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Liberty Mutual Fire Insurance Co. v. Clemens Coal Co.

United States District Court, D. Kansas

March 30, 2017

LIBERTY MUTUAL FIRE INSURANCE COMPANY, Plaintiff,
v.
THE CLEMENS COAL COMPANY, et al., Defendants.

          MEMORANDUM AND ORDER

          CARLOS MURGUIA United States District Judge.

         Plaintiff 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 equitable estoppel.

         The 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.

         Findings of Fact

         A. Background

         1. Clemens Coal operated a coal mine in Pittsburg, Kansas, and filed for Chapter 7 bankruptcy in August 1997.

         2. Woolman was President of Clemens Coal in 1996, serving as its last president before the company went bankrupt.

         3. 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”).

         4. Spencer claimed that he contracted black lung disease from exposure to coal dust during his employment with Clemens Coal.

         5. On 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.

         6. The DOL letter stated that Clemens Coal was uninsured on July 25, 1997, the claimant's last date of employment.

         7. On 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.

         8. On 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.

         B. The Liberty Mutual Policy

         9. 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.

         10. 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.)

         11. The Policy does not contain the Federal Coal Mine Health and Safety Act Coverage Endorsement, which would provide coverage for black lung disease claims.

         12. The 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.)

         13. The plain language of the Policy does not provide coverage for the Spencer Black Lung Claim.

         C. Background Regarding Clemens Coal's Procurement Practices and Needs

         14. Woolman did not procure insurance for Clemens Coal. Instead, James Worley, an external consultant, procured workers' compensation insurance for the company.

         15. 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 9:12-14.)

         16. In 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.

         17. When comparing policies, Worley compared the premiums and the types of coverages that were offered.

         18. The Liberty Mutual policy was the first policy Worley had procured for a coal company directly from an insurance company.

         D. Clemens Coal's Procurement of the Liberty Mutual Policy

         1. Clemens Coal's Insurance Needs and Prior Insurance Policy

         19. 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.)

         20. 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.

         21. Instead, a “Change in Information Page” for the Hartford policy was produced, which contained a classification and premium calculation for “occupational disease loading.”

         22. 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.”

         23. The 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 policy.” (Id.)

         24. Based on this evidence, the court finds that it is unclear whether the Hartford policy contained an endorsement for black lung disease coverage.

         2. The Transaction between Worley and Smith

         25. Worley procured the Liberty Mutual policy through Deborah Smith, Liberty Mutual's agent.

         26. Smith did not recall the circumstances of the sale of insurance to Clemens Coal.

         27. The 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.

         28. 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.

         3. Duplication of Prior Policy

         29. 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 prior policy.

         30. Worley did not remember giving copies of prior policies to Liberty Mutual agents.

         31. 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.

         32. 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.)

         33. 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.

         34. The court finds that Clemens Coal did not prove that Worley provided Smith with a prior policy for Clemens Coal.

         35. 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.

         4. Coverage Request by Clemens Coal

         36. Smith relied on the insured to tell her what they needed.

         37. Worley did not remember any discussions with Smith and did not remember if any agent from Liberty Mutual ever asked if ...


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