Argonaut Midwest Insurance Company v. Morales , 2014 IL App (1st) 130745 ( 2014 )

2014 IL App (1st) 130745No. 1-13-0745
Opinion filed September 3, 2014
Third Division
______________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
FIRST DISTRICT
____________________________________________________________________________
)
ARGONAUT MIDWEST INSURANCE )
COMPANY, )
)
Plaintiff-Appellee, )
Appeal from the Circuit Court
)
of Cook County.
v. )
)
GABRIEL MORALES, LAND TRUCK INC., and )
No. 09 CH 27901
INSURANCE COMPANY OF THE STATE OF )
PENNSYLVANIA, INC., an Illinois Corporation, )
)
The Honorable
Defendants-Appellants )
Rodolfo Garcia,
)
Judge, presiding.
(Raymond J. Jones, Stanley Herbert, Morris K. )
Stevens, and Gloria Stevens, )
)
Defendants). )
)
______________________________________________________________________________
PRESIDING JUSTICE HYMAN delivered the judgment of the court, with opinion.
Justice Neville concurred in the judgment and opinion.
Justice Mason dissented, with opinion.
OPINION
¶1 This case involves cross motions for summary judgment on issues involving insurance
coverage of a trucking accident. Appellants-Defendants Gabriel Morales, Land Truck, Inc., and
Insurance Company of the State of Pennsylvania, Inc., appeal the trial court's summary judgment
1-13-0745
order in favor of plaintiff Argonaut Midwest Insurance Company, which held that Argonaut's
policy did not cover the accident. Appellants raise two issues on appeal: (i) whether coverage is
excluded under the "Trucker—Insurance for Non-Trucking Use" endorsement; and (ii) whether
Land Truck is entitled to a defense under the policy. We affirm, holding that Argonaut has no
duty to defend or indemnify Morales under the "Trucker—Insurance for Non-Trucking Use"
exception, and that Land Truck is not considered an insured under Argonaut's policy.
¶2 BACKGROUND
¶3 Gabriel Morales entered into an "Owner Operator Contract" with Land Truck in April
2007. The contract described Land Truck as "a common carrier by motor vehicle holding
authority from the Federal Highway Administration." The contract identifies Morales as an
independent contractor and the owner of a motor vehicle who "is engaged in an independently
established business of hauling commodities by motor vehicle pursuant to contract with contract
or common carriers." Land Truck agreed to pay Morales a "flat rate percentage of Gross
revenue." (Strikeout in original.)
¶4 Regarding insurance, the contract provides that "[u]nless required by statute or
ordinance," Land Truck will not provide any insurance to Morales. Moreover, the contract
required Morales carry his own insurance, including "Bobtail Insurance naming Land Truck Inc
as an 'Additional Named Insured' and Certificate Holder." " 'Bob-tail' in trucking parlance is the
operation of a tractor without an attached trailer," and "bobtail insurance" typically refers to
insurance for when a tractor is not being used in the business of an authorized carrier. Prestige
Casualty Co. v. Michigan Mutual Insurance Co., 99 F.3d 1340 (6th Cir. 1996). Land Truck
required Morales pay "all costs and expenses incident to the performance of" the contract,
-2-
1-13-0745
including premiums for insurance to cover physical damages, vehicle operating and maintenance
costs, fees and taxes, and tolls, among others.
¶5 Morales agreed to haul commodities for Land Truck, but could refuse loads and do
business with other carriers as long as Land Truck received proper notice. Morales would display
Land Truck's placards and identifications when hauling for it, and remove them when not.
Morales had sole responsibility for the "direction and control" of his operators, and discretion
regarding the "methods and means" of fulfilling his obligations to Land Truck.
¶6 Land Truck agreed to comply with the rules and regulations of the Interstate Commerce
Commission, the Department of Transportation, and state regulatory authorities. Subject to those
rules and regulations, Morales had the right to "control and direct, in all respects, the operation of
the equipment used in the performance" of the contract. The contract lasted one year, subject to
automatic renewal.
¶7 Effective early March 2009, plaintiff Argonaut Midwest Insurance Company issued a $1
million insurance policy to Morales. Under the policy, Argonaut agreed to "pay all sums an
'insured' legally must pay as damages because of 'bodily injury' or 'property damage' to which
this insurance applies, caused by an 'accident' and resulting from the ownership, maintenance or
use of a covered 'auto'." Argonaut agreed to "defend any 'Insured' against a 'suit' asking for these
damages *** . However, [it had] no duty to defend any 'insured' against a 'suit' seeking damages
for 'bodily injury' or 'property damage' *** to which this insurance does not apply."
