In re Kemper Ins. Companies

• Decision Date: 21 December 2004
• Docket Number: No. 93A02-0402-EX-186.,93A02-0402-EX-186.
• Citation: 819 N.E.2d 485
• Parties: In re the Matter of KEMPER INSURANCE COMPANIES and the Surety Bond Issued for Bethlehem Steel Corporation. American Motorists Insurance Company, a member of the Kemper Insurance Companies, Appellant, v. Worker's Compensation Board of Indiana, Appellee.
• Court: Indiana Appellate Court

819 N.E.2d 485

In re the Matter of KEMPER INSURANCE COMPANIES and the Surety Bond Issued for Bethlehem Steel Corporation.

American Motorists Insurance Company, a member of the Kemper Insurance Companies, Appellant, v. Worker's Compensation Board of Indiana, Appellee.

No. 93A02-0402-EX-186.

Court of Appeals of Indiana.

December 21, 2004.

Rehearing Denied February 14, 2005.

Steven H. Rittmaster, Torre, Lentz, Gamell, Gary & Rittmaster, LLP, Jericho, NY, Jeffrey J. Mortier, Julia Blackwell Gelinas, Locke Reynolds LLP, Indianapolis, IN, Attorneys for Appellant.

Steve Carter, Attorney General of Indiana, David L. Steiner, Deputy Attorney General, G. Terrence Coriden, Chairman, Worker's Compensation Board of Indiana, Indianapolis, IN, Attorneys for Appellee.

Robert Fanning, Due Doyle Fanning & Metzger, LLP, Indianapolis, IN, Attorney for Amicus Curiae Indiana Self-Insurers Association, Inc.

Craig R. Van Schouwen, Blachly, Tabor, Bozik & Hartman, Valparaiso, IN, Attorney for Amicus Curiae April Moehl.

OPINION

CRONE, Judge.

Case Summary

Appellant American Motorists Insurance Company, a member of the Kemper Insurance Companies ("Kemper"), appeals the order of the Worker's Compensation Board ("the Board") that Kemper is liable under its $3,000,000 surety bond ("the Bond") for all the worker's compensation liabilities of Bethlehem Steel Corporation ("Bethlehem") arising from personal injury dates that occurred from August 1, 1979, to April 30, 2003. We affirm.

Issue

We restate the issue Kemper presents as whether the Board erred in determining the extent of Kemper's liability under the Bond.

Facts and Procedural History¹

By way of introduction, Indiana Code Section 22-3-2-5(a) of the Worker's Compensation Act ("the Act") provides that every employer bound by the Act's compensation provisions "shall insure the payment of compensation to the employer's employees and their dependents ... or procure from the [Board] a certificate authorizing the employer to carry such risk without insurance." The statute further provides, "While such insurance or such certificate remains in force, the employer or those conducting the employer's business and the employer's worker's compensation insurance carrier shall be liable to any employee and the employee's dependents for personal injury or death by accident arising out of and in the course of employment only to the extent and in the manner" provided by law. Ind.Code § 22-3-2-5(a). Indiana Code Section 22-3-5-1(a) states that these employers must either obtain worker's compensation insurance through an outside entity or furnish to the Board proof of their financial ability to pay such compensation directly as provided by law. The Board "may require the deposit of an acceptable security, indemnity, or bond to secure the payment of compensation liabilities as they are incurred." Ind.Code § 22-3-5-1(b). The forms for such bonds are promulgated by the Board. Finally, Indiana Code Section 22-3-5-3(a) provides that whenever an employer has complied with these self-insurance requirements, the Board "shall issue to such employer a certificate which shall remain in force for a period fixed by the [B]oard[.]"

Beginning August 1, 1979, Bethlehem was self-insured for its worker's compensation liabilities in Indiana. On August 31, 2000, agents for Bethlehem and Kemper executed the Bond. Kemper never executed another bond on Bethlehem's behalf, but it did accept a second premium from Bethlehem in 2001. Bethlehem filed for Chapter 11 bankruptcy on October 15, 2001.

In a letter to self-insured employers dated May 28, 2002, Board Chairman G. Terrence Coriden enclosed a revised surety bond form and renewal application. The letter stated that the revised bond form "must be fully executed and submitted with [the employer's] renewal application." Appellant's App. at 86. On July 31, 2002, Bethlehem filed its self-insurance renewal application with the Board but did not submit a fully executed revised bond form.² In the renewal application, Bethlehem listed the Bond as its security and stated, "The current bond listed above remains in effect. The bonding company is currently reviewing the revised [surety bond form]." Id. at 116. On November 18, 2002, the Board issued Bethlehem a certificate of self-insurance with an expiration date of August 31, 2003.

