Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Click here for the full text of this decision FACTS:A Louisiana woman was injured in an accident between her car and a truck owned and operated by Richard Barnett, also a Louisiana resident. Barnett was using his truck within the scope of his work with Western American Specialized Transportation Services, a Delaware corporation with its principal place of business in Louisiana. Western had leased the truck from Barnett. Because Western is a common carrier, it is required to carry at least $5 million in insurance. Nobel Insurance provided $1 million in coverage, and Travelers Indemnity Co. of Illinois was the excess carrier, to the tune of $4 million. The Travelers policy included a federally mandated endorsement called an MCS-90 endorsement. This endorsement requires the insurer to pay for certain incidents regardless of whether the particular vehicle involved in the incident is specifically described in the policy. The last two sentences of the endorsement read: “It is further understood and agreed that, upon failure of the company to pay any final judgment recovered against the insured as provided herein, the judgment creditor may maintain an action in any court of competent jurisdiction against the company to compel such payment.” The two sentences were unusual in that they expressly grant the judgment creditor the right to seek direct payment from the insurer, and they entitle the insurer to seek reimbursement from the insured for any payment made under the endorsement. The Louisiana woman sued Barnett, Western and Nobel in state court, where she won a judgment of $2.67 million. Nobel paid $1 million into that court’s registry. When the woman sought payment from Travelers, Travelers filed suit in federal district court against the woman, Barnett, Western and Nobel for a declaration that their $4 million obligation did not apply to actions brought in state court. Travelers also filed a cross-claim against Nobel when it learned the carrier had refused the woman’s pretrial offer to settle for $900,000. All of Travelers’ claims are premised on the theory that Travelers is subrogated to the rights of the woman and can sue alleged negligence of Nobel in breaching a duty to that woman to defend prudently the state court suit and settle it within the policy limits. The district court ruled that the MCS-90 endorsement in the Travelers policy applied to the state court judgment. Travelers settled with the injured woman for $1.55 million. The district court then ruled that Travelers had no claim against Nobel. HOLDING:Affirmed. No matter how the MCS-90 obligation is described, the result is that Travelers became subrogated to the rights of the injured woman as judgment creditors of the insured parties, with a right to reimbursement from the insureds. The peculiar nature of the MCS-90 endorsement � granting the judgment creditor the right to demand payment directly from the insurer and simultaneously granting the insurer the right to demand reimbursement from the insured � is inconsistent with allowing the insurer to stand in the shoes of the insured under a subrogation theory, and in effect sue on behalf of the insured for injury to the insured. The MCS-90 endorsement is “in effect, suretyship by the insurance carrier to protect the public a safety net,” and not an ordinary insurance provision to protect the insured. The court holds that the endorsement does not extinguish the debt of the insured. Instead, it merely transfers the right to receive the insured’s debt obligation from the judgment creditor to the insurer. “Because Travelers became subrogated to the rights of the [injured woman] as creditors and not to the rights of the debtors insured under the Nobel and Travelers primary and excess policies, Travelers cannot pursue a claim against Nobel under a theory that Nobel breached a duty to the insureds.” OPINION:Reavley, J.; Reavley, Jolly and Prado, JJ.

Want to continue reading?
Become a Free ALM Digital Reader.

Benefits of a Digital Membership:

  • Free access to 1 article* every 30 days
  • Access to the entire ALM network of websites
  • Unlimited access to the ALM suite of newsletters
  • Build custom alerts on any search topic of your choosing
  • Search by a wide range of topics

*May exclude premium content
Already have an account?


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.