Occidental Fire & Casualty Co. Of North Carolina, a North Carolina Corporation v. International Insurance Co., an Illinois Corporation ( 1986 )

COFFEY, Circuit Judge.

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.

I

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 $86,732.¹

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, International provided primary coverage for the accident as a matter of law. In support of its argument, Occidental cites several cases holding that the ICC endorsement imposes primary coverage for an accident on the lessee’s insurance carrier as a matter of law. See, e.g., Argonaut Insurance Co. v. National Indemnity Co., 435 F.2d 718 (10th Cir.1971); Hagans v. Glens Falls Insurance Co., 465 F.2d 1249, 1252 (10th Cir.1972); Allstate Insurance Co. v. General Fire & Casualty Co., 348 F.Supp. 682 (E.D.Pa.1972). These cases, however, predated the Supreme Court’s decision 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), where the Supreme Court held that an indemnification agreement between the lessor and lessee shifting liability to the lessor did not contravene the ICC regulations providing that the lessee was ultimately responsible for the operation of the vehicle. The Supreme Court reasoned that as long as one of the responsible parties, the lessor or lessee, pays for the damages the public is protected and thus “[t]he mere presence of a clause such as the one here — that the lessor is to bear the burden of its own negligence — does not, in and of itself, offend the regulations so long as the lessee does not absolve itself from the duties to the public and to shippers imposed upon it by the Commission’s regulations.” Id. at 40, 96 S.Ct. at 235. Since the Brada-Miller decision, cases confronted with the issue of whether the ICC endorsement imposes liability on the lessee’s insurance carrier have held that as long as the member of the public has been compensated for his or her loss, the ICC endorsement does not make the lessee’s insurer primarily liable as a matter of law. See, e.g., Carolina Casualty Insurance Co. v. Insurance Co. of North America, 595 F.2d 128 (3d Cir.1979); Carolina Casualty Ins. Co. v. Underwriters Insurance Co., 569 F.2d 304 (5th Cir. 1978). This circuit recently followed those cases in rejecting the contention that the ICC endorsement renders the lessee’s insurance company primarily liable as a matter of law.

“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 ____

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.

******

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 business, over a route Beelman was authorized by the ICC to serve, International’s policy expressly provides that its coverage is primary.

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.²

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. The attorney for Occidental failed to file a response to this argument as required by the district court order of November 5, 1984, and subsequently the district court rendered its decision in June, 1985 finding that based upon the lease agreement between Beelman and Broviak, Occidental (Broviak’s insurer) provided primary coverage for the accident. Occidental argues that the district court improperly relied on the lease agreement in determining that liability for the accident ultimately rested on Broviak, and thus its insurer, Occidental, was responsible for providing primary coverage for the accident. Because Occidental failed to properly raise this argument before the district court the argument is deemed waived and Occidental cannot raise it for the first time on appeal. Libertyville Datsun, supra.

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 objection to considering its responsibilities under the insurance contract in light of the lease agreement between Beelman and Broviak, we refuse to hold that Occidental is not bound by the indemnity provision of the Broviak-Beelman lease. A holding of this nature would ignore the commercial realities of motor carrier service: demand for carrier service fluctuates and carriers adjust, borrowing or loaning equipment in order to maximize their resources in the face of changing demand. See Brada-Miller, 423 U.S. at 35, 96 S.Ct. at 233. A lease pursuant to which the lessor provides a driver to the lessee should be no surprise to Occidental because, for example, 49 C.F.R. sec. 1057.12(d), in delineating specific requirements for such leases, establishes that such leases are customary in the trucking industry. Similarly, an indemnity agreement was equally foreseeable to Occidental in which the lessor assumed liability for the negligent conduct of a lessor-provided driver. See e.g., Brada-Miller Fr. Sys., 423 U.S. at 36-41, 96 S.Ct. at-233-35 (1975) (focusing on indemnity agreements). Occidental’s argument, in effect, is that Occidental and Broviak agreed to an insurance policy marred by huge gaps in coverage and protection from foreseeable liabilities created by the lease agreement that the language of the policy clearly contemplated. We refuse to adopt the dissent’s theory that such an agrément be considered as a reasonable view of the parties’ intent.³

