391 F.Supp. 512 (N.D.W.Va. 1975), Civ. A. 74-20, Insurance Co. of North America v. National Steel Service Center, Inc.

Docket Nº:Civ. A. 74-20
Citation:391 F.Supp. 512
Party Name:Insurance Co. of North America v. National Steel Service Center, Inc.
Case Date:March 12, 1975
Court:United States District Courts, 4th Circuit, Northern District of West Virginia

Page 512

391 F.Supp. 512 (N.D.W.Va. 1975)



NATIONAL STEEL SERVICE CENTER, Inc., (formerly Korhumel Steel & Aluminum Co., Inc.), a corporation, Defendant.

Civ. A. No. 74-20-W.

United States District Court, N.D. West Virginia, Wheeling Division.

March 12, 1975.

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[Copyrighted Material Omitted]

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Thomas B. Miller, Wheeling, W. Va., for plaintiff.

Gilbert S. Bachmann, Wheeling, W. Va., Martin F. Fahey, Weirton, W. Va., Eli Krivoshia, Jr., Pittsburgh, Pa., for defendant.


MAXWELL, Chief Judge.

On November 20, 1964, Korhumel Steel & Aluminum Company, incorporated under the laws of the State of Illinois, was qualified to do business in the State of West Virginia. At this time, and at all other times relevant to this action, Korhumel was a wholly-owned subsidiary corporation of National Steel Corporation. Although qualified to do business in this State, Korhumel failed to file a certificate attesting that fact with the West Virginia Workmen's Compensation Commission. W.Va.Code Ann. § 23-2-1 (1973 repl. vol.). Further, Korhumel paid no workmen's compensation premiums and submitted no quarterly payroll reports to the Commission as required by West Virginia law for workmen's compensation participants. W.Va.Code Ann. §§ 23-2-5, 23-2-8 (1973 repl. vol.).

Instead of taking these steps, which would have qualified Korhumel for workmen's compensation participation, in its own right, it sought designation as a 'self-insurer' by representing itself to the West Virginia Workmen's Compensation Commission as a 'division' of National Steel Corporation, a company which had previously been found by the Commission to have sufficient financial responsibility to maintain such status. National had also posted the statutorily required bond as a self insurer. W.Va.Code Ann. § 23-2-9 (1973 repl. vol.). Korhumel posted no such bond.

By gaining self-insurer status, Korhumel was required to pay no premiums to the Workmen's Compensation Fund, nor was the company required to file quarterly reports. Awards under self-insurer provisions are made by the West Virginia Workmen's Compensation Commission and paid directly by the self-insured employer.

On March 22, 1967, while the abovementioned state of facts existed, an employee of Korhumel, Bernard Fair, was injured during the course of his employment. An award of $2,832 was approved by the West Virginia Workmen's Compensation Commission, which award was directed to be paid by National Steel Corporation, Korhumel Steel & Aluminum Company Division, 2424 Oakton Street, Evanston, Illinois. The award as approved by the Commission was paid.

At this time, Korhumel and its parent corporation National Steel Corporation were insured by the Insurance Company of North America (hereinafter INA) under both a standard workmen's compensation and employer's liability policy as well as a general liability policy.

The employer's liability policy carried an endorsement with respect to operations of the insured in West Virginia. Under this endorsement, INA agreed as follows:

'To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury by accident or disease, including death at any time resulting therefrom, sustained in the United States of America, its territories or possessions, or Canada

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by any employee of the insured arising out of and in the course of his employment by the insured either in a State named in this endorsement or in operations necessary or incidental thereto.'

This endorsement also amended certain other parts of the policy. In particular, it provided that:

'The insurance afforded by this endorsement shall not apply to the insured's operation in any State named in this endorsement or any operations necessary or incidental thereto during any period in which the insured is subject to the workmen's compensation or occupational disease law of any such State and is neither a legally qualified self-insurer nor a member or subscriber in good standing in the State Fund in any such State.'

The general liability policy set forth INA's obligation to the insured as follows:

'I. Coverage The company agrees to pay all sums which the insured shall become obligated to pay by reason of the liability imposed upon the insured by law, or assumed by the insured under contract and subject to the limitations, conditions and other terms of this policy: (a) Personal Injury Liability

For damages, including damages for care and loss of services, because of personal injury, including death at any time resulting therefrom, sustained by any person or persons;'

This obligation carried a limitation:

'As a condition to the recovery of any loss under this policy, with respect to personal injury to or the death of any employee(s) arising out of and in the course of employment by the named insured, the named insured warrants that it has not and will not abrogate its common law defenses under any workmen's compensation law by rejection thereof, or otherwise. In the event the named insured should, at any time during the policy period, abrogate such defenses, such insurance as is afforded by Coverage I(a) with respect to such employee(s) shall automatically terminate at the same time.'

On February 23, 1967, Bernard Fair instituted an action in this Court against Korhumel for the injuries he allegedly suffered during his employment. The claim stated in the complaint was based on common law negligence.

INA proceeded to defend this suit, as it was obligated to do under its policies of insurance, and moved to dismiss Fair's claim because of the exclusivity of his workmen's compensation remedy. This motion was filed on March 24, 1969.

On April 1, 1969, Fair replied to this motion, setting forth the facts relating to Korhumel's alleged self-insured status, maintaining that Korhumel was not properly qualified under the West Virginia Workmen's Compensation law and that Fair was therefore not barred from recovery for common law negligence.

Despite this notice of Fair's contentions and of the facts surrounding Korhumel's workmen's compensation coverage, INA continued the defense of that action without communicating any reservation of right to deny coverage under the conditions of its policies.

On February 15, 1972, this Court granted Korhumel's motion for summary judgment, dismissed Fair's common law negligence claim and held that while Korhumel had employed inept procedures, sufficient steps had been taken to qualify it as a self-insurer under West Virginia's Workmen's Compensation law. Thereafter, Fair appealed and on January 30, 1973, the Court of Appeals for the Fourth Circuit reversed, holding that Korhumel's efforts at obtaining workmen's compensation coverage were insufficient and, therefore, that Fair could maintain his common law action. Fair v. Korhumel Steel & Aluminum Company, Inc., 473 F.2d 703 (4th Cir. 1973).

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Thereafter, by letter dated March 9, 1973, INA notified Korhumel, now National Steel Service Center, Inc., that it was questioning its coverage under the policy as to the Fair case and stated that it would continue in the defense of the Fair claim only under a reservation of right. National responded by letter on March 19, 1973, stating its position that coverage was not precluded by the terms of the policy and further that INA was estopped to deny coverage at such late date.

The case of Fair v. Korhumel has not, at this time, been terminated.

INA instituted this declaratory judgment action seeking a determination of whether coverage of the Fair claim exists under the above-stated facts. Each party has now moved the Court for summary judgment, supporting their respective...

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