Twenty-eight years after its June 1981 introduction, the MCS-90 endorsement remains a highly misunderstood form. Apparent judicial misapplications of the intended meaning and purpose of the form have added to the confusion.

The MCS-90 was designed to assure that an at-fault "for-hire" or public motor carrier could fulfill its financial responsibility to the public, regardless of the insured's failure to comply with the underlying insurance policy's terms and/or conditions. But it was not designed or intended to extend coverage to non-insureds or create coverage where none existed. Above all, the MCS-90 was not created to and does not currently provide any insurance coverage within the wording of the form - insurance protection is extended only from the policy to which the endorsement is attached. The most current edition of the MCS-90 can easily be obtained on-line (the MCS-90 is the third of four forms in the packet of forms found at this link site).

Attachment of the MCS-90 does nothing more than a guarantee that there will be some source of funds available to pay for bodily injury, property damage or environmental restoration (collectively referred to as "public liability" in the MCS-90) made necessary by the negligence of the insured and its employees. However, this guarantee does not constitute insurance for one crucial reason: the insurance carrier issuing the MCS-90 has the right to recover from the entity named in the endorsement any payment made as a direct consequence of the provisions of the form.

In essence, the MCS-90 is more closely related to a surety bond "guaranteeing" that the insured has and will continuously maintain the coverages types and amounts mandated by law. And if the insured fails to maintain the required insurance coverage, the issuer of the MCS-90 will stand in the insured's place - for the public good. But the issuer of the MCS-90 can and will likely seek full reimbursement from the insured named in the endorsement.

The Motor Carrier Regulatory Reform and Modernization Act, signed into law by President Jimmy Carter on July 1, 1980, and the impetus for the MCS-90, requires motor carriers that transport hazardous materials to maintain "public liability" coverage of either $1 million or $5 million (depending on the material). As evidenced by the MCS-90's inclusion of "environmental restoration" within the definition of "public liability," the endorsement essentially "guarantees" that the motor carrier has pollution liability protection or a source of funds to cover a pollution loss as required by the law.

If, however, the motor carrier fails to maintain the required pollution coverage and there is a pollution loss, the MCS-90 issuing insurer will stand in place of the insured and pay the loss up to the legally required amount. But since the motor carrier failed to comply with the law, the insurer can then recover payment from the motor carrier.

To reiterate, the MCS-90 is not insurance; it is a financial guarantee protecting the public from the financial consequences of a motor carrier's failure to carry the statutorily required insurance protection. Any payment made solely under the provisions of the MCS-90 is recoverable from the defaulting motor carrier.

Remember, the burden to meet the statutory financial requirements placed on motor carriers engaged in interstate commerce is on the motor carrier, not the insurance carrier. When the MCS-90 is endorsed to a business auto policy, the insurance carrier takes on two roles; the first as insurer and the second as surety. These competing requirements and roles coupled with the fact that a few of the "guarantees" provided by the MCS-90 are broader than the coverage provided by the underlying business auto policy (BAP)necessitates that the insurer carefully underwrite and confirm the underlying coverages that are to be maintained by the motor carrier.

Where the MCS-90 is Potentially Broader

Pollution: Pollution losses are essentially excluded in the BAP. There are a few exceptions to the exclusions that do not extend to cover damage caused by materials being hauled. As stated in the above example, the MCS-90's definition of "public liability" includes environmental restoration - a pollution coverage. Since the insurance carrier issuing the MCS-90 has "guaranteed" that the motor carrier can pay for a pollution loss, it is incumbent upon the underwriter (and agent) to verify the necessary coverage.

Scheduled / Unscheduled Autos: Business auto policies written on a "scheduled vehicle" basis can also be expanded by the attached MCS-90. The endorsement states that it covers all vehicles owned, operated or maintained by the insured "regardless of whether or not each motor vehicle is specifically described in the policy…." If the insured with a symbol "7" or "46" forgets to list or add a vehicle to the BAP, the insurer is normally not required to provide coverage for a loss. However, the MCS-90 negates this policy provision and requires the insurer to pay the loss. Since the insurer is acting as a surety in such a case, they may be able to recover from the insured.

Drivers: The MCS-90 does not stipulate that individuals driving any vehicle or towing any trailer subject to the Motor Carrier Act have to be listed on the policy, qualify as an "insured" or even be considered "permitted users." In fact, the MCS-90 doesn't even address drivers, which has lead to unique court rulings.

Cancellation: Thirty-five days notice of cancellation is required by the endorsement, even for non-payment of premium. If the insured motor carrier is subject to Federal Motor Carrier Safety Administration registration, the FMCSA must get 30 days notice before the cancellation is effective. The catch is, the 30 days does not begin to toll until the FMCSA receives the cancellation notice in its Washington DC office. This is much longer than the standard notice of cancellation for non-payment of premium (between 10 and 15 days based on state law); so the insurance carrier may be "on the hook" longer than required by the underlying BAP.

Court Decisions Can Alter the MCS-90's Intent and Purpose

John Deere Insurance Company v. Nueva (found on OpenJurist.org) expanded the MCS-90 definition of "insured" to include an entity that was not even a party (a "stranger") to the underlying BAP. The Ninth Circuit Court ruled that "insured" status under the MCS-90 extended to include an entity that had use of the named insured's trailer after it had been sold.

John Deere's insured (Baljit Singh Sahota DBA Sahota Trucking) sold a trailer to Gurmukh Garcha DBA Blue Star Transportation. Before title on the trailer was transferred, it was involved in an at-fault accident caused by Blue Star; but even though Sahota no longer had possession of the trailer and was not a party to its use (contractual or otherwise), the court ruled that the provisions of the MCS-90 extended coverage to the trailer since the title had not passed. The purchaser became an "insured" on the policy per the court. In 2002, the Supreme Court issued an opinion that the Ninth Circuit's findings were incorrect, but at this point, the ruling stands as issued in 2000.

Deere v. Nueva is only one example of how courts can substantially alter the purpose and intent of the MCS-90. Some court rulings serve to cement the intended use of the endorsement. A recent Tenth District Court of Appeals case reversed and vacated 20 years of bad precedent in that district created by its 1989 finding in Empire Fire & Marine Ins. Co. v. Guaranty National Ins. Co.

Carolina Casualty Insurance Company v. Yeates saw the Tenth District court in California join the majority opinion in stating that the MCS-90 does not create coverage in an underlying BAP where no coverage existed. In fact, the court laid out two tests that must be satisfied before the MCS-90 can be called upon to respond to a loss:

1. the underlying [auto] insurance policy to which the endorsement is attached does not provide coverage for the motor carrier's accident; and
2. the motor carrier's insurance coverage is either not sufficient to satisfy the federally prescribed minimum levels of financial responsibility or is non-existent.

Conclusion

The intent of the MCS-90 appears rather self-evident on its surface; it is not insurance, simply a safety net for innocent parties injured by the negligence of the named insured. However, sympathetic juries and judges have expanded the protection.

Knowing how the form is designed to work should allow agents to effectively explain the need for the endorsement to the insured; beyond just, "because the government requires it." Also, being able to provide the necessary underlying protection will serve your client and make the underwriter more comfortable with the risk.