¶8 The policy defines "insureds" to include "You [Morales] for any covered 'auto'." Among
the schedule of covered autos, Morales's 2003 Freightliner truck is listed. An endorsement titled
"Truckers – Insurance for Non-Trucking Use" states, "This insurance does not apply to: *** A
-3-
1-13-0745
covered 'auto' while used in the business of anyone to whom the auto is rented." (Emphasis
added.)
¶9 Later in March 2009, Land Truck notified Morales of a pickup from Waukegan, Illinois.
Morales got a dispatch sheet from Land Truck, went to get his truck and trailer from a parking
spot he rented, and went to retrieve the empty container. Morales paid tolls with an I-Pass
provided by Land Truck. Morales was driving north on I-294 when he struck a vehicle carrying
Stanley Herbert, Raymond Jones, and Morris Stevens.
¶ 10 In 2009, Herbert, Jones, and Stevens sued Morales and Land Truck. Their amended
complaint alleges negligence against Morales and Land Truck, and Stevens' wife, Gloria, alleges
lost of consortium.
¶ 11 Argonaut filed a complaint for declaratory judgment against Morales, Land Truck,
Herbert, Jones, and the Stevenses, claiming it had no duty to defend or indemnify Morales or
Land Truck in the underlying suit. Alternatively, Argonaut claimed that the defense costs of the
underlying suit should be apportioned between itself and Land Truck's insurer, defendant
Insurance Company of the State of Pennsylvania.
¶ 12 The parties filed cross motions for summary judgment. The trial court granted Argonaut
summary judgment, holding that it had no duty to defend either Morales or Land Truck. This
appeal timely followed.
¶ 13 STANDARD OF REVIEW
¶ 14 Summary judgment may be granted where no triable issue of material fact is present and
the movant is entitled to a judgment as a matter of law. 735 ILCS 5/2-1005(c) (West 2010). "A
genuine issue of material fact *** exists where the material facts are disputed or, if the material
facts are undisputed, reasonable persons might draw different inferences from the undisputed
-4-
1-13-0745
facts." (Internal quotation marks omitted.) Windmill Nursing Pavilion, Ltd. v. Cincinnati
Insurance Co., 2013 IL App (1st) 122431, ¶ 18. Cross motions for summary judgment indicate
none of the movants believe a factual disputes exist regarding the issues raised. Illinois Emcasco
Insurance Co. v. Waukegan Steel Sales Inc., 2013 IL App (1st) 120735, ¶ 11. "We review the
circuit court's grant of summary judgment de novo." Skokie Castings, Inc. v. Illinois Insurance
Guarantee Fund, 2013 IL 113873, ¶ 27.
¶ 15 ANALYSIS
¶ 16 Appellants argue (i) the "Trucker – Insurance for Non-Trucking Use" endorsement does
not apply, and (ii) Land Truck is an insured under Argonaut's policy. We conclude that neither
argument has merit.
¶ 17 Non-Trucking Endorsement
¶ 18 Appellants assert two reasons for the inapplicability of the endorsement: (i) Land Truck
did not rent the Freightliner because it did not take exclusive possession or control of it; and (ii)
the term "rented" is ambiguous. We reject both assertions.
¶ 19 We interpret an insurance policy as we would any other contract, reading the terms to
give effect to the intent of the parties. Gaudina v. State Farm Mutual Automobile Insurance Co.,
2014 IL App (1st) 131264, ¶ 17. We give unambiguous policy terms their plain, ordinary,
popular meaning. Id. ¶ 18. Ambiguity exists where the policy terms can produce more than one
reasonable interpretation. Id. Where there is ambiguity, we construe the policy liberally in favor
of coverage. Id.
¶ 20 Appellants note that the endorsement excludes coverage where the Freightliner "used in
the business of anyone to whom the auto is rented." They argue that Morales's truck was never
rented under the terms of the agreement between Land Truck and Morales. "Rent," they assert,
-5-
1-13-0745
requires the right to exclusive possession and control. Dictionary definitions of "rent," however,
do not require exclusive possession. See Black's Law Dictionary 1410 (9th ed. 2009) (as a noun,
"Consideration paid, usu. periodically, for the use or occupancy of property"); Webster's Third
New International Dictionary 1923 (1993) (as a verb, "to grant the possession and enjoyment of
for rent: hire out").
¶ 21 Appellants also cite foreign case law indicating that renting or leasing property requires
the transfer of exclusive possession. E.g., Canal Insurance Co. v. Liberty Mutual Insurance, 395
F. Supp. 962 (N.D. Ga. 1975) (holding use of truck incidental to service contract did not
constitute lease of vehicle). In addition, they point to Millenium Park Joint Venture, LLC v.
