Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Century Indemnity Co. v. Matson Terminals, Inc.

United States District Court, N.D. California, San Francisco Division

May 12, 2015

CENTURY INDEMNITY COMPANY, Plaintiff,
v.
MATSON TERMINALS, INC., et al., Defendants.

ORDER ON SUMMARY-JUDGMENT MOTIONS [Re: ECF Nos. 38, 53]

LAUREL BEELER, Magistrate Judge.

INTRODUCTION

The parties disagree over whether Century Indemnity Company must indemnify the Matson defendants under an excess-coverage insurance policy. That policy commits Century to reimbursing Matson for amounts that the latter paid "because of... compensation or other benefits" that Matson was "required" to pay "by the workers' compensation law." Federal labor law required Matson to pay yearly assessments into a Special Fund that, among other things, compensates workers who have suffered successive disabling injuries. The annual assessment is based partly on how many Matson employees the Fund compensated in the prior year. The court must now decide, on the parties' competing motions for summary judgment, whether the Century policy covers the Special Fund assessments. Century also argues that the statute of limitations bars Matson's claims. For the reasons stated below, the court grants Matson's motion for partial summary judgment, denies Century's, and holds that the policy covers the disputed assessments.[1]

STATEMENT

I. THE ACT AND THE SPECIAL FUND

"The Longshore and Harbor Workers' Compensation Act, 33 U.S.C. §§ 901, et seq., (the LHWCA' or Act') establishes a detailed and comprehensive workers' compensation scheme for maritime employees." Nat'l Metal & Steel Corp. v. Reich, 858 F.Supp. 62, 62 (D. Md. 1994), aff'd, 55 F.3d 967 (4th Cir. 1995). "The LHWCA requires every employer to secure the payment of compensation to its employees for injuries arising during the course of employment." Reich, 858 F.Supp. at 63 (citing 33 U.S.C. § 904). "Every employer must secure the payment of compensation by insuring such payment with a company that is authorized by law to insure workers' compensation, also known as a carrier, ' or by receiving authorization from the Secretary [of Labor] to pay such compensation directly, thereby becoming a self-insurer.'" Reich, 858 F.Supp. at 63 (citing 33 U.S.C. § 932(a)(1)-(2)).

"A subset of these compensable injuries is assumed by a [statutorily created] Special Fund, which relieves employers of liability for a portion of compensation payments when employees with preexisting disabilities suffer second injuries.'" Reich, 858 F.Supp. at 63 (citing 33 U.S.C. § 908(f)). "The Special Fund is intended to encourage employers to hire employees with preexisting disabilities." Reich, 858 F.Supp. at 62. It does this "by spreading the risk of loss throughout the industry." Reich, 55 F.3d at 969. "Funding for the Special Fund depends principally on assessments that the United States Secretary of Labor... imposes on each carrier and self-insurer' covered by the Act." Reich, 858 F.Supp. at 62 (citing 33 U.S.C. § 944(c)(2)). In addition to disability compensation, the Special Fund pays for vocational rehabilitation, and provides workers with information about the Special Fund. See 33 U.S.C. §§ 944(i), 908(g), 939(c).

* * *

II. SPECIAL FUND ASSESSMENTS: BEFORE AND AFTER 1984

No worker can receive Special Fund compensation without the Department of Labor's approval. See generally 20 C.F.R. § 702.321. (The decisions approving the relevant Matson employees appear at ECF Nos. 39-6 to -18.[2]) Once a worker enters the Special Fund, the LHWCA requires the employer (or its insurance carrier) to pay the first 104 weeks of disability compensation directly to the employee; after that, the Special Fund takes over. See Reich, 55 F.3d at 969 (citing 33 U.S.C. § 908(f)). An employer's obligation does not evaporate at 104 weeks, however. Should the employer fail to pay its compulsory Special Fund assessments, it would again be liable for directly compensating its injured workers. See Reich, 858 F.Supp. at 64 (citing 33 U.S.C. § 908(f)(2) ("The Special Fund shall not assume responsibility... for compensating an injured employee whose employer fails to secure the payment of compensation.")).

When the INA policy became effective in 1980, and until 1984, mandatory assessments into the Special Fund were calculated under a single formula. This "Part A" formula determined any given employer's yearly assessment as the ratio "of the total amount of [direct] compensation that each [employer] paid during the prior calendar year to the total amount of compensation that all [employers] paid during that period." Reich, 858 F.Supp. at 64 n. 4 (citing 33 U.S.C. § 944(c)(2)). This ratio was then multiplied by the Special Fund's projected total compensation for the next year. For example, if an employer paid (itself or through an insurance carrier) 5% of the maritime industry's total direct workers'-compensation benefits in a given year, it would be assessed 5% of the next year's projected Special Fund expenditures. This was regardless of how many of the company's workers were receiving Special Fund compensation. The Part A calculation thus depended entirely on how much the employer and industry had paid in direct compensation to injured workers outside the Special Fund.

