court decided that Carolina was the

primary insurer and that Transport’s policy afforded no

protection to the driver. It further held that if Transport

were required to pay on behalf of the lessee, it had the

right to reimbursement from Carolina.

After consideration of the record, the briefs and oral

argument, we affirm for the reasons advanced by the

district court. Carolina Casualty Company v. Transport

Indemnity Company, Civil Action No. 79-1962-1, D. S.C.

(July 7, 1981).

AFFIRMED.

APPENDIX

APPENDIX B

CIVIL ACTION NO. 79-1962-1

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF SOUTH CAROLINA

CHARLESTON DIVISION

CAROLINA CASUALTY INSURANCE COMPANY,

Plaintiff,

ORDER

FILED July 7, 1981

John W. Williams, Clerk, Charleston, S. C.

ENTERED 7-7-81

The parties to this action have agreed that the court

should decide this case based on a Stipulated Statement

of Facts filed June 24, 1980, and on proposed Conclusions

of Law filed by the parties with the court. The court

hereby adopts the said Stipulated Statement of Facts

verbatim.

CONCLUSIONS OF LAW

I find, initially, that this action is properly before the

court pursuant to Title 28, United States Code Section

4A Can. Casuaury Ins. Co., Petrmowen, v. Taansront Inpem. Co., Resronpent

2201, to determine various rights, duties and liabilities of

the parties under the terms and provisions of two

insurance policies, and that there is an actual contro-

versy between the parties hereto.

I further find that all parties are properly within the

juridiction of the court, as ia the subject matter of this

action, and that the matter in controversy, exclusive of

interest and costs, exceeds the sum of Ten Thousand and

00/100 (10,000.00) Dollars.

Thie case involves a coverage dispute between two

insurance carriers who issued policies to a truck

owner/lessor and his lessee. The carrier for the lessor,

Carolina Casualty, and the carrier for the lessee,

Transport Indemnity, have each alleged in their

respective pleadings that they have no coverage, or, in |

the alternative, that any coverage afforded by them is

excess over that of the other.

Basically, this court is asked to resolve three

questions: (1) Does the Plaintiff, Carolina Casualty,

afford coverage for the accident in question? (2) Does the

Defendant, Transport Indemnity, also afford coverage

for this accident? and (3) Whether either policy affords

only excess coverage, vis-a-vis the other. Only if the first

two questions are answered in the affirmative will it be

necessary to address the third.

At this point, it is important to define the limited scope

of this inquiry. I have been aided by the parties in this

regard insofar as they have jointly prepared and filed a

stipulated Statement of Facts. Among other things, the

parties have agreed that, for the purposes of this action,

John Driggers, the driver of the truck, was negligent and

that his negligence was the proximate cause of all

damages for which payments were made. Thus, Driggers

APPENDIX 5A

was the one primarily obligated to pay those damages

with the lessor and lessee being liable derivatively, if at

all. In my view, then, the initial coverage issues listed

above boil down to whether Driggers was insured under

one or more of the policies at issue. In light of the

conclusions reached herein, it will not be necessary to

address any coverage issues with respect to the parties

who may be liable on a derivative basis.

Turning to the Carolina Casualty policy, there is no

question but that it covered Driggers in this accident.

Carolina Casualty specifically insured the

tractor/trailer involved in the accident. It was a

scheduled vehicle, having been listed on the Amendment

of Escrow Premium Payment endorsement which was

effective May 17,1977. Thus, the tractor/trailer was a

defined automobile under Paragraph (a1) of Insuring

Agreement IV. Driggers was driving the tractor/trailer

with the express permission of the named insured,

Richard McElmurray, and as such, came within the

definition of “insured” in Paragraph (a) of Insuring

Agreement III.

Therefore, pursuant to coverages A and B of Insuring

Agreement I, Carolina Casualty had agreed to pay all

sums which Driggers became legally obligated to pay for

bodily injury and property damage arising out of the use

of the defined automobile, the tractor/trailer. On this

basis, I find that, with respect to the accident in question,

Carolina Casualty afforded coverage to the vehicle, its

owner and the driver, Driggers, the one whose negligence

caused the accident.

