804 F.2d 983 | 7th Cir. | 1986
Lead Opinion
The appellant, Occidental Fire and Casualty Company of North Carolina (“Occidental”), sued the appellee, International Insurance Company (“International”) seeking a declaratory judgment that International’s insurance policy provided primary coverage under a truck liability policy for a truck accident. The district court held that Occidental’s policy provided primary coverage. Occidental appeals. We affirm.
On August 29, 1980, Broviak Trucking Company (“Broviak”) leased a truck tractor and trailer to Beelman Trucking Company (“Beelman”). The lease provided that Broviak would provide Beelman with one of its employees to drive the leased truck. The lease specifically provided that pursuant to the Interstate Commerce Commission (“ICC”) regulations, Beelman would “assume full common carrier responsibility ... for the operation of such vehicle.” The lease also provided that Broviak would “indemnify Lessee against ... any loss or damage resulting from the negligence, incompetence or dishonesty of such driver(s).”
On September 25, 1980, while en route to pick up a load of coal at the Ziegler Coal Company in Illinois, Broviak’s employee, John Hauk, was involved in an accident with a van driven by Ralph Stork who was fatally injured in the accident. Ralph Stork’s wife brought a wrongful death action in Illinois state trial court against Broviak, its driver Hauk, Beelman, and Ziegler Coal Company. On March 9,1983, the parties agreed to settle the action for $175,-000. Occidental, the insurer for Broviak, agreed to pay one-third of the settlement or $43,366 and International, the insurer for Beelman, agreed to pay two-thirds of the settlement or $86,732.
After the insurance companies and Stork’s estate had settled the wrongful death claim, Occidental brought this declaratory judgment action in federal district court seeking a determination of whether International’s policy or Occidental’s policy provided primary coverage. The district court found that the indemnity agreement in the lease between Broviak and Beelman shifted the “ultimate legal obligation” to Broviak. The court held that since ultimate responsibility for the accident rested with Broviak, Occidental’s policy provided primary coverage.
On appeal, Occidental raises the following issues: (1) whether the Illinois ICC endorsement contained in International’s policy assigns primary coverage for the accident to International as a matter of law; and (2) if the ICC endorsement does not impose liability as a matter of law, whether primary coverage for the accident is imposed upon International by the express terms of its policy language.
II
ICC Regulations
The Interstate Commerce Commission regulations state that any trucking equipment lease shall provide that the lessee assume “complete responsibility for the operation of the equipment for the duration of the lease.” 49 C.F.R. sec. 1057.12(d)(1). Pursuant to this regulation, the truck rental lease between Broviak and Beelman provided that Beelman, as lessee, would assume “complete responsibility ... for the operation of [the] vehicle.” Further, International’s policy contained an Illinois ICC endorsement stating that the company agreed to pay any final judgment rendered against the insured “resulting from the operation, maintenance or use of motor vehicles by virtue of a certificate of public convenience and necessity or permit issued to the insured by the Illinois Commerce Commission____” The ICC endorsement also stated that “no condition, provision, stipulation, or limitation contained in the policy ... shall relieve the company from liability hereunder or from the payment of any such final judgment____”
Occidental contends that since Beelman was an ICC authorized carrier and International’s policy contained the ICC endorsement stating that it would pay for any liability incurred by its insured, Inter
“The purpose of the federal statute and regulations is to ensure that an ICC carrier has independent financial responsibility to pay for losses sustained by the general public arising out of its trucking operations. However, once it is clear that there are sufficient funds available to safeguard the public, the inquiry changes: ‘[t]he pertinent question is whether the federal policy of assuring compensation for loss to the public prevents courts from examining the manner in which private agreements or state laws would otherwise allocate the ultimate financial burden of the injury.’ ”
Travelers Insurance Company v. Transport Insurance Company, 787 F.2d 1133, 1140 (7th Cir.1986) (quoting Carolina Casualty Insurance Co. of North America, 595 F.2d 128, 138 (3d Cir.1979) (emphasis added). Since there is no question that the member of the public who was injured in the accident has been duly compensated, we reject Occidental’s argument that the ICC endorsement contained in the lease and in International’s policy renders International primarily liable for coverage of the accident as a matter of law. Pursuant to our recent decision in Travelers Insurance Company, supra, we examine the contract language and the applicable state law governing liability to determine which insurance company provides primary coverage.
The Policy Language
Occidental next contends that the language in the respective insurance contracts of Occidental and International clearly state that International is to provide primary coverage for the accident while Occidental is to provide excess coverage only. Occidental’s policy states:
“I. COVERAGE A — BODILY INJURY LIABILITY — COVERAGE B — PROPERTY DAMAGE LIABILITY:
The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages ____
*987 III. PERSONS INSURED: Each of the following is an insured under this insurance to the extent set forth below:
(a) the named insured;
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(c) any other person while using an owned automobile or a temporary substitute automobile with the permission of the named insured, provided his actual operation or (if he is not operating) his other actual use thereof is within the scope of such permission, but with respect to bodily injury or property damage arising out of the loading or unloading thereof, such other person shall be an insured only if he is:
(1) a lessee or borrower of the automobile, or
(2) an employee of the named insured or of such lessee or borrower;”
Incorporated within this policy is an addendum to the insurance contract referred to as the “truckmen’s endorsement” that provides:
“It is agreed that the insurance applies with respect to the automobile described herein [truck and trailer provided by Broviak] or designated in the policy as subject to this endorsement, subject to the following additional provisions:
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(d) With respect to (1) any automobile of the commercial type while leased or loaned to any person or organization, other than the named insured, engaged in the business of transporting property by automobile for others, or (2) any hired private passenger automobile, or (3) any non-owned automobile, the insurance under this endorsement shall be excess insurance over any other valid and collectible insurance, whether primary, excess or contingent, available to the insured. Otherwise, the insurance under this endorsement is primary insurance.”
