Liberty Mut. Fire Ins. Co. v. Woolman, 17-3249

• Citation: 913 F.3d 977
• Decision Date: 14 January 2019
• Docket Number: No. 17-3249,17-3249
• Parties: LIBERTY MUTUAL FIRE INSURANCE COMPANY, Plaintiff Counter Defendant - Appellee, v. Dennis WOOLMAN, Defendant Counter Plaintiff - Appellant, and Clayton Spencer, Defendant.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

913 F.3d 977

LIBERTY MUTUAL FIRE INSURANCE COMPANY, Plaintiff Counter Defendant - Appellee,

v. Dennis WOOLMAN, Defendant Counter Plaintiff - Appellant,andClayton Spencer, Defendant.

No. 17-3249

United States Court of Appeals, Tenth Circuit.

FILED January 14, 2019

Wesley J. Carrillo (Christopher M. Napolitano with him on the briefs), of Ensz & Jester P.C., Kansas City, Missouri, for Defendant-Appellant.

Bruce A. Moothart (Charlie J. Harris, Jr., with him on the brief), of Seyferth Blumenthal & Harris LLC, Kansas City, Missouri, for Plaintiff-Appellee.

Before TYMKOVICH, Chief Judge, HOLMES, and PHILLIPS, Circuit Judges.

PHILLIPS, Circuit Judge.

The Federal Coal Mine Health and Safety Act of 1969, as amended by the Black Lung

Benefits Act (the Act), 30 U.S.C. §§ 901 – 945, requires coal-mine operators to provide benefits to miners whose contraction of pneumoconiosis—i.e. , "black lung" disease—from prolonged exposure to coal dust renders them totally disabled. To comply with the Act, coal-mine operators must purchase a worker’s compensation and employer liability insurance policy containing an "endorsement" ensuring coverage for black-lung-benefits claims. In this appeal, Dennis Woolman—former president of The Clemens Coal Company—challenges the district court’s determination that Liberty Mutual Fire Insurance Company didn’t breach a duty to him by failing to procure for Clemens Coal an insurance policy with a black-lung-disease

endorsement. Woolman also challenges the district court’s rejection of his argument that Liberty Mutual should be estopped from denying black-lung-disease coverage, insisting that he relied on Liberty Mutual to provide such coverage. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.

BACKGROUND

Clemens Coal operated a surface coal mine in Pittsburg, Kansas until it filed for bankruptcy in 1997. Woolman served as Clemens Coal’s last president before it went bankrupt. Federal law required Clemens Coal to maintain worker’s compensation insurance with a special endorsement covering miners’ black-lung-disease

benefits. See 20 C.F.R. § 726.203(a). Failure to procure such insurance could expose Clemens Coal’s president and its officers to individual liability for black-lung benefits and for civil penalties. Id. § 726.302(c)(1)–(2).

Woolman didn’t personally procure insurance for Clemens Coal but instead delegated that responsibility to James Worley, an outside consultant. In 1996, Worley received from Deborah Smith, Liberty Mutual’s commercial sales agent, a proposal to provide worker’s compensation and employer liability insurance to Clemens Coal. After some discussion, Worley agreed to purchase from Liberty Mutual a package policy with effective dates of November 1, 1996, to November 1, 1997.¹ Not only did the policy not contain a black-lung-claim endorsement, it expressly excluded coverage for federal occupational disease claims, such as those arising under the Act.

Smith had never sold insurance to a coal company and wasn’t aware of the industry’s exposure to black-lung

claims. Worley, for his part, had never procured insurance directly from an insurance company. Instead, he ordinarily consulted a broker—Insurance Management Associates, Inc. (IMA)—and compared premiums and coverages from several potential carriers. In this case, he selected the Liberty Mutual policy because it was $43,000 cheaper than comparable policies offered through IMA. An IMA account representative cautioned that this significant price disparity suggested that the policy provided different coverages. Worley, however, assumed the Liberty Mutual policy was cheaper because it wasn’t in the assigned risk pool for Kansas, which Worley understood to have considerably higher premiums.

In 2012, Clayton Spencer—a former Clemens Coal employee—filed a claim with the United States Department of Labor (DOL) against Clemens Coal for benefits under the Act. After some investigation, the DOL advised Woolman that Clemens Coal was uninsured for black-lung-benefits claims as of July 25, 1997—the last date of Spencer’s employment—and that, without such coverage, Woolman, as Clemens Coal’s president, could be held personally liable. Woolman promptly tendered the claim to Liberty Mutual for a legal defense. Liberty Mutual responded with a reservation-of-rights letter, stating that it hadn’t yet determined coverage for Spencer’s claim but that it would provide a defense during its investigation. In a follow-up letter, Liberty Mutual clarified that it would defend Clemens Coal as a company—not Woolman personally—and advised Woolman to retain his own counsel.

