Continental Insurance Company v. Sandi Group, Inc. , 804 F. Supp. 2d 59 ( 2011 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
____________________________________
)
CONTINENTAL INSURANCE )
COMPANY )
as successor by merger to the Fidelity
)
and Casualty Company of New York, )
)
Plaintiff, )
)
v. ) Civil Action No. 11-0355 (ABJ)
)
SANDI GROUP, INC., et al., )
)
Defendants. )
____________________________________)
MEMORANDUM OPINION AND ORDER
Plaintiff Continental Insurance Company (“Continental”) brought this declaratory
judgment action to resolve an insurance coverage dispute arising out of a policy issued by the
plaintiff to Computer Sciences Corporation, the parent company to DynCorp International
(“DynCorp”), to provide workers’ compensation insurance under the Defense Base Act (the
“DBA”), 42 U.S.C. §1651 et seq. Compl. ¶¶ 1–5. Defendants have moved this Court to dismiss
the case, or in the alternative, to stay the action. Based upon a review of the pleadings and
exhibits submitted by the parties, the cases cited therein, and the arguments of counsel at the
hearing on August 17, 2011, the Court will deny the motion to dismiss and deny the request for a
stay as well.
I. Background
The DBA, which is an extension of the Longshore and Harbor Workers’ Compensation
Act (the “LHWCA”), 33 U.S.C. § 901, et seq., provides workers’ compensation coverage to
“employees engaged in public work overseas for a company under contract or subcontract with
the United States government.” Makris v. Spensieri Painting, LLC, 669 F. Supp. 2d 201, 205
(D.P.R. 2009), citing 42 U.S.C. § 1651(a). “In essence, the statute mandates that United States
contractors and subcontractors procure workers’ compensation for their employees.” Id.According to the complaint, the insurance policy in question, Policy Number DOS 22 390 7841
(the “Policy”), pertains to several Department of State contracts, including a prime contract
identified by the number S-LMAQM-03-C-0028 (the “Prime Contract”). Compl. ¶¶ 3–6.
The DBA provides the exclusive remedy for employees injured while performing work
outside of the United States on a contract between their employers and the United States, 42
U.S.C. § 1651(c), and an employer who secures insurance coverage for its employees under the
DBA enjoys immunity from any other claims. Makris, 669 F. Supp. 2d at 206. Under the terms
of the LHWCA, if a subcontractor does not provide the required insurance, then the prime
contractor is liable for and required to secure the compensation. 33 U.S.C. § 904.
Injured employees obtain compensation under the DBA through proceedings before the
United States Department of Labor. The instant action relates to DBA claims filed by Iraqi
nationals who were employed by the defendant Sandi Group, Inc. (“Sandi Group”) and who were
injured or killed in connection with their employment. Pending before the Department of Labor
Office of Administrative Law Judges are a claim filed on behalf of Ashur G. Yacoub, who is
deceased, Case No. 2010-LDA-00295, OWCP No. 02-180069, and a claim brought by Ziad G.
Yaqoub, who was injured. Case No. 2010-LDA-00296, OWCP No. 02-180068. CorporateBank
Financial Services/The Sandi Group is identified as the employer in those claims, and
Continental Casualty Company is identified as the carrier.
In the consolidated matters before the Administrative Law Judge (“ALJ”), the Sandi
Group has taken the position that the claimants were its employees, working under a subcontract
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between the Sandi Group and DynCorp, for the benefit of the Prime Contract between DynCorp
and the State Department. See CorporateBank Financial Services/The Sandi Group’s Brief
Regarding Triable Issues (“Sandi Group’s ALJ Brief”), attached as Exhibit 2 to Def.’s Mot. to
Dismiss [Dkt. #8] at 2. The Sandi Group also asserted in the ALJ matter that DynCorp was
bound by its subcontract with the Sandi Group to provide DBA insurance, and that the Policy
was thus obtained for the Sandi Group’s benefit. Id. at 5.
On February 7, 2011, Continental informed the ALJ that it intended deny to coverage for
the claimant Sandi Group employees, on the grounds that the Policy did not cover foreign
nationals, and it filed the instant declaratory judgment action in this Court on February 12. In the
wake of that revelation, the Sandi Group asserted in its brief to the ALJ: “if [Continental’s]
Policy does not cover Ashur Yaqoub and Ziad Yaqoub’s incidents, under 33 U.S.C. § 904(a),
DynCorp is the employer who is statutorily responsible for providing Defense Base Act coverage
for these incidents.” Id. at 6. The Sandi Group therefore requested that the ALJ adjourn the trial
date that had been set and that DynCorp be joined as an indispensable party. Id. at 16. On
February 25, 2011, the ALJ vacated the trial date in those cases to receive briefing on the
question of whether DynCorp should be joined as an indispensable party. See Order to Show
Cause and Canceling the Formal Hearing (“Order to Show Cause” or “Order”), Yacoub v.