Occidental asserts that since Broviak leased its truck to Beelman and the truck was “engaged in the business of transporting property by automobile” for Beelman, the truckmen’s endorsement specifically provides that Occidental’s policy will provide excess coverage only. International’s policy, on the other hand, states:
“A. WE WILL PAY.
1. We will pay all sums the 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.
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D. WHO IS INSURED.
1. You are an insured for any covered auto.
2. Anyone else is an insured while using with your permission a covered auto you own, hire or borrow ...
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4. The owner or anyone else from whom you hire or borrow a covered auto is an insured while the covered auto:
a. Is being used exclusively in your business, and
b. Is being used over a route or territory you are authorized to serve by public authority or on its way to that route at your request.
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PART VII — CONDITIONS B. OTHER INSURANCE — PRIMARY AND EXCESS INSURANCE PROVISIONS.
1. This policy’s liability coverage is primary for any covered auto while hired or borrowed by you and used exclusively in your business and over a route or territory, if any, you are authorized to serve by public authority. This policy’s liability coverage is excess over any other collectible insurance for any covered auto while hired or borrowed from you by another trucker.”
Occidental argues that since Beelman was using Broviak’s truck in Beelman’s busi
The district court found that as a matter of law Occidental provided primary coverage since according to the terms of the lease agreement between Broviak and Beelman, Broviak agreed to indemnify Beelman for any damages caused by the negligence of Broviak’s driver, and thus Occidental, as the insurer for Broviak, provided primary coverage. In rendering this ruling, the court stated:
“Plaintiff proposes that the responsibility to the public on the part of the defendant’s insured, who was operating a leased vehicle as a common carrier under the authority of the Interstate Commerce Commission, cannot be shifted to the lessor of the vehicle by means of a contract of indemnity. This position was expressly rejected by the United States Supreme Court in Trans-American Freight Lines, Inc. v. Brada-Miller Freight Systems, Inc., 423 U.S. 28 [96 S.Ct. 229, 46 L.Ed.2d 169] (1975). The court concluded that since ultimate legal responsibility to assume liability for damages resulting from the accident rested upon Broviak’s insurer, ‘it is clear that plaintiff, as insurer of the lessor of the vehicle, is most definitely the primary insurer in this case.’ ”
District court order at 4. Occidental argues that the Brada-Miller case relied upon by the district court is not applicable since the issue in Brada-Miller was whether an indemnity agreement between a lessor and lessee shifting liability from the lessee to the lessor contravened the ICC regulations that the lessee assume complete responsibility for the operation of the equipment during the term of the lease in contrast to this case which concerns the effect of the lease on primary coverage. Occidental correctly notes that while the Supreme Court approved of an indemnity agreement between the lessor and lessee concerning the transfer of liability to the lessor, they failed to discuss the effect of an agreement of this nature on the contractual obligations of the lessee and lessor’s insurance companies. Occidental argues that it cannot be bound by the lease agreement since the lease was not part of nor incorporated in either insurance contract and the Occidental policy excludes liability assumed by the insured under contract or agreement.
Our review of the record reveals that Occidental’s attorney failed to raise the argument that the lease agreement could not be considered as evidence shifting the primary responsibility for coverage to Occidental, and it is “axiomatic that arguments not raised [before the district court] ... are waived on appeal.” Liberty-ville Datsun Sales, Inc. v. Nissan Motor Corp., 776 F.2d 735, 737 (7th Cir.1985). See also United States v. Griffin, 782 F.2d 1393, 1398 (7th Cir.1986); Erffv. MarkHon Industries, Inc., 781 F.2d 613, 618 (7th Cir.1986). The date this case was scheduled to go to trial, November 5, 1984, Occidental filed a trial brief with the court arguing that the ICC regulations required that the lessee, Beelman, be held primarily responsible for the accident. In the alternative, Occidental argued that its insurance policy explicitly provided that Occidental’s coverage for the accident was limited to excess coverage only while International’s policy provided that International’s coverage was primary. On November 5, 1984, the court entered a minute order stating that “cause called for civil non-jury trial. Defendant] to respond to plaintiff’s [trial brief] on or before 11-15-84. [Plaintiff’s attorney] to reply on or before 11-20-84. The court will attempt to decide the issues on the briefs. If argument is needed attys [attorneys] will be notified.” International filed its brief on November 15, 1984, arguing, in part, that the indemnification agreement between Broviak and Beelman shifted the responsibility for the accident to Broviak and thus Broviak’s insurer, Occidental, provided primary coverage for the accident.
