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REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 1591 September Term, 1996 (On reconsideration) ______________________________

EMPIRE FIRE AND MARINE INSURANCE COMPANY

v.

LIBERTY MUTUAL INSURANCE COMPANY ______________________________ Wenner, Harrell, Bishop, John J. (retired, specially assigned), JJ. ________________________________

Opinion by Harrell, J. ________________________________ Filed: September 3,1997

This case was decided initially by the Court on 26 June 1997. Both parties filed motions for reconsideration. part and deny in part those motions. We shall grant in

Such revisions to the

previously filed opinion, which has been recalled, necessary to effect those parts of the motions as we have granted are included in the following opinion. Those revisions do not change, however,

the decision on the merits of the issues; they reflect merely clarifications of our reasoning. Before us is yet another insurance coverage dispute stemming from an accident involving equipment leased to a carrier sanctioned by the former Interstate Commerce Commission. Empire Fire and

Marine Insurance Company (Empire) appeals from a judgment of the Circuit Court for Baltimore County in a declaratory judgment proceeding in which the court concluded that Empire was obligated, under a policy it issued to James Perry, Jr. d/b/a J.P.

Transportation to defend or indemnify for claims arising out of a motor tort case. Empire challenges the circuit court's conclusion

that a truck driven by Mr. Perry was not operating in the business of O.S.T. Trucking Co., Inc. (O.S.T.), to whom the covered vehicle was leased, thereby preventing the application of a "business use" exclusion contained in the policy Empire issued to Mr. Perry. In

addition, appellant claims that the court erred by not holding that appellee, Liberty Mutual Insurance Company (Liberty), was not obligated to provide coverage. Empire asserts that, based on a

permissive use clause contained in a policy Liberty issued to O.S.T., Liberty was obligated to provide coverage for the vehicle

leased to O.S.T. and being driven by Mr. Perry, the vehicle's owner. We agree with the circuit court's holding that, at the time of the accident, the truck was not being operated in the business of O.S.T.. Because the circuit court failed to consider whether

Liberty was obligated to provide coverage under its permissive use provision and because the record does not contain sufficient undisputed facts from which such a determination can be made, however, we must reverse the judgment of the circuit court and remand this case for further proceedings. In remanding this case,

we shall offer the trial court some guidance for determining whether the permissive use provision applies and in reconciling the potential dual coverage issues.

ISSUES In order to facilitate our analysis of the instant appeal, we have reordered and rephrased the questions presented by appellant as follows: I. Whether the Peterbuilt tractor driven by James Perry, Jr. was being used in the business of O.S.T. at the time of the accident. II. Whether Mr. Perry is an insured under a 2

permissive use provision contained in an insurance policy issued by Liberty to O.S.T. III. Whether Empire's policy furnishes primary liability. IV. Whether Liberty's policy furnishes primary liability. V. If both policies furnish primary liability, how should the two policies' "other insurance clauses" be reconciled.

FACTUAL BACKGROUND

In the proceedings before the circuit court, the parties submitted an agreed statement of fact and exhibits. excerpted the relevant portions of that statement below. James Perry, Jr. is the owner and operator of a 1986 Peterbuilt Tractor . . . . Mr. Perry owned the subject tractor in January 1995. Mr. Perry would haul trailers owned by other entities at the request of [O.S.T.]. Mr Perry did business under the trade name "J.P. Transportation". In January 1995, the subject tractor was under lease with [O.S.T.].[1] [O.S.T.] was in the business of hauling loads of freight . . . . As stated in the lease, Mr. Perry cannot pick up or deliver trailers for another entity without [O.S.T.'s] prior permission. [O.S.T.] is a licensed I.C.C. [Interstate Commerce Commission] carrier operating under an I.C.C. permit . . . . In January 1995, the subject tractor was operated with an adhesive I.C.C. We have

Mr. Perry and O.S.T. entered into the lease in question on 22 March 1994. The lease had a term of one year 3