Bethlehem stopped paying its worker's compensation liabilities after April 30, 2003, when it apparently ceased operations. On June 11, 2003, having been "duly advised by representatives of [Kemper] that Kemper [was] willfully refusing to pay claims for and on behalf of [Bethlehem] ... as required by the Indiana Worker's Compensation Act and [the Bond], for claims arising after September 1, 2002[,]" the Board issued a rule to show cause against Kemper. Id. at 6. The Board held a hearing on the matter on November 26, 2003.³

On January 28, 2004, the full Board issued its final order, which reads in pertinent part as follows:

FINDINGS OF FACT AND CONCLUSIONS OF LAW

The Full Worker's Compensation Board of Indiana, having sworn witnesses, admitted evidence at the hearing, heard arguments of counsel, and being duly advised in the premises therein, now finds:

1. On November 18, 2002, Bethlehem Steel Corporation (hereinafter, "Bethlehem") was issued a Certificate of Self-Insurance by the Worker's Compensation Board of Indiana for its 2002 policy year renewal.

2. On August 31, 2000, American Motorists Insurance Company issued surety bond number 3SM 961 084-00 (hereinafter, "the bond") on behalf of Bethlehem.

3. American Motorists Insurance Company is a member of Kemper Insurance Companies (hereinafter, "Kemper.")

4. The bond was issued on the Revised 2000 SI-2 Surety Bond form as promulgated by the Worker's Compensation Board.

5. As provided by condition number one of the bond, the surety's obligation under the bond extends to all past, present, existing and potential liability of the principal regardless of dates of injuries.

6. As per the testimony of Robert A. Fanning, Director of the Indiana Self-Insurers Association, this type of bond is known in the surety industry as a "last-on" bond form. A last-on bond form means that the current bond covers all past, present and future liabilities regardless of the issuance date of the current bond.

7. Kemper's obligation under the bond extends to all worker's compensation liabilities of Bethlehem with injury dates prior to September 1, 2000, which was the date of issuance of the bond.

8. Kemper does not dispute its liability under the bond for injuries which occurred on and between September 1, 2000 and August 31, 2001.

9. Kemper's obligation under the bond extends, additionally, to all worker's compensation liabilities of Bethlehem with injury dates on and between September 1, 2000 and August 31, 2001.

10. Per the testimony of Natalie Fierek, administrator [of] the Indiana Self-Insurance Program, no other surety company writing bonds on behalf of the self-insured employers in the State of Indiana have [sic] interpreted the language of the Revised 2000 SI-2 Surety Bond Form in the same manner as Kemper.

11. As set forth within the conditions of the bond, the "bond shall be continuous in form and shall remain in full force and effect unless terminated in the manner hereinafter provided."

12. Further, the language of [the] bond is as follows:

"IT IS FURTHER AGREED AND STIPULATED that this Bond may be cancel[l]ed at any time by the surety upon giving 60 days notice to the principal herein and to the Board, in which event the liabilities of the surety shall, at the expiration of 60 days, cease and terminate, except as to such liabilities of the principal with a personal injury date o[r] disablement that occurred during the effective period of the bond and prior to the expiration of said 60 days."

The quoted provision requires the surety to provide 60 days notice of cancellation of the bond to the principal and the Board.

13. Kemper has not, as of the date of hearing, provided notice of cancellation of the Bethlehem bond.

14. The language of the bond further states, "This bond shall be continuous in form and shall remain in full force and effect unless terminated in the manner hereinafter provided." This clause informs the interpretation of the cancellation requirement paragraph, which is referenced in finding number twelve.

15. On May 17, 2002, Kemper issued bond number 3SM 622 693-00 on behalf of Roman Catholic Diocese of Gary (hereinafter, "Diocese,") on the Revised 2000 SI-2 Surety Bond form.

16. The form used for the Diocese bond and the Bethlehem bond are identical.

17. The Diocese bond contained the language, "This Bond shall be effective until June 1, 2003, or until canceled."

18. On April 14, 2003, the Worker's Compensation Board received a Cancellation Notice from Kemper for the Diocese bond.

19. The Cancellation Notice states that Kemper is notifying the Board of the cancellation of the Diocese bond effective June 21, 2003.

20. The Cancellation Notice further states, "This notice is given to you in accordance with the cancellation provision in said Bond."

21. Kemper's own action in the cancellation of the bond used on behalf of the Catholic Diocese of Gary suggest [sic] that Kemper has interpreted the language of the Revised 2000 SI-2 Surety Bond form to mean that the obligations of the surety under the bond are continuous until notice of cancellation is served upon the Board.

22. Kemper's obligation under the bond extends to all worker's compensation liabilities of Bethlehem with injury dates prior to, on and after September 1, 2001.

23. Pursuant to the language of the bond, Kemper is only liable to the extent of the penal sum of the bond, namely $3,000,000.

24. The Worker's Compensation Board is not a party to said action. As such, the interpretation of the bond cannot be construed against the drafter, which is not a party to the cause.

25. The bond was executed as security for worker's

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