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Continental Insurance Company As Successor By Merger To the v. Sandi Group

August 19, 2011

CONTINENTAL INSURANCE COMPANY AS SUCCESSOR BY MERGER TO THE FIDELITY AND CASUALTY COMPANY OF NEW YORK, PLAINTIFF,
v.
SANDI GROUP, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Amy Berman Jackson United States District Judge

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 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.

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). 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.

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 ...


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