Lamb v. Southwest Commodities, LLC

NOT DESIGNATED FOR PUBLICATION

No. 115,195

IN THE COURT OF APPEALS OF THE STATE OF KANSAS

JEROLD L. LAMB, (Deceased),
Appellee,

v.

SOUTHWEST COMMODITIES, LLC,
Appellee,

and

RIVERPORT INSURANCE CO.,
Appellant.


MEMORANDUM OPINION

Appeal from Workers Compensation Board. Opinion filed January 27, 2017. Vacated and
remanded.

Douglas M. Greenwald and Eric T. Lanham, of McAnany, Van Cleave & Phillips, P.A., of
Kansas City, for appellant.

No appearance by appellees.

Before BRUNS, P.J., POWELL, J., and STUTZMAN, S.J.

STUTZMAN, S.J.: Jerold L. Lamb (Jerold) drove for Southwest Commodities, LLC
(Southwest), a trucking company, and he died in the course of that employment. Jerold's
wife, Gayle Lamb (Gayle), filed a claim against Southwest for death benefits under the
Workers Compensation Act (Act). As that claim was processed, Riverport Insurance
Company (Riverport) disputed Southwest's claim that it had a workers compensation
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policy through Riverport in effect on the date of Jerold's accidental death. An
administrative law judge (ALJ) awarded Gayle death benefits and resolved the disputed
issue with a finding that Riverport was Southwest's insurer on the date of Jerold's death.

On review, the Kansas Workers Compensation Board (Board) dismissed the
appeal of the ALJ's award, concluding that both the ALJ and the Board lacked subject
matter jurisdiction to address the insurance coverage dispute. The Board found that the
ALJ's determination that Riverport was Southwest's insurer on the date of Jerold's
accidental death was void and ruled that resolution of any insurance coverage dispute
between Southwest and Riverport required a decision from a district court. The Board
also specified that the ALJ's award against Southwest and Riverport for payment of
benefits would be "left undisturbed" by its order.

Riverport appeals the Board's conclusion that the existence of coverage could not
be decided in workers compensation proceedings. Alternatively, Riverport argues if the
Board's jurisdiction conclusion was correct, it necessarily erred when it left the ALJ's
death benefits award undisturbed. We find the conclusion that the ALJ and the Board
lacked subject matter jurisdiction to decide and review the coverage question was
incorrect. Therefore, we vacate the Board's dismissal of Riverport's appeal from the order
entered by the ALJ and do not reach Riverport's alternative argument.

FACTS AND PROCEDURAL BACKGROUND

Eric Kramer owned both Southwest and Kramer Harvesting, organized as separate
limited liability companies although they used the same physical mailing address and
post office box. Robert Brown (Brown) worked for both companies. Brown was in
charge of maintaining workers compensation insurance for both Southwest and Kramer
Harvesting. On June 10, 2013, Brown contacted private insurance agent Chris Gall to
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obtain insurance for both Southwest and Kramer Harvesting. Gall listed the business
seeking insurance as "Kramer Harvesting LLC Southwest Commodities LLC."

On June 27, 2013, Berkley Assigned Risks Services (Berkley), which administers
workers compensation insurance for Riverport, mailed a workers compensation assigned
risk policy to the post office box address for the companies. The policy listed "Kramer
Harvesting LLC Southwest Commodities LLC" as the insured. Subject to cancellation,
this policy was to remain in effect from June 11, 2013, to June 11, 2014. For that policy,
Berkley also hired a third-party auditor to complete a preliminary audit of Southwest and
Kramer Harvesting. The auditor sent the completed preliminary audit to Berkley on
October 22, 2013. On October, 16, 2013, however, the insurance policy for Southwest
and Kramer Harvesting had been canceled for nonpayment of the premium.

Southwest and Kramer Harvesting paid the outstanding premium and Berkley
reinstated their policy, but it bore a new number as a reinstated policy. In the interval
between October 16, 2013, and October 21, 2013, there was a lapse of coverage. As
Berkley explained it, although the coverage was reinstated, the policy was technically
new because of the lapse. Berkley mailed Southwest and Kramer Harvesting their new
reinstated workers compensation assigned risk policy plan on October 23, 2013.