Any coverage arguably extended by Transport

eo

6A Can. Casuacty Ins. Co., Perrnonen, v. Taanspoat Innem. Co., Resronpent

corporate entities not here relevant) and there being no

omnibus clause in the Transport Indemnity policy, the

only clause which would bring the tortfeasor, Driggers,

within the definition of insured is contained in Part 1,

Section 2, the pertinent portions of which are as follows:

The word “INSURED” shall mean, ..., any other

person, firm or organization to whom insurance

protection has been extended under the policy or

made so by any provision of law.

There is no other express provision by way of

endorsement or otherwise in the Transport Indemnity

policy which includes Driggers within the definition of

“insured.” Thus, unless there is “any provision of law”

which requires insurance protection to be extended to

Driggers by Transport Indemnity under the circum-

stances of this case, Driggers is not an insured and

Transport Indemnity has no coverage.

In the context of this case, it is clear that the operative

provision has reference to the Interstate Commerce Act,

codified as Title 49 of the United States Code, and the

enabling act for the South Carolina Public Service

Commission, Sec. 58-3-10 et seq., Code of Laws of South

Carolina (1976). Also to be considered are the various

regulations promulgated pursuant to each. The issue,

then, with respect to any coverage afforded by Transport

Indemnity, is whether those statutes or regulations

require that Driggers be deemed to be an insured under

the facts of this case.

The pertinent statutes and regulations on both the

state and federal levels are substantially similar and, to

the extent they are relevant here, each regulatory scheme

contains two basic thrusts. One is directed towards

ensuring that the certificated carrier obtains liability

APPENDIX 7A

insurance in an amount sufficient to adequately

compensate third parties injured by reason of the

operations of the certificated carrier. 49 U.S.C. Sec. 315;

49 C.F.R. Sec. 1043.1 (a); S.C. P.S.C. Rule 103-170.

The second major area of regulation relates to the

leasing of trucks and trailers. The regulations provide

that the lease agreement must contain provisions

placing responsibility and control over the operation of

the vehicle in the hands of the lessee. 49 C.F.R. Sec. 1057-2

(d); S.C. P.S.C. Rule 103-222 (1X4). It is the combined

effect of these regulatory schemes which has formed the

basis of the position taken by insurance carriers for truck

lessors to the effect that coverage afforded by the lessee’s

insurer is always primary.

Numerous cases have addressed the issue of the impact

of 1.C.C. and P.S.C. regulations on coverage disputes

between insurers of truck lessees and lessors. In a

number of cases and contexts arguments have been

advanced that a lessee’s coverage is primary as a matter

of law by virtue of the control and responsibility regula-

tions and/or the financial responsibility regulations.

Such arguments have met with success in many cases,

notably Argonaut Insurance Company v. National

Indemnity Company, 435 F.2d 718 (10th Cir. 1971) and

Hagans v. Glens Falls Insurance Company, 465 F.2d

1249 (10th Cir. 1972).

That line of cases is in direct conflict with a series of

cases reaching the opposite result. See, e.g. Carolina

Casualty Insurance Company v. Insurance Company of

North America, 595 F.2d 128 (3rd Cir. 1979) and Carolina

Casualty Insurance Company v. Underwriters

Insurance Company, 569 F.2d 203 (5th Cir. 1978). These

two cases held, in this connection, that I.C.C Regulations

8A Can. Casvarty Ins. Co., Petrnonen, v. Transport Invem. Co., Responpent

are not dispositive in a coverage dispute between two

insurance carriers. I note also that this view is in accord

with an older case in the Third Circuit, Allstate

Insurance Company v. Liberty Mutual Insurance

Company, 368 F.2d 121 (3rd Cir. 1966).

With respect to the impact of the South Carolina Public

Service Commission Regulations, the recent case of

American Interinsurance Exchange v. Commercial

Union Assurance Company, 605 F.2d 731 (4th Cir. 1979)

is controlling. There the Court held that the P.S.C.

Regulations “merely ensure that viable insurance will be

available to innocent victims of automobile accidents.

They in no way require that such insurance shall be

primary over other available insurance.” 605 F.2d at 736.

Thus, my concern at this juncture is limited to the impact

of the Interstate Commerce Act and I.C.C. Regulations

promulgated pursuant thereto.

While there are no Fourth Circuit Court opinions

directly addressing the same issue with respect to regula-

tions promulgated by the Interstate Commerce

Commission, I am convinced that the same result

would be reached as that in American Interinsurance

Exchange, supra. Both of the views briefly set forth

above are purportedly based on the public policy

underlying the Interstate Commerce Act and LC.C.

