Karst Robbins Coal Co. v. OWCP ( 2020 )

RECOMMENDED FOR PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 20a0248p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
KARST ROBBINS COAL COMPANY; BITUMINOUS ┐
CASUALTY CORPORATION, │
Petitioners, │
│
> No. 19-3836
v. │
│
│
DIRECTOR, OFFICE OF WORKERS’ COMPENSATION │
PROGRAMS, UNITED STATES DEPARTMENT OF LABOR; │
MARLIN D. RICE, │
Respondents. │
┘
On Petition for Review from the Benefits Review Board;
No. 17-0625 BLA.
Argued: July 29, 2020
Decided and Filed: August 7, 2020
Before:MOORE, CLAY, and McKEAGUE, Circuit Judges.
_________________
COUNSEL
ARGUED: Mark E. Solomons, GREENBERG TRAURIG, LLP, Washington, D.C., for
Petitioners. Cynthia Liao, UNITED STATES DEPARTMENT OF LABOR, Washington, D.C.,
for Federal Respondent. Timothy C. MacDonnell, WASHINGTON AND LEE UNIVERSITY
SCHOOL OF LAW, Lexington, Virginia, for Respondent Marlin Rice. ON BRIEF: Mark E.
Solomons, Laura Metcoff Klaus, GREENBERG TRAURIG, LLP, Washington, D.C., for
Petitioners. Gary K. Stearman, Michelle Gerdano, UNITED STATES DEPARTMENT OF
LABOR, Washington, D.C., for Federal Respondent. Timothy C. MacDonnell, WASHINGTON
AND LEE UNIVERSITY SCHOOL OF LAW, Lexington, Virginia, for Respondent Marlin
Rice.
No. 19-3836 Karst Robbins Coal Co., et al. v. OWCP, et al. Page 2
_________________
OPINION
_________________
CLAY, Circuit Judge. Bituminous Casualty Corp., as the insurer for Karst Robbins Coal
Co. (“KRCC”), seeks review of a decision by the Department of Labor’s Benefits Review Board
finding Bituminous responsible for paying a claim under the Black Lung Benefits Act
(“BLBA”), 30 U.S.C. §§ 901–45. Bituminous argues that the Department was collaterally
estopped from finding that KRCC was the responsible operator under the Act, because an
administrative law judge had previously found that another, related company was actually the
claimant’s employer. Bituminous also argues that it was entitled to rescind its insurance
agreement based on alleged fraud by KRCC, and that delays in the Department’s administrative
proceedings violated its right to due process. For the reasons that follow, Bituminous is incorrect
on each of these counts, and so we deny its petition for review.
BACKGROUND
A. Black Lung Claims
Marlin Rice is a former coal miner who filed a claim for benefits under the BLBA.
Under that statute and its associated regulations, a miner is eligible for black lung benefits if
(1) she has pneumoconiosis, which is known as black lung disease when caused by exposure to
coal dust, (2) the pneumoconiosis arose out of her coal mine employment, (3) she is totally
disabled, and (4) her pneumoconiosis contributes to that disability. 20 C.F.R. § 725.202(d)(2).
On the second prong, if a miner worked in coal mines for ten years or more, there is a rebuttable
presumption that her pneumoconiosis arose out of coal mine employment. Id. § 718.203(b).
Once a miner establishes her eligibility for benefits, the next question is who must pay.
To answer this question, the Department of Labor (“DOL”) looks to the miner’s employers to see
which of them employed the miner for at least one year and are capable of paying benefits under
the BLBA. Id. § 725.494(c), (e). The miner’s most recent employer that meets these
requirements is deemed the “responsible operator” and is forced to foot the bill. Id.
§ 725.495(a)(1). And to ensure that potentially responsible operators can pay out benefits, the
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BLBA requires them to either qualify as a self-insurer or purchase insurance to cover any BLBA
liability. 30 U.S.C. § 933(a); 20 C.F.R. § 725.494(e); see also id. pt. 726 (providing regulatory
requirements for insurance coverage). If DOL cannot identify a responsible operator, the
miner’s benefits are instead paid by the Black Lung Disability Trust Fund. 26 U.S.C.
§ 9501(d)(1).
B. KRCC’s Insurance Coverage
Karst Robbins Coal Co. (“KRCC”) operated a coal mine where Rice worked from at least
June 7, 1982 to August 9, 1983. But on paper, Rice never worked for KRCC. Instead he was
employed by a separate corporate entity, Karst Robbins Machine Shop, Inc. (“KRMS”), which
then charged KRCC for the cost of Rice’s labor. KRMS’s ownership and management
overlapped with that of KRCC, it had no assets, and it operated out of the same offices as KRCC.
KRCC obtained workers’ compensation insurance, including BLBA coverage, from
Bituminous Casualty Corp. But according to evidence submitted by Bituminous, KRCC only
listed ten employees on its books. The other 150 or so were employed by KRMS, and thus
covered by KRMS’s separate insurance. According to both companies’ shared bookkeeper, new
hires would choose whether they were willing to waive workers’ compensation coverage and
take only disability insurance instead. If so, they would be hired as an employee of KRMS;
otherwise they would work for KRCC. Bituminous describes this as a scam designed to dodge
the otherwise higher premiums KRCC would have paid for BLBA and workers’ compensation
coverage.
