Ramsey County District Court File No. C201804
Considered and decided by Toussaint, Chief Judge, Stoneburner , Judge, and
Claims made against the insured for the negligence of a leased employee are not covered by a non-owned auto endorsement to a liability insurance policy that requires the employee to be driving in the business of the insured when the firm to which the employee is leased initially hires or identifies that leased employee, owns the vehicle, operates the business, and directs virtually every aspect of the employee's activity.
The opinion of the court was delivered by: Minge, Judge
Affirmed in part, reversed in part, and remanded
This action was initiated by respondent Scottsdale Insurance Company to determine its liability for claims against appellant, insured, Transport Leasing Company and its subsidiaries (TLC) under the non-owned auto endorsement to a liability insurance policy and was expanded by third-party actions initiated by TLC. The district court found that the insurance policies with the endorsements issued by the respondent insurance companies covered accidents of truck drivers employed by TLC and leased to trucking firms, but entered partial summary judgment rescinding the insurers' liability for such leased drivers. TLC challenges the summary judgment determination of rescission. Respondent insurers appeal denial of summary judgment of their alternative claim that the non-owned auto endorsement does not cover the damages arising out of accidents of these leased truck-driver employees of TLC. Appellants' insurance agency and insurance agent challenge the refusal of the district court to enter summary judgment relieving them of liability to TLC for failure to obtain insurance for accidents of leased truck drivers. This court granted discretionary review.
Because we conclude that the non-owned auto endorsement to the insurance policies does not cover accidents of TLC's leased truck-driver employees and because we do not reach the issue of rescission, we reverse the determination that there was coverage and affirm on different grounds the grant of summary judgment in favor of the insurers. Because we agree with the district court that the claims of TLC against the insurance agency and the insurance agent are not suitable for summary judgment, we affirm the denial of summary judgment to those appellants.
TLC is the parent company of ATS, Inc. and ATS, Inc. of Georgia, and we will refer to the collective companies as TLC. TLC employs truck drivers and loans those drivers to various trucking firms, usually as full-time employees. In many cases these drivers had been regular employees of the trucking firm prior to the TLC arrangement. TLC describes its business as "employee leasing."
Through the employee leasing arrangement, TLC provides the trucking companies with services including handling the drivers' payroll, payroll taxes, worker's compensation insurance, and upon request, health insurance plans, 401(k) programs, and disability benefits. Also upon request, TLC monitors driver compliance with physical examination requirements and the driver's license status of each employee. By serving as the employer, TLC allows trucking firms to contract out these portions of the employers' responsibilities. Otherwise, the trucking firms fully control all aspects of the leased drivers' work activity.
Prior to 1997, TLC intentionally did not carry any liability insurance coverage on any of the leased truck drivers. Instead, TLC relied upon indemnification agreements and lease requirements that TLC be named as an additional insured on the insurance policies of the trucking firms. TLC believed that because it did not control the day-to-day activities of the leased truck drivers, it would not be held vicariously liable for their acts.
In February 1997, an investor in TLC asked an insurance broker, Aon Corporation, to evaluate TLC's insurance coverage, to identify insurance risks, and to recommend needed coverage. Aon expressed concern that TLC was potentially exposed to a huge risk if a trucking customer carried insufficient liability insurance or allowed insurance to lapse. Aon recommended that TLC purchase a full liability policy covering the leased drivers and submitted a bid to TLC for such a policy with a yearly cost of $25,000.
TLC requested that appellant insurance agent Michael Lopeman and appellant Summit Global Partners (Summit), the firm for which Lopeman worked, obtain liability insurance coverage for TLC. Lopeman had been working with TLC on insurance matters since 1994. Lopeman testified in his deposition that because of his experience with several transportation businesses, he was knowledgeable about transportation insurance. Lopeman did not acquire the liability coverage directly. Instead, he submitted coverage requests to a wholesale insurance broker, Insurance Brokerage Services (IBS), and IBS in turn submitted the information to appellants Scottsdale Insurance Company and RLI Insurance Company. Scottsdale wrote basic coverage with $1 million limits and RLI wrote $25 million commercial umbrella coverage. Included in the application for coverage were the following:
A letter from Lopeman describing TLC as "an employee leasing company headquartered in Minnesota * * * [that] specializes in leasing small groups of drivers to existing larger trucking companies."