Regulations. Although there was no discussion in

Argonaut, supra, as to the dictates of public policy in this

respect, the Court in Hagans, supra, stated, once again

without discussion, that the Argonaut decision was

“obviously grounded on public policy.” 465 F.2d at 1252.

In contrast, the cases holding that the Interstate

Commerce Act and I.C.C. Regulations do not make the

lessee’s coverage primary as a matter of law have

undertaken a more thorough, and in by view more

APPENDIX 9A

persuasive, examination of the nature of the public policy

involved.

By way of example, the Court in Carolina Casualty

Insurance Company v. Insurance Company of North

America, supra, looked for guidance to the U.S. Supreme

Court opinion in American Trucking Association v.

United States, 344 U.S. 298, 73 S.Ct 307, 97 L.Ed. 337

(1953). In that case the Supreme Court had identified a

number of abuses to which the regulations were directed,

including shearing of authority, evasion of safety

requirements, and evasion of financial responsibility to

the public. The Third Circuit Court went on to note that

the lessee’s carrier “could not absolve itself of a duty to

make the initial payment of compensation to an injured

member of the public, in the event that neither... party

involved could answer financially for the damage.” 595

F.2d at 137. Especially pertinent here is the holding in

that case that:

While a lessee cannot free itself of federally

imposed duties when protection of the public is

at stake, the federal requirements are not so

radically intrusive as to absolve lessors or their

insurers of otherwise existing obligations under

applicable state tort law doctrines or under

contracts allocating financial risks among

private parties. 595 F.2d at 138.

In another recent case, Carolina Casualty Insurance

Company v. The Underwriters Insurance Company, 569

F.2d 305 (65th Cir. 1978) the Fifth Circuit employed

reasoning similar to that just expressed. There the Court

held:

... the endorsement does not make (the insurer of

the licensed carrier) the primary insurer as a

10A = Can. Casvatty Ins. Co., Petrmonen, v. Transport Invem. Co., Resronpent

matter of law... LC.C. policy factors are

frequently determinative where protection of

a member of the public or a shipper is at stake,

but those factors cannot be invoked by another

insurance company which contracted to insure

a specific risk and which needs no equivalent

protection. 569 F.2d 313.

That approach is particularly appropriate here in that

Carolina Casualty has issued a policy specifically

insuring the vehicle and its owner, and, through its

omnibus clause, the negligent driver. Having contracted

to insure the precise risk which occurred, and charged

and collected a premium therefor, Carolina Casualty

should not be permitted to absolve itself of its obligations

to those whom it specifically insured.

In choosing between two apparently irreconcilable

lines of cases, I am impressed with the evident effect on

the law in this area of the decision of the United States

Supreme Court in Trans American Freight Lines, Inc. v.

Brada Miller Freight Systems, Inc.,423 U.S. 28, 46 L.Ed.

2d 169, 96 S.Ct.229 (1975). The holding there, albeit

narrow by its own terms, was that an indemnification

agreement contained in the lease which placed

responsibility on the lessor for payments to injured third

parties did not violate the public policy underlying the

Interstate Commerce Act and I.C.C. Regulations. The

Court noted that with respect to the responsibility and

control regulations, the I.C.C. was concerned with that

“control in the lessee that makes and keeps it responsible

to the public, the shipper, and the Commission.” 423 U.S.

at 39, 46 L.Ed. 2d at 178. There is, of course, no similar

concern expressed regarding the protection of insurance

carriers for truck lessors. Implicit in this approach is the

proposition that once the public is protected by the

APPENDIX 1A

existence of an adequate fund, the purpose of the regula-

tions is fulfilled and the parties and their insurers are free

to allocate ultimate responsibility among themselves.

Considering the foregoing authorities, I am convinced

that the public policy of protecting innocent third parties

from financially irresponsible truckers does not require

that the insurer for an [.C.C. certificated carrier be

primarily liable as a matter of law in a case where ample

coverage is available through the insurer of the owner of

the vehicle. I am also persuaded that if and when the

Fourth Circuit Court of Appeals addresses the issue it

will reach a result consistent with American Interinsur-

ance Exchange, supra, and hold that I.C.C. Regulations

do not make the lessee’s coverage primary.