C. Procedural History
Rice filed his first claim for BLBA benefits in October 1983. During proceedings on that
claim, DOL identified KRCC and KRMS, among others, as potentially responsible operators.
While perhaps strange given their shared ownership and management, KRCC and KRMS
retained separate counsel and argued conflicting positions: KRCC said that Rice was actually
employed by KRMS, while KRMS said that it never operated a coal mine or ran a coal mining
business, and so could not be considered an employer under the applicable regulations.
No. 19-3836 Karst Robbins Coal Co., et al. v. OWCP, et al. Page 4
The administrative law judge (“ALJ”) settled on KRMS as the responsible operator, leaving
KRCC and Bituminous off the hook.1
Despite this finding, the ALJ denied Rice’s claim, holding that Rice failed to establish
that he had pneumoconiosis. Accordingly, Rice was ineligible for BLBA benefits. Rice then
appealed to the Benefits Review Board.
During those appellate proceedings, KRCC and Bituminous (along with other employers
of Rice) filed a motion to be dismissed from the case, given that the ALJ found that KRMS was
the responsible operator. The Director of the Office of Workers’ Compensation Programs, who
represented DOL’s interests in the proceedings, did not file a response. Accordingly, the Board
granted the motion and dismissed KRCC and Bituminous. The Board then went on to affirm the
denial of Rice’s claim on the merits. The Director never filed a cross-appeal or otherwise
challenged the responsible operator determination.2
Fast-forward more than a decade. In 2002, Rice filed another claim for benefits. During
proceedings on that claim, DOL again sent a notice to KRCC and Bituminous saying that KRCC
might be the responsible operator.3 Bituminous claims it “denied coverage based on the
fraudulent arrangements” between KRCC and KRMS, and so requested that DOL dismiss it from
the case. (Pet’rs’ Br. at 6.) After various administrative proceedings, DOL refused to dismiss
Bituminous, but again denied Rice’s claim. While this time Rice established that he suffered
from pneumoconiosis, DOL’s district director found that Rice failed to show that the
pneumoconiosis was caused by his coal mine employment. This was in line with DOL’s earlier
finding that Rice had only worked for a little more than eight years in coal mines; as discussed
1As described more extensively in the parties’ briefs, the procedural history of Rice’s BLBA claims falls
somewhere between Kafka and Joyce. For example, Rice’s 1983 claim was initially denied by a deputy
commissioner in DOL, appealed to an ALJ, remanded back to the deputy commissioner, again appealed to the ALJ,
appealed to the Benefits Review Board, appealed to this Court, and then dismissed for failure to pay the filing fee.
For clarity’s sake, we have limited the proceedings recounted here to only what is relevant to the outcome of
Bituminous’s petition.
2This makes some intuitive sense. It seems unlikely that DOL would care who the responsible operator
was, so long as the Black Lung Disability Trust Fund did not have to pay.
3By this point, KRMS had ceased operations.
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above, at least ten years of coal mine employment is required for a presumption that any
pneumoconiosis was caused by that work. 20 C.F.R. § 718.203(b).
In 2006, Rice filed another claim for BLBA benefits, and KRCC and Bituminous were
again identified as potentially responsible for payment.4 Bituminous moved to be dismissed
from the case, arguing that Rice was employed by KRMS, that its liability was precluded by res
judicata, and that DOL had failed to investigate other potential carriers. Bituminous also moved
to rescind its insurance policy with KRCC on the grounds that its employee leasing scheme with
KRMS constituted fraud. The ALJ rejected all of these arguments, finding that under the
governing regulations, KRCC was the responsible operator and that Bituminous was required to
cover the claim. See 20 C.F.R. § 725.493(a)(1) (defining employment “as broadly as possible”
to “include any relationship under which an operator retains the right to direct, control, or
supervise the work performed by a miner, or any other relationship under which an operator
derives a benefit from the work performed by a miner”); see also id. (“It is the specific intention
of this paragraph to disregard any financial arrangement or business entity devised by the actual
owners or operators of a coal mine or coal mine-related enterprise to avoid the payment of
benefits to miners who, based upon the economic reality of their relationship to this enterprise,
are, in fact, employees of the enterprise.”).
Nevertheless, the ALJ denied Rice’s claim. According to the ALJ, Rice’s claim was a
“subsequent claim” under the applicable regulations, meaning Rice had to demonstrate that “one
of the applicable conditions of entitlement [to benefits] has changed since the date upon which
the order denying the prior claim became final.” 20 C.F.R. § 725.309(c) (citations omitted).
Because the denial of Rice’s 2002 claim was based solely on his failure to show that his
pneumoconiosis was caused by coal mine employment, and because this “is not something that
can change over time,” Rice could not show his eligibility under the BLBA. (App. at 92.)