A business vehicle insurance application form requesting non-owned liability coverage and listing Minnesota and Indiana as business locations with the size of their offices even though TLC had drivers in 48 states.
A profit and loss statement listing driver wages at over $27.1 million as of Juneá30, 1996 (the 1998 renewal application listed payroll at $46.5 million).
A statement that TLC had 1,900 employees and a payroll of $46.5 million on the 1997 RLI application form.
The underwriter at Scottsdale testified in his deposition that he did not consider the financial information, payroll information, description of TLC's business, or the business vehicle form when evaluating the request for coverage. He testified that he "never imagined" that TLC's leased truck drivers would be covered by the non-owned vehicle endorsement and that he based the underwriting on the reported square footage of TLC's office, assuming the endorsement was for office-employee exposure. Based on this assessment of risk, Scottsdale/RLI quoted a premium of $300 for the non-owned auto endorsement. Because Aon had quoted a premium of $25,000, TLC questioned Lopeman about the difference in the two bids. On February 3, 1997, Lopeman sent the following memo to TLC:
The program we proposed includes a quote for Non-Owned Auto with a $1,000,000 limit. For this quote, we provided the insurance company with information on how your business operates. In other words, the auto exposure is insured by your clients and your clients agree under contract that they will hold you harmless and indemnify you for any loss. Therefore, the insurance company sees the exposure as TLC's actual office employees and has priced the coverage accordingly.
Based on what I've heard regarding the other quote you received for an auto policy, I don't believe the underwriter fully understands the exposure of TLC.
The TLC officer in charge of insurance testified in his deposition that he had approximately ten conversations with Lopeman regarding non-owned auto coverage. He stated that Lopeman told him that TLC would have liability coverage related to the trucks operated by their customers under the non-owned auto policy and the general liability policy. The TLC officer also testified that TLC requested the insurance coverage for the truck drivers because "it was mandated as a result of * * * [the] transaction with [the investor in TLC]" and that he trusted Lopeman's judgment.
Lopeman testified that he could not recall what generated his February 3, 1997 memo to TLC. He testified that he remembered TLC asking for coverage for the office employees, but he did not remember TLC asking for coverage for the leased truck-driver employees. Lopeman did not deny that TLC asked for coverage for the leased truck-driver employees; he testified only that he did not recall such a request. The initial proposals from Lopeman were for a coverage period of December 31, 1996 to December 31, 1997. TLC purchased the Scottsdale/RLI liability coverage with the non-owned auto endorsement through Lopeman and Summit. TLC asserts that it understood this endorsement would cover its leased truck-driver employees.
On October 27, 1997, TLC requested that Aon again analyze TLC's insurance coverage. Included in the second request was a list of "the types of insurances, the issuing companies, the policy dates, and the dollar amount of the coverages" currently held by TLC. On December 3, 1997, TLC provided Aon with copies of TLC's general liability policy provided by Scottsdale and excess liability provided by RLI. In the December 3, 1997 letter, TLC stated
the TLC Companies would like you to see to it that the appropriate people at AON and/or AIG critically analyze and review our entire insurance portfolio for cost, adequacy of coverages, existence of any gaps or overlaps in coverages, effectiveness of our umbrella policy in supplementing the coverages afforded by our other policies (where appropriate), etc.
After the review is completed, we would request that you prepare a detailed letter in which you give us advice and suggestions on changing our insurance portofolio to make absolutely certain – from an insurance point of view – that all of the TLC Companies' interests and assets are properly and adequately protected.
The TLC official then arranged a conference call between a TLC executive and Aon for February 13, 1998. A TLC fax ...