American Interinsurance Exchange, supra,

specifically holds that the South Carolina Public Service

Regulations requiring the lessee of a truck to obtain

liability insurance in his name, do not operate to make

that insurance primary as a matter of law. There being

no basic distinction between the South Carolina Public

Service Commission Regulations and those of the I.C.C.,

I find that the I.C.C. Regulations likewise do not require

that a lessee’s insurance shall be primary over other

available insurance.

The determination that neither P.S.C. nor I.C.C. regu-

lations make a lessee’s coverage primary as a matter of

law does not, in and of itself, resolve the threshold issue of

whether the regulations effectively bring Driggers

within the definition of an insured in the Transport

Indemnity policy. An examination of the language of

those regulations, read in conjunction with the public

policy considerations outlined above, convinces me that

Driggers is not an insured under the Transport

Indemnity policy.

122A = Can. Caswatty Ins. Co., Petrnonen, v. Transport Invem. Co., Responpent

The provisions of law requiring that a carrier obtain

and file proof of liability insurance include P.S.C. Rule

103-170, 49 U.S.C. Sec. 315, and 49 C.F.R. Sec. 1043.1. All

of these are couched in substantially similar terms and

require insurance “conditioned to pay any final

judgment recovered against such motor carrier.” (Quoted

portion is from 49 C.F.R. Sec. 1043.1(a)).

Nowhere is there any requirement that the driver, or

the owner for that matter, be an insured within the policy,

only that if a judgment is recovered against the I.C.C.

certificated carrier that there will be funds available to

pay it. It is true that the driver will be deemed to be a

statutory employee of the I.C.C. carrier and that the

carrier may be held liable for the driver's negligence

under settled principles of respondeat superior. Mellon

National Bank & Trust Company v. Sophie Lines, Inc.,

289 F.2d 473 (3rd Cir. 1961); Brabham v. Southern

Asphalt Haulers, Inc., 223 8.C. 421, 76 S8.E.2d 301 (1953).

Such a rule, however, does not require that the driver, or

his employer in fact, the owner/lessor, be insured as to

their personal liability. This view is entirely consistent

with public policy considerations. Had a judgment been

recovered against Refrigerated Transport, the motor

carrier referred to in 49 C.F.R. Sec. 1043.1(a), there is no

doubt that Transport Indemnity could not have avoided

liability. But that is not the case here. In fact, the I.C.C.

carrier in this case was not even named a Defendant in

any of the litigation following the accident.

In resolving the issue as to whether “any provision of

law” requires that Driggers be brought within the

definition of an insured in the Transport Indemnity

policy, I have found the reasoning set forth in Transport

Indemrity v. Teter, 575 8.W. 2d 780 (Mo. 1978) to be most

persuasive. The issue there was virtually identical to that

APPENDIX 13A

here, i.e., whether the insurer for the I.C.C. certificated

carrier/lessee owed coverage and a duty to defend the

driver, an employee of the owner/lessor. There, as here,

the driver, but not the I.C.C. carrier, was the Defendant

against whom claims were asserted. In that case, the

driver argued that the combined effect of the I.C.C. Regu-

lations as to control and responsibility and financial

responsibility was to make him an insured within the

policy.

In rejecting that argument, the Court pointed to the

language of the endorsement as to te insurer’s agreeing

to pay “any final judgment recovered against the

insured” and noted that “insured”, within the meaning

of that endorsement referred to the certificated carrier.

575 S.W. 2d at 785. Such a result does not detract from the

goal of protecting the public because “that purpose is

fully served by a policy of insurance which insures the

carrier against claims of negligent injury or death from

its motor vehicle operations. (Citation omitted). The

coverage of the driver is extraneous to this essential

purpose.” 575 S.W. 2d at 786 (Emphasis in original). This

view is in line with that adopted in Kansas City Fire and

Marine Insurance Co. v. Hartford Insurance Group, 368

N.Y.S. 2d 791, 82 Misc. 2d 109, a case which is similar in

principal but involving New York Public Service

Commission regulations. There, the Court held that the

P.S.C. endorsement to the lessee’s policy provided

coverage for any liability of the lessee, but did not require

that the lessee’s insurer provide a defense and coverage

to the owner/lessor of the vehicle, or to the driver, an

employee of the lessor.