Further, even if we would deem that Occidental did not waive the argument that the court improperly relied on the lease agreement in shifting liability to Occidental, our review of the district court’s opinion reveals that the judge did not rely exclusively on the lease agreement between Broviak and Beelman in finding that Occidental provided primary coverage for the accident. The court also noted that its determination that Occidental provided primary coverage was “consistent with this court’s ruling in ‘Riddle v. Trans-Cold Express, Inc., 530 F.Supp. 186 (S.D.Ill.1982), as well as several other cases from other jurisdictions. Auto-Owners (Mutual) Insurance Company v. Midwest Emery Freight Systems, 470 F.Supp. 790 (E.D.Ill.1979); Wheeler v. Ellison, 124 Ill.App.3d 852, 79 Ill.Dec. 953, 464 N.E.2d 857 (2d Dist.1984).’ ” District court order at 3-4. In Wheeler, an Illinois Appellate Court determined that the lessor of a tractor trailer could not maintain a third-party action against the lessee for indemnity and contribution since its driver’s negligence caused the accident. In citing the Wheeler decision, the district court implied that since Broviak’s driver caused the accident, Broviak was liable for the damages and thus its insurance company, Occidental, provided the primary coverage.
Furthermore, the policy’s exclusion of contractually assumed liabilities (quoted at n. 2 above) on which Occidental relies in arguing that the lease agreement between Broviak and Beelman does not bind it was clearly superseded by provision (d) of the “truckmen’s endorsement” which provides insurance for “any automobile of the commercial type while leased or loaned to any person or organization ... engaged in the business of transporting property by automobile for others____” (Emphasis added). Occidental concedes that “[its] printed policy provisions were altered by the addition of a truckmen’s endorsement. The provisions of an endorsement control the basic policy provisions in the policy.” (Brief at 7). The truckmen’s endorsement agreed to by Occidental and Broviak specifically contemplates that Broviak might lease the insured vehicle to another commercial enterprise. It is unbelievable that Occidental and Broviak did not contemplate insurance for liabilities created by and through the leasing arrangements contemplated by the “truckmen’s endorsement.” Section 111(c)(2) of the insurance contract provides that “an employee of the named insured” is an “insured” for purposes of the insurance contract and when read together with the truckmen’s endorsement, extends the coverage of the insurance contract to damages caused by employees loaned pursuant to a lease. Thus, reading the contract in its entirety, Occidental promised to “pay on behalf of [Broviak] all sums which [Broviak] shall become legally obligated to pay ... because of bodily injury ... arising out of the ... use [of the tractor],” (sec. I), including those sums arising out of use by “an employee of [Broviak],” (sec. 111(c)(2)), “while leased ... to any person or organization ... engaged in the business of transporting property by automobile for others____” (Truckmen’s endorsement, sec. (d)).
Since the language of the insurance contract imposes primary liability on Occidental, and Occidental, in failing to raise the issue in the district court, waived any
In this case, both insurance policies provide that the insurance companies will pay the damages that the trucking companies became “legally” obligated to pay. The accident in this case was caused by Broviak’s employee, Hauk.
“We agree that under the common law of this State indemnity could not operate*992 unless the third-party claimant were found liable to the original plaintiff and compelled to pay a judgment, (see 21 Ill.L. & Prac. Indemnity sec. 43 (West 1977)). From this perspective it is imprecise to regard San-Dee’s loaned-servant allegation as an indemnity claim where it would have been a complete defense to its liability had San-Dee raised it successfully in the original lawsuit. The loaned-servant doctrine is not basically a theory of indemnity, but rather expresses the maxim of agency law that an agent of one master may be loaned to another and become the servant of the second master rather than the first for the special purposes for which he is loaned. (See Richard v. Illinois Bell Telephone Co. (1978), 66 Ill.App.3d 825, 832, 23 Ill.Dec. 215, 383 N.E.2d 1242, 53 Am.Jr.2d Master and Servant sec. 415 (1970); Restatement (Second) of Agency sec. 227 (1958)). The only parallel between this doctrine and the indemnity or contribution is that to the extent that a loaned servant is the agent of the second principal he is not the agent of the first.”
Id. (emphasis added). The Illinois Supreme Court noted, however, that while San-Dee’s loaned-servant allegations in a third-party complaint are “logically confusing” it would allow the action to proceed since Brookshire was put on notice as to the nature of San-Dee’s claim and that if in fact Ayala was a loaned employee, Brook-shire would be the party completely responsible for the damages. Id.