Liberty Mutual eventually concluded that the insurance policy doesn’t cover Spencer’s black-lung

claim, and on July 9, 2014, it sued Clemens Coal² and Woolman seeking a judicial declaration to that effect. The parties stipulated that the policy, "as written," doesn’t provide coverage for Spencer’s claim. Appellee’s Suppl. App. vol. 1 at 15. Nevertheless, as an affirmative defense, Woolman asserted that Liberty Mutual is estopped from denying black-lung-claim coverage because he expected the coverage would be included in the policy and because the policy should be construed to contain the coverages that federal law requires. Woolman also asserted a counterclaim against Liberty Mutual for breach of its duty to act as a reasonably prudent insurance agent in procuring the proper coverage for Clemens Coal.

The district court conducted a jury trial on Woolman’s counterclaim and a bench trial on his estoppel defenses. During the jury trial, the parties offered little direct evidence of the circumstances surrounding Worley and Smith’s transaction to procure insurance. Indeed, neither Worley nor Smith recalled the transaction, and Woolman, who admittedly wasn’t involved, had "no idea" what transpired. Appellant’s App. vol. 5 at 828:3. Smith resorted to testifying that, when selling insurance, she ordinarily relied on the client to inform her of its required coverages. Yet neither Smith nor Worley recalled discussing a need for black-lung-claim coverage. And, while both Woolman and Worley testified that they intended to procure whatever coverages were required by law, they admitted that they didn’t read the policy to verify that it included such coverages; instead, they just assumed it did.

Smith also testified that it was her "standard" practice to determine coverage needs by reviewing the client’s expiring policy, though she regularly consulted other resources as many clients declined to share their prior policies. Id. vol. 4 at 585:1. Worley, in turn, testified that he would have permitted Smith to copy the coverages in Clemens Coal’s expiring policy from Hartford Underwriters Insurance Company. Yet Smith didn’t recall reviewing the Hartford policy, and Worley didn’t recall sharing it. Regardless, the parties could only speculate as to the coverages that Smith may have copied from the Hartford policy because it couldn’t be located at trial.³ Further, Liberty Mutual proffered evidence that, in a 1996 reservation-of-rights letter to Clemens Coal regarding a previous black-lung

claim, Hartford questioned whether the policy covered such claims.

Lacking direct evidence of Worley and Smith’s transaction, Woolman urged the jury to find that Liberty Mutual failed to exercise reasonable care in procuring insurance based on the following series of inferences: (i) that Worley intended to acquire, and therefore requested, black-lung-claim coverage; (ii) that Worley tendered the expiring Hartford policy for Smith to review; (iii) that the policy contained a black-lung-claim endorsement; and (iv) that Smith, following her "standard" practice, agreed to duplicate that coverage for Clemens Coal. Id. vol. 4 at 585:1. Liberty Mutual countered that there was insufficient evidence for these inferences, and at the close of Woolman’s case-in-chief, it moved for judgment as a matter of law under Rule 50 of the Federal Rules of Civil Procedure. The district court took the motion under advisement and permitted additional briefing.

Woolman requested that the district court instruct the jury that his breach-of-duty counterclaim required proof (i) that Liberty Mutual undertook to procure worker’s compensation insurance for Clemens Coal; (ii) that Liberty Mutual failed to exercise appropriate skill, care, and diligence in that undertaking; and (iii) that Woolman suffered damages as a result. The court rejected Woolman’s request and, instead, instructed the jury to determine whether Liberty Mutual breached a duty that it owed directly to Woolman as its "client." Id. vol. 2 at 225–26. Woolman objected and asked for an instruction that Liberty Mutual owed him a duty "as the President of Clemens Coal," but the court overruled the objection. Id. vol. 5 at 907:23.

The jury returned a verdict for Woolman on his counterclaim, awarding him $18,000 in damages. The district court, however, set aside the verdict and granted Liberty Mutual’s motion for judgment as a matter of law, concluding that Liberty Mutual didn’t owe a duty to Woolman. Liberty Mut. Fire Ins. Co. v. Clemens Coal Co. , 2016 WL 5817073, at *2 (D. Kan. Oct. 4, 2016). Months later, the court issued findings of fact and conclusions of law regarding Woolman’s estoppel defenses. See Liberty Mut. Fire Ins. Co. v. Clemens Coal Co. , 250 F.Supp.3d 825, 832–39 (D. Kan. 2017). Finding no evidence that Liberty Mutual had represented it would procure black-lung-claim coverage for Woolman or that Woolman justifiably relied on such representations, the court ruled against Woolman on the estoppel defenses and entered judgment in Liberty Mutual’s favor on its declaratory judgment claim. Id. at 839.

Woolman filed a post-trial motion to alter or amend the court’s judgment or, in the alternative, for a new trial on his estoppel defenses. The court denied the motion. Woolman timely appealed, challenging the counterclaim and estoppel rulings as well as aspects of the court’s denial of his...