Continental Insurance Company v. Sandi Group, Inc.

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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