Liberty Mut. Ins. Co. v. KAT, INC.

Citation855 F. Supp. 980
Decision Date24 June 1994
Docket NumberCiv. No. 2:93-CV-203-RL.
PartiesLIBERTY MUTUAL INSURANCE COMPANY, Plaintiff, v. K.A.T., INC., Defendant.
CourtU.S. District Court — Northern District of Indiana

COPYRIGHT MATERIAL OMITTED

Edward G. Zaknoen, Lucas, Holcomb & Medrea, Merrillville, IN, for plaintiff.

Gregory Feary, Scopelitis, Garvin, Light & Hanson, Indianapolis, IN, for defendant.

ORDER

LOZANO, District Judge.

This matter is before the Court on a Motion to Dismiss or, in the Alternative, to Stay the Proceedings Pending Exhaustion of State Administrative Remedies, filed September 23, 1993, by Defendant, K.A.T., Inc. ("KAT"); and on a Cross-Motion for Summary Judgment, filed November 25, 1993, by Plaintiff, Liberty Mutual Insurance Company ("Liberty Mutual"). For the reasons set forth herein, the Court hereby DENIES KAT's Motion to Dismiss or, in the Alternative, to Stay the Proceedings Pending Exhaustion of State Administrative Remedies, and DENIES Liberty Mutual's Cross-Motion for Summary Judgment.

BACKGROUND

Liberty Mutual filed its Complaint against KAT on July 9, 1993. Jurisdiction is based upon diversity of citizenship. The Complaint alleges that KAT breached its contract with Liberty Mutual and owes outstanding worker's compensation insurance premiums from July 1, 1990 to July 1, 1991. On September 23, 1993, KAT filed its Answer and this motion to dismiss for lack of subject matter jurisdiction, seeking in the alternative to stay these proceedings pending the exhaustion of administrative remedies.

In response to KAT's Motion, on November 16, 1993, Liberty Mutual filed a Memorandum in Opposition to the Motion to Dismiss or Stay Pending Exhaustion of Administrative Remedies, and also filed a