In Richard v. Illinois Bell Telephone Co., 66 Ill.App.3d 825, 23 Ill.Dec. 215, 383 N.E.2d 1242 (1978), a case cited with approval by the Illinois Supreme Court in Heinrich, the Illinois Appellate Court described the analysis for determining if a secondary employer may be liable under the loaned-employee doctrine:
“With regard to the loaned servant question, it is clear that an employee in the general employment of one master may, with his consent, be loaned to another and become the employee of the master to whom he is loaned. In such a case, the second employer, not the first, would be liable for the employee’s negligence. (Ellis v. Dannen Grain and Milling Co. (7th Cir.1960), 275 F.2d 352; Merlo v. Public Service Co. (1942), 381 Ill. 300, 45 N.E.2d 665; 53 Am.Jr.2d Master and Servant § 415 (1970). Whether an employee sent by his general employer to another for the performance of special work becomes a loaned servant is usually a question of fact. (Gundich v. Emerson-Comstock Co. (1960), 21 Ill.2d 117, 171 N.E.2d 60; Merlo v. Public Service Co.) However, it is clear that an employee in the special service of a second employer cannot be considered a loaned servant unless he is wholly free from the control of the first employer and wholly subject to the control of the second employer. (Merlo v. Public Service Co.; Yankey v. Oscar Bohlin & Son, Inc. (1962), 37 Ill.App.2d 457, 186 N.E.2d 57; Murphy v. Lindahl (1960), 24 Ill.App.2d 461, 165 N.E.2d 340.) Further, it has been held that a person
*993 cannot become an employee of the second employer unless the second employer has the power to discharge or fire the employee. (Connolly v. People’s Gas Light and Coke Co. (1913), 260 Ill. 162, 102 N.E. 1057; Pioneer Fireproof Construction Co. v. Hansen (1898), 176 Ill. 100, 52 N.E. 17; Robinson v. McDougal-Hartmann Co. (1971), 133 Ill.App.2d 739, 272 N.E.2d 513; Emma v. Norris (1970), 130 Ill.App.2d 653, 264 N.E.2d 573.) And the fact that the employee obeys directions or signals given by the second employer in performing his special service does not make the employee a loaned servant. Standard Oil Co. v. Anderson (1909), 212 U.S. 215, 29 S.Ct. 252, 53 L.Ed. 480; Gundich v. Emerson-Comstock Co.; Yankey v. Oscar Bohlin & Son, Inc.”
25 Ill.Dec. at 222-23, 383 N.E.2d at 1249-50 (emphasis added).
In this case, legal responsibility for the negligent actions of Broviak’s driver, Hauk, would be attributable to Beelman only if Hauk were considered as a loaned employee. If he cannot be considered Beelman’s employee, then, as between Beelman and Broviak, Beelman is not legally responsible for Hauk’s actions, and if Beelman is not legally responsible then International, Beelman’s insurer, would not be responsible for the damages caused as a result of the negligence of Broviak’s employer.
The lease agreement between Broviak and Beelman provided that the lessor Broviak:
“(b) Agrees that during the term of this agreement the Lessor shall fully maintain, service and keep the vehicle(s) above described in good repair, provide all gas, oil, tires and other equipment necessary and pay driver(s) salary.
(c) Warrants (1) that driver(s) furnished with such motor vehicle(s) is (are) competent and qualified to operate said equipment,
(d) Agrees that the Lessee shall not be liable for any loss or damage to or destruction of said leased vehicle(s) while it is being operated by or is in the care and control of driver(s) furnished therewith.
* * * * # *
The compensation to be paid by Lessee to the Lessor for the lease of the vehicle(s) described herein shall be the sum of 75% of gross revenue shall constitute full and complete payment by*994 Lessee for all equipment and materials supplied, maintenance and operating expense, wages of driver(s), all taxes, insurance, including social security, workmen’s compensation and withholding tax.”
(Emphasis added). While the determination of whether an employee is a loaned servant is ordinarily a question of fact, Richard, 23 Ill.Dec. at 215, 383 N.E.2d at 1242, we believe the lease agreement sufficiently identifies Hauk as Broviak’s and not Beelman’s employee and thus further inquiry into the issue of which party had legal responsibility for the actions of Hauk is unnecessary. As detailed above, Broviak was responsible for paying the driver of the truck,
The decision of the district court is Affirmed.
. Occidental’s maximum coverage was $250,000 for each person per accident and International's maximum coverage was $500,000 for each person per accident. Thus, the division of damages between the two insurance companies was based upon the one-third, two-third percentage of total coverage under each policy. Each insurance carrier also reserved the right to seek a determination ascertaining whether Occidental’s or International’s policy provided primary coverage for the accident.