Because it was not keyed to how many workers a company had put into the Special Fund, or (more precisely) how much the Special Fund had paid out to that company's workers, the Part A method encouraged abuse. Companies shunted an excessive number of their workers into the Special Fund; they "thereby decreased their payment of direct compensation to injured employees without increasing their [Special Fund] assessment rate." Reich, 858 F.Supp. at 64 n. 3. "In fact, dumping' cases into the Special Fund actually decreased an employer's assessment rate by decreasing the amount of its direct compensation." Id. This caused "dramatic growth [in] the Special Fund's obligations" to "second injury" workers. Id.

To solve this problem, in 1984 Congress changed the method for calculating Special Fund assessments. Id. The existing Part A formula would now yield only one part of an employer's yearly assessment. A new "Part B" calculation (33 U.S.C. § 944(c)(2)(B)) would account for the other part. Unlike Part A, the new Part B formula did account for how many workers a given employer had put into the Special Fund; or, more correctly, Part B set part of an employer's assessment according to how much the Special Fund had paid that employer's workers in the prior year. See Reich, 858 F.Supp. at 64 n. 4 (citing 33 U.S.C. § 944(c)(2)).[3] The Part B assessments thus, for the first time, linked a company's Special Fund obligations to the compensation that its own workers had received from the Fund.

* * *

III. THE PARTIES AND THE DISPUTED POLICY

Matson operated primarily as a self-insurer. (ECF No. 38 at 11.) To cover its obligations under the Act that surpassed a certain dollar limit, Matson bought from Century's predecessor (INA) an excess-coverage insurance policy. Entered into in 1979, the policy originally covered the 1980 calendar year; the parties later extended it to cover 1981. ( See Policy-ECF No. 39-1 at 2, 25; ECF No. 38 at 11.) Coverage under the policy could be triggered if Matson's outlays for any one worker exceeded $250, 000. (ECF No. 39-1 at 3 (declarations); Compl.-ECF No. 2 at 5-6, ¶ 29.) The policy's basic coverage clause provides:

INA hereby agrees to indemnify the Insured against excess loss as a result of injury (1) by accident occurring during the policy period... subject to the limitations, conditions and other terms of this policy, which the Insured may sustain because of: (a) compensation and other benefits required of the Insured by the workers' compensation law....

(ECF No. 39-1 at 4 (emphasis added) (formatting altered).) The policy's basic "Insuring Agreements" further provide that Century will be liable for only Matson's "ultimate net loss" in excess of $250, 000 for any one worker. ( Id. ) Elsewhere, the policy's "Definitions" section defines "ultimate net loss" as "the sum actually paid in cash in the settlement or satisfaction of losses for which the Insured is liable, either by adjudication or compromise with the written consent of INA...." ( Id. at 5 (emphasis added).) Finally, the policy is an "occurrence" rather than a "claims made" policy; it covers injuries that occurred during the policy's effective period (from January 1, 1980 until January 1, 1982). ( See ECF No. 39-1 at 2, 4.)

The parties actively negotiated parts of the policy. Two, at least, figure into the parties' arguments. First, the parties negotiated Part II of the core Insuring Agreements. This Part II limited Century's liability to Matson's "ultimate net loss." (ECF No. 39-1 at 4, ¶ II(a).) Part II did not define "ultimate net loss, " however ( see id. ); the policy's separate "Definitions" section did that ( id. at 5, ¶ 4(e)). It is the definition that, in explaining what constitutes "ultimate net loss, " restricts coverage to "losses" that Matson sustains "by adjudication." ( Id. ) Correspondence from 1980 between INA and Matson's lawyers indicates that INA had proposed an "amended" Part II; Matson rejected this and the parties fell back on INA's standard-form language for Part II. ( See ECF No. 54-1 at 2-6 (correspondence reflecting negotiations); ECF No. 53 at 12 ("the insuring agreement... used form language"). The correspondence does not show any negotiation over the definition of "ultimate net loss" or its limitation to losses sustained "by adjudication." ( See ECF No. 54-1, passim. )[4]

Second, apparently at Matson's urging, the parties added "Endorsement 7 to the policy. The precise language of this endorsement is not material to this analysis. The gist of Endorsement 7 is enough for present purposes. The endorsement mainly addresses subrogation rights that may arise against the Matson parent company - and, specifically, such rights as may arise between related Matson entities. For example, should Century become subrogated to a Matson subsidiary's right against the Matson parent, then under Endorsement 7, Century must assign that right to the Matson parent. (ECF No. 39-1 at 22-23.)