Houlihan, 241 Ill. 2d 281, 309 (2010), where our supreme court stated, regarding real property,
"[i]f the contract gives exclusive possession of the premises against all the world, including the
owner, it is a lease, but if it merely confers a privilege to occupy the premises under the owner, it
is a license." (Internal quotation marks omitted.) They cite as well the Automobile Renting
Occupation and Use Tax Act (35 ILCS 155/1 et seq. (West 2012)), which defines vehicle rental
as requiring "any transfer of the possession or right to possession of an automobile." 35 ILCS
155/2 (West 2012). Appellants acknowledge this statute does not apply to commercial trucks.
¶ 22 Further, appellants argue that Morales did not transfer complete possession or control of
his truck to Land Truck, and therefore the non-trucking endorsement does not apply, noting the
owner operator contract states, "Subject to the specific requirements of the Interstate Commerce
Commission and/or D.O.T. and of any State regulatory agency having jurisdiction: *** The
Contractor [Morales] shall control and direct, in all respects, the operation of the equipment
used in the performance of this Contract." (Emphasis added.) Because the agreement purports to
leave control of the Freightliner in Morales's possession, appellants assert that it is not a "rental"
-6-
1-13-0745
agreement. They conclude that Land Truck did not rent Morales's truck, and therefore the non-
trucking endorsement does not apply.
¶ 23 We disagree with appellants' logic. Under the facts here, transferring exclusive control,
possession, and use of a vehicle do constitute renting, and the owner operator contract between
Morales and Land Truck is a rental agreement.
¶ 24 While the agreement does not say so, statutes and regulations require Land Truck to
assume exclusive control of Morales's truck. As the owner operator contract states, Land Truck
is a common carrier registered with the United States Department of Transportation (DOT).
Registration requires motor carriers be willing and able to comply with DOT rules and
regulations. 49 U.S.C. § 13902(a)(1)(A)(i) (2012). Those rules provide that an "authorized
carrier may perform authorized transportation in equipment it does not own only" if there is "a
written lease granting the use of the equipment." (Emphasis added.) 49 C.F.R. § 376.11(a)
(2012). Federal law further requires that a written lease "provide that the authorized carrier lessee
shall have exclusive possession, control, and use of the equipment for the duration of the lease.
The lease shall further provide that the authorized carrier lessee shall assume complete
responsibility for the operation of the equipment for the duration of the lease." (Emphasis
added.) 49 C.F.R. § 376.12(c)(1) (2012).
¶ 25 While the owner operator contract appears to contradict these terms, those contradictory
terms are "[s]ubject to the specific requirements of the Interstate Commerce Commission and/or
D.O.T. and of any State regulatory agency having jurisdiction." (Emphasis added.) Critically, the
words "subject to" create a condition to apply the terms that follow. Catholic Charities of the
Archdiocese of Chicago v. Thorpe, 318 Ill. App. 3d 304, 309 (2000). That is, the agreement that
Morales controls the use of his truck is conditioned on the conformance of those contract terms
-7-
1-13-0745
with DOT regulations. Because those contract terms contradict DOT regulations, the regulations
control. 11 Richard A. Lord, Williston on Contracts § 30:19 (4th ed. 2012) ("When a contract
expressly incorporates a statutory enactment by reference, that enactment becomes part of the
contract for the indicated purposes just as though the words of that enactment were set out in full
in the contract."). Thus, under DOT regulations and the owner-operator agreement, Land Truck
assumed "exclusive possession, control, and use" of Morales's Freightliner. 49 C.F.R.
§ 376.12(c)(1) (2012).
¶ 26 Argonaut notes that, under Illinois law, the motor carrier's exclusive possession is
implied in the lease:
"The following terms, if not stated in a lease, shall be implied. Any contrary provisions in
the lease shall be void.
1) Exclusive possession and control. The lessee shall have exclusive possession and
control of leased equipment during all periods when the equipment is operated under the
lease. Such exclusive possession and control shall extend also to the drivers of leased
equipment." (Emphasis added.) 92 Ill. Adm. Code 1360.40(b)(1) (1993).
But it is unclear whether Land Truck is subject to this code provision, which only applies to
carriers "regulated by the Illinois Commerce Commission." 92 Ill. Adm. Code 1360.10(a)(1)
(1987). Under the Illinois Commercial Transportation Law (625 ILCS 5/18c-1101 et seq. (West
2010)), the commission's jurisdiction over "for-hire transportation by motor carrier" is limited to
intrastate commerce. 625 ILCS 5/18c-1201 (West 2010); Canal Insurance v. A & R
Transportation & Warehouse, LLC, 357 Ill. App. 3d 305, 312-13 (2005). It is unclear from the
record whether Land Truck and Morales's business involves intrastate or interstate commerce.