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placard affixed, bearing the I.C.C. and D.O.T. [Department of Transportation] Permit Numbers assigned to [O.S.T.]. Mr. Perry was not employed by [O.S.T.], but was instead considered an independent trucker. [O.S.T.] did not withhold taxes or social security from payments made to Mr. Perry. With regard to scheduling trucking assignments, Mr. Perry contacts the [O.S.T.] dispatch office on a daily basis to obtain his next assignment. The arrangement is described by Mr. Perry as a "non-force dispatch," . . . [meaning that O.S.T] cannot force Mr. Perry to carry a load involuntarily. Mr. Perry is compensated for each trip by [O.S.T.] Trucking in accordance with a designated standard mileage rate. All repairs and maintenance to [Mr. Perry's] truck are the responsibility of Mr. Perry. Any needed repairs and maintenance to [Mr. Perry's] truck were arranged by Mr. Perry. Mr. Perry assumed the cost of all fuel, repairs and maintenance to his vehicle, and was not reimbursed for those expenses . . . . * * * The accident which is the subject of the underlying case occurred in the late afternoon on Friday, [20 January 1995]. Mr. Perry was last under dispatch by [O.S.T.] on Monday, [16 January 1995], when he was dispatched to take an empty trailer to Bayonne, New Jersey from Baltimore; and was instructed to bring back a load to Baltimore. On the return trip from Bayonne, New Jersey, Mr. Perry began experiencing mechanical problems with the tractor concerning a pressure plate (related to the transmission). The mechanical problem did not render the tractor inoperable. Mr. Perry returned to Baltimore on Monday evening, [16 January 1995] and delivered the full trailer to a warehouse 4

in Baltimore. After completing this dispatch which had been given by [O.S.T.], Mr. Perry took the tractor without any trailer attached for repairs. By Tuesday, [17 January 1995], Mr. Perry had taken the tractor to Chuck's Fleet Service on North Point Road in Baltimore for repair of the pressure plate. The tractor remained in the shop throughout Wednesday, Thursday and Friday, i.e., [18, 19, 20 January]. By the late afternoon hours on Friday, [20 January], the repairs had been completed; and Mr. Perry retrieved the tractor from Chuck's Fleet Service at approximately 4 or 5 p.m.. Mr. Perry paid for the repairs, and was not reimbursed by [O.S.T.]. Mr. Perry had spoken with the dispatch office of [O.S.T], and anticipated his next dispatch by [O.S.T.] to be on Monday, [23 January]. Approximately two weeks earlier, Mr. Perry had ordered parts from Beal's GMC Peterbuilt dealership located on Route 40 East. The Peterbuilt dealership is located in route between Chuck's Fleet Service and Mr. Perry's home. Beal's dealership is the only Peterbuilt dealership in Baltimore furnishing parts for Peterbuilt tractors such as the subject tractor. Mr. Perry recalls that the parts on order were related to a toolbox attached to the exterior of the subject tractor. The toolbox is approximately three feet long, and is located on the side frame of the tractor. The toolbox acts as a step upon which the driver enters and exists the trucking cab compartment, and can be used to store tools or other belongings. Mr. Perry believes that the parts on order were for a lock for the toolbox and possibly a hinge. After retrieving the tractor from Chuck's Fleet Service on Friday, [20 January], Mr. Perry drove into the Peterbuilt dealership, purchased the parts and drove out of the dealership onto Route 40. [O.S.T] did not reimburse Mr. Perry for these parts. The 5

accident that is the subject of the underlying case then occurred on Route 40. Mr. Perry was not en route to pick up or deliver a trailer at the time of the accident. Mr. Perry was not receiving any compensation by [O.S.T] from [17 January 1995 - Friday 20 January 1995]. At the time of the accident, Mr. Perry was on his way home. At the time of the accident, Mr. Perry was not operating under a bill of lading. The tractor was not under dispatch. Mr. Perry was not hauling a load, and the tractor was not connected to a trailer. Mr. Perry was bobtailing[2] when the accident occurred. (Operating a tractor unattached to a trailer is commonly referred to as "bobtailing"). Mr. Perry was "off-duty" [17 January through 20 January 1995, inclusive], the day of the accident. Mr. Perry did not believe that he was within the control of [O.S.T.] at the time of the accident, nor operating the tractor pursuant to [O.S.T.] instructions. (Footnote omitted).

