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MILAN EXPRESS CO. v. WESTERN SUR. CO.

April 29, 1992

MILAN EXPRESS CO., INC., et al.
v.
WESTERN SURETY CO., OLD REPUBLIC SURETY CO., LAWYERS SURETY CO., NORTHWEST NATIONAL INSURANCE CO., and STATE SURETY CO.



The opinion of the court was delivered by: JOHN T. NIXON

 Plaintiffs, Milan Express Co. and twenty-eight other motor carriers that transport goods by truck in interstate commerce, filed this action seeking a declaratory judgment under 28 U.S.C. § 2201 against defendant insurers who have issued bonds to various property brokers. "Property brokers" are intermediaries who hire motor carriers to ship goods in interstate commerce for the benefit of third parties. These bonds, required under the Motor Carrier Act of 1935, 49 U.S.C. § 211(b), now codified at 49 U.S.C. § 10927(b), *fn1" insure against losses caused by brokers.

 In this case, plaintiffs have transported goods under contract for certain property brokers who were insured by defendants and who failed to pay for the services rendered. These brokers received payment from shippers, but failed to pay the motor carrier for the shipment. Plaintiffs assert that their losses are covered by the defendants' bonds and claim entitlement to the proceeds of the bonds when property brokers fail to pay motor carriers. The substantive issue in this action is, therefore, whether the plaintiff motor carriers may make direct claims on defendants' surety bonds under the Motor Carrier Act, ICC regulations, and the terms of the bonding agreements.

 The Magistrate, in a lengthy and thorough report, has recommended that this Court grant plaintiffs' summary judgment motion. Defendants' object on the grounds that the unambiguous language of the statute in question mandates summary judgment for the defendants. *fn2"

 BACKGROUND

 In earlier proceedings in this litigation, the Court dismissed this action for lack of subject matter jurisdiction on the grounds that plaintiffs' claims were governed by state contract law and that the claims involved did not satisfy the jurisdictional amount under the diversity statute, 28 U.S.C. § 1332. On appeal, the Sixth Circuit reversed, concluding that the bonds at issue were prescribed by the ICC and federal regulations, causing plaintiffs' claims to arise under federal law. Milan Express Co. v. Western Surety Co., 886 F.2d 783, 789 (6th Cir. 1989). In the Sixth Circuit's decision, the critical and material facts in this case, which are undisputed, were succinctly set forth as follows:

 
In the interstate surface transportation industry, the ICC licenses property brokers: middlemen who arrange transportation services between motor carriers and shippers of various products. Surety companies post bonds on behalf of the brokers, who bill the shippers and pay the motor carriers they retain. Each bond carries a penalty limited to $ 10,000.00. In the case at bar, the brokers received payments from the shippers for freight, but allegedly failed to disperse payments to the plaintiff motor carriers. Plaintiffs then sought to recover against the bonds posted on behalf of the brokers. Defendants denied plaintiffs' claims because the surety agreement's language discussed only the "protection of travelers and shippers," and did not name "motor carriers." See Broker's Surety Bond Under Section 211(c) of the Interstate Commerce Act, Form BMC-84 (Rev. 1977).
 
To protect motor carriers and the shipping public, the ICC will issue a broker's license only if the applicant files a bond or other type of security approved by the ICC. 49 U.S.C. § 10927(b). If a bond is filed, the broker must use the ICC's prescribed Form BMC-84. See 49 C.F.R. § 1043.4(b). The original language of Form BMC-84 identified travelers and shippers, but not motor carriers, as intended beneficiaries of the bonds. However, on April 9, 1987, the ICC defined the parameters of its insurance regulations, stating that it "has always interpreted the security offered by brokers to cover both shippers and motor carriers." Clarification of Insurance Regulations, 3 I.C.C. 2d 689, 692 (1987). "As a matter of clarity," the ICC concluded, "we are modifying the language of the prescribed Broker Surety Bond, Form BMC-84 (Rev. 77), to specifically identify motor carriers as well as shippers as entities included within the intended statutory coverage." Id. See also Broker's Surety Bond Under 49 U.S.C. § 10927, Form BMC-84 (Rev. 1987).

 Milan, supra, at 784.

 Defendants move for summary judgment on two main grounds: (1) that plaintiffs are not within the meaning of the phrase "travelers and shippers" within the Motor Carrier Act or the surety bonds at issue; and (2) that the ICC's interpretation of the Motor Carrier Act, which permits direct suits by motor carriers on the surety bonds, is a recent interpretation which goes against the unambiguous language of the statute and does not change the contractual intent of the parties to the bonds.

 Plaintiffs respond with their own motion for summary judgment, arguing (1) that the ICC has repeatedly and consistently interpreted these bonds as covering motor carriers who are not paid by their property brokers; (2) that the legislative history of the Motor Carrier Act, and the relevant federal regulations and administrative rulings, reveal a clear purpose to cover motor carriers under surety bonds which property brokers are required to post; and (3) that other courts have found motor carriers to be covered by the bonds at issue. Plaintiffs also assert that custom and usage in the insurance industry has recognized and paid motor carrier claims in similar circumstances.

 DISCUSSION

 The dispute in this instance centers upon the pre-1978 language of the Act which provided that

 
the Commission shall prescribe reasonable rules and regulations for the protection of travelers or shippers by motor vehicle, to be observed by any person holding a brokerage license, and no such license shall be issued or remain in force unless such person shall have furnished a bond or other security approved by the Commission in such form and amount as will insure financial responsibility and the ...

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