. Occidental's policy states:
"EXCLUSIONS: This insurance does not apply:
(a) To liability assumed by the insured under any contract or agreement____”
. The dissent concludes ‘‘[Broviak] may not bind Occidental without Occidental’s consent,” and that ‘‘[a]n insurer’s contractual obligations cannot ordinarily be altered by collateral agreements between its insured and third persons.” Because Occidental’s truckmen’s endorsement explicitly extends insurance coverage to liabilities resulting from use of the designated tractor during the lease period (i.e., Occidental clearly agreed to insure Broviak against liabilities arising from a contemplated lease), there is no ”alter[ation] by collateral agreement" of Occidental's contractual obligations. The dissent asserts that we quote selectively from the truck-men’s endorsement but points to no language in that endorsement that conflicts with our interpretation of its language. We are at a loss to understand how the dissent can reasonably purport to construe Occidental's insurance contract according to the intentions of the parties without referring to the lease from which Occidental’s liabilities under the truckmen’s endorsement arose. In Truck Ins. Exchange v. Liberty Mut. Ins. Co., 102 Ill.App.3d 24, 57 Ill.Dec. 503, 428 N.E.2d 1183, 1185 (1981), the court explained, "By its endorsements [the insurer] acknowledged that it was providing insurance pursuant to the lease. The respective policies, accompanying endorsements, and the lease so far as incorporated into the insurance contract, are construed together to determine the parties’ intention." The truckman's endorsement in Occidental’s policy contemplates that the insured might lease its trucks. We are convinced the indemnification clause contained in the lease agreement between Broviak and Beelman is not inconsistent with the truckman’s endorsement which itself extends Occidental’s coverage to vehicles Broviak leases out. Under the terms of the policy, whether the coverage Occidental provides on vehicles leased out is primary or excess in this case depends on Broviak’s liability for the accident. As we discuss infra, Occidental’s insured (Broviak) is legally responsible under Illinois law for the negligence of its driver occurring in the scope of the driver’s employment. Because Occidental’s insured is ultimately liable for the accident its employee caused, the terms of Occidental’s policy require Occidental to provide primary coverage.
. The settlement agreement of the Stork’s estate and Broviak and Beelman does not contain an admission of liability for the accident. However, the underlying assumption throughout this case has been that Broviak’s employee was negligent and caused the accident. Specifically, the district court relied on the indemnification agreement providing that liability could be shifted based upon the negligence of Broviak's driver. Occidental did not challenge this assumption before the district court, nor does it challenge here on appeal International’s characterization that Broviak’s driver was negligent in causing the accident.
. The dissent criticizes the majority for making this necessary inquiry into Hauk’s status under Illinois law, arguing that ‘‘[w]hile the majority may be correct that liability on the part of the insured is in general a prerequisite to an insur
. Justice Simon, the author of the opinion for the unanimous Illinois Supreme Court in Heinrich, further explained the Heinrich rationale in his dissent in Van Slambrock v. Economy Bailer Co., 105 Ill.2d 462, 86 Ill.Dec. 488, 475 N.E.2d 867 (1985) (Simon, J. dissenting) where he stated:
“Heinrich held that a loaned-servant allegation could not be the basis for an indemnity action because the original defendant and third-party defendant were not both liable to the plaintiff. The court’s decision in that case, which was that the loaned-servant doctrine does not set an indemnity theory, dealt with a requirement different from the one at issue in this case.”
Id. at 473, 86 Ill.Dec. 488, 475 N.E.2d 867 (emphasis added).
. The dissent argues that "on the issue of Beelman's liability the loaned servant doctrine must very likely yield to the Interstate Commerce Commission Regulations [and] [c]ertain provisions of the Interstate Commerce Act [which] demonstrate the understanding of Congress that lessee interstate carriers were to be liable for negligent operation of the motor vehicles that they used.” In Travelers Ins. Co. v. Transport Ins. Co., 787 F.2d 1133 (7th Cir.1986), this court wrote:
'The purpose of the [ICC] statute and regulations is to ensure that an ICC carrier has independent financial responsibility to pay for losses sustained by the general public arising out of its trucking operations. However, once it is clear that there are sufficient funds available to safeguard the public, the inquiry changes: ‘[t]he pertinent question is whether the federal policy of assuring compensation for loss to the public prevents courts from examining the manner in which private agreements or state laws would otherwise allocate the ultimate financial burden of the injury.”
Travelers Ins. Co., 787 F.2d at 1140 (J. Cudahy) (emphasis in original), quoting Carolina Cas. Ins. Co. v. Ins. Co. of North America, 595 F.2d 128, 138 (3d Cir.1979).
There are “sufficient funds available to safeguard the public” through the insurance policies of Occidental and International. In fact, the wife of Stork (the decedent in the wrongful death action brought against Broviak, Hauk, Beelman and the Ziegler Coal Co.) has already received a settlement of $175,000. We therefore reject as gratuitous the dissent's discussion of whether the loaned servant doctrine might be preempted by ICC regulations and the Interstate Commerce Act when "sufficient funds” are not "available” to the lessor who provides a negligent driver. See Carolina Cas. Ins. Co., supra, 595 F.2d at 138 n. 32 ("[A] court may give effect to otherwise existing allocations of financial responsibility where the goal of protecting the injured public has already been fulfilled____”); Transamerican Fr. Lines, 423 U.S. at 41, 96 S.Ct. at 235 (holding lessor liable for negligence may increase "operational safety” because "[t]he lessor, as a general rule, is the party more familiar with the equipment it leases and with the experience, ability and record of the driver it furnishes." (Emphasis added).
. The lease provided that payment of 75% of the revenues generated by the lease agreement would "constitute full and complete payment;” and thus since the lease does not provide sufficient revenue to cover expenses, including the driver’s salary, Broviak still would be responsible for the excess expenses, including the driver’s salary.
. Further, the lease was silent as to which party would have power to discharge the driver of the truck. However, one would think that if Broviak had the authority to select which driver was to operate the truck, it would also have the authority to replace that driver.
