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Trustgard Insurance Co. v. Collins

United States Court of Appeals, Fourth Circuit

November 5, 2019

TRUSTGARD INSURANCE COMPANY, Plaintiff - Appellee,
v.
SHARON COLLINS; DOROTHY L. JACKSON, individually and as Executor of the Estate of Alfred Jackson Sr.; JOHN A. GODFREY; MATTIE E. RENDER, Defendants - Appellants, and MICHAEL BROWN, individually, d/b/a Triple S Transport, Defendant.

          Argued: May 7, 2019

          Appeal from the United States District Court for the District of South Carolina at Columbia. J. Michelle Childs, District Judge. (3:17-cv-00807-JMC)

         ARGUED:

          Maxwell Kent Thelen, SUMMERVILLE FIRM, Atlanta, Georgia, for Appellants.

          Peter Harris Dworjanyn, COLLINS & LACY, PC, Columbia, South Carolina, for Appellee.

         ON BRIEF:

          Kurt Kastorf, SUMMERVILLE FIRM, Atlanta, Georgia, for Appellants.

          Before HARRIS, RICHARDSON, and QUATTLEBAUM, Circuit Judges.

          RICHARDSON, CIRCUIT JUDGE

         This case involves an attempt to have the federal courts resolve an insurance dispute. A passenger injured in an automobile accident has asserted claims in state court against several people involved. She has also sued a third party, Michael Brown, not present at the accident, claiming he is also liable. Brown's insurer asks us to decide whether an endorsement attached to his insurance contract requires the insurer to pay any judgment against Brown that might result from the ongoing state-court proceedings. The district court issued a declaratory judgment in favor of the insurer. However, we conclude the district court abused its discretion when it assumed jurisdiction under the Declaratory Judgment Act.

         I.

         In 2014, Dorothy Jackson rear-ended a car trailer being towed by a Dodge tow truck. The collision injured both Jackson and her passenger, Sharon Collins. Collins sued the driver and the owner of the tow truck (Mr. McWilliams)[1] in a South Carolina Court of Common Pleas. And she sued the owner of the car trailer (Kerion Murray) as well as two other passengers in the tow truck (James Moore and Gerroll Lingard). Collins also asserted claims against Michael Brown, who does business as "Triple S Transport." Although Brown did not own any of the vehicles and was not present at the scene, it appears that McWilliams's tow truck displayed Brown's Interstate Commerce Commission number. According to Collins, McWilliams towed the car trailer on Brown's behalf. Though neither the complaint nor the record detail how, Collins's state-court suit appears to claim that Brown and McWilliams are each both directly and vicariously liable for the accident.

         As the state lawsuit proceeded, Brown's insurance provider asked the federal district court to declare whether it must pay any judgment against Brown if Collins prevails in state court. Brown and McWilliams are, by coincidence, both insured by Appellee Trustgard Insurance Company. Trustgard does not contest that it must cover a judgment against McWilliams if he is found liable to Collins for the negligent operation of the tow truck. But Trustgard does claim that it need not cover a judgment against Brown for damages arising from an accident in which neither Brown nor his insured vehicles were involved. Trustgard seeks a declaratory judgment to that effect.

         Trustgard included an endorsement along with Brown's traditional insurance policy. That endorsement, called an "MCS-90" endorsement, is not technically insurance. Rather, it is a surety agreement that requires Trustgard to pay up to $1, 000, 000 for "any final judgment recovered against the insured for public liability resulting from negligence in the operation, maintenance or use of motor vehicles." J.A. 88. Federal law requires that a motor carrier have an endorsement like this (or some substitute) to establish a minimal financial responsibility baseline. 49 C.F.R. §§ 387.7, 387.9, 387.15; see generally Carolina Cas. Ins. Co. v. Yeates, 584 F.3d 868, 873-74 (10th Cir. 2009) (describing the legal and regulatory framework).

         The endorsement serves a risk-shifting function for the benefit of an adversarial party. When it applies, the insurer is obligated to pay a judgment against the insured. But upon payment, the insurer may demand reimbursement from the insured. Thus the insurer-not the adversarial party-bears the risk of the insured's nonpayment. So if the endorsement applies here, Trustgard would be on the hook for a final judgment against Brown. And Trustgard could then seek to recover a payment from Brown. If the endorsement does not apply, then Collins must seek to recover a judgment against Brown from Brown himself-she cannot recover from Trustgard.[2]

         Granting summary judgment for Trustgard, the district court determined that neither Brown's insurance nor the surety endorsement applied. First, the court concluded that Brown's insurance did not apply because the accident did not involve a covered vehicle. Because the court found that Brown and McWilliams had not entered into "an owner-operator agreement or lease agreement," J.A. 152, the court also rejected Collins's argument that Brown was liable for McWilliams's negligence as "the motor carrier for hire on the job." J.A. 152. Collins also argued that Brown might be liable under a theory of negligent hiring, training, or supervision; but the court determined that any such liability did not fall within the scope of Brown's policy.

         Second, the district court determined that the surety endorsement did not apply. Here, the court reasoned that the purpose of the statutorily mandated endorsement is to protect the people injured by motor carriers by ensuring that they can recover up to the limits of the required insurance coverage. Concluding that McWilliams's policy covered the accident beyond the required amount, the court held that ...


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