Thus, we cannot say that the above section of the administrative code applies. See Triple 7
-8-
1-13-0745
Illinois, LLC v. Gaming & Entertainment Management-Illinois, LLC, 2013 IL App (3d) 120860,
¶ 22 ("interpreting the regulations to apply to agreements between nonlicensed entities would
violate the right of private parties to freely contract").
¶ 27 Appellants urge the court to follow Canal Insurance Co. v. United States Fire Insurance
Co., an unpublished order from the United States District Court for the Southern District of
Alabama. Canal Insurance Co. v. United States Fire Insurance Co., No. 04-0094-KD-C (S.D.
Ala. May 26, 2006). We decline. There, a semi truck lost a break drum, which flew through the
windshield of a nearby vehicle, striking one of the occupants who died several days later. A
trucking company owned the semitruck, and a peanut company owned the trailer. The trucking
company's insurer filed a suit for declaratory judgment, arguing that a "Truckman's
Endorsement" limited coverage. That endorsement (similar to the one here) read, "no coverage is
extended to any person, firm or organization using the described automobile pursuant to any
lease, contract for hire, bailment, rental agreement, or any similar contract or agreement." The
federal district court held under Georgia law that the agreement between the trucking and peanut
companies was a service contract, and not a lease or rental agreement.
¶ 28 The court noted that federal law might have defined the agreement as a "lease." The
statute defines such a lease as a between a truck owner and "an authorized carrier." 49 C.F.R. §
376.2(e) (2012). But the insurer offered nothing to prove that the peanut company was an
authorized motor carrier under the statute and regulations. In addition the court noted that the
agreement did not require the peanut company to take exclusive possession of any truck, which
was a required term of the lease. 49 C.F.R. § 376.12(c)(1) (2012). The court reasoned that,
because the contract between the trucking and peanut companies was a service contract, the
endorsement did not apply.
-9-
1-13-0745
¶ 29 The Canal case is distinguishable in that no evidence identified the peanut company as a
DOT-regulated authorized carrier. It was therefore not subject to DOT regulations. Unlike
Canal, no one disputes that Land Truck is an authorized carrier, as acknowledged in the owner-
operator contract. Moreover, the contract incorporates DOT requirements into the agreement. No
similar provision appears in the Canal case.
¶ 30 Appellants next argue that the term "rented" is ambiguous. Ambiguity exists where
language is subject to more than one reasonable interpretation. Gaudina v. State Farm Mutual
Automobile Insurance Co., 2014 IL App (1st) 131264, ¶ 18. Appellants fail to explain what
definitions of the term "rented" lead to multiple, reasonable interpretations of coverage. We
cannot discern any definitions of "rented" that would lead to differing outcomes regarding
coverage. Thus, appellants' argument is not well taken.
¶ 31 Even if the owner operator agreement is read in light of DOT regulations, according to
appellants that simply indicates Morales "leased" his vehicle to Land Truck, as federal law does
not describe the document at a "rental" agreement. They note that Argonaut's policy uses the
terms "lease" and "rent" separately, and that the terms must be interpreted differently to avoid
surplusage.
¶ 32 But appellants fail to cite any sources that define these terms differently, or that define
"lease" as requiring exclusive possession while "rent" does not. We acknowledge that Argonaut's
policy uses both terms, and while courts endeavor to avoid reading a contract to create
surplusage, it happens nevertheless. Coles-Moultrie Electric Cooperative v. City of Sullivan, 304
Ill. App. 3d 153, 159 (1999). Out of an abundance of caution, contract drafters often string
synonyms or closely related words together to prevent a narrow interpretation. If courts were to
attempt to interpret every synonym differently, the strain would produce absurdities. See Rubin
-10-
1-13-0745
v. Laser, 301 Ill. App. 3d 60, 68 (1998) ("Courts construe contracts so as to avoid absurd
results."). Generally, when referring to types of contracts, "rent" and "lease" are synonymous,
and we detect no meaningful differences in their definitions. See Black's Law Dictionary 970
(9th ed. 2009) (defining "lease" as "[a] contract by which a rightful possessor of real property
conveys the right to use and occupy the property in exchange for consideration, usu. rent.");
Webster's 3d New International Dictionary Unabridged 1923 (1993) (defining "rent" as "to take
and hold under an agreement to pay rent").
¶ 33 Appellants next argue that, even if regulations must be used to interpret the owner-
operator contract as giving exclusive control of Morales's vehicle to Land Truck, the regulations
are irrelevant because, in reality, Land Truck did not control Morales's vehicle. In support,
appellants point to Roberson v. Industrial Comm'n, 225 Ill. 2d 159 (2007). In Roberson, a trucker
operated his own truck under contract with a federally regulated motor carrier. Id. at 162-63. The
contract expressly stated that under federal regulations, the carrier had "exclusive possession,
control and use of the" truck, and "assumed complete responsibility for" its operation. (Internal
quotation marks omitted.) Id. at 162. The contract also labeled the trucker as an independent
contractor, and gave the trucker great leeway in satisfying the contractual duties. Id. at 163.