Rice appealed this denial to the Benefits Review Board, and Bituminous cross-appealed
the responsible operator designation. But the Board remanded the case to the ALJ, finding in
part that Rice’s filing was not a “subsequent claim” but rather a request for modification based
4In 2007, while this claim was pending, KRCC was dissolved in bankruptcy.
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on its proximity in time to another 2005 filing by Rice. (Id. at 76.) Following this remand,
during a years-longer procedural morass, another ALJ revealed that Rice’s attorney had
specifically told a DOL claims examiner years earlier, in ex parte phone calls, not to adjudicate
that earlier filing as a modification request. This meant that the 2006 filing had correctly been
construed as a subsequent claim. While the claims examiner recorded this information in
“note[s] to file,” these notes were misfiled and so were not included in the record before the
earlier ALJ or the Board. (Id. at 9–10 (alteration in original).) This new information then went
back up to the Board and back down to the original ALJ, who in 2013 decided that his original
decision had gotten it right: the 2006 filing was indeed a subsequent claim, and so was properly
denied. The delay in revealing the ex parte discussion between the claims examiner and Rice’s
counsel, and the additional proceedings that occurred as a result, is one of the things that
Bituminous complains of today.
Later in 2013, Rice filed a request for modification, which worked its way back to an
ALJ. After a hearing, and for the first time during the three decades of Rice’s BLBA
proceedings, the ALJ found that Rice was eligible for benefits. Specifically, he found that the
previous denials of Rice’s claim had been based on mistaken determinations of facts. Reviewing
the record, the ALJ found that after including a period of off-the-books employment gathering
“house coal” from smaller mines for in-home use, Rice had at least ten years of coal mine
employment. (Id. at 30–31.) This was enough to trigger the presumption that Rice’s
pneumoconiosis was caused by coal mine work. See 20 C.F.R. § 718.203(b).
Bituminous then appealed to the Benefits Review Board. There, Bituminous argued that
(1) collateral estoppel precluded the designation of KRCC as the responsible operator,
(2) Bituminous was entitled to rescind its insurance agreement with KRCC based on its
allegations of fraud, (3) the late disclosure of the claims examiner’s ex parte communication with
Rice’s counsel violated Bituminous’s right to due process, and (4) the ALJ erred in crediting
Rice with at least ten years of coal mine employment and in weighing the medical evidence. The
Board rejected all of Bituminous’s arguments and affirmed the ALJ’s decision, and later denied
Bituminous’s petition for rehearing en banc. Bituminous then filed a petition for review in this
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Court, and now raises the first three arguments listed above that it presented to the Benefits
Review Board.5
DISCUSSION
A. Standard of Review
On petitions for review from the Benefits Review Board, we review the Board’s legal
conclusions de novo. Island Creek Coal Co. v. Young, 947 F.3d 399, 403 (6th Cir. 2020). We
do, however, grant deference to the Board’s interpretations of both the BLBA and its own
regulations. Ark. Coals, Inc. v. Lawson, 739 F.3d 309, 315 (6th Cir. 2014); Cumberland River
Coal Co. v. Banks, 690 F.3d 477, 485 (6th Cir. 2012); see also Auer v. Robbins, 519 U.S. 452,
461 (1997) (holding that agency interpretations of their own regulations are “controlling unless
‘plainly erroneous or inconsistent with the regulation’” (quoting Robertson v. Methow Valley
Citizens Council, 490 U.S. 332, 359 (1989))); Anderson Bros. Ford v. Valencia, 452 U.S. 205,
219 (1981) (“[A]bsent some obvious repugnance to the statute, the Board’s regulation
implementing this legislation should be accepted by the courts, as should the Board’s
interpretation of its own regulation.”).
Findings of fact are reviewed under the deferential “substantial evidence” standard,
meaning the ALJ’s findings of fact must be upheld if supported by “such relevant evidence as a
reasonable mind might accept as adequate to support a conclusion.” Island Creek Coal Co. v.
Bryan, 937 F.3d 738, 754–55 (6th Cir. 2019) (quoting Kolesar v. Youghiogheny & Ohio Coal
Co., 760 F.2d 728, 729 (6th Cir. 1985) (per curiam)). On a petition for review, we conduct the
5In its opening brief, Bituminous included a section arguing that the ALJ erred in recalculating the length
of Rice’s coal mine employment. But Bituminous also expressly said that its petition “does not challenge [Rice’s]
entitlement to benefits.” (Pet’rs’ Br. at 2.) While difficult to square these two statements, Bituminous’s reply brief
and statements at oral argument disclaimed any challenge to Rice’s eligibility, including the length of his coal mine
work. In this Court, Rice filed a brief arguing that Bituminous had forfeited the length-of-employment argument by
failing to raise it before the ALJ, and that in any event, the ALJ had correctly decided the issue. In its reply,
Bituminous specifically referenced Rice’s arguments and said that “[n]either defense is necessary to the litigation of
this claim since KRCC is not challenging Rice’s entitlement; the only issue on appeal is who should pay Rice’s
benefits.” (Reply Br. at 17 n.6.) At oral argument, when asked about this issue, Bituminous repeated that it was not
challenging Rice’s employment length, and said there was no reason for Rice to even have appeared in this appeal.
