474 F.2d 1216 (8th Cir. 1973), 72-1157, Eagle Star Ins. Co., Ltd. v. Deal

Docket Nº:72-1157.
Citation:474 F.2d 1216
Party Name:EAGLE STAR INSURANCE COMPANY, LTD., Appellant, v. Jo C. DEAL et al., Appellees.
Case Date:March 09, 1973
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

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474 F.2d 1216 (8th Cir. 1973)



Jo C. DEAL et al., Appellees.

No. 72-1157.

United States Court of Appeals, Eighth Circuit.

March 9, 1973

Submitted Oct. 17, 1972.

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[Copyrighted Material Omitted]

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E. C. Gilbreath, Fort Smith, Ark., for appellant.

James W. Gallman, Fayetteville, Ark., for appellees.

Before LARAMORE, United States Court of Claims Senior Judge, and BRIGHT and ROSS, Circuit Judges.

LARAMORE, Senior Judge.

This case involves an insurance coverage question arising out of an aircraft accident which occurred on March 6, 1971, while Dr. Phil L. Deal was piloting his plane with five passengers aboard. Upon approach for landing at Harrison, Arkansas, Deal's plane crashed, killing everyone on board. Eagle Star Insurance Company, Ltd. had issued to Deal an aircraft liability policy which was in full force and effect on his aircraft at the time of the accident. However, Eagle Star brought suit for declaratory judgment asserting that there was no coverage in this case because of the "employee exclusion" clause, 1 under which it contended that the five deceased passengers were employees of Dr. Deal or that they were entitled to workmen's compensation benefits. Eagle also contended that Deal was making an improper use of the aircraft which, if true, would also void coverage.

In an opinion reported at 337 F.Supp. 1264 (W.D.Ark.1972), the District Court held, contra to Eagle's contentions, that there was coverage under the policy issued by Eagle Star to Dr. Deal. The court found, as a matter of fact, that the five decedent passengers were employees of Ozark Lab, Inc., not Dr. Deal, and that, in any case, the five decedents were not engaged in the duties of their employment at the time of the accident. Although the court noted that it was without jurisdiction to determine entitlement to workmen's compensation benefits, the court found, for purposes of the exclusion relied upon by Eagle, that decedent passengers were not entitled to workmen's compensation benefits. In addition, the lower court held that the exclusion for improper use of the aircraft was not applicable.

Appellant, Eagle Star, asserts that the above factual findings are unsupported by substantial evidence and the holding of the District Court is clearly erroneous. While the evidence in this case is essentially undisputed, appellant contests the inferences and the conclusions of law based thereon. For the reasons set forth herein, we must sustain the appellant's position.

The uncertainty which exists in this case arises largely from the fact that in October 1968, Dr. Deal organized "Ozark Lab, Inc.," an Arkansas corporation of which Dr. Deal was president, sole director and sole shareholder. It appears uncontradicted that Deal set up Ozark solely as a means of denuding himself of his employees for pension and profit sharing purposes. That is, he wished to remove his staff from "his employment" as an orthodontist, so that when he later adopted a retirement or deferred compensation

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plan for himself it would not be necessary for him to make contributions for his qualifying employees. 2 Aside from this purpose, the evidence does not disclose any further independent business purpose for Deal's organization of Ozark Lab, Inc. As the District Court indicated, Deal went through the various formalities of making Ozark a separate business entity, including maintenance of separate books of accounting and filing of appropriate tax returns. By April 1, 1970, Dr. Deal had transferred all of his former, non-domestic employees to Ozark, and two of his subsequently hired employees were placed directly on the Ozark Lab payroll. At the time of the accident, all five of the decedent passengers were "employed" by Ozark Lab.

Appellant refers to the foregoing motives and various additional evidence as indicating that "Ozark Lab, Inc. amounted to nothing more than a payroll account for Phil L. Deal," and as a result such entity should be disregarded. The District Court, on the other hand, concluded that Eagle had "not met the burden of proof necessary to pierce the corporate veil," or otherwise demonstrate that Ozark was invalid. While substantiation of Ozark's invalidity would serve to illustrate that the decedent passengers were de facto employees of Deal's, the insufficiency of the evidence to "pierce the corporate veil" is not, however, controlling of the issue of whether the decedents were Dr. Deal's "employees". 3 For notwithstanding the fact that Ozark may have been a valid corporation with the decedents technically being "employees" of that entity, it is possible that they were also employees of Dr. Deal. This possibility was recently noted in Beaver v. Jacuzzi Brothers, Inc., 454 F.2d 284 (8th Cir. 1972), where this court, in determining whether a person was an employee under Arkansas law, stated:

* * * As a matter of common experience and of present business practices in our economy, it is clear that an employee may be employed by more than one employer even while doing the same work. Biggart v. Texas Eastern Transmission Corp., 235 So.2d 443, 445 (Miss.1970).

Although Beaver and Biggart deal with the employer-employee relationship within the context of workmen's compensation, we find this general principle to be equally applicable...

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