¶ 34 The trucker was injured while unloading freight for the carrier and filed a worker's
compensation claim. Id. at 164-66. The arbitrator found that as an independent contractor, the
trucker was ineligible for compensation. Id. at 170. The Industrial Commission reversed, finding
that the trucker was an employee and noting that the carrier had the right to exclusive possession
and use of the trucker's vehicle. Id. at 172. The supreme court affirmed, finding the conclusion
was not against the manifest weight of the evidence. Id. at 187.
-11-
1-13-0745
¶ 35 Appellants and the dissent argue that, under Roberson, regulations between motor
carriers and truckers do not alter the contractual relationship between the two. We disagree.
Roberson does not stand for the proposition that federally mandated language in the owner
operator contract is meaningless. As the supreme court noted, "the regulation requiring a motor
carrier to have exclusive possession, control, and use of leased equipment does not mandate that
the driver is an employee for all purposes. *** Compliance with federal regulations is merely a
factor that may be considered in a common law analysis of whether a driver is an employee of a
trucking company." Id. at 178. The Roberson court concluded that courts may consider federally
mandated language included in the contract between a motor carrier and a trucker (among many
other factors) to determine whether the trucker is an employee or independent contractor. Id. at
184-87. Accordingly, this language is not meaningless, and use of federal regulations to interpret
the owner operator agreement is proper.
¶ 36 Even if this court reads federal regulations into the agreement between Land Truck and
Morales, appellants contend those terms create a "legal fiction" and do not reflect whether Land
Truck in fact had exclusive control over Morales's vehicle. (A "legal fiction" is a rule that
assumes "that something is true even though it may be untrue." Black's Law Dictionary 976 (9th
ed. 2009).) In support, appellants cite Transamerican Freight Lines, Inc. v. Brada Miller Freight
Systems, Inc., 423 U.S. 28 (1975). There, the Supreme Court noted that an owner who leases a
truck to a motor carrier maintains an "aspect of control" over the truck. Id. at 39. But the court
described that as "ministerial control," and not the kind of control that federal regulations were
concerned with. Id. Rather, the concern
"was with operating authority, with routes and destinations and classes of freight, with
the integrity of certifications, and with that ultimate control in the lessee [motor carrier]
-12-
1-13-0745
that makes and keeps it responsible to the public, the shipper, and the Commission. The
Commission observed:
It now seems to be accepted that when an authorized carrier furnishes service in
vehicles owned and operated by others, he must control the service to the same extent
as if he owned the vehicles, but need control the vehicles only to the extent necessary
to be responsible to the shipper, the public, and this Commission for the
transportation." (Internal quotation marks omitted.) Id.Legal fiction or not, if a motor carrier opts not to exercise its right to control the vehicle, it does
so at its own peril, as its responsibility for the vehicle does not abate. See Carl Subler Trucking,
Inc. v. Splittorff, 482 N.E.2d 295, 297 (Ind. Ct. App. 1985) ("regulations require that carriers
operating under permits exert actual control over leased equipment; the borrowed drivers and the
carriers are not permitted to circumvent such regulation by contract"); Hershberger v. Home
Transport Co., 103 Ill. App. 3d 348, 352 (1982) (noting one goal of regulation which imposes
responsibility on carrier includes preventing carriers from avoiding safety standards by leasing
equipment from non-regulated carriers). Regardless whether Land Truck chose to exercise its
right to control Morales’s vehicle, the terms giving it those rights make the owner operator
contract a rental agreement.
¶ 37 Appellants next maintain that Argonaut failed to prove Morales rented his vehicle to
Land Truck. Appellants assert that there are no "extrinsic facts" suggesting that Morales gave
possession and control of his vehicle to Land Truck. But appellants point to no case law
requiring extrinsic facts be found in the owner operator agreement, nor do they explain why
extrinsic facts are necessary to establish that Land Truck had exclusive control over Morales's
-13-
1-13-0745
vehicle. The term "rented" typically refers to a contract. Accordingly, the agreement between
Morales and Land Truck sufficiently to prove the rental of the vehicle.
¶ 38 Appellants and the dissent further maintain that DOT regulations should not be used to
guide an insurance coverage dispute. In support, they cite Carolina Casualty Insurance Co. v.
Insurance Co. of North America, 595 F.2d 128 (3d Cir. 1979). The dissent puts much stock in the
Roberson court’s citing Carolina Casualty for the proposition that terms inserted in private
contracts by federal regulations do not alter obligations " 'under contracts allocating financial risk
among private parties.' " (Emphasis omitted.) Roberson, 225 Ill. 2d at 178 (quoting Carolina
Casualty, 595 F.2d at 138).