* * *

IV. MATSON'S 2013 CLAIMS AND CENTURY'S DENIAL

It was not until 2013 that Matson first made claims under the policy for losses consisting in Part B assessments to the Special Fund. It then sought coverage for Part B assessments that it had paid on 13 Matson employees "who suffered disabling injuries during the INA Policy period." (ECF No. 38 at 13; Compl.-ECF No. 2 at 8-9, ¶¶ 43-45.) The payments in question date from 1984. ( See Compl.-ECF No. 2 at 8, ¶¶ 43-44.) In October 2013, Century denied Matson's claim. ( Id. at 10, ¶¶ 55-56.)

* * *

This brings us to the present motions. The parties do not dispute the nature, function, or history of the Special Fund or its assessment formulas. They do not dispute employers' general workers'-compensation obligations under the LHWCA. Their present disagreement concerns only whether the Century policy covers the Part B assessments that Matson made into the Special Fund. On that isolated issue of coverage, the parties bring crossing motions for summary judgment.

* * *

ANALYSIS

The court must grant a motion for summary judgment if the movant shows that there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). Material facts are those that may affect the outcome of the case. Anderson, 477 U.S. at 248. A dispute about a material fact is genuine if there is sufficient evidence for a reasonable jury to return a verdict for the non-moving party. Id. at 248-49.

Federal courts sitting in diversity jurisdiction apply the contract law of the forum state. See, e.g., Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 419, 427 (1996). The Supreme Court of California has set out the rules that govern the judicial interpretation of insurance policies. "Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation." AIU Ins. Co. v. Superior Court of Santa Clara County, 51 Cal.3d 807, 821-22 (1990) (citing Cal. Civ. Code § 1636). "Such intent is to be inferred, if possible, solely from the written provisions of the contract." AIU, 51 Cal.3d at 822 (citing Cal. Civ. Code § 1639). "The clear and explicit' meaning of these provisions, interpreted in their ordinary and popular sense, ' unless used by the parties in a technical sense or a special meaning is given to them by usage' controls judicial interpretation." AIU, 51 Cal.3d at 822 (internal citations omitted) (citing Cal. Civ. Code §§ 1638, 1644). "Thus, if the meaning a lay person would ascribe to contract language is not ambiguous, we apply that meaning." AIU, 51 Cal.3d at 822 (citing cases). "In the insurance context, " moreover, California courts "generally resolve ambiguities in favor of coverage." Id. Similarly, those courts "generally interpret the coverage clauses of insurance policies broadly, protecting the objectively reasonable expectations of the insured." Id.; accord, e.g., Bk. of the West v. Superior Court of Contra Costa County, 2 Cal.4th 1254, 1264-65 (1992) (ambiguous terms construed to protect "the objectively reasonable expectations of the insured").

* * *

I. THE POLICY'S PLAIN LANGUAGE COVERS THE SPECIAL FUND ASSESSMENTS

A. Core Analysis

The plain language of the policy covers the Part B assessments that the LHWCA required Matson to pay to the Special Fund. This conclusion requires nothing more than applying the plain meaning of the relevant terms in light of the undisputed facts. The policy's operative language, again, promised coverage for "excess loss" that Matson sustained "because of... compensation and other benefits" that it was "required" to pay "by the workers' compensation law." (ECF No. 39-1 at 4.) The policy's Ultimate Net Loss term (so far as is relevant) further required that Matson's obligation to pay arose "by adjudication." ( Id. at 5, ¶ 4.e.)

The parties do not dispute that financial expenditures, if otherwise within the scope of these terms, constitute "losses." Nor do they disagree that the LHWCA "required" Matson to pay the Part B assessments. Straightforward reasoning shows that Matson was "required" to pay the assessments "because of... compensation" or "other benefits" that the Special Fund disbursed to Matson employees. It is undisputed that the Part B assessments were calculated based on how much the Special Fund had paid to Matson employees in the prior year. It is also undisputed that, had Matson not discharged its responsibility to compensate its injured workers by paying assessments into the Special Fund, then it would have remained liable for compensating its workers directly, outside the Special Fund. The Part B assessments, in other words, were tied to, and arose "because of, " the "compensation" and "other benefits" that the LHWCA "required" Matson to pay its injured workers. Finally, the assessments were made after Department of Labor ("DOL") determinations that injured Matson workers were eligible for Special Fund payments. See ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.