United States District Court, D. Kansas
MEMORANDUM AND ORDER
MURGUIA United States District Judge.
Liberty Mutual Fire Insurance Company (“Liberty
Mutual”) filed this case seeking a judicial declaration
that a 1996-1997 Liberty Mutual workers' compensation and
employee liability insurance policy does not cover a black
lung disease claim filed by defendant Clayton Spencer, a
former employee of defendant The Clemens Coal Company
(“Clemens Coal”). Clemens Coal is bankrupt, and
has been dismissed from this case. The former president of
Clemens Coal, Dennis Woolman, is the remaining active
defendant in the case. Woolman filed a counterclaim for
negligence against Liberty Mutual and raised a defense of
court conducted a jury trial on Woolman's counterclaim
for negligence. At the same time, the court heard evidence
relevant to a bench trial on Woolman's equitable estoppel
affirmative defense. The court is now prepared to issue its
findings of fact and conclusions of law.
Clemens Coal operated a coal mine in Pittsburg, Kansas, and
filed for Chapter 7 bankruptcy in August 1997.
Woolman was President of Clemens Coal in 1996, serving as its
last president before the company went bankrupt.
Spencer filed a claim on November 19, 2012 with the United
States Department of Labor (“DOL”) for benefits
under the Black Lung Benefits Act (Title IV of the Federal
Coal Mine Health and Safety Act of 1969), 30 U.S.C.A. §
901 et seq., against Clemens Coal, seeking damages
related to his alleged contraction of black lung disease (the
“Spencer Black Lung Claim”).
Spencer claimed that he contracted black lung disease from
exposure to coal dust during his employment with Clemens
May 16, 2013, the DOL sent Woolman a letter informing him
that coal mine operators must maintain insurance coverage for
payment of black lung disease benefits, and that an employer
who fails to maintain such coverage is subject to penalties.
The letter further advised that the president of the coal
company is jointly and severally liable for payment of black
lung disease benefits.
DOL letter stated that Clemens Coal was uninsured on July 25,
1997, the claimant's last date of employment.
September 13, 2013, Liberty Mutual sent Woolman a reservation
of rights letter, stating that coverage was presently
undetermined, but that the insurance company would provide
him with a legal defense under a full reservation of rights
during the investigation.
November 8, 2013, Liberty Mutual sent another letter to
Woolman, clarifying that the previous reservation of rights
letter pertained only to Clemens Coal-not Woolman personally.
Liberty Mutual advised that it would not provide a defense to
Woolman and recommended that Woolman retain his own counsel
to represent his personal interests.
The Liberty Mutual Policy
Liberty Mutual issued a workers' compensation and
employer liability policy of insurance (the
“Policy”) to Clemens Coal with effective dates of
November 1, 1996 to November 1, 1997. The Policy, however,
was cancelled on August 1, 1997 due to non-payment.
Part Two of the Policy provides that the insurance does not
cover “bodily injury to any person in work subject to .
. . the Federal Coal Mine Health and Safety Act of 1969 (30
USC Sections 901-942), any other federal workers or
workmen's compensation law or other federal occupational
disease law, or any amendments to these laws.” (Exhibit
1, at 5, ¶ C.8.)
Policy does not contain the Federal Coal Mine Health and
Safety Act Coverage Endorsement, which would provide coverage
for black lung disease claims.
parties stipulated before trial that the Policy “as
written does not provide coverage for the claim
filed by Clayton Spencer with the United States Department of
Labor for benefits under the Black Lung Benefits Act (Title
IV of the Federal Coal Mine Health and Safety Act of
1969).” (Doc. 119.)
plain language of the Policy does not provide coverage for
the Spencer Black Lung Claim.
Background Regarding Clemens Coal's Procurement
Practices and Needs
Woolman did not procure insurance for Clemens Coal. Instead,
James Worley, an external consultant, procured workers'
compensation insurance for the company.
Worley began procuring insurance for Clemens Coal around
1995. When procuring insurance for Buildex (Clemens
Coal's sister company), he “would do the evaluation
of the insurances, look at comparable companies, the
coverages, [and the] benefits.” (Worley Trial Dep., at
following his typical process of procuring insurance, Worley
testified that he “would have referenced [the IMA]
initially.” (Id. at 17:10-13.) The IMA was
Clemens Coal's insurance broker. The IMA typically had
three to five prospective carriers for him to compare.