¶ 39 The Carolina Casualty case involved a motor carrier that entered into a trip-lease
contract with a truck owner. Carolina Casualty, 595 F.2d at 129-31. When the trucker was
involved in a car accident, the trucker's insurer filed a declaratory judgment action against the
carrier's insurer to determine which policy was primary. Id. at 130. The trial court held that,
because the DOT "responsibility-and-control" regulations made the carrier liable to the injured
parties, the carrier and its insurer were primarily liable. Id. at 132. The court of appeals
disagreed, holding that courts should not rely solely on those regulations when determining
which policy is primary. Id. at 138. Instead, the court "should consider the express terms of the
parties' contracts." Id.¶ 40 In Carolina Casualty, the issue was whether the carrier's or the trucker's insurance was
primary. Neither policy contained a nontrucking endorsement like the one here. Absent the
endorsement, we agree that these DOT regulations would not control the interpretation of which
policy is primary. The question of whether a policy is primary versus excess may sometimes be
-14-
1-13-0745
resolved by referencing the policy terms alone. See, e.g., Certain Underwriters at Lloyd's,
London v. Central Mutual Insurance Co., 2014 IL App (1st) 133145, ¶¶ 10-12.
¶ 41 But we disagree that either Roberson or Carolina Casualty stands for the proposition that
DOT regulations are irrelevant in an insurance coverage dispute. Our inquiry differs from that of
Carolina Casualty. Argonaut’s nontrucking endorsement conditions coverage on the type of
relationship between Morales and Land Truck at the time of the accident. That is to say, whether
the contract between Land Truck and Morales constitutes a rental agreement. When one party
takes exclusive possession, control, and use of a vehicle in exchange for money, that's a rental
agreement. The fact that the source of the possession-and-control terms is federal law is
irrelevant to our interpretation of the endorsement. But federal law does control our
interpretation of the owner-operator agreement because that agreement is "subject to" DOT
regulations.
¶ 42 Our analysis aligns with the purpose of Argonaut's bobtail insurance policy, providing
coverage when Morales is using his truck for his own purposes, not when he is renting it to Land
Truck. For the latter circumstances, federal law requires Land Truck to procure its own insurance
to cover Morales when Land Truck is using his vehicle. 49 C.F.R. § 376.12(j)(1) (2012) ("The
lease shall clearly specify the legal obligation of the authorized carrier to maintain insurance
coverage for the protection of the public pursuant to [Federal Motor Carrier Safety
Administration] regulations under 49 U.S.C. 13906. The lease shall further specify who is
responsible for providing any other insurance coverage for the operation of the leased equipment,
such as bobtail insurance.").
¶ 43 Accordingly, the "Trucker—Insurance for Non-Trucking Use" endorsement applies, and
Argonaut has no duty to defend or indemnify Morales.
-15-
1-13-0745
¶ 44 Land Truck's Status as Insured
¶ 45 As a threshold issue, Argonaut argues that the denial of a motion for summary judgment
is not appealable. Arangold Corp. v. Zehnder, 187 Ill. 2d 341, 357 (1999). This is true, but not
here where the case is disposed of on cross motions for summary judgment. Ruby v. Ruby, 2012
IL App (1st) 103210, ¶ 34.
¶ 46 Appellants assert that Land Truck is an insured under Argonaut's policy. We disagree.
¶ 47 Included under the "Who Is An Insured" section of Argonaut's policy, is "[a]nyone liable
for the conduct of an 'insured' described above but only to the extent of that liability." But, the
"Insurance for non-trucking use" endorsement adds, "Who Is An Insured does not include
anyone engaged in the business of transporting property by 'auto' for hire who is liable for your
conduct."
¶ 48 Appellants argue that the term "for hire," like the term "rented," requires the exercise of
control, and the right to direct the use of the vehicle. See Selective Way Insurance Co. v.
Travelers Property Casualty Co. of America, 724 F. Supp. 2d 520, 526 (E.D. Pa. 2010) ("The
majority of courts that apply the plain meaning of 'hire' when interpreting policies like the one at
issue have found the term to contain an element of control."). As already noted, the owner
operator agreement and applicable federal law require Land Truck to control and possess
Morales's vehicle. Under the agreement, Land Truck is "engaged in the business of transporting
property by 'auto' for hire." Thus, the endorsement applies. Sprow v. Hartford Insurance Co.,
594 F.2d 418, 422 (5th Cir. 1979). ("for a vehicle to constitute a hired automobile, there must be
a separate contract by which the vehicle is hired or leased to the named insured for his exclusive
use or control").
-16-
1-13-0745
¶ 49 Accordingly, Argonaut has no duty to defend or indemnify Land Truck under Morales's
policy.