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.⁴ Thus we must determine under Illinois law what effect the status of the negligent driver had on the insurance companies’ obligation under their respective insurance contracts.⁵

Recently, the Illinois Supreme Court in Heinrich v. Peabody International Corp., 99 Ill.2d 344, 76 Ill.Dec. 800, 459 N.E.2d 935 (1984) discussed the loaned-servant doctrine and its impact on the legal responsibilities of those parties responsible for the employee’s actions. To understand the implications of this case, a detailed recitation of its facts is necessary. In Heinrich, the plaintiff’s decedent brought a wrongful death action against San-Dee Corporation and its employee Ayala. The complaint alleged that at the time of the accident, Ayala, a janitor for San-Dee, was performing work at the Brookshire Corporation and that Ayala was negligent in the operation of a Brookshire trash compactor causing the death of the plaintiff’s husband. San-Dee filed a third-party action against Brookshire for contribution and indemnity alleging that San-Dee had “loaned” Ayala to Brookshire and that Brookshire was responsible under the doctrine of respondeat superior for the negligence of Ayala. San-Dee further alleged that Brookshire owned and maintained the trash compactor and was negligent in failing to discover and warn of the unsafe conditions of the machine and was actually negligent. 76 Ill.Dec. at 802, 459 N.E.2d at 937. The trial court struck that portion of the third-party complaint requesting indemnity based on the loaned-servant doctrine ruling that San-Dee should have pled the loaned-servant doctrine as an affirmative defense to the original complaint rather than as a basis for indemnity in the third-party action against Brookshire. The trial court also dismissed the indemnity action ruling that Illinois no longer recognized a cause of action for indemnity since the Illinois Supreme Court’s decision in Skinner v. Reed Prentice Division Package Machinery Co., 70 Ill.2d 1, 15 Ill.Dec. 829, 374 N.E.2d 437 (1977), allowed a cause of action between joint tortfeasors based upon contribution. The Illinois Appellate Court dismissed San-Dee’s appeal holding that the trial court’s decision was not final since San-Dee’s contribution claim was still valid and thus the appellate court did not have jurisdiction to address the validity of the indemnity action. Heinrich, 76 Ill.Dec. at 802, 459 N.E.2d at 937. The Illinois Supreme Court reversed the appellate court’s determination that it did not have jurisdiction and remanded the case to the appellate court to determine if implied indemnity still existed in Illinois for an action based upon the active/passive negligence of the tortfeasors. Id. 76 Ill.Dec. at 804, 459 N.E.2d at 939. The court also addressed the issue of whether San-Dee, the defendant in a tort action, could invoke the “loaned-servant” doctrine in a third-party action seeking indemnity from Brookshire, rather than as a defense to liability in the original suit. Id. Brookshire argued that if “Ayala was acting as the agent of Brookshire at the time of the accident he would not have been acting as San-Dee’s agent, and therefore San-Dee would not have been liable to the plaintiff and could not raise a claim for contribution.” Id. The Illinois Supreme Court stated in response:

“We agree that under the common law of this State indemnity could not operate 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.⁶ Thus, under Illinois law, the employer who is actually responsible for the actions of a loaned employee is legally liable for such an employee’s negligence. The loaned-servant doctrine is not a theory of liability based upon indemnity where one employer may be liable for the employee’s actions but may shift the payment of damages to the other employer; rather it is a complete defense to an assertion of liability. Heinrich, 76 Ill.Dec. at 804, 459 N.E.2d at 939-40.

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

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.⁷ Cf. Watkins Motor Lines, Inc. v. Zero Refrigerated Lines, 525 F.2d 538, 540 (7th Cir. 1976).