In conclusion, with respect to the “any provision of

law” definition of an insured employed in the Transport

Indemnity policy, I find as a matter of law that the

MA = Can. Caswauty Ins. Co., Perrmonen, v. Taansroar Innem. Co., Resronmenr

pertinent provisions of law direct only that the L.C.C.

certificated carrier answer to the public, not to

owner/lessors, or to their employees, or their insurance

carrier. Since there is no other policy provision that

would extend coverage to Driggers, I find as a matter of

law that Transport Indemnity has no coverage for the

accident in question.

I further find, as a matter of law, that in order to avoid

circuity of action, Carolina Casualty’s policy should be

held to be primary. It is apparent that if Refrigerated

Transport, the insured of Transport Indemnity, had to

pay these damages, which were incurred solely because

of the acts or omissions of Mr. Driggers, then it would be

entitled to indemnity from Mr. Driggers. It is undisputed

that one held derivatively liable has a right of action over

against his employee, where the on derivatively liable

has been made liable to a third party by reason of the

employee’s negligence. Jenkins vs. Southern Railway

Company, 130 S.C. 180, 125 S.E. 912; 73 AmJur 2d, Subro-

gation, Sec. 39, Page 623.

Transport’s right of indemnity against Driggers would

necessarily include a right against Carolina Casualty.

The general rule is that Carolina Casualty is liable to

protect its insured, Driggers, from any loss by reason of

his obligation to indemnify a co-tortfeasor. See, general-

ly, Annotation, 4 ALR 3rd 620.

In other words, if Refrigerated Transport should be

found liable, it would have the right to proceed by indem-

nification against Driggers. As Refrigerated’s subrogee,

Transport could then sue Driggers, a permissive user

under Carolina Casualty’s policy, ultimately recovering

against Carolina. As stated above, to avoid circuity of

action, I hold that Carolina Casualty’s policy is primary.

Now, therefore, it is

APPENDIX 15A

ORDERED, ADJUDGED AND DECREED that the

Defendant shall have judgment against the Plaintiff in

the amount of Four Thousand One Hundred Eighty-

Eight and 98/100 ($4, 188.98) Dollars, representing the

amount paid be Defendant in settlement of various

claims plus its adjustment expenses; and it is

FURTHER, ORDERED, ADJUDGED AND

DECREED that the Defendant shall have judgment

against the Plaintiff for its costs and disbursements in

this action; and it is

FURTHER, ORDERED, ADJUDGED AND

DECREED that the claim of the plaintiff be dismissed.

AND IT IS SO ORDERED.

s/ Falcon B. Hawkins

United States District Judge

Charleston, S. C.

July 7, 1981.

TRUE COPY

Test:

John W. Williams, Clerk

s/ M. Pipes

16A Can Casuauty Ins. Co., Perrmonen, v. Taansronr Invem. Co., Resronpenr

APPENDIX C

No. 81-1782

C/A 79-1962-1

UNITED STATES COURT OF APPEALS

FOURTH CIRCUIT

CAROLINA CASUALTY INSURANCE COMPANY

Appellant,

FILED March 22, 1982

John W. Williams, Clerk, Columbia, S. C.

Appeal from the United States District Court for the

District of South Carolina.

This cause came on to be heard on the record from the

United States District Court for the District of South

Carolina, and was argued by counsel.

On consideration whereof, It is now here ordered and

adjudged by this Court that the judgment of the said

District Court appealed from, in this cause, be, and the

same is hereby AFFIRMED.

FILED February 24, 1982

APPENDIX I7A

183A =—s Can. Casuaury Ins. Co., Perrnowen, v. Taansronr Invem. Co., Resrowpent

APPENDIX D

CIVIL ACTION FILE NO. 79-1962-1

UNITED STATES DISTRICT COURT

DISTRICT OF SOUTH CAROLINA

CHARLESTON DIVISION

CAROLINA CASUALTY INSURANCE COMPANY

Appellant,

v.

TRANSPORT INDEMNITY COMPANY,

Appellee.

JUDGMENT

. FILED July 7, 1982

John W. Williams, Clerk, Charleston S.C.

ENTERED 7-7-81

This action came on for (hearing) before the Court,

States District Judge, presiding, and the issues

|

APPENDIX 19A

defendant in settlement of various claims plus its

adjustment expenses and costs and disbursements in

this action;

IT IS FURTHER ORDERED AND ADJUDGED that

the claim of the plaintiff be dismissed.

Dated at Charleston, South Carolina, this 7th day of

July, 1981.

John W. Williams

Clerk of Court

By: M. Pipes

Deputy Clerk