The lapse in coverage triggered a requirement for Southwest and Kramer
Harvesting to undergo a "final premium audit" on the original policy that had been
canceled for nonpayment. Berkley contacted the auditor to complete the final premium
audit on October 24, 2013, just 2 days after the auditor had submitted the preliminary
audit to Berkley. The auditor later reported to Berkley that reasonable efforts to set up the
audit with Southwest and Kramer Harvesting were unsuccessful, so she was unable to
complete the final premium audit. Because of the reported lack of cooperation for a final
premium audit, Berkley sent notice of cancellation of the reinstated policy, effective
December 25, 2013, at 12:01 a.m. Berkley sent the cancellation notice, addressed only to
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Kramer Harvesting, to the post office box for the companies. The cancellation notice
eventually was returned to Berkley as unclaimed.

On January 16, 2014, while driving a Southwest Commodities truck, Jerold was
involved in a multi-vehicle crash and died at the scene of the accident. On January 28,
2014, Brown filed an accident report with the Division of Workers Compensation, listing
Berkley as its insurance carrier. Several days later, Jerold's surviving spouse, Gayle, filed
an application for hearing with the Division claiming she was entitled to death benefits.

Although it initially provided counsel for Southwest, Riverport denied that
"Kramer Harvesting dba Southwest Commodities, LLC" had workers compensation
insurance on the date of Jerold's death because it had canceled the reinstated policy on
December 25, 2013. Southwest contended it had insurance through Riverport on the date
of Jerold's death, and asserted that it "was in compliance with all material terms and
conditions of the Riverport policy" at all material times because it had cooperated fully
with Riverport's audit requests, and it continued to receive documents from Riverport
after Riverport alleged that it had canceled the workers compensation insurance policy.

Based on the conflicting claims by Riverport and Southwest that introduced the
possibility Southwest may not have been insured, Gayle moved to implead the Workers
Compensation Fund (Fund) into the proceedings. Southwest stipulated to the fact that it
was insolvent and unable pay any death benefits award if the ALJ determined it did not
have insurance through Riverport on the date of Jerold's death. Furthermore, all the
parties stipulated before the ALJ that: Jerold was employed by Southwest; his death
occurred by accident that arose out of and in the course of his employment with
Southwest; his death was covered under the Act; and the amount of benefits owed was
undisputed, none of which had been paid to the surviving spouse at that point.

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During the proceedings ahead of the ALJ's final ruling, Gayle requested an order
for the Fund to begin paying Jerold's death benefits to her. She argued that the Fund
could seek repayment from either Southwest or Riverport once the ALJ reached a
decision on the coverage question. On January 7, 2015, over the Fund's objection, the
ALJ ordered the Fund to begin paying death benefits to Gayle in the amounts the parties
had agreed.

As made evident by the wide-ranging stipulations, the parties were of the same
mind in almost all respects. The sole disputed question was whether Riverport was the
workers compensation insurer for Southwest on the date of Jerold's death. Riverport
argued that it had properly canceled Southwest's policy prior to the date of the fatal work
accident. Southwest responded that Riverport "failed to effectuate a valid cancellation" of
the insurance policy.

The ALJ analyzed the evidence, law, and arguments and found that because the
policy was not canceled in the manner required, Riverport was Southwest's insurer for
this claim. An award of compensation in the amounts the parties had agreed, therefore,
was entered against Southwest, as employer, and Riverport, as Southwest's insurer.

Riverport filed an application for review with the Board, claiming that it had
"properly and effectively" canceled the policy. Riverport and Southwest filed briefs in
which they repeated their arguments previously presented to the ALJ. The Fund filed a
brief adopting Southwest's arguments.

In its order issued after considering the briefs and oral arguments, the Board held
that the ALJ incorrectly undertook to decide the insurance coverage question for which
there was no subject matter jurisdiction in a proceeding under the Act. The Board found
that if the coverage dispute were to be litigated, it must be done in the district court. The
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Board specifically ordered that "[t]he ALJ's order of benefits against respondent
[Southwest] and insurance carrier [Riverport] is left undisturbed by our conclusion."

Riverport timely appeals the Board's order and is the only party to brief the issues
before us.
ANALYSIS

Standard of Review

Subject matter jurisdiction is the power of a court or agency to hear and decide a
case. See Grajeda v. Aramark Corp., 35 Kan. App. 2d 598, 603, 132 P.3d 966 (2006).
"Whether jurisdiction exists is a question of law over which this court's scope of review is
unlimited." Rivera v. Cimarron Dairy, 267 Kan. 865, 868, 988 P.2d 235 (1999). Issues
regarding subject matter jurisdiction may be raised at any time or upon a court's own
motion. 267 Kan. at 868.