Corporate Bank Financial Services/The Sandi Group, Case No. 2010-LDA-00295, OWCP No.
02-180069, attached as Exhibit 3 to Def.’s Mot. to Dismiss. That briefing is complete, but as of
the time of the hearing in this case on August 17, 2011, the ALJ had not yet ruled on the question
of DynCorp’s participation.
Defendants have moved this Court to dismiss the case, or in the alternative, to stay the
action, on the grounds that the ALJ has jurisdiction over the insurance coverage dispute.
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Although styled as a motion to dismiss under Fed. R. Civ. P. 12(b)(6), defendants do not argue
that plaintiff has failed to state a claim upon which relief can be granted. Rather, defendants
argue that the Court should first allow the ALJ to rule on the coverage issues, and therefore the
Court should decline to exercise jurisdiction over this case. Accordingly, the Court will treat
defendant’s motion as a motion to dismiss under the doctrine of primary jurisdiction, or in the
alternative, as a motion to stay this action. 1 For the reasons described below, the Court will deny
defendants’ motion to dismiss and deny the request for a stay as well.
II. Analysis
The Sandi Group urges this court to dismiss this case on the grounds that it is the ALJ
who must and who will rule on the insurance coverage issue in the first instance, and that if this
Court undertakes to resolve the matter, there will be a risk of inconsistent rulings. Plaintiff
submits that the ALJ lacks jurisdiction to hear the insurance coverage issue, and therefore, this
Court should deny the motion. It also notes that there is an additional set of Sandi Group
employees who have asserted claims under the policy who are not claimants in the pending ALJ
action.
The Sandi Group points to the provision in the LHWCA that provides that an ALJ has
jurisdiction over each “claim for compensation” and the “full power and authority to hear and
determine all questions in respect of such claim.” 33 U.S.C. § 919(a). But in support of its
motion to dismiss, the Sandi Group does not point to any federal court cases which have held
that this provision grants the ALJ the authority to decide a contested insurance coverage issue,
1 Under the primary jurisdiction doctrine, a district court may dismiss a case on the ground
that an administrative agency is “best suited to make the initial decision on the issues in dispute,
even though the district court has subject-matter jurisdiction.” American Ass’n of Cruise
Passengers v. Cunard Line, Ltd., 31 F.3d 1184, 1186 (D.C. Cir. 1994), quoting Allnet Commc’ns
Svc., Inc. v. Nat’l Exch. Carrier Ass’n, 965 F.2d 1118, 1120 (D.C. Cir. 1992).
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much less any cases that found that the ALJ exercises such exclusive jurisdiction as to divest this
Court of its ability to hear the case. 2 Nor did the Sandi Group provide authority for the
proposition that a district court should defer to the ALJ’s assessment of the scope of an insurance
policy under similar circumstances. 3
Continental has directed the Court to Temporary Employment Services v. Trinity Marine
Group, Inc., 261 F. 3d 456 (5th Cir. 2001), in which the court found that the parties’ claims
regarding contractual indemnification provisions were beyond the scope of the statutory
authority granted to the administrative tribunal. The court analyzed the statute and concluded
that the language granting the ALJ the power to resolve all questions “in respect of” an
employee’s claim should be defined as all questions “integral to” the employee’s claim against
the employer. Id. at 462 (internal quotations omitted). This Court is inclined to agree with the
reasoning of the Fifth Circuit and its construction of the statute and to conclude that the
insurance coverage dispute is collateral to the only issue the statute assigns to the ALJ to resolve:
the claimant’s entitlement to payment.
2 While the Sandi Group informed the Court at the hearing that it had no authority that
would establish the ALJ’s jurisdiction, its brief to the ALJ cited opinions of the Department of
Labor Benefits Review Board recognizing the ALJs’ authority to resolve insurance issues. See
Exhibit 2 to Def’s Motion to Dismiss at 15.
3 The Sandi Group cites the Makris case, describing its holding as: “staying the decision as
to the DBA coverage as the Court’s ‘delving into the coverage controversy at this time would
undoubtedly interfere with the comprehensive review scheme provided for in the DBA.’” Def’s
Reply Mem. at 4, quoting Makris, 669 F. Supp. 2d at 208. But that decision did not involve a
court’s deferring to the ALJ to resolve an insurance coverage dispute between an employer and a
carrier; Makris was a tort action brought by employees against an employer who claimed
immunity under the DBA. The federal court elected to stay its consideration of the question of
whether the employees were limited to the exclusive remedies prescribed in the workmen’s
compensation statute while the question of whether they were covered by the statute was also
pending at the Department of Labor and in state court. The case is also distinguishable because
multiple parallel proceedings considering the very question presented to the district court were
already underway; here it is not clear that the ALJ will ultimately be ruling on the question
before this Court at all.