When comparing policies, Worley compared the premiums and the
types of coverages that were offered.
Liberty Mutual policy was the first policy Worley had
procured for a coal company directly from an insurance
Clemens Coal's Procurement of the Liberty Mutual
Clemens Coal's Insurance Needs and Prior Insurance
Woolman did not give Worley any specific instructions
regarding what type of coverage Clemens Coal needed. Instead,
Woolman stated “I wanted to be legal like I've
always been through the years, and to get the coverage for
the employees that was needed, and cover all of our
liabilities.” (Trial Transcript, at Vol. III,
329:21-24.) But Woolman “really didn't specifically
say anything” to Worley about what coverage was needed.
(Id. at 366:14-17.)
Clemens Coal's prior policy was the Hartford policy. The
Hartford policy could not be located. Woolman did not present
any clear evidence showing what coverage the Hartford policy
provided, or that the Hartford policy actually included
coverage for black lung disease claims.
Instead, a “Change in Information Page” for the
Hartford policy was produced, which contained a
classification and premium calculation for
“occupational disease loading.”
Ronald Srajer, IMA's account representative for Clemens
Coal, testified that black lung disease coverage would have
been included in the “occupational disease
loading” classification. (Trial Transcript, at Vol. I,
58:6-16.) But Gerald Haake, Woolman's expert, testified
that there is no way of determining whether the Hartford
policy contained the black lung endorsement simply by looking
at the “Change in Information Page.”
Hartford sent Clemens Coal a reservation of rights letter in
January 1996, in connection with a previous black lung
disease claim. That letter provided, “We have been
unable to date to confirm any coverage for your alleged
Federal Black Lung Exposure . . . .” (Exhibit 8.) The
letter further provided that “In order for us to handle
this matter . . . we must have the proper Federal Coal Mine
Health & Safety Act Endorsement to apply to your
Based on this evidence, the court finds that it is unclear
whether the Hartford policy contained an endorsement for
black lung disease coverage.
The Transaction between Worley and Smith
Worley procured the Liberty Mutual policy through Deborah
Smith, Liberty Mutual's agent.
Smith did not recall the circumstances of the sale of
insurance to Clemens Coal.
Liberty Mutual policy was the first insurance that Smith sold
to a coal company. She was unaware of the Federal Coal Mine
Health and Safety Act of 1969.
Consistent with her typical procedure in selling insurance,
Smith would not have analyzed what types of exposure a
potential customer might have. Smith would ask the clients
what coverage they needed. It varied how she obtained that
information from the clients. She said that she was not in a
position to tell them what they needed.
Duplication of Prior Policy
Smith stated that obtaining a copy of the business's
prior policy was one of the ways to determine coverage for a
particular business. She explained that she would have only
copied Clemens Coal's prior policy if Worley had given
her the policy. But Smith had no recollection as to whether
Worley provided her with a copy of any prior policies and
stated that she did not think that she was provided with a
Worley did not remember giving copies of prior policies to
Liberty Mutual agents.
Smith testified that all of the information she needed could
have been obtained from other sources, and that using other
sources was not uncommon. On a regular basis, she issued
package polices like the one issued to Clemens Coal without
receiving a prior policy.
When asked why she did not include the black lung endorsement
if she had access to a prior policy, Smith testified credibly
that, “I don't recall ever seeing that. I can't
say I got a copy of the policy.” (Trial Transcript, at
Vol. II, 138:20-21.)
Diana Trent, Liberty Mutual's underwriter of the Policy,
testified credibly that she would not have received a copy of
any of Clemens Coal's prior policies.
court finds that Clemens Coal did not prove that Worley
provided Smith with a prior policy for Clemens Coal.
Furthermore, the court finds that there is no evidence or
testimony that Clemens Coal requested, and Smith agreed, that
such prior policy be duplicated for coverage purposes.
Coverage Request by Clemens Coal
Smith relied on the insured to tell her what they needed.
Worley did not remember any discussions with Smith and did
not remember if any agent from Liberty Mutual ever asked if