In its recent decision in Canal Indem. Co. v. Rapid Logistics, 2013 U.S. App. LEXIS 3772 (5th Cir. Feb. 22, 2013), the United States Court of Appeals for the Fifth Circuit, applying Texas law, had occasion to consider whether a trucking liability policy provided coverage for an underlying lawsuit brought by an injured independent contractor.
Canal Insurance Company insured Rapid Logistics, a motor carrier company, under an auto policy satisfying Rapid Logistic’s public liability requirements. Rapid Logistics contracted with an individual named Oralia Sanchez to use Ms. Sanchez’s truck for delivery certain goods. Ms. Sanchez, in turn, hired Rafael Olivas to operate the truck. While operating the vehicle pursuant to the Rapid Logistic’s contract, Mr. Olivas was involved in an accident causing him to sustain various injuries. Mr. Olivas later brought suit against Ms. Sanchez and Rapid Logistics. Canal denied coverage to Rapid Logistics on the basis that Mr. Olivas, technically, was an insured of Rapid Logistics. The United States District Court for the Southern District of Texas agreed, and ruled in favor of Canal on summary judgment.
The district court’s ruling was based on an exclusion in the Canal policy applicable to bodily injury to an “’employee' of the 'insured' arising out of and in the course of: (1) Employment by the 'insured;' or (2) Performing the duties related to the conduct of the 'insured's' business . . . .” Relying on the federal Transportation Code’s definition of “employee,” set forth in 49 C.F.R. § 390.5, the lower court concluded that Mr. Olivas was an employee, since the term is defined to include independent contractors. On appeal, Rapid Logistics argued that the district court erred by looking to the Transportation Code’s definition of employee rather than the definition in the Canal policy, which defined “employee” to include leased workers and exclude temporary workers.
The court noted that in a prior decision, it had relied on the definition of employee in 49 C.F.R. § 390.5 for the purposes of determining coverage under a similar policy. Consumers Cnty. Mut. Ins. v. P.W. & Sons Trucking, 307 F.3d 362, 366 (5th Cir. 2002). It nevertheless concluded that it need not even reach this issue in determining Rapid Logistic’s right to coverage, since the Canal policy provided coverage for “Anyone else while using with your permission a covered 'auto' you own, hire or borrow except: (1) The owner, or any 'employee,' agent or driver of the owner, or anyone else from whom you hire or borrow a covered 'auto.'” The court reasoned that the exception in this grant to coverage precluded coverage for Mr. Olivas’ suit, explaining that:
Here, Rapid Logistics admits that Sanchez owned the truck that it had hired and that Olivas was Sanchez's employee driver. Accordingly, on its face, this provision applies to exclude coverage for Olivas. Here, Rapid Logistics' version of the facts shows that the policy does not provide coverage for Olivas. Accordingly, under either the provisions of the code or the policy, Canal did not have a duty to defend.