¶ 50 Affirmed.
¶ 51 JUSTICE MASON, dissenting.
¶ 52 Because I do not agree that Argonaut has sustained its burden, under the unambiguous
language of its policy, to demonstrate the applicability of the exclusion it relies on, I respectfully
dissent.
¶ 53 The majority acknowledges that the terms of the owner operator contract between
Morales and Land Truck contradict the conclusion that Morales agreed to "rent" his truck to
Land Truck. That contract clearly provides that Morales retains exclusive possession and control
over the truck, which is clearly inconsistent with the notion that the contract constitutes an
agreement to rent the truck to Land Truck.
¶ 54 The legal effect of incorporation of the federal regulations into the owner operator
contract is to render Land Truck liable for Morales's operation of his truck, but that does not lead
to the conclusion that we should construe this private agreement as something other than it is. In
other words, despite the clear provisions of the private contract between Land Truck and Morales
that unambiguously provide that Morales shall have exclusive control over the operation of the
truck, Land Truck's liability as a common carrier is governed by federal law and thus Land Truck
is precluded from contending that it is not liable for Morales' conduct because he is an
independent contractor. But this conclusion does not either (1) compel us to rewrite the owner
operator contract or (2) control the interpretation of the terms of Argonaut's insurance policy in
which it agreed to insure Morales as a named insured and the truck as a scheduled vehicle.
-17-
1-13-0745
¶ 55 Whether Argonaut must defend Morales depends on whether, under the terms of its
policy measured against the owner operator contract, Argonaut has established the applicability
of the exclusion for a covered auto "while used in the business of anyone to whom the auto is
rented." And because it is clear that the terms of the owner operator contract refute Argonaut's
contention that Morales "rented" his vehicle of Land Truck, I believe Argonaut's argument
should be rejected.
¶ 56 The purpose of the federal regulations providing for the liability of common carriers was
recognized by our supreme court in Roberson v. Industrial Comm'n, 225 Ill. 2d 159 (2007). In
that case, Roberson was injured while unloading steel coils delivered for P.I. & I. Motor Express
(P.I. & I.) from a truck Roberson owned. P.I. & I. contended that pursuant to an agreement with
Roberson, the latter was an independent contractor who could not be deemed an "employee" for
purposes of claiming workers compensation benefits. The supreme court ultimately disagreed
with P.I. & I., not because federal regulations required P.I. & I., as a common carrier, to have
"exclusive possession, control, and use of the equipment" for the duration of the lease, but
because the particular facts and circumstances of Roberson's relationship with P.I. & I. created
an employer-employee relationship.
¶ 57 In the course of its opinion, the supreme court in Roberson discussed the purpose of the
federal regulations at issue here. In particular, the court noted that the regulations were prompted
by a decades-old practice of common carriers to shield themselves from liability for their drivers'
negligence by leasing trucks from independent contractors. Id. at 176. "Such arrangements
invariably led to abuses that threatened public safety, as unscrupulous motor carriers leased
inexpensive, and unsafe, equipment from shallow-pocket drivers." Id. The federal regulations, as
-18-
1-13-0745
ultimately enacted, "prevent[ed] motor carriers from escaping liability to injured persons by
claiming that their drivers were independent contractors, rather than employees." Id. at 177.
¶ 58 But notwithstanding regulations requiring motor carriers to have exclusive possession,
control and use of leased equipment, the Roberson court concluded that the regulations did not
mandate treating the driver as an employee for all purposes, stating, " '[w]hile a lessee cannot
free itself of its federally imposed duties when the protection of the public is at stake, the federal
requirements are not so radically intrusive as to absolve lessors *** of otherwise existing
obligations under applicable state tort law doctrines or under contracts allocating financial risk
among private parties.' " (Emphasis in the original.) Id. at 178, quoting Carolina Casualty
Insurance Co. v. Insurance Co. of North America, 595 F.2d 128, 138 (3d Cir. 1979). Thus, the
court concluded that Roberson and P.I.&I. were free to "structure their relationship as they see
fit, provided they do not neglect the requirements of federal law." Id.¶ 59 As applied in the context of this case, the reasoning of Roberson mandates a finding that
Land Truck and Morales were free to structure their relationship in any way that did not
circumvent federal regulations requiring Land Truck to be responsible for Morales's operation of
the truck. And it is clear that they did not. Notwithstanding the provisions of the owner operator
contract that vested exclusive control of the truck in Morales, the parties agreed to incorporate
federal regulations applicable to Land Truck as a common carrier. Incorporation of the federal
regulations thus preserves, in the interest of public safety, Land Truck's liability for Morales'
operation of the truck, but does not alter the private contractual relationship between Land Truck
and Morales, pursuant to which Morales retained possession and control of the truck.
