Subrogation Magic: Creating Something Out Of Nothing

In 2010, researchers at the University of Michigan hypothesized that it is theoretically possible to conjure particles from a complete vacuum under the right circumstances. Performing such a feat in the world of subrogation might seem improbable, but subrogation theory has become subrogation law where MCS-90 Endorsements are concerned.

Have you ever spent countless hours analyzing a case with flawless liability to later realize that the at-fault party lacks insurance coverage? These files come with the turf, but what if there was a way to increase the potential for recovery on these claims? What if you could create insurance coverage out of thin air? Although not so whimsical, a solid foundation and knowledge of MCS-90 Endorsement subrogation can be used to find insurance where there appears to be none.

The familiarity with MCS-90 Endorsements could mean the difference between an uncollectable default judgment and complete reimbursement. Dealing with uninsured and underinsured negligent parties can be a daily occurrence for the transportation subrogation professional. This article will introduce you to a tool that can be utilized to maximize recovery potential of your subrogation claims.

Let us begin with a brief explanation of the MCS-90 Endorsement. The Motor Carrier Act of 1980, 49 U.S.C. § 13906, mandates that all interstate carriers have either a policy, including an MCS-90 Endorsement, the requisite capacity for self-insurance, or purchase a qualifying surety bond. Policies including MCS-90 Endorsements are utilized by the vast majority of the trucking industry to satisfy the requirements of the Motor Carrier Act. The MCS-90 Endorsement essentially makes the insurer a surety to the public. It shifts the risk of loss for accidents occurring in the course of interstate commerce away from the public by guaranteeing that an injured party will be compensated, even if the insurance carrier has a valid defense based on a condition in the policy. It states that the issuing insurance company will pay a third party for any final judgment against their insured when a non-covered incident is caused by the negligence of the insured that causes injury to a third party. An example would be if a carrier fails to list a truck on its policy and that truck is later involved in an accident with a third party. This accident would not be covered by the policy. However, the insurance company would be obligated to pay for the final judgment against its insured under the MCS-90 Endorsement.

In a previous article titled “Following The Money: Subrogating MCS-90 Payments Against An Uninsured Operator,” we focused on how a subrogation professional can use the MCS-90 reimbursement provisions to seek repayment of benefits from their insured. In this article, we will shift focus and explain how the MCS-90 Endorsement can be used to overcome canceled and inactive insurance policies. By learning these tools, a subrogation professional can obtain a recovery even when a policy is no longer in effect. This is useful when attempting to subrogate against a liable third party who may appear not to have insurance coverage and lacks the financial means to pay a claim.

It can be painful when handling a file with clear liability to later find that the at-fault party is uninsured due to a recently cancelled policy. Your initial reaction may be to close down the file or transition focus to obtaining an uncollectable default judgment. But, what if there was another option? MCS-90 Endorsements provide a mechanism by which the at-fault driver’s insurance carrier may still be on the hook for payment of your claim, despite a recently canceled policy.

MCS-90 Endorsements have very strict guidelines and rules that must be followed prior to the cancellation and inapplicability of the endorsement. If these procedures are not followed, then the insurance carrier may still be obligated to pay your claim.

The carrier must provide a 35-day notice of cancellation to their insured and vice-versa. The MCS-90 Endorsement specifically states that:

Cancellation of this endorsement may be effected by the company of the insured by giving (1) thirty-five (35) days notice in writing to the other party (said 35 days notice to commence from the date the notice is mailed, proof of mailing shall be sufficient proof of notice), and (2) if the insured is subject to the Federal Motor Carrier Safety Administration’s (FMCSA) registration requirements under 49 U.S.C. § 13901, by providing thirty (30) days notice to the FMCSA (said 30 days notice to commence from the date the notice is received by the FMCSA at its office in Washington, D.C.).

What happens when a policy is cancelled without the requisite 35-day notice? Would the insurance carrier remain liable under the MCS-90 Endorsement despite having cancelled the underlying policy? An example of this would be if a policy was cancelled according to a certain state’s 10-day cancellation provisions, however, an accident then occurred on the 13th day. Would the insurance carrier remain liable for reimbursement under the MCS-90 Endorsement between the 10th day and the 35th day? This leads us to consider whether the MCS-90 Endorsement will still operate prior to the 35th day of notice where the underlying insurance policy has been cancelled.

Case law has made clear that the MCS-90 Endorsement provisions regarding cancellation will do just that, making a carrier susceptible to claims in most all situations where the 35-day notice protocol is not strictly followed. When an insurance policy is amended by an MCS-90 Endorsement, coverage under the endorsement remains in effect unless and until it is cancelled in a manner prescribed by federal law. See e.g., John Deere Ins. Co. v. Nueva, 229 F.3d 853, 856 (9th Cir. 2000), cert. denied, 534 U.S. 1127, 122 S. Ct. 1063, 151 L.Ed.2d 967 (2002); Canal Ins. Co. v. First General Ins. Co., 889 F.2d 604, 610 (5th Cir. 1989), modified on other grounds, 901 F.2d 45 (5th Cir. 1990); Ford Motor Co. v. Transport Indemnity Co., 795 F.2d 538, 545 (6th Cir. 1986); In re Yale Express Systems, Inc., 362 F.2d 111, 114 (2nd Cir. 1966). In order to effect cancellation of an MCS-90 Endorsement, the insurer must provide at least 35-days written notice to the insured and at least 30-days written notice to the FMCSA at its offices in Washington, D.C. See 49 C.F.R. §§ 387.7(b)(1) & 387.313(d). This notice requirement operates independently of any other policy provision. See Northland Ins. Co. v. New Hampshire Ins. Co., 63 F. Supp.2d 128, 130 (D. N.H. 1999).

If the policy is improperly cancelled and/or an accident was to occur within the 35-day notice period, then the insurance carrier will be liable for payment under the MCS-90 Endorsement. Keep in mind that this carrier will maintain a right to seek repayment from their insured under MCS-90 reimbursement provisions.

The importance in understanding the utility of MCS-90 Endorsements in subrogation can create something out of nothing. The subrogation professional should always consider MCS-90 Endorsement language whenever being denied coverage by an adverse carrier under the guise of a cancelled policy.

Ashton T. Kirsch is an insurance litigation associate with the law firm of Matthiesen, Wickert & Lehrer, S.C. Ashton’s practice areas include insurance litigation, subrogation, workers’ compensation, health insurance and ERISA, and transportation and cargo. He can be reached at akirsch@mwl-law.com.