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 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,⁸ and the fact that Broviak paid Hauk is evidence that the employee remained in its employment. Mosley v. Northwestern Steel and Wire Co., 76 Ill. App.3d 710, 31 Ill.Dec. 853, 860, 394 N.E.2d 1230, 1237 (1979). Further, Broviak trained and provided the driver to operate the truck. Although the lease does not specify which party could discharge the driver, since Broviak selected, trained and paid the driver, it is likely that Broviak also had the power to discharge the driver if his performance was deficient and thus Hauk could not be considered Beelman’s employee for purposes of assessing liability since “it has been held that a person cannot become an employee of the second employer unless the second employer has the power to discharge or fire the employee.” Richard, 23 Ill.Dec. at 222, 383 N.E.2d at 1249.⁹ Also, even though the lease stated that the lessee was to have complete responsibility for the operation of the vehicle (in accord over the ICC’s regulations), this does not establish that the lessee had complete control over the driver of the truck for purposes of determining which party, Beelman or Broviak, was the employer of the driver since, as noted above, Broviak hired, trained and paid the driver. This evidence clearly demonstrates that the driver was not “considered a loaned servant [as he was not] wholly free from the control of the first employer [Broviak] and wholly subject to the second employer [Beelman].” Richard, 23 Ill.Dec. at 222, 383 N.E.2d at 1249.¹⁰ Further, the mere fact that an employee follows the directions of the second employer does not make that employee a loaned servant for purposes of establishing liability of the second employer. 215 Ill.Dec. at 222, 383 N.E.2d at 1249 (citing Standard Oil Co. v. Anderson, 212 U.S. 215, 29 S.Ct. 252, 53 L.Ed. 480 (1909)).¹¹ Since Hauk was Broviak’s employee for purposes of assessing which party was responsible for the damages between Broviak and Beelman, Broviak’s insurer, Occidental, is responsible for providing primary coverage for the accident.

The decision of the district court is Affirmed.

1 . 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.

2 . Occidental's policy states:

"EXCLUSIONS: This insurance does not apply:

(a) To liability assumed by the insured under any contract or agreement____”

3 . 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.

4 . 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.

5 . 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 insurer’s liability, the majority errs in making an independent determination of Beelman’s liability pursuant to the loaned servant doctrine.” The dissent misreads this opinion; we do not hold that an insured’s liability is "in general” a prerequisite to an insurer’s liability. On the contrary, we hold that liability of the insurers in this case is conditioned upon the specific language of Occidental’s and International’s contracts of insurance. Occidental promised to pay "all sums which the insured shall become legally obligated to pay____” (Sec. I) (emphasis added). International promised to "pay all sums the insured legally must pay____” (Sec. A.l) (emphasis added). The plain, clear and unequivocal language of the insurance contracts requires us to determine as a threshold matter the legal obligations of Broviak and Beelman before we can resolve the question as to which insurer is obligated to provide primary coverage here. The dissent concludes that "International’s and Occidental’s policies ... are perfectly consistent with each other" only because the dissent evades the threshold question concerning whether Occidental’s or International’s insured is "legally obligated to pay” and proceeds to interpret the insurer’s excess liability provisions on the assumption that both insurers are "legally obligated to pay.” Thus, contrary to this assertion in the dissent, no issue of waiver is presented to preclude our inquiry into the liability of Broviak and Beelman.

6 . 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).

7 . 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).

8 . 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.

9 . 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.

10 . 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).

11 . 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 determine whether or not, as a matter of law, the admitted facts disclosed a[n] [employment] relationship____” 97 N.E.2d at 327. The test for determining whether Hauk was a loaned employee of Beelman "is whether or not the employee becomes wholly subject to the control and direction of the second employer and free from the control and direction of the original employer.” Mosley v. Northwestern Steel and Wire Co., 76 Ill.App.3d 710, 31 Ill.Dec. 853, 860, 394 N.E.2d 1230, 1237 (1979) (emphasis added). Unlike Mosley, where there was evidence in the record that the second employer had the power to discharge any worker, 31 Ill.Dec. at 861, 394 N.E.2d at 1238, here the record establishes that while Beelman had a lessee’s right to use of a vehicle and driver, Broviak retained employment rights and obligations with respect to that driver, including the right to fix and adjust Hauk’s pay, and the obligation to pay workmen’s compensation. The lease did not authorize Beelman to discharge Hauk. Thus, the detailed provisions of the lease agreement which is part of the record provide a sufficient basis for determining whether Broviak retained liability for the negligence of Hauk occurring in the scope of Hauk’s employment. Accordingly, we determine that Hauk was not “wholly subject to the control and direction of’ Beelman (for purposes of Illinois law, not the ICC regulations), nor was Hauk "free from the control of’ Broviak (again, for purposes of Illinois law, not the ICC regulations) because Broviak hired Hauk, trained Hauk, and retained the sole right to compensate Hauk as Broviak, not Beelman, saw fit.