Given this express disclaimer of any challenge to Rice’s eligibility for benefits, we consider the issue waived. See
United States v. Olano, 507 U.S. 725, 733 (1993) (noting that waiver occurs upon the “intentional relinquishment or
abandonment of a known right” (quoting Johnson v. Zerbst, 304 U.S. 458, 464 (1938))).
No. 19-3836 Karst Robbins Coal Co., et al. v. OWCP, et al. Page 8
same review as the Board to ensure that it correctly applied this standard to the ALJ’s findings
below. See id. (“[This Court] must ensure that the Board applied the deferential ‘substantial
evidence’ test to the administrative law judge’s fact findings.”).
B. Responsible Operator Designation
Instead of arguing the merits of KRCC’s designation as the responsible operator,
Bituminous says that DOL gave up any chance to hold KRCC liable thirty years ago, when the
Director chose not to challenge the ALJ’s determination that KRMS was Rice’s employer. To
change its position now, Bituminous says, would cut against traditional principles of finality,
which apply in black lung cases just as they would in other types of litigation. But even under
these traditional principles of finality, Bituminous is wrong to say that DOL is stuck with this
previous finding. This is because the ALJ went on to deny Rice’s original claim on the merits,
regardless of who the responsible employer was. Only a finding that is necessary to the outcome
of an earlier proceeding will result in issue preclusion, and so DOL was not estopped from
claiming that KRCC was Rice’s true employer.
In Arkansas Coals, Inc. v. Lawson, this Court addressed the role of collateral estoppel in
BLBA proceedings. In that case, the ALJ conducted a hearing and ultimately found that the
claimant had failed to establish the existence of pneumoconiosis. 739 F.3d at 314. In the same
decision, the ALJ discussed the question of whether Arkansas Coals was the responsible
operator. Id. The ALJ noted that the Director failed to appear at the hearing and submitted no
evidence on this issue. Id. at 314–15. And so, because Arkansas Coals submitted evidence that
another mining company had more recently employed the claimant, the ALJ found that Arkansas
Coals was not the responsible operator and that the Black Lung Disability Trust Fund would pay
“should this claim be awarded” in the future. Id. at 315. Later, the claimant filed a subsequent
claim, and the Director again named Arkansas Coals as the responsible operator. Id. Arkansas
Coals sought review in this court, arguing—just like Bituminous—that the responsible operator
designation “was blocked by principles of finality and collateral estoppel.” Id.
As we explained, “[c]ollateral estoppel, otherwise termed issue preclusion, bars
‘successive litigation of an issue of fact or law actually litigated and resolved in a valid court
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determination essential to the prior judgment, even if the issue recurs in the context of a different
claim.’” Id. at 320 (quoting Taylor v. Sturgell, 553 U.S. 880, 891 (2008)). “The doctrine has
been applied to administrative decisions, particularly when an agency acts in a judicial capacity
and issues a final determination.” Id.; see also Astoria Fed. Sav. & Loan Ass’n v. Solimino,
501 U.S. 104, 107 (1991) (“We have long favored application of the common-law doctrines of
collateral estoppel (as to issues) and res judicata (as to claims) to those determinations of
administrative bodies that have attained finality.”); Pittston Coal Grp. v. Sebben, 488 U.S. 105,
122–23 (1988) (applying res judicata to BLBA claims).
The Arkansas Coals court then went on to list the four traditional requirements for
collateral estoppel:
(1) the precise issue must have been raised and actually litigated in the prior
proceedings; (2) the determination of the issue must have been necessary to the
outcome of the prior proceedings; (3) the prior proceedings must have resulted in
a final judgment on the merits; and (4) the party against whom estoppel is sought
must have had a full and fair opportunity to litigate the issue in the prior
proceeding.
739 F.3d at 320–21 (quoting Ga.-Pac. Consumer Prods. LP v. Four-U-Packaging, Inc., 701 F.3d
1093, 1098 (6th Cir. 2012)). Because identification of the responsible operator was not
“necessary to the outcome of the proceeding” when the claimant was denied benefits on the
merits, we held that collateral estoppel did not apply. Id. at 321.