The basis for review of decisions from the Board was summarized recently by our
Supreme Court:

"The Workers Compensation Board's decision is subject to appellate review
under the Kansas Judicial Review Act, K.S.A. 77-601 et seq. K.S.A.2014 Supp. 44–
556(a). Relief may be granted if the Board erroneously interpreted or applied the law.
K.S.A.2014 Supp. 77–621(c)(4). Whether the Board properly interpreted and applied
K.S.A.2010 Supp. 44–501(h) is a question of law subject to de novo review. See Whaley
v. Sharp, 301 Kan. 192, 196, 343 P.3d 63 (2014)." Hoesli v. Triplett, Inc., 303 Kan. 358,
362, 361 P.3d 504 (2015).

Discussion

The Board's order pointed to a line of appellate cases it interpreted, as a matter of
jurisdiction, to preclude consideration of any question of insurance coverage in a workers
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compensation proceeding. First among those cases was American States Ins. Co. v.
Hanover Ins. Co., 14 Kan. App. 2d 492, 794 P.2d 662 (1990), a decision of this court on
an interlocutory appeal. As cited by the Board, that court held: "Unless specifically
allowed by statute, insurance companies may not litigate in the workers compensation
division their respective liability for an award if the employee's interests are not at issue."
14 Kan. App. 2d at 498.

The Board next offered support for its conclusion through excerpts from Mitchell
v. Petsmart, Inc., 291 Kan. 153, 239 P.3d 51 (2010); Kuhn v. Grant County, 201 Kan.
163, 439 P.2d 155 (1968); Landes v. Smith, 189 Kan. 229, 368 P.2d 302 (1962); and
Hobelman v. Krebs Construction Co., 188 Kan. 825, 366 P.2d 270 (1961). The Board
also referenced Tull v. Atchison Leather Products, Inc., 37 Kan. App. 2d 87, 150 P.3d
316 (2007), and interpreted it to be consistent with the principles established in the other
cases. We do not need to review each of these. Mitchell, however, is not only the most
recent of the cases, but it is representative of the others and incorporates their holdings on
this question.

In Mitchell, the claimant worker made two claims for related, but separate, work
injuries. The facts were complicated further by the employer's change of workers
compensation insurers between the two injuries and the claimant's assertion that the way
he performed his work after the first injury gave rise to the second claim. The ALJ
consolidated Mitchell's two claims and, as might be expected, the relative liability of each
insurance carrier for these interconnected claims was a part of the dispute. 291 Kan. at
157. The ALJ made the two insurers jointly and severally liable, commenting that: "'The
law is clear that if [insurance carriers] have a disagreement among themselves as to who
the responsible carrier is, that should be decided in the District Court . . . [because] we
are not authorized to make that determination in the Comp Court." 291 Kan. at 158-59.

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On review of the ALJ's award to Mitchell, the Board concurred with the order to impose
liability on both insurers, jointly and severally.

The Supreme Court found no fault in how the ALJ and the Board addressed the
issue of Petsmart's two insurers:

"[W]e agree generally with the notion expressed by the ALJ and in the case law that
insurance carriers should not litigate disputes about their respective liabilities for the
compensation awarded to an injured worker in the compensation proceedings. Instead,
these matters should be decided in separate proceedings between the carriers brought for
such purposes and outside the Board's jurisdiction. See Kuhn v. Grant County, 201 Kan.
163, Syl. ¶¶ 3-5, 439 P.2d 155 (1968) (discussing the hardship that may confront a
claimant when insurance carriers litigate claims and equities existing between themselves
during the injured worker's compensation process); Hobelman v. Krebs Construction Co.,
188 Kan. 825, 830-33, 366 P.2d 270 (1961) (where employee of two employers is
injured, degrees of liability between employers and their carriers are not to be decided in
workers compensation proceedings); Tull v. Atchison Leather Products, Inc., 37 Kan.
App. 2d 87, 93-94, 150 P.3d 316 (2007) (not an erroneous application of law when an
ALJ or the Board embraces the general rule stated in Kuhn)." 291 Kan. at 174.

In the present case, the Board reached its conclusion by reading these cases as
declarations that there was no jurisdiction to consider any coverage questions that might
be raised within the workers compensation process. When two or more insurers are
disputing their relative allocation of responsibility for payment of an award, we agree that
the cases do prescribe a preference for deciding those questions outside the compensation
process. We note, however, that in Mitchell our Supreme Court's passing reference to this
question was not phrased in prohibitive jurisdictional terms, but with a comment that the
court "agree[d] generally" with the "notion" that insurers "should not" litigate their
disputes over allocation of liability within the forum of compensation proceedings. 291
Kan. at 174.