. On remand of the Heinrich case, the Illinois appellate court noted that San-Dee had a cause of action for contribution against Brookshire based upon the relative degree of control that each employer exercised over the employee. Heinrich v. Peabody Intern. Corp., 139 Ill.App.3d 289, 93 Ill.Dec. 544, 486 N.E.2d 1379, 1386 (1985). This reference to contribution, however, appears inconsistent with the Supreme Court’s decision in Heinrich that the loaned-servant doctrine is a complete defense to liability and the Illinois Supreme Court’s cite to Richard as setting forth the appropriate analysis for reviewing a claim based upon the Ioaned-servant doctrine. We do not have to determine if the appellate court’s decision in Heinrich is proper since we believe that Beelman, and thus International, should not have to contribute to the payment of damages as Beelman did not engage in any "culpable conduct which somehow contributed to” Stork's unfortunate death. Wheeler v. Ellison, 124 Ill.App.3d 852, 79 Ill.Dec. 953, 464 N.E.2d 857, 865 (1984).
. The dissent caustically and cavalierly refers to our analysis of whether Hauk is a "loaned employee” under Illinois law as "speculative and ultimately inadequate.” The very case on which the dissent relies in so asserting, American Stevedores Co. v. Industrial Commission, 408 Ill. 449, 97 N.E.2d 325 (1951), provides that "where the facts are not in dispute ... their effect may become a matter of law____ [Where] [t]he facts are not in dispute, ... the matter [is] open for the reviewing court to de
Dissenting Opinion
dissenting:
The case before us could hardly be simpler or more straightforward. International’s and Occidental’s policies are unambiguous and, somewhat surprisingly, perfectly consistent with each other.
Even absent the Occidental policy provisions that disclaim coverage of liability contractually assumed by the insured, Broviak’s agreement with Beelman could not alter Occidental’s liabilities under the policy. An insurer’s contractual obligations cannot ordinarily be altered by collateral agreements between its insured and third persons. Carolina Casualty Insurance Co. v. Underwriters Insurance Co., 569 F.2d 304, 313 (5th Cir.1978). An insurer's liability is governed by its contract with the insured, and it cannot be held to anything beyond that contractual duty. Transport Indemnity Co. v. Home Indemnity Co., 535 F.2d 232, 235 (3d Cir.1976); see Taylor v. Kinsella, 742 F.2d 709, 711-12 (2d Cir. 1984) (insurer not liable for coverage agreed to by insureds in lease agreement when lease agreement not incorporated into the policy); Occidental Fire & Casualty Co. v. Bankers & Shippers Insurance Co., 564 F.Supp. 1501, 1504 (W.D.Va.1983) (same); Insurance Co. of North America v. Continental Casualty Co., 431 F.Supp. 316, 320 n. 8 (E.D.Penn.1977), rev’d, 575 F.2d 1070 (3d Cir.1978). Of course, had Occidental’s policy explicitly provided coverage for liability contractually assumed by Broviak, then the provisions of the lease agreement would be relevant in determining whether the insurer was liable. See Pennsylvania Manufacturers’ Association Insurance Co. v. Lumbermens Mutu
In any event, the majority does not rely on the indemnification agreement but instead argues that Beelman had no underlying liability for the accident and, therefore, International cannot be liable under its insurance policy. This conclusion relies on arguments that are not before us and “facts” that have never been found. While the majority may be correct that liability on the part of the insured is, in general, a prerequisite to an insurer’s liability, and that the insurance coverage in this case extends only to sums that the insured is legally obligated to pay (a condition that we assume is found commonly in all policies of this type), the majority errs in making an independent determination of Beelman’s liability pursuant to the loaned servant doctrine.
The two insurers in this case jointly settled the underlying litigation without putting into question or deciding the liability of their respective insureds. The insurers reserved only the right to seek a determination of which policy provided primary coverage. This is totally different from the right to seek a determination that there was no risk for one of the policies to cover. Further, the parties did not raise, the district court did not address, nor has either party raised on appeal, the issue of Beelman’s liability under the loaned servant doctrine.
In this connection, the majority has decided that under Illinois law Hauk was not a loaned employee and therefore Beelman (and ultimately International) could not be responsible for his alleged negligence. I do not know if this is a correct interpretation of Illinois law (and we are without the facts to make such a determination here), but even if this interpretation were correct, on the issue of Beelman’s liability the loaned servant doctrine must very likely yield to the Interstate Commerce Commission regulations and the lease language pursuant to the regulations.
The ICC regulations require:
The lease shall 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.
49 C.F.R. § 1057.12(c)(1).
I agree with the majority that the ICC regulation and required lease language should not be controlling in this case on the issue of primary versus excess insurance coverage, see 787 F.2d at 1139-40, but these requirements of federal law are very likely controlling (and preemptive for that matter) as to any issue of Beelman’s underlying liability for damages sustained in connection with the operation of its leased trucks.