This case is effectively identical. Just as in Arkansas Coals, the determination that
KRMS was the responsible operator was not “necessary to the outcome of the prior
proceedings,” id. (quoting Ga.-Pac. Consumer Prods., 701 F.3d at 1098), which similarly ended
in the denial of Rice’s claim based on his ineligibility for benefits. Accordingly, the Director is
not collaterally estopped from claiming that KRCC was Rice’s true employer and so can be held
responsible for paying his BLBA benefits.6
6In its reply brief, Bituminous points to Jonida Trucking, Inc. v. Hunt, 124 F.3d 739 (6th Cir. 1997), but
that case proves the rule that Bituminous struggles against today. In Jonida, the ALJ ultimately awarded the
claimant benefits, but Jonida nevertheless failed to appear or challenge its responsible-operator designation until it
later moved for reconsideration. Id. at 741. When the ALJ awards benefits, the determination of which responsible
No. 19-3836 Karst Robbins Coal Co., et al. v. OWCP, et al. Page 10
Bituminous attempts to distinguish Arkansas Coals by pointing out that in that case, the
claimant never filed an appeal of the original denial, whereas here, Rice appealed to the Board
but the Director never cross-appealed. This argument conflates collateral estoppel with the law-
of-the-case doctrine; collateral estoppel makes no distinction based on whether or not a party
appeals. See Commodities Exp. Co. v. U.S. Customs Serv., 957 F.2d 223, 228 (6th Cir. 1992)
(giving preclusive effect to an earlier decision even when an appeal was still pending); cf. FCA
US, LLC v. Spitzer Autoworld Akron, LLC, 887 F.3d 278, 286–87 (6th Cir. 2018) (describing the
law-of-the-case doctrine).7
Bituminous also tries to use DOL regulations to say that a different result is required
here. But the regulation it points to says the opposite of what Bituminous claims. Specifically,
the regulation provides that “[i]f the claimant demonstrates a change in one of the applicable
conditions of entitlement, no findings made in connection with the prior claim, except those
based on a party’s failure to contest an issue, will be binding on any party in the adjudication of
the subsequent claim.” 20 C.F.R. § 725.309(c)(5) (citation omitted). If this plain text were not
enough, Arkansas Coals again expressly forecloses Bituminous’s argument: “no findings, which
would include the designation of a responsible operator, are binding” in proceedings on a
subsequent claim. 739 F.3d at 318.
Arkansas Coals did nothing more than apply the traditional standards for collateral
estoppel and finality, which is exactly what Bituminous asks for now. Because the ALJ’s 1989
determination that KRMS was Rice’s employer was not necessary to the outcome of that
proceeding, DOL was not precluded from finding otherwise today.
operator must pay them is obviously “necessary to the outcome of the proceeding”; indeed, Arkansas Coals
expressly distinguished Jonida on this basis. Ark. Coals, 739 F.3d at 321 (citing Jonida, 124 F.3d at 744).
7Bituminous has not raised a law-of-the-case argument on appeal, nor does it point to anywhere it did
during the administrative proceedings in this case. Even if it had, the doctrine only applies to subsequent stages of
the same proceeding. Musacchio v. United States, 136 S. Ct. 709, 716 (2016); FCA, 887 F.3d at 286–87. It thus
seems doubtful that the doctrine would apply in this case, which involves a subsequent claim for benefits over ten
years after the conclusion of Rice’s original BLBA proceedings.
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C. Rescission of Insurance Policy
In addition to its estoppel argument, Bituminous also argues that it should be allowed to
rescind its insurance agreement with KRCC and thereby avoid liability on Rice’s BLBA claim.
Under Kentucky law, cancellation of an insurance policy prevents coverage only for events that
occur after the cancelation. Progressive N. Ins. Co. v. Corder, 15 S.W.3d 381, 383 (Ky. 2000).
But in certain cases—such as when the contract was obtained through fraud—a party can instead
rescind the agreement and render it void from its inception. Id. According to Bituminous, the
employee-leasing scheme between KRMS and KRCC was a fraudulent effort to avoid paying the
appropriate premiums, and thus Bituminous was tricked into an insurance policy it otherwise
would never have issued. Because of this, Bituminous says, it should be allowed to rescind the
policy and treat it as though the agreement had never been made.
For several reasons, this argument fails. Both DOL regulations and Kentucky law
prohibit the use of rescission to retroactively avoid liability under a BLBA or workers’
compensation policy, and even if this were not the case, Bituminous slept on its rights for
decades and so cannot seek rescission now. The Benefits Review Board was correct to reject
Bituminous’s claim for rescission.
First, DOL regulations preclude rescission of an insurance policy providing BLBA
coverage; only prospective cancellation is permitted. In order to issue insurance that satisfies the
BLBA’s mandatory coverage requirement, insurers agree to be bound “to full liability for the
obligations under the Act of the operator.” 20 C.F.R. § 726.210; see also 30 U.S.C. § 933(b)(3)
(empowering the Secretary of Labor to regulate the contents of BLBA insurance policies). DOL
regulations also provide that the BLBA endorsement added to such workers’ compensation
policies must “be construed to bring any policy or contract of insurance [for BLBA liability] into
conformity with the legal requirements placed upon such operator by [DOL regulations and the
BLBA].” 20 C.F.R. § 726.203(c)(6). And one of these legal requirements is that insurers must
give DOL thirty days’ advance notice before canceling a policy, which in turn relieves the
insurer from paying claims that arise after that cancellation. 33 U.S.C. § 936; 20 C.F.R.
§ 726.212.