THE PERRY/O.S.T. LEASE

On 22 March 1994, Mr. Perry and O.S.T. entered into a one-year

Bobtailing refers to the operation of a tractor without an attached trailer. See, e.g., Hartford Ins. Co. v. Occidental Fire & Cas. Co., 908 F.2d 235, 236 n.2 (7th Cir. 1990); Nationwide Mut. Ins. Co. v. Holbrooks, 187 Ga. App. 706, 371 S.E.2d 252, 255 (1988); St. Paul Fire & Marine Ins. Co. v. Frankart, 69 Ill. 2d 209, 13 Ill. Dec. 31, 370 N.E.2d 1058 (1977); National Indem. Co. v. Ness, 457 N.W.2d 755, 757 (Minn. App. 1990); Blackmer v. Travelers Indem. Co., 110 Misc. 2d 704, 705, 442 N.Y.S. 2d 923, 925 (Sup. 1981); Reeves v. B. & P. Motor Lines, Inc., 82 N.C. App. 562, 346 S.E.2d 673, 675 (1986); Midwestern Indem. Co. v. Reliance Ins. Co., 44 Ohio App. 3d 83, 541 N.E.2d 478, 481-82 (1988), appeal dismissed, 43 Ohio St. 3d 610, 539 N.E.2d 628 (1989). For the uninitiated, "bobtailing" should not be confused with "deadheading" which refers to the operation of a tractor-trailer when the trailer is empty. See Central Nat'l Ins. Co. v. Liberty Mutual Ins. Co., 685 F. Supp. 123, 126 (D.S.C. 1988); Frankart, supra; Grimes v. Nationwide Mut. Ins. Co., 705 S.W.2d 926, 928 (Ky. App. 1985); Ness, supra. 6

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written motor vehicle lease and agreement. following terms:

The lease included the

. . . O.S.T. shall adhere to and perform said provisions and Independent [Mr. Perry] will operate the Equipment as the business of O.S.T. may require, and perform such other services herein stated for and in behalf of O.S.T., subject to the following terms and conditions. * * * 3. INSURANCE. O.S.T. shall maintain insurance for the protection of the public as required by the Interstate Commerce Commission while Independent is operating in the business of O.S.T., except Independent agrees to pay $500.00 for damage to property, caused by accident arising out of the use of said tractor in the business of O.S.T, which O.S.T. is obligated to pay any third person. During the term of this agreement, the Independent agrees to provide and maintain, at his sole expense, with O.S.T. as an additional named insured, public liability and property damage insurance . . . covering bodily injury, sickness or disease, including death, and damages to property, caused by accident and arising out of the use of said tractor when not being used in the business of O.S.T., as for example, when the tractor is not pulling a trailer or container/chassis for O.S.T., including so-called "bob-tail" insurance. 4. MAINTENANCE. Independent warrants that said tractor, including all additions, accessories, and equipment, are in good safe operating and mechanical condition; and in such condition as to comply with all rules and regulations of the Department of Transportation and with applicable statutes and administrative agency rules of any State in effect where such vehicle is operated; and Independent agrees to keep said tractor in such condition at his own expense for the duration of this lease. 7

* * * 8. USE OF LEASED EQUIPMENT. As required by [ICC] regulations during the term of this lease, said tractor shall be used exclusively by O.S.T. and for no other person, firm or corporation, when engaged in the transportation of freight, and no freight will be transported by means of said tractor without the knowledge and consent of O.S.T.. Independent will be entitled to no payment from O.S.T. for any transportation rendered unless the conditions of this paragraph are strictly observed by Independent. * * * 14. RESPONSIBILITY TO PUBLIC AND REGULATORY AGENCIES: . . . Independent agrees to comply fully with all applicable federal and state laws, rules, regulations and orders as well as all O.S.T. procedures . . . respecting the operation, inspection and maintenance of vehicular equipment hereunder . . . .

