Eighth Circuit Clarifies Equitable Remedies In Bobtail vs. Motor Carrier Coverage Case.

The Eighth Circuit Court of Appeals recently clarified the application of judicial estoppel in coverage cases.  The court held a party must actually “adopt” a prior inconsistent position for the doctrine to apply.  Occidental Fire & Cas. Co. v. Soczynski, — F.3d —, 13-2679 (8th Cir. Sept. 2, 2014), involved a coverage dispute between plaintiff and a bobtail (non-trucking use liability) insurer.  In March 2009, Thomas Hipp was driving his semi-tractor and trailer in Minnesota.  His trailer contained personal equipment he purchased to make his truck more marketable.  He was not a carrying a commercial load as a federal motor carrier.  On a gradual curve, his trailer crossed the center line and caused a fatal collision.

Hipp’s tractor and trailer, were insured under two separate policies: a non-trucking use “bobtail policy” and a motor carrier policy for commercial loads.  Hipp had been hauling cargo exclusively for ATS for several years and had a continuous lease agreement with ATS, a federally licensed motor carrier, at the time of the accident.  Great West Insurance issued a policy to ATS.  The Great West policy provided coverage for commercial loads as a motor carrier, but excluded coverage for bobtail and non-ATS use.

The second policy was issued by Occidental Fire & Casualty (“Occidental”).  The policy was a non-trucking “bobtail” policy which covered non-commercial operations.  The bobtail and motor carrier policies were drafted to be mutually exclusive: in any given accident, only one policy could afford coverage.

After the accident, the wrongful death trustee brought a suit against Hipp and ATS, alleging alternative theories that Hipp was acting both under permission and authority of ATS (to trigger the Great West policy), and that Hipp was acting independently of ATS (to trigger the Occidental policy).

Adam demanded the policy limits from both insurers.  Occidental refused, Great West tendered its policy limits of $1 million, even though it was undisputed Hipp was not hauling a commercial load for ATS at the time of the accident.

An arbitrator determined Adam’s damages were $2.75 million, judgment against Hipp was entered for $1.75 million (the award less Great West’s limits).

Occidental filed a declaratory judgment action, claiming that Hipp was operating on behalf of ATS at the time of the accident (precluding “bobtail” coverage).  Further, Occidental argued the trustee was judicially estopped from arguing Occidental’s policy afforded coverage because it had already recovered the Great West limits under an inconsistent theory.

The district court granted.  It determined the trustee was not judicially estopped, despite having recovered the Great West limit.

The Eighth Circuit affirmed, and held the district court did not err in declining to apply judicial estoppel.  The Eight Circuit reasoned the judicial estoppel applied only if Adam actually “prevailed” on the merits of his inconsistent theory.  Because Great West maintained its denial of liability, but settled as “a business decision … despite its available defenses,” Adam did not “prevail” on the inconsistent theory that Hipp was acting on behalf of ATS.  Because the Court never “adopted” Adam’s inconsistent theory, judicial estoppel did not preclude him from asserting a contrary position in federal court.

The Court also found Occidental’s bobtail policy clearly afforded coverage for the accident. Hipp was on a personal errand, not hauling a load on behalf of ATS, and ATS was not paying Hipp for the use of his truck at the time of the accident.  Because Hipp was not acting “for or on behalf of” ATC at the time of accident, Occidental’s bobtail policy applied.

Last, the Court agreed the bobtail policy’s limits were $1 million, not $500,000.  Occidental admitted the inconsistency in the policy but contended the affording an additional $500,000 is “beyond the reasonable expectations of the insured.”  It noted a letter from the trustee’s attorney stating the limits were $500,000.  The court found the letter to be irrelevant, because it was not directly from the insured.

This case is significant for several reasons.  First, the Eighth Circuit clarified the limits of judicial estoppel.  It is a difficult to prove and applies only when a court actually “adopts” an inconsistent position.  Next, the case explains the mutually exclusive nature of “bobtail vs. motor carrier” insurance on tractor trailers.  It is hard to imagine a circumstance where both policies could afford coverage for the same accident, unless, as here, an insurer fails to institute a coverage action.  The cases raises the issue of whether the motor carrier insurer might have brought a better coverage action before settling.

We will continue to monitor this and other decisions impacting insurance coverage.  If you have any questions about this, or any other matter, please contact Bob Kuderer, Matt Johnson, or Tom Brock.