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Under DOL’s interpretation of these regulations, insurers agree to cover the full amount
of any BLBA liability assessed to the insured operator, regardless of whether the operator
reported the correct number of employees to the insurer. See Ark. Coals, 739 F.3d at 313 (noting
that DOL’s regulations were intended “to ensure that coal mine operators are liable ‘to the
maximum extent feasible’ for awarded claims” (quoting Dir., Off. of Workers’ Comp. Programs
v. Oglebay Norton Co., 877 F.2d 1300, 1304 (6th Cir. 1989))). And so, while with proper notice,
Bituminous could have canceled its policy on a forward-looking basis (thus requiring KRCC to
find other insurance in order to comply with the law), it cannot retroactively rescind the policy
and leave the Trust Fund to pay the bill.
At least one other circuit has largely agreed with DOL’s interpretation. In Lovilia Coal
Co. v. Williams, 143 F.3d 317, 319–22 (7th Cir. 1998), Bituminous argued that it should not have
to pay a BLBA claim brought by the owner of the mine who opted out of workers’ compensation
coverage and thus was excluded from Bituminous’s premium calculation. Looking to the text of
the BLBA and DOL’s regulations, the court noted that “[t]he BLBA and its regulations require
that every coal operator’s contract of insurance contain provisions agreeing to cover fully all of
the coal operator’s liabilities under the BLBA,” regardless of whether premiums were collected
for a given employee. Id. at 322. Finding that it was Bituminous’s responsibility to ensure that
the premiums charged reflected the operator’s full risk under the BLBA, the Seventh Circuit
upheld the Board’s award of benefits. Id. at 324.
Setting aside Lovilia, even if Bituminous’s reading were the better one, this Court will
“defer to an agency’s interpretation of its own regulation . . . unless that interpretation is plainly
erroneous or inconsistent with the regulation.” Ark. Coals, 739 F.3d at 315 (quoting Cumberland
River, 690 F.3d at 485); accord, e.g., Chase Bank USA, N.A. v. McCoy, 562 U.S. 195, 208
(2011). Because DOL’s reading follows the text of its regulations and fits within the BLBA’s
statutory scheme, Bituminous is barred from rescinding its policy and thereby avoiding liability
for Rice’s benefits.
Second, even if DOL’s regulations did not themselves preclude rescission, this Court has
already held that Kentucky law would instead. See United States v. Simpson, 538 F.3d 459, 466
(6th Cir. 2008) (“Under our reading of Kentucky insurance law, however, it appears that the
No. 19-3836 Karst Robbins Coal Co., et al. v. OWCP, et al. Page 13
insurance companies would have to pay on claims submitted by employees of Simpson who
were injured on the job even if Simpson had fraudulently misrepresented the number of
employees covered.”). This is because Bituminous’s insurance contract is a workers’
compensation policy, intended to benefit third-party employees like Rice under Kentucky’s
statutory scheme. Allowing Bituminous to rescind the policy and avoid liability for past events
would instead force the Black Lung Disability Trust Fund to pay the claim, pushing this cost
onto taxpayers and eliminating the main incentive for Bituminous to police its own customers.
While Kentucky’s courts do not seem to have yet addressed rescission of workers’
compensation agreements, they have prohibited rescission in automotive insurance cases based
on these same public-policy concerns. In Progressive Northern Insurance Co. v. Corder,
Kentucky’s high court considered whether an insurer can rescind a motorcycle insurance policy
and thereby avoid liability to a third-party claimant. The motorcycle at issue was owned and
insured in the name of the driver’s father. 15 S.W.3d at 382. Progressive claimed this was a
fraud because the policy-holder’s son was the primary operator of the motorcycle; in fact, the
father did not even have a motorcycle license. Id. When an unrelated passenger sued to recover
for her injuries in the accident, Progressive filed a declaratory judgment action to rescind the
policy, and we requested certification from the Kentucky Supreme Court. Id. at 382–83. The
state supreme court rejected Progressive’s claim, holding that Kentucky Revised Statutes section
304.14-110—the same section that Bituminous relies on to rescind KRCC’s policy here—cannot
be used “to defeat recovery to an innocent, injured third party.” Id. at 383.
The Corder court rooted its decision in the public policy behind Kentucky’s mandatory
insurance regime, saying that to permit rescission after a claim “would strike at the heart of
compulsory liability insurance and would operate as the functional equivalent of a contractual
exclusion from minimum liability coverage.” Id. at 383–84.
The result urged by Progressive would likewise defeat minimum coverage, with
the consequence that an innocent, injured third party would bear the burden of
intentional misrepresentations by the insured. It would shift the loss to one who
was entitled to rely on obedience to the law and one who was without any means
of determining whether a policy had been fraudulently procured. As between the
injured third party and the insurer, the latter is in the far superior position to
protect itself. The insurer may accept or reject policy applicants and it possesses
No. 19-3836 Karst Robbins Coal Co., et al. v. OWCP, et al. Page 14
the skill and wherewithal to make sound underwriting decisions. Therefore,
Progressive may not rescind the contract to avoid liability to Corder.
Id. at 384 (footnote omitted); see also Nat’l Ins. Ass’n v. Peach, 926 S.W.2d 859, 861–62 (Ky.
