• Global Hawk Insurance Co. v. Le (April 14, 2014) - Cal.Rptr.3d -, 2014 W.L. 1478514
  • May 2, 2014
  • Law Firm: McCormick Barstow Sheppard Wayte Carruth LLP - Fresno Office
  • UNDERLYING CLAIM

    Jerry Le was one of two truck drivers on a cross-country trip for V & H Transport ("V&H"). V & H promised to pay Le a lump sum of $1,100, with no deductions, for completing the trip and indicated it would issue a 1099 form. Le was seriously injured during the trip when, while he was asleep, the other driver was involved in a one-vehicle accident. V & H refused to pay Le because he did not finish the trip and claimed that he was not eligible for worker's compensation benefits since he was not an employee. Le sued V & H for his injuries and V & H tendered the defense to Global Hawk Insurance Company ("Global") under a commercial auto truckers liability insurance policy issued by Global to V & H. Global denied coverage because Le was V & H's "employee" and coverage was expressly precluded under the policy by exclusions for "bodily injury" to an "employee" and for "any obligation for which the insured ... may be held liable under ... workers' compensation."

    Global sued V & H, Le and others seeking a declaration that coverage for Le's injuries was excluded under the policy because Le was V & H's "employee." Although the policy defined "employee" to "include[] a 'leased worker,'" but not a "temporary worker," Global argued in its motion for summary judgment that the applicable definition of "employee" was found in federal regulations under the Federal Motor Carrier Safety Administration Act ("FMCSA"), which defined "employee" as "a driver of a commercial motor vehicle (including an independent contractor while in the course of operating a commercial vehicle)." See 49 C.F.R. § 390.5; see also 49 U.S.C.A. § 31101(2) (defining "employee" as "a driver of a commercial motor vehicle (including an independent contractor when personally operating a commercial vehicle)"). Further, Global relied upon Perry v. Harco National Ins. Co. (9th Cir. 1997) 129 F.3d 1072, which applied the definition of "employee" in the federal regulations in holding that the "employee" exclusion in the federally mandated MCS-90 endorsement precluded coverage for the driver of a leased vehicle whether or not the driver was an employee or independent contractor. Global also relied upon Consumers County Mut. Ins. Co. v. PW & Sons Trucking Inc. (5th Cir. 2002) 307 F.3d 362, which held that the parties intended the definition of "employee" in 49 C.F.R. § 390.5 to apply because the policy was a public liability policy designed specifically for use by motor carriers in the interstate trucking industry. Le argued that the federal definition of "employee" did not apply because the Global policy did not include a MCS-90 endorsement, a fact which was undisputed

    In granting Global's motion for summary judgment, the trial court held the decisions in Perry and Consumers were persuasive and concluded that the exclusion for injury to an "employee" precluded coverage. The trial court found that the policy issued to V & H was subject to the FMCSA because V & H was a motor carrier engaged in the movement of cargo. Further, although the Global policy defines "employee," the trial court concluded that nothing in that definition was inconsistent with the definition of "employee" in 49 C.F.R. § 390.5. Le appealed.

    THE APPELLATE COURT'S RULING

    The court of appeal reversed the trial court's decision because it concluded there were triable issues of fact whether Le was V & H's "employee" and whether he was eligible for worker's compensation. The court of appeal held that the question of employment was a question of fact that should be determined based on California common law and insurance principles, and not based on the federal regulations pertaining to the trucking industry applied by the trial court. While the court of appeal acknowledged that S.G. Borello & Sons Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 is the leading case on determining whether an employer-employee relationship exists, it stated that there was no need to go through a detailed analysis of the Borello factors as the court could "easily find triable issues of fact that Le was not an employee," including that he would be paid a lump sum without any tax withholdings, he would be provided a 1099 form, and V&H told Le that he was not an "employee" and would not be eligible for worker's compensation. Because triable issues of fact exist, the court of appeal held the injury to employee and worker's compensation exclusions did not preclude coverage as a matter of law.

    Regarding application of the federal regulations and the Perry and Consumers cases, the court of appeal stated that the trial court's reliance on those cases was misplaced. The court of appeal reviewed the history of the Motor Carrier Act of 1980 and the FMCSA, noting that the FMCSA mandates that every liability insurance policy covering a motor carrier contain a MCS-90 endorsement. The purpose of the MCS-90 is to insure that injured members of the public are able to obtain judgment from negligent authorized interstate carriers. See John Deere Ins. Co. v. Nueva (9th Cir. 2000) 229 F.3d 853, 857. After discussing the history of the FMCSA, the court of appeal noted that the policy at issue in Perry contained an MCS-90 endorsement, which excluded coverage for "injury to or death of the insured's employees while engaged in the course of their employment." The court of appeal held that the Perry decision is distinguishable because the policy at issue in the present case did not contain an MCS-90 endorsement and the Perry court's review was limited to the construction of the MCS-90 endorsement in the policy before it as opposed to any additional coverage that could have been, but was not, provided in an underlying insurance policy. In addition, the court of appeal concluded that Perry does not stand for the proposition that the definitions used in federal regulations should supplant the definition set forth in a policy, especially where use of the federal definitions would displace an insurer's obligation to pay a covered claim.

    The court of appeal also held that Consumers is distinguishable because the Consumers court concluded that, although the policy at issue did not define "employee," the parties intended to interpret the term "employee" in a manner consistent with the federal regulations since the policy was a public liability policy designed for interstate carriers to satisfy the minimal requirements of the FMCSA. Finally, the court of appeal rejected Global Hawk's argument that the policy issued to V & H must contain the federally mandated MCS-90 endorsement, finding that that there was no principle of insurance law stating that something external to an insurance policy can be read to inform what coverage the policy provides.

    EFFECTS OF THE RULING

    In the case of an employee of a trucking company injured in the course of employment, courts will look to definitions contained in the policy to determine whether the "injury to employee" and worker's compensation exclusions apply. Courts will not consider federal regulations or other external documents in determining whether an individual is an "employee" unless the policy at issue contains an MCS-90 endorsement.

    This opinion is not final. It may be withdrawn from publication, modified upon rehearing, or review may be granted by the California Supreme Court. These events would render the opinion unavailable for use as legal authority.

    This publication is intended for informational purposes only and is not intended as legal advice or as a substitute for legal consultation in a particular case or circumstance. Transmission of this information is not intended to create, and receipt does not create, an attorney-client relationship.