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It is important to note, though, that the Department of Labor Benefits Review Board has
ruled that “the administrative law judge has the power to hear and resolve insurance issues which
are necessary to the resolution of a claim under the Act.” Weber v. S.C. Lobeland Co., 28 BRBS
321, 1994 WL 712512, *9 (Nov. 29, 1994). But the D.C. Circuit has not weighed in on this
issue, and the Court need not resolve the jurisdictional question to rule on the motion to dismiss.
Even if the ALJ has concurrent authority to consider the scope of a DBA insurance policy, there
is no basis to conclude – and the Sandi Group has not argued – that the resolution of the legal
question will require specialized knowledge that is resident at the Department of Labor, or that it
will turn upon an examination that the ALJ is particularly suited to undertake. So, there is no
reason to decline to exercise the jurisdiction that this Court clearly possesses and defer to the
agency. Nor is the Court persuaded that the ALJ has undertaken to decide the coverage issue, or
that it will be decided promptly, so it is not necessary to stay this action.
It is true that the Sandi Group, in its trial brief, urged the ALJ to resolve the coverage
issue. See Sandi Group’s ALJ Brief at 13–15. But the ALJ’s Order to Show Cause does not
indicate to the Court that the ALJ accepted that invitation. See Order to Show Cause.
The Order to Show Cause simply reports that the insurance carrier (the plaintiff in this
action) filed a Notice of Controversion, stating that the DBA policy covered U.S. employees
only. Order to Show Cause at 1. The Order states: “In response, the Employer [the defendant in
this action] asserts that if the insurance policy does not apply to the Claimant’s claim, then
DynCorp may become liable for benefits . . . . Therefore, the Employer argues that this case
cannot be tried without DynCorp as a party . . . .” Id. at 1–2. Notably, the Order does not set
forth the Sandi Group’s position on whether the ALJ should address the coverage question; it
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simply reports that the Employer took the position that if there is no coverage, then DynCorp is
liable.
The Order further reports that “the Carrier argues that the disputed issue of insurance
coverage falls outside the jurisdiction of this Court, and therefore requests that this issue be set
aside and decided in a court of general jurisdiction.” Id. at 2. Meanwhile, according to the
Order:
The Claimant argues that the Employer, The Sandi Group, is liable for
compensation payments regardless of whether these payments are
covered by an insurance policy . . . . Further, the Claimant asserts that
any benefits awarded the Claimant should be issued against the
Employer, and then the Employer may pursue an indemnity claim
against the Carrier in a court of general jurisdiction.”
Id.The ALJ did not specify in the Order whether she ultimately intended to adopt the
approach urged by the Employer or by the Carrier and the Claimant. Instead, the rest of the
Order was devoted to her ruling: that the then-scheduled hearing would be cancelled and that the
parties had thirty days to show cause why DynCorp should not be joined as a party to the case.
Id.The Sandi Group rests its motion to dismiss on the single paragraph of the Order in which
the ALJ stated:
I note that I must ‘inquire fully into the matters at issue and shall
receive in evidence the testimony of witnesses and any documents
which are relevant and material to such matters . . . . Additionally,
unless the interest of justice require, all issues should be adjudicated in
one proceeding to avoid piecemeal litigation and needless procedural
delay . . . .
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Id. (citations omitted). The Sandi Group asserts that in these sentences, the ALJ indicated that it
was her intention to rule on the coverage issue, and that therefore, this Court should defer to the
ALJ’s exercise of jurisdiction over the matter.
But the ALJ’s statement is too general to be read as a definitive assumption of
jurisdiction over the coverage dispute. Moreover, the Sandi Group’s interpretation is not
consistent with the final sentence of the paragraph, in which the ALJ concludes:
Because of due process and judicial efficiency concerns, I find it
procedurally improper to continue without addressing the possible
joinder of DynCorp as a party to this proceeding.
Id. It appears to this Court that the sentences cited by the Sandi Group provide the background
for the issuance of the Order to Show Cause on the indispensable party issue, and they cannot be
read as a clear statement of the ALJ’s intention to take up the coverage issue. At best, the Order
gives rise to a possibility that the administrative tribunal will rule on the coverage question at
some unspecified time after it has had the benefit of the parties’ briefing.
Since it is not apparent to the Court whether or when the ALJ will construe the Policy – if
it even has the authority to make such a ruling – the Court cannot conclude that the interests of
judicial economy militate in favor of dismissal or a stay, particularly since the declaratory
judgment action here is likely to be resolved with dispositive motions that can be briefed on an
expedited schedule if necessary.
Therefore, for all of the reasons set forth above, it is ORDERED that the motion to
dismiss, or in the alternative to stay, this action is hereby DENIED.
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And it is further ORDERED that the parties shall meet and confer and submit a joint
report pursuant to LCvR 16.3 by September 9, 2011.
AMY BERMAN JACKSON
United States District Judge
DATE: August 19, 2011
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