¶ 60 Nothing in the federal regulations renders the terms of the owner operator agreement
"illegal," as Argonaut contends; rather, those regulations simply require that the terms of the
-19-
1-13-0745
otherwise enforceable agreement cannot be used by Land Truck to escape responsibility for
injuries caused by Morales's operation of the truck in furtherance of Land Truck's business.
Further, because pursuant to the terms of the owner operator contract, Morales did not "rent" his
truck to Land Truck, the exclusion relied on by Argonaut does not apply.
¶ 61 Argonaut contends that the purpose of the policy of insurance issued to Morales is
consistent with the interpretation of the owner operator agreement adopted by the trial court. In
particular, Argonaut asserts that its "Truckers – Insurance for Non-Trucking Use" endorsement
provides only limited coverage "during those times when possession of the vehicle, and any
liability for its operation, remain with the owner-insured itself." Argonaut reasons that because
Land Truck remains responsible for damages resulting from Morales's operation of the truck,
Morales did not need insurance while traveling to pick up a load for Land Truck.
¶ 62 But while this may have been Argonaut's intent in drafting the endorsement, this is not
what the endorsement says. The endorsement provides that Argonaut's agreement to pay "all
sums" Morales must pay "as damages" because of "bodily injury" caused by an "accident" does
not apply to his truck "while used to carry property in any business" or "while used in the
business of anyone to whom [the truck] is rented." Because the truck was not "rented" to Land
Truck according to the plain terms of the owner operator contract and because Morales was on
his way to pick up a load when the accident occurred, his truck was not then being used to "carry
property" either. In any event, Argonaut has not invoked the "while used to carry property"
clause of its endorsement. While Argonaut certainly could have drafted an exclusion that limited
its insuring agreement in the manner it urges on appeal (e.g., "when used in the business of
anyone subject to state or federal regulation as a common carrier"), the exclusion included in
Morales' policy does not accomplish this result. See Outboard Marine Corp. v. Liberty Mutual
-20-
1-13-0745
Insurance Co., 154 Ill. 2d 90, 117 (1992) ("if the insurer had desired to restrict coverage to only
those suits seeking legal, compensatory damages, it could have easily included among its
exclusionary provisions an exclusion pertaining to the costs of complying with mandatory
injunctions").
¶ 63 I do not believe the decision in Clarendon National Insurance Company v. Medina, 645
F.3d 928 (7th Cir. 2011), compels a different result. The driver of the truck involved in the
accident in Medina was not the owner of the truck (which was owned by his wife), but he signed
the agreement with the common carrier. On appeal, the husband and wife contended that the
agreement with the common carrier could not be a lease because the owner of the vehicle did not
execute it. The Seventh Circuit rejected this contention finding that the wife gave her husband
permission to enter into the agreement with the common carrier. The Medina court also
concluded that the agreement between the driver and the common carrier was a lease as a matter
of law. Medina did not address the terms of the agreement between the driver and the common
carrier and, in particular, did not discuss whether the agreement in that case contained terms
similar to those here, i.e., providing that the driver retained "exclusive possession and control" of
the truck, terms that are inconsistent with construction of the owner operator contract as an
agreement to lease Morales' truck to Land Truck. Therefore, while I agree with the Medina
court's conclusion that, as a matter of law and for purposes of Land Truck's liability to injured
parties, the owner operator contract must be deemed to be a lease despite its terms, I do not
believe it appropriate to completely disregard those terms in determining Argonaut's
responsibility to defend and potentially indemnify its insured.
¶ 64 Because the provisions of the owner operator contract do not constitute an agreement by
Morales to "rent" his vehicle to Land Truck, it is unnecessary to address whether the term "rent"
-21-
1-13-0745
is ambiguous and whether any ambiguity must be construed in favor of coverage under
Argonaut's policy. I do note that several provisions of Argonaut's policy use "rent" and "lease" in
the same paragraph, but the endorsement at issues here does not, thus lending credence to the
appellants' argument that the terms are not necessarily synonymous. Further, because the trial
court denied summary judgment to appellants on count II of Argonaut's complaint, which
invoked a provision of the endorsement excluding from the definition of an "insured" under the
Argonaut policy "anyone engaged in the business of transporting property by 'auto' for hire who
is liable for your conduct," I would not address this issue and instead leave that to the trial court
on remand.
¶ 65 For these reasons, I would reverse the trial court's award of summary judgment to
Argonaut, direct that summary judgment on the applicability of paragraphs A. and B. of the
"Truckers – Insurance for Non-Trucking Use" endorsement be entered in favor of Morales and
Land Truck, and remand for further proceedings as to whether Land Truck qualifies as an
additional insured under Argonaut's policy.
-22-