THE EMPIRE POLICY

Mr. Perry obtained a non-trucking use insurance policy from Empire that provided for bodily injury and property damage coverage of $100,000. Essentially, a non-trucking use, or "bobtail,"

insurance policy is intended to cover the insured when the vehicle is not being operating in the business of an I.C.C. carrier-lessee. The Empire policy contained the following provisions: * * * SECTION II - LIABILITY COVERAGE FOR NONTRUCKING USE

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A. COVERAGE * * * 1. WHO IS AN INSURED The following are "insureds": a. You for any covered "auto" b. Anyone else while using with your permission a covered "auto" you own, hire or borrow except: (1) The owner or anyone else from whom you hire or borrow a covered "auto." * * * B. EXCLUSIONS This insurance does not apply to any of the following: * * * 13. BUSINESS USE "Bodily injury" or "property damage" while a covered "auto" is used to carry property in any business or while a covered "auto" is used in the business of anyone to whom the "auto" is leased or rented. * * * SECTION IV - CONDITIONS * * * B. GENERAL CONDITIONS * * * 5. OTHER INSURANCE a. For any covered "auto" you own, this policy provides primary insurance. For any covered 9

"auto" you don't own, the insurance provided by this policy is excess over any other collectible insurance.

THE LIBERTY POLICY

O.S.T. obtained insurance through Liberty, which issued a business automobile insurance policy that furnished liability

coverage of $1,000,000 for covered "autos." contained the following pertinent provisions: * * * SECTION II - LIABILITY COVERAGE A. COVERAGE

Liberty's policy

We will 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." * * * 1. WHO IS AN INSURED The following are "insureds": a. You for any covered "auto": b. Anyone else while using with your permission a covered "auto" you own, hire or borrow except: (1) The owner or anyone else from whom you hire or borrow a covered "private passenger type auto". * * * 10

d. The owner or anyone else from whom you hire or borrow a covered "auto" that is not a "trailer" while the covered "auto": (1) is being used exclusively in your business as a "trucker"; and (2) is being used pursuant to operating rights granted to you by a public authority. * * * SECTION V - TRUCKERS CONDITIONS * * * B. GENERAL CONDITIONS * * * 5. OTHER INSURANCE INSURANCE PROVISIONS PRIMARY AND EXCESS

* * * a. This Coverage Form's Liability Coverage is primary for any covered "auto" while hired or borrowed by you and used exclusively in your business as a "trucker" and pursuant to operating rights granted to you by a public authority. This Coverage Form's Liability Coverage is excess over any other collectible insurance for any covered "auto" while hired or borrowed from you by another "trucker" . . . . f. When this Coverage Form and any other Coverage Form or policy covers on the same basis, either excess or primary, we will pay only our share. Our share is the proportion that the Limit of Insurance of Our Coverage Form bears to the total of the limits of all the Coverage Forms and policies covering on the same basis * * * SECTION VI - DEFINITIONS 11

* * * N. "Trucker" means any person or organization engaged in the business of transporting property by "auto" for hire. In addition, Liberty's policy had an MCS-90 Endorsement3 attached to it, stating in relevant part: In consideration of the premium stated in the policy to which this endorsement is attached, the insurer . . . agrees to pay, within the limits of liability described herein, any final judgment recovered against the insured for public liability resulting from negligence in the operation, maintenance, or use of motor vehicles subject to the financial responsibility requirements of Sections 29 and 30 of the Motor Carrier Act of 1980 regardless of whether or not each motor vehicle is specifically described in the policy and whether or not such negligence occurs on any route or in any territory authorized to be served by the insured or elsewhere. Such insurance as is afforded for public liability does not apply to injury to or death of the insured's employees while engaged in the course of their employment, or property transported by the insured, designated as cargo. It is understood and agreed that no condition, provision, stipulation, or limitation contained in the policy, this endorsement thereon, or violation thereof, shall relieve the Company from liability or from the payment of any final judgment, within the limits of liability herein deserved, irrespective of the financial condition, insolvency or bankruptcy of the insured. However, all terms, conditions, and limitations in the policy to which this endorsement is attached shall remain in full force and effect as binding between the insured and the company. The