The majority’s reliance on the requirements of the loaned servant doctrine necessarily implies a finding that the accident was caused by Hauk’s negligence and that he was not a loaned servant while driving for Beelman. The majority is correct that Occidental did not challenge before the district court the assumption that Hauk was negligent nor does it challenge on appeal International’s characterization of him as negligent. However, the issue of Hauk’s negligence was not raised by the parties either before the district court or on appeal; hence, one can hardly take Occidental’s failure to argue that Hauk was not negligent as a concession of his negligence. International’s brief does in passing characterize Hauk as negligent, but International does not argue that he was negligent or that his being characterized as such has any importance. It is blatantly unfair to hold that a party has conceded a fact by failing to deny its truth when the fact was not in issue. It may be more than likely that Hauk was negligent, but it is not our role to make such factual findings. They are the business of the district court.
Similarly, as I have noted, the loaned servant issue has not been mentioned, let alone briefed, by the parties. Once again the majority intrudes upon the district court’s factfinding role by determining that Hauk was not a loaned servant on the basis of a grossly inadequate record — without even the benefit of the parties’ arguments. The majority’s conclusion is based on speculation, not the record.
The majority errs in concluding that the issue whether Hauk was a loaned servant may be decided, as a matter of law, solely on the basis of the lease agreement. The Illinois courts have held that the “essential criterion for determining the existence of a loaned servant relationship is that of control over the employee.” Holmes v. Saha
The majority makes some attempt to analyze these factors, but its analysis is necessarily speculative and ultimately inadequate. For example, it is true, as the majority points out, that under the agreement Broviak was responsible for paying the driver of the truck, but the mode of payment is only one of the factors to be considered and is not by itself decisive. In Mosley, cited by the majority, the employee was held to have been loaned out even though he was paid by his original employer. See American Stevedores Co. v. Industrial Commission, 408 Ill. 449, 97 N.E.2d 325 (1951); Highway Insurance Co. v. Sears Roebuck & Co., 92 Ill.App.2d 214, 235 N.E.2d 309 (1968).
The majority goes on to assert that “Broviak trained and provided the driver to operate the truck,” without telling us why this is relevant to the question whether Hauk was loaned out. If Broviak had not provided the driver, the question whether Hauk was a loaned-out employee would never have arisen. And one might assume that the original employer will usually have trained the employee (to the extent the employee has any training). In any case neither of these are among the factors considered by the Illinois courts in deciding whether the loaned servant doctrine applies.
The majority merely notes that, in accordance with ICC regulations, “the lease stated that the lessee was to have complete responsibility for the operation of the vehicle.” In my view, the purpose of the regulations and the lease language is to preclude avoidance of liability by a motor carrier operating under ICC authority. In the face of the regulations and lease language, it is very questionable that the loaned servant doctrine could be relied on to defeat liability. If it could, and Beelman’s underlying liability were really in issue (a position that I reject), the matter would have to be addressed by the district court on remand, and the requisite facts would have to be found.
As I have noted, it is both improper and unnecessary for us to determine Beelman’s liability for Hauk’s actions. Beelman’s liability may be assumed for purposes of this proceeding. The insurance policies themselves are explicit and definitive as to which insurance is primary and which excess. The policies on their face, as well as established law, make clear that the indemnification agreement does not affect the coverage of the policies. Hence, the indemnification agreement need not be considered at all.
Thus, for all these reasons, I believe International is primarily liable and I respectfully dissent.
. International argues that Hauk, the truck driver, borrowed the truck from Beelman, the common carrier, and thus its policy provides only excess coverage. This argument is patently frivolous. See Defendant's Brief at 10.
. Occidental’s policy provides:
With respect to (1) any automobile of the commercial type while leased or loaned to any person or organization, other than the named insured, engaged in the business of transporting property by automobile for others, or (2) any hired private passenger automobile, or (3) any non-owned automobile, the insurance under this endorsement shall be excess insurance over any other valid and collectible insurance, whether primary, excess or contingent, available to the insured. Otherwise, the insurance under this endorsement is primary insurance.
Under this policy, Occidental’s coverage would be primary on the present facts if International did not provide any "valid and collectible” insurance. International argues that because of the indemnity agreement, Beelman was never liable for the accident and hence International’s policy was not collectible. See Defendant’s Brief at 21-23. International, however, did provide valid, collectible insurance. The indemnity agreement does not relieve Beelman of liability to the victim of the accident; rather, it merely gives it a contractual right to seek reimbursement from Broviak. International may be subrogated to any rights Beelman has against Broviak under the indemnity agreement. See Defendant’s Brief at 13-14. It does not follow, however, that, because International may seek reimbursement from Broviak under the indemnity agreement, it may also seek reimbursement from Occidental under the indemnity agreement.
It might «liso be argued that International’s policy is not "collectible,” and thus Occidental’s coverage is primary, because International’s insured, Beelman, is not liable for the accident as a matter of tort law. Such an argument could follow from the majority’s finding under Illinois’ "loaned employee” doctrine that Broviak, and not Beelman, is legally responsible for the driver's actions. International, however, has never claimed that its insured is free of tort liability due to the loaned employee doctrine but instead relies solely on the indemnification agreement in its attempt to avoid liability. Even if the parties had raised the insured’s underlying tort liability as an issue here, as is discussed below the loaned employee doctrine would not have relieved International of liability given the Interstate Commerce Commission regulations and the lease language pursuant to those regulations. See infra pp. 997-98. Finally, it is far from obvious that the existence of tort liability on the part of the insured would be required for its insurance to be considered "valid and collectible.”