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Over 50 years, through numerous statutory iterations, both our Supreme Court and
this court have expressed the general view that multiple insurers disputing only their
relative liability for an award should do so on their own time, at their own cost, and in
district court. The cases on which the Board relies, however, do not support its finding
that an ALJ has no jurisdiction to consider the issue when an insurer and an employer
dispute the existence of coverage for a claim.

The legislature is the source of jurisdiction for administrative law judges. The
current legislative grant of jurisdiction is provided in K.S.A. 2015 Supp. 44-551:

"Administrative law judges shall have power to administer oaths, certify official
acts, take depositions, issue subpoenas, compel the attendance of witnesses and the
production of books, accounts, papers, documents and records to the same extent as is
conferred on the district courts of this state, and may conduct an investigation, inquiry or
hearing on all matters before the administrative law judges. All final orders, awards,
modifications of awards, or preliminary awards under K.S.A. 44-534a, and amendments
thereto, made by an administrative law judge shall be subject to review by the workers
compensation appeals board." K.S.A. 2015 Supp. 44-551(l)(1).

In this case, Southwest contended it had the benefit of coverage for Jerold's
accidental death. Riverport argued it had no coverage obligation to Southwest on that
date. Administrative law judges may properly consider "all matters" before them. Giving
the statute's words their common meaning, we find the legislature conferred jurisdiction
on the ALJ that clearly encompassed the coverage question between Southwest and
Riverport. That dispute was an integral part of the "matter" before the ALJ.
Correspondingly, the Board had jurisdiction to review the ALJ's decision on that issue.

Finally, and more narrowly, we note as well the implication of K.S.A. 2015 Supp.
44-532a to the facts of this case. Based on the insolvency of Southwest, the Workers
Compensation Fund (Fund) was brought into the case. Based on a stipulation and
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presentation by counsel, the ALJ made a preliminary finding of insolvency to support an
order for payment of the lump sum death benefits and commencement of other benefit
payments, pending resolution of the coverage question. As the parties noted before the
ALJ considering the temporary order, the Fund has statutory authority to recover its
expenditures in the event Riverport is found to have had coverage in effect.

Conclusion

The Board's order was an erroneous interpretation or application of K.S.A. 2015
Supp. 44-551(l)(1), warranting relief under the terms of the Kansas Judicial Review Act.
K.S.A. 2015 Supp. 77-621(c)(4). The Board's dismissal of Riverport's appeal from the
ALJ is vacated, and the case is remanded for further proceedings.

Vacated and remanded.

* * *

POWELL, J., concurring: I join the majority in the result but disagree with its
conclusion that K.S.A. 2015 Supp. 44-551(l)(1) confers subject matter jurisdiction upon
the ALJ to decide insurance coverage questions. It does not. K.S.A. 2015 Supp. 44-
551(l)(1) grants broad investigatory powers to the ALJ concerning those matters properly
before it, but it does not specify what those matters are. Subject matter jurisdiction in this
case is conferred by K.S.A. 2015 Supp. 44-532a(a), which states:

"If an employer has no insurance or has an insufficient self-insurance bond or
letter of credit to secure the payment of compensation, as provided in subsection (b)(1)
and (2) of K.S.A. 44-532, and amendments thereto, and such employer is financially
unable to pay compensation to an injured worker as required by the workers
compensation act, or such employer cannot be located and required to pay such
compensation, the injured worker may apply to the director for an award of the
compensation benefits, including medical compensation, to which such injured worker is
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entitled, to be paid from the workers compensation fund. Whenever a worker files an
application under this section, the matter shall be assigned to an administrative law judge
for hearing. If the administrative law judge is satisfied as to the existence of the
conditions prescribed by this section, the administrative law judge may make an award,
or modify an existing award, and prescribe the payments to be made from the workers
compensation fund as provided in K.S.A. 44-569, and amendments thereto. The award
shall be certified to the commissioner of insurance, and upon receipt thereof, the
commissioner of insurance shall cause payment to be made to the worker in accordance
therewith."

In the present case, the parties stipulated that the employer was insolvent;
therefore, under the statute quoted above, the ALJ had to be satisfied whether, in fact, the
employer had insurance coverage. While K.S.A. 2015 Supp. 44-551(l)(1) confers upon
the ALJ the necessary powers to investigate and gather evidence to aid it in answering
this question, it is the statutory language of K.S.A. 2015 Supp. 44-532a(a) that grants the
ALJ the power to answer the insurance coverage question.