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The MCS-90 Endorsement is explained in greater detail, infra, at 17-18. 12

insured agrees to reimburse the company for any payment made by the company on account of any accident claim, or suit involving a breach of the terms of the policy, and for any payment that the company would not have been obligated to make under the provisions of the policy except for the agreement contained in this endorsement. * * * This insurance is primary and the company shall not be liable for amounts in excess of $1,000,000.00 for each accident . . . .

PROCEDURAL HISTORY

This litigation involves two actions: 1) the underlying action by the injured party against the lessor, lessee, and driver; and 2) a second action for declaratory judgment between the insurers to determine which insurer is financially responsible for the loss. The issues presented by this appeal stem from the latter action. On approximately 24 January 1996, Patrick Lauer filed suit in the Circuit Court for Baltimore County seeking recovery for injuries he allegedly sustained in the 20 January 1995 accident with Mr. Perry's truck. In his pleadings, Mr. Lauer named, inter alia, Mr. A coverage

Perry, J.P. Transportation, and O.S.T. as defendants.

dispute arose between Liberty and Empire, the companies that issued policies to O.S.T. and Mr. Perry, respectively. Consequently, on

6 March 1996, Empire filed a declaratory judgment action in the Circuit Court for Baltimore County seeking a declaration that, 13

under the nontrucking policy it issued to Mr. Perry, either (1) it was not obligated to defend or indemnify for claims asserted in the suit filed by Mr. Lauer; (2) if its policy did provide coverage, that it was excess to the Liberty policy; or (3) if the Empire and Liberty policies both provided primary coverage, that Liberty reimburse Empire for its pro-rated share of defense costs and any indemnity to be furnished. Pending the outcome of the declaratory

judgment action, Empire agreed to provide a defense to the named defendants. The insurers filed cross-motions for summary judgment. After

a hearing conducted on 14 August 1996, the court issued a "Ruling on Cross Motions for Summary Judgment" docketed on 22 August. The

court held that Empire's non-trucking policy was the sole policy that afforded coverage in the underlying motor tort action. holding, the court reasoned as follows: At the time of the accident, the tractor was not being used "in the business of" O.S.T. Perry was not operating the tractor in the business of O.S.T. because: Perry was not under dispatch at the time of the accident, and had not been for four days; Perry's next dispatch was not until three days later; Perry was not hauling a load for O.S.T., and the accident occurred when Perry was on his way home for [sic.] purchasing some minor parts for the tractor's toolbox which he had ordered two weeks previously. A timely notice of appeal followed. In so

ANALYSIS 14

I.

We begin our analysis by attempting to understand and explain the labyrinth of applicable federal regulations governing the interstate trucking industry applicable to this case. Pursuant to

the ICC Termination Act of 1995,4 the existence of the Interstate Commerce Commission (I.C.C.) ended effective 1 January 1996.

Section 204(c) of the Act provides that suits commenced before its enactment were subject to the law in effect prior to the sunset of the I.C.C. Unfortunately, the statute does not address causes of

action, such as that encompassed by the instant litigation, which accrued prior to the Act's enactment but for which suit was not filed until after its enactment. Notwithstanding this hole in the

regulatory fabric, pursuant to a savings provision contained in Section 204 of the Termination Act,5 the rules and regulations

The ICC Termination Act of 1995 abolished the Interstate Commerce Commission and established the Surface Transportation Board within the Department of Transportation. Pub. Law 104-88, 109 Stat. 803, 29 December 1995. See 49 U.S.C.

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