Ct. App. 1996) (further discussing this public policy issue). The same concerns apply to
workers’ compensation policies like the one issued by Bituminous. See Simpson, 538 F.3d at
466–69 (concluding that Kentucky courts would likely bar rescission of workers’ compensation
policies based in part on Kentucky automotive cases); see also, e.g., Cruz v. New Millennium
Constr. & Restoration Corp., 793 N.Y.S.2d 548, 550–51 (App. Div. 2005) (same for New York);
State Ins. Fund v. Brooks, 755 P.2d 653, 657 (Okla. 1988) (same for Oklahoma); cf. In re
Cummings, 754 N.E.2d 715, 719 (Mass. App. Ct. 2001) (barring rescission based on a
cancellation-notice requirement similar to DOL’s).
Bituminous argues that these public policy concerns do not apply because the Black Lung
Disability Trust Fund will cover the cost of Rice’s benefits, meaning no innocent third party will
be left holding the bag. But Kentucky also has a state fund to cover lapses in workers’
compensation coverage, and yet this Court still held that rescission was unavailable, expressly
rejecting an identical argument to Bituminous’s. Simpson, 538 F.3d at 466–67. Thus, even if
Kentucky common law alone determined the availability of rescission in this case, Bituminous
would still be out of luck.
Finally, even if rescission somehow were an option, Bituminous lost any claim to that
remedy when it slept on its rights for decades and failed to take any action against KRCC.
Under Kentucky law, a party seeking to rescind its contract must promptly act after discovering
the fraud or else loses its right to that remedy. See, e.g., Cent. Life Ins. Co. v. Taylor, 176 S.W.
373, 374 (Ky. 1915). Bituminous argues that it met this requirement by requesting rescission in
Rice’s 2002 BLBA proceedings, since only during KRCC’s bankruptcy did it discover facts
showing the whole of the companies’ alleged fraud.
The record shows that the opposite is true. Bituminous was already aware of the core
facts for its rescission claim during Rice’s 1983 claim for benefits. In that proceeding, the record
established that Rice was employed on paper by KRMS but worked in KRCC’s mine. If such an
No. 19-3836 Karst Robbins Coal Co., et al. v. OWCP, et al. Page 15
arrangement constitutes fraud (as Bituminous claims here), then Bituminous had the facts
necessary to rescind the insurance policy decades before its first effort to do so.
Indeed, the record contains a September 1985 internal memorandum from a Bituminous
employee that raises precisely this issue. The memorandum noted that the employee-leasing
arrangement between KRMS and KRCC “seemed to be a sham by these two involved companies
to avoid paying the proper premium.” (App. at 209.) Not only did Bituminous have enough
information to draw the inference that KRCC’s conduct constituted fraud, it in fact did draw that
inference. The only difference is that in 1989, DOL found that KRMS was the responsible
operator and left Bituminous off the hook, but today, that liability falls to KRCC and
Bituminous, prompting the latter’s belated claim for rescission.8
Bituminous betrays its timeliness arguments in its own brief, noting that “it was not until
DOL awarded benefits in Rice’s claim that Bituminous had any financial incentive to request
rescission.” (Pet’rs’ Br. at 30.) The requirement that an insurer promptly act to rescind a
fraudulent contract—regardless of its immediate financial incentives to do so—is precisely
intended to prevent such gamesmanship: an insurer cannot continue to accept premiums on a
fraudulently obtained policy in the hopes that no claim will be made, and then void that policy as
soon as a claim is filed and its previous choice becomes unprofitable. Because Bituminous
waited decades to initiate any claim of rescission, it has forfeited any right to that remedy and
must cover the cost of Rice’s benefits.
D. Due Process Claim
Unable to lean on issue preclusion or rescission, Bituminous last argues that the
administrative proceedings before DOL violated its right to due process, and so it should be
excused from paying Rice’s benefits. Specifically, Bituminous says that after the DOL claims
8Furthermore, although only dissolved in 2007, KRCC first filed for bankruptcy in 1990. While
Bituminous claims “[i]t was not until KRCC filed for bankruptcy that the extent of the fraudulent scheme became
clear,” even accepting this as true, that means Bituminous might have known “the extent of the fraudulent scheme”
for over a decade before Rice’s 2002 BLBA claim. (Pet’rs’ Br. at 30.) Bituminous points to nothing in the record
showing when within that nearly twenty-year period it learned of the facts necessary to demonstrate KRCC’s alleged
fraud. Bituminous thus cannot show its entitlement to rescission under Kentucky law, and certainly cannot
demonstrate the Board’s error in rejecting its argument on this basis below.
No. 19-3836 Karst Robbins Coal Co., et al. v. OWCP, et al. Page 16
examiner spoke with Rice’s counsel by phone—an ex parte communication that Bituminous says
violates the Administrative Procedure Act—DOL failed to include notes of those phone calls in
the record. Because this failure led to an unnecessary remand by the Benefits Review Board, and
thus delayed the resolution of Rice’s BLBA claim, Bituminous says it was prejudiced to such a
degree that the proceedings failed to provide the due process required by the Constitution.
