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Is Your Truck Driver Covered by Your Public-Liability Policy?

Rafael Olivas was driving a tractor-trailer owned by Oralia Sanchez and making a delivery to Corsicana, Texas. Mr. Olivas was operating the truck for Mr. Sanchez under an independent contractor agreement between Mr. Sanchez and Rapid Logistics. The truck jackknifed before arriving and Mr. Olivas filed suit against Rapid Logistics and Oralia Sanchez for negligence.

In response, Canal Indemnity Company ("Canal") filed a declaratory action seeking a determination that there was no coverage for Mr. Olivas under the insurance policy issued to Rapid Logistics. The district court granted Canal's motion for summary judgment that it had no duty to defend or indemnify Rapid Logistics against Mr. Olivas' claims. Rapid Logistics then appealed.

The 5th Circuit's Analysis:

The 5th Circuit began by acknowledging that Rapid Logistics' insurance policy was a public-liability policy and was required for Rapid Logistics to obtain an operating permit as a motor carrier. The court further noted that, by federal regulation, such a policy was not required to cover employees of interstate carriers. 49 C.F.R. § 387.15.

The court continued by stating that Section 390.5 of the federal regulations for carriers eliminates the traditional common law distinction between employees and independent contractors to discourage motor carriers from using independent contractors to avoid liability exposure. Consumers Cnty. Mut. Ins. v. P.W. & Sons Trucking, 307 F.3d 362, 366 (5th Cir. 2002).

Such definition states that an employee is "any individual, other than employer, who is employed by an employer and who in the course of his or her employment directly affects commercial motor vehicle safety." 49 C.F.R. § 390.5. In addition, it "includes a driver of a commercial motor vehicle (including an independent contractor while in the course of operating a commercial motor vehicle)." Id.

The court conceded that it would consider the definition of an employee if it was contained in the applicable public-liability policy. Consumers Cnty., 307 F.3d at 367. The court also noted that the policy at issue did provide a definition of an employee. Notably, though, the court did not consider the definition of an employee under the policy because Rapid Logistics did not explain how Mr. Olivas fell outside the scope of that definition.

The court also stated that, even if Mr. Olivas fell outside the definition of an employee in the policy, an exclusion in the policy prevented coverage for Mr. Olivas. That exclusion stated that it applied to the owner, employee, agent, or driver of the owner, or anyone else, from whom Rapid Logistics hired or borrowed a covered auto. Because Rapid Logistics admitted that Mr. Sanchez owned the truck involved and that it had hired Mr. Sanchez and his employee Mr. Olivas, coverage was excluded. The court also found no duty to indemnify based on the fact that Rapid Logistics admitted that Mr. Olivas was Mr. Sanchez's employee.

What to Take Away:

Absent a definition of an employee in your public-liability policy, the federal regulations control that definition and make an independent contractor an excluded employee. If there is a definition of an employee in your policy, and your driver does not fit within it, check all exclusions to see if the driver is still excluded anyway.

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The Bassett Firm

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Toll Free: 800-310-9769
Phone: 214-219-9900
Fax: 214-219-9456
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