. International’s policy provides:
This policy’s liability coverage is primary for any covered auto while hired or borrowed by*996 you and used exclusively in your business and over a route or territory, if any, you are authorized to serve by public authority. This policy’s liability coverage is excess over any other collectible insurance for any covered auto while hired or borrowed from you by another trucker.
. See supra footnote 2.
. The majority argues that the policy’s exclusion of contractually assumed liabilities is superseded by provision (d) of the "truckmen’s endorsement.” The truckmen’s endorsement, from which the majority selectively quotes, provides excess insurance for automobiles while leased or loaned. The policy exclusion, on the other hand, provides that the insurance does not apply to liability assumed by the insured under any contract or agreement. Clearly, therefore, the truckmen’s endorsement does not conflict with, much less supersede, the exclusion.
The fundamental flaw in the majority’s reasoning is that it does not recognize the difference between liabilities created because an automobile is leased (for which excess insurance is provided by the truckmen’s endorsement) and liability created by a particular provision in the lease agreement (which is excluded from coverage). They are not the same thing. Broviak could have leased his truck to Beelman without including an indemnification clause in the lease agreement. While Occidental contemplated providing excess insurance for liablity that resulted merely because Broviak leased an automobile to Beelman, it did not contemplate providing insurance for any liability that Broviak voluntarily assumed in a specific provision of the lease. The "foreseeability" of an indemnity agreement is irrelevant. An insurer is not obliged to cover all "foreseeable" risks, especially when those risks are within the control of the insured. The policy informed Broviak that it would not cover liability created by an indemnification agreement. Broviak should have refrained from agreeing to that clause in the lease, or sought other insurance to cover the risk that he voluntarily assumed. Broviak’s actions, therefore, caused any "gap" in the coverage; the insurance policy was not inherently flawed, as the majority would lead us to believe. Truck Ins. Exch. v. Liberty Mutual Ins. Co., 102 Ill.App.3d 24, 57 Ill.Dec. 503, 428 N.E.2d 1183 (1981), cited by the majority, is inapplicable here because Occidental’s insurance contract does not incorporate the lease agreement.
. It is striking that the majority is willing to conclude that Occidental waived the argument that the court should not rely on the lease agreement to shift liability to Occidental, but closes its eyes to the much larger waiver issue here.
. The regulations also prescribe an endorsement for motor carrier policies, providing that: “Within the limits of liability ... it is further understood and agreed that no condition, provision, stipulation, or limitation contained in this policy ... shall relieve the [insurance] Company from liability____" ICC Form B.M.C. 90; see Travelers Ins. Co. v. Transport Ins. Co., 787 F.2d 1133, 1139 (7th Cir.1986). In accordance with this prescription, International’s insurance policy contained the following provision:
[I]t is further understood and agreed that no condition, provision, stipulation, or limitation contained in the policy, or any other endorsement, by the insured, shall relieve the company from liability hereunder or from the payment of any such final judgment, irrespective of the financial responsibility or lack thereof or insolvency or bankruptcy of the insured.
. The language from Travelers quoted by the majority addresses the issue whether the ICC statute and regulations necessarily require the ICC carrier to assume primary liability. Although International is not primarily liable by virtue of the ICC regulations, we may still consider Beelman’s assumption of "complete responsibility” for the operation of the leased truck when deciding whether it is liable under state (as impacted by federal) law.
. The majority acknowledges that the Supreme Court and this circuit have allowed a shifting of primary liability from the lessee to the lessor only where "it is clear that there are sufficient funds available to safeguard the public." Travelers, 787 F.2d at 1140. See supra p. 986. Yet by focusing on the ■ insureds' underlying tort liability, the majority’s reasoning would release International from all liability under its policy even if Broviak possessed no insurance at all to compensate the public for injuries inflicted through the operation of the leased trucks.
. I see no need to address the question whether the loaned servant doctrine might operate to exculpate the lessor in situations in which the doctrine’s otherwise exculpatory impact on the lessee is preempted by federal law.
. The majority rather lamely asserts that its analysis is not speculative because "the facts are not in dispute." The problem is that we do not have sufficient facts before us, disputed or undisputed, to determine whether Hauk is a loaned employee. Further, the facts that are before us are "undisputed" only in the sense that neither party has argued or briefed the loaned servant issue. The entire theory involving an alleged loaned servant is one of the majority’s own concoction.
. On another point, it is pure speculation that Broviak has the power to discharge the driver. It does not necessarily follow that because Broviak selected, trained and paid the driver, he also had the power to discharge the driver under the circumstances of this case. For example, in Mosley the original employer had selected, paid and presumably trained the employee, yet the second employer had the power to discharge. Similarly, in Highway Insurance, although Nu-gents selected and paid the employees, Sears (the second employer) had the right to fire them. The employees were held to have been loaned out to Sears.
. The majority, however, holds that Occidental waived any argument that the indemnification agreement could not be considered. The issue of the lease agreement was first raised in the defendant’s trial brief. International argued that the lease agreement should be incorporated