The Due Process Clause of the Fifth Amendment applies to administrative proceedings
just as it does to other instances of government action. Richardson v. Perales, 402 U.S. 389, 401
(1971). Under the procedural element of that clause, a party must be afforded adequate notice
and a fair opportunity to be heard before being deprived of its property, in this case the benefits
money owed to Rice. Arch of Ky., Inc. v. Dir., Off. of Workers’ Comp. Programs, 556 F.3d 472,
478 (6th Cir. 2009); see also 5 U.S.C. § 554 (establishing procedures for notice and hearings).
Under this standard, delays or irregularities can rise to such a level as to undermine the fairness
of a proceeding, which in turn would amount to a due process violation. See, e.g., Island Creek
Coal Co. v. Holdman, 202 F.3d 873, 883–84 (6th Cir. 2000) (finding a due process violation
based on the agency’s loss of evidence). But even after such a procedural failure, a party must
show that it was prejudiced in order to succeed on a due process claim. See, e.g., id. (analyzing
prejudice with respect to the operator’s due process claim); Peabody Coal Co. v. Holskey,
888 F.2d 440, 443 (6th Cir. 1989) (rejecting a delay-based due process claim for failure to show
prejudice).
Bituminous’s prejudice argument appears to be this: Because the DOL claims examiner
failed to include notes of the phone calls with Rice’s counsel in the record, the Benefits Review
Board mistakenly determined that Rice’s 2006 filing was a request for modification rather than a
subsequent claim, and so it erroneously remanded the case to the ALJ. And if the Board had not
remanded the case, Bituminous theorizes that the Board might instead have affirmed the ALJ’s
decision. Rather than that, after the remand, Rice got another “bite of the apple” and was able to
prove his entitlement to benefits, meaning the proceedings that led to this remand
unconstitutionally prejudiced Bituminous. (Pet’rs’ Br. at 32.) Bituminous adds that, at the very
least, an affirmance by the Board would have forced Rice to file a subsequent claim instead of
No. 19-3836 Karst Robbins Coal Co., et al. v. OWCP, et al. Page 17
continuing to litigate his 2006 claim, which in turn would have resulted in a later onset date for
benefits.
But this leaves out a key part of the timeline. The ALJ decision that ultimately awarded
benefits did not come during proceedings on Rice’s 2006 filing alone (i.e., the one that the Board
remanded). Rather, in 2013, Rice filed a request for modification, which was the filing that
ultimately yielded the order granting him benefits. Nothing with respect to the proceedings on
the 2006 filing before the Board and after the subsequent remand impacted Rice’s ability to file
his request for modification, and it was that action—not the remand—that gave Rice his
additional bite at the apple. Even had the Board affirmed the ALJ’s decision (itself a rather
speculative proposition, given that the Board later affirmed an order finding that the original
ALJ’s decision was legally erroneous), Rice would still have been able to file his request for
modification, thus defeating Bituminous’s onset-date argument as well. Accordingly,
Bituminous cannot show how DOL’s failure to include the call notes in the record resulted in any
prejudice.
Bituminous also argues that the delay in proceedings caused by the failure to include the
claims examiner’s call notes compromised its defense by preventing Bituminous from gathering
contrary evidence as to Rice’s work history. But Bituminous knew that Rice’s years of coal
mine employment were at issue at least as far back as 2006, when Rice submitted his third claim
for benefits. (See App. at 48 (noting that Rice’s 2006 application for benefits claimed “ten years
of coal mine employment,” and that during the later modification proceedings, Bituminous “[did]
not dispute this in argument at hearing or in the brief”).)
Tellingly, Bituminous points to no argument or piece of evidence that was available to it
during the 2006 proceedings but that was lost before the 2013 proceedings—a task that would be
a challenge given that the record from the 2006 filing was equally a part of the 2013
modification proceedings. (See id. at 27 (describing the procedures for modification, including a
review of the “entire record” of the claim that the party is seeking to modify, which includes all
“previously submitted evidence”).) And while Bituminous does not need to show precisely what
the missing evidence would have proven or that it necessarily would have changed the outcome
of this case, it still needs to show—at minimum—that some evidence actually became
No. 19-3836 Karst Robbins Coal Co., et al. v. OWCP, et al. Page 18
unavailable. See Holdman, 202 F.3d at 883–84 (finding prejudice based on lost exhibits that
concerned the issues in dispute); see also Consolidation Coal Co. v. Borda, 171 F.3d 175, 178–
79, 182–84 (4th Cir. 1999) (finding prejudice based on a substantial delay that resulted in a loss
of a defense); Lane Hollow Coal Co. v. Dir., Off. of Workers’ Comp. Programs, 137 F.3d 799,
802, 807 (4th Cir. 1998) (finding prejudice from delay when the claimant died during the
pendency of his claim, preventing the operator from developing contrary evidence). Whatever
need Bituminous had to marshal evidence in support of its defense, it was aware of that need
back in 2006, well before the claims examiner’s ex parte phone calls came to light. None of the
subsequent proceedings on Rice’s claim for benefits changed this calculus, and so Bituminous
has failed to show that it suffered any prejudice as a result of DOL’s omission.
CONCLUSION
For the reasons stated above, we deny Bituminous’s petition for review.