The MCS-90 Endorsement

Introduction

The MCS-90 endorsement is one means by which an interstate motor carrier can demonstrate compliance with minimum financial requirements established by federal statute and regulations. The application of this endorsement by the courts, however, has caused a great deal of confusion and debate. This paper will address the MCS-90 endorsement; when and how it applies; and other specific issues arising thereunder.

The Motor Carrier Act of 1980

Congress passed the Motor Carrier Act of 1980 (the "MCA") which, in addition to deregulating the trucking industry and reducing barriers to entry, addressed safety issues and financial responsibility for trucking accidents.1 In particular, there was concern regarding the growing use of leased or borrowed vehicles by motor carriers to avoid financial responsibility for accidents occurring during transport in interstate commerce.2 Accordingly, in order for a "motor carrier" to operate as such, the MCA requires proof of financial responsibility demonstrating the motor carrier is "adequately insured in order to protect the public from risks created by the carrier['s] operations."3 The minimum level of financial responsibility requirements only apply to "for-hire carriers operating motor vehicles transporting property in interstate or foreign commerce" and motor carriers transporting hazardous materials.4

The MCA mandates that a commercial motor carrier may operate only if registered to do so, and registration is contingent, in part, upon the carrier's compliance with minimum financial responsibility requirements. Federal regulations require interstate carriers to maintain insurance or another form of surety "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 motor vehicles."5

The federal regulations set forth the minimum amount of financial responsibility coverage an interstate motor carrier must maintain: (1) at least $750,000 for vehicles transporting non-hazardous cargo; (2) $1 million for those transporting oil and certain hazardous substances; and (3) $5 million for other hazardous substances and radioactive materials.6

An interstate motor carrier can establish proof of financial responsibility in one of three ways: (1) an MCS-90 endorsement; (2) a surety bond; or (3) self-insurance.7 Most interstate trucking companies obtain the MCS-90 endorsement, which was designed to eliminate the possibility of a coverage denial based on limiting provisions in the policy. The endorsement is only required when an insurance policy is used to satisfy the MCA.8

The MCS-90 Endorsement as a Surety Obligation

An insurer's obligation under the MCS-90 endorsement is "one of a surety rather than a modification of the underlying policy."9 This is key to understanding application of the MCS-90, which is "a safety net in the event other insurance is lacking."10 The Tenth Circuit has explained that "an MCS-90 insurer's duty to pay a judgment arises not from any insurance obligation, but from the endorsement's language guaranteeing a source of recovery in the event the motor carrier negligently injures a member of the public on the highways."11

The MCS-90 endorsement provides as follows:

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 [MCA] and the rules and regulations of the Federal Motor Carrier Safety Administration.

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...