Bituminous Cas. Corp. v. J & L Lumber Co., Inc.

• Decision Date: 29 June 2004
• Docket Number: No. 03-5217.,03-5217.
• Citation: 373 F.3d 807
• Parties: BITUMINOUS CASUALTY CORPORATION, Plaintiff-Appellee, v. J & L LUMBER COMPANY, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

373 F.3d 807

BITUMINOUS CASUALTY CORPORATION, Plaintiff-Appellee, v. J & L LUMBER COMPANY, INC., Defendant-Appellant.

No. 03-5217.

United States Court of Appeals, Sixth Circuit.

Argued April 20, 2004.

Decided and Filed June 29, 2004.

Pamela A. Chesnut (briefed), Robert E. Maclin III (argued and briefed), McBrayer, McGinnis, Leslie & Kirkland, Lexington, KY, for Plaintiff-Appellee.

Jeffrey L. Freeman (argued and briefed), Jeffrey L. Freeman, Attorney at Law, Louisville, KY, for Defendant-Appellant.

Before SUHRHEINRICH and GIBBONS, Circuit Judges; LAWSON, District Judge.^*

OPINION

SUHRHEINRICH, Circuit Judge.

Defendant-Appellant J & L Lumber Company, Inc. (J & L) appeals from the order of the district court granting summary judgment in favor of Bituminous Casualty Corp. (Bituminous) and denying summary judgment in favor of J & L in this declaratory judgment action. Bituminous brought this action against J & L in federal district court, seeking a declaration that it was not required to defend or indemnify J & L in a personal injury action in state court relating to a logging accident that occurred on November 13, 1998, while Phillip Shields, plaintiff in the state action, was preparing to haul a load of timber from a J & L logging site. The central issue in the federal action was whether Shields was an employee of J & L at the time of his injury and, therefore, excluded from coverage under the terms of J & L's commercial insurance policies with Bituminous. For the reasons that follow, we VACATE the district court's order granting declaratory judgment relief to Bituminous and REMAND the case to the district court with instructions to dismiss the complaint.

I. Background

A. Facts

J & L is a small, family owned and operated sawmill in eastern Kentucky. Besides family members, the mill employs approximately ten to fifteen additional workers in either the sawmill or the woods. In November 1998, J & L also owned three tractor-trailer trucks and two tandems for hauling lumber and employed drivers for these vehicles.

Phillip Shields, the plaintiff in the underlying personal injury action against J & L, is a fifty-eight-year-old man who has worked in or around the logging industry most of his adult life. At different times, Shields has worked as a trucker, sawmill foreman, independent logger, and timber buyer. In the past, he worked for J & L both as the sawmill foreman and as a truck driver.

Sometime after quitting the sawmill foreman position at J & L, Shields formed a trucking company with the name Phillip Shields or Shields Trucking. He purchased two eighteen-wheeler trucks, which were garaged at his house and were maintained primarily by him. Shields also employed his own driver and incurred other expenses in connection with his trucking business, including fuel, contract labor, tolls, business telephone, and subcontractors. In 1998, Shields's trucking business yielded a gross income of $91,159.

After Shields started his trucking company, he and J & L formed a business relationship. J & L hired Shields's trucks and drivers when it needed loads hauled and did not have any available trucks or drivers of its own. Although there was no formal contract between them, J & L used Shields's trucks on a regular basis, but not exclusively. In fact, weather permitting, Shields hauled for J & L at least once a week and usually more. On occasion, he even drove a J & L truck.

The payment arrangement between Shields and J & L was somewhat complicated. Primarily, Shields was paid by the load for his work hauling for J & L. When he drove a J & L truck, though, Shields received only driver's pay in the same manner as J & L's own drivers. In addition, from March 1998 through December 9, 1998, Shields was listed as an employee on the J & L payroll registers. He received a weekly payroll check of $250 from which taxes and health insurance premiums were withheld. He also received a check from the general account from which no withholdings were taken.

J & L described this unusual payment arrangement as an accounting device that permitted Shields to obtain health insurance coverage. The deposition testimony indicated that in March or April 1998, Wilma Myers (Myers), J & L's secretary and general office manager, and Joel Smith, an owner's son who had been insured with Blue Cross and Blue Shield, decided to change insurance providers due to an increase in premiums. To get insurance under a plan with MedQuest insurance company, however, they needed a group of at least three. Shields, who also needed insurance, became the third member of the group. Myers placed Shields on the payroll and began issuing him a weekly check from which the insurance premium was deducted. The amount of the payroll check was then deducted from the total amount due Shields for his independent hauling. Although Joel was not an employee, his insurance premium was paid directly by J & L because of his filial relationship to Jerry Smith, one of J & L's owners.

Outside of their business relationship, Shields and the owners of J & L were good friends. They had known each other for approximately thirty years. In fact, Shields characterized his relationship with Jerry and Lester Smith as the "best of friends." He lived approximately one mile from J & L's office and would go to the J & L property usually once a day and sometimes two or three times a day to check for work or just to socialize. Shields was also good friends with Myers and the two had a social, dating relationship in the past. In addition, Shields employed Myers's son, Greg, as a driver for one of his tractor-trailers.

On the evening of November 12, 1998, Shields and Myers were in the J & L office drinking coffee when they received word that the woods crew was "blocked out" and could not continue working unless the cut timber was hauled away from the logging site. Myers and Shields arranged for Shields to take a truck and haul the timber the next morning. On the morning of November 13, 1998, Shields arrived at the J & L lumber yard and picked up a J & L truck, which was loaded with pulp wood. He delivered the load and proceeded to the site that was "blocked out." After hauling a couple of loads, Shields was injured during loading when a log dislodged from the truck and landed on him. As noted, at the time of the injury, Shields was operating a J & L truck and was picking up his third load of the day.

Both Shields and Myers stated that Shields was doing a favor for J & L at the time of the accident and was not going to be compensated for his work. Shields testified at deposition that his work on the morning of November 13 was strictly voluntary. Moreover, Shields, Myers and J & L's owners, Jerry and Lester Smith, all insisted at deposition that Shields was not an employee of J & L at the time of his injury.

Procedural History

In July 1999, Shields filed a personal injury action in the Ohio County Circuit Court of Kentucky alleging negligence on the part of J & L or its employees related to his injuries on November 13, 1998. As one of its affirmative defenses, J & L asserted that Shields's action was barred by the exclusive remedy provision of the Kentucky Workers' Compensation Act.

J & L did not carry workers' compensation insurance at the time of the injury.¹ J & L did, however, carry accident coverage for its employees under an Employers' Underwriters policy. It also carried two commercial insurance policies with Bituminous Casualty Corp., a general liability policy and a commercial auto policy. At the time of injury, Shields was not covered under the Employers' Underwriters policy. Therefore, J & L requested a defense from Bituminous in the state tort action, which Bituminous provided under reservation of rights.

On or about October 23, 2000, a few weeks before the expiration of the two-year statute of limitation under the Kentucky Workers' Compensation Act, Shields filed a claim, presumably a protective filing, with the Kentucky Department of Workers' Claims, alleging that he was injured on November 13, 1998, while in the course of employment. See Ky.Rev.Stat. § 342.185. This claim was dismissed on January 24, 2003, after an Administrative Law Judge for the Kentucky Department of Workers' Claims determined that Shields was an independent contractor and not an employee. The Administrative Law Judge stated that, although it was a close question based upon the facts and Kentucky case law, he found the intent of the parties to be paramount in determining that Shields was not an employee.

In the underlying state personal injury action, on or about March 18, 2002, Shields filed a motion for partial summary judgment seeking to strike the affirmative defense raised by J & L that the Workers' Compensation Act was his exclusive remedy on the grounds that he was not an employee of J & L. J & L did not respond to this motion. On March 28, 2002, the Ohio County Circuit Court of Kentucky found that Shields was not an employee of J & L at the time of injury and struck the Workers' Compensation Act defense. Specifically, the Kentucky court found that J & L had little, if any, control over Shields, since Shields was volunteering on the day of injury and that the true intent of the parties was that Shields was not an employee.

In the meantime, on July 2, 2001, Bituminous filed the instant action in the United States District Court for the Western District of Kentucky seeking a declaratory judgment that it had no duty to defend or indemnify J & L under its policies based on exclusions contained in each policy for employees. Bituminous argued that Shields was an employee of J & L at the time of his injury and was, therefore, not covered by the policies. J & L maintained that Shields was not an employee of J & L at the time of injury. The parties filed cross motions for summary judgment.

On October 16, 2002, the district court granted summary judgment in favor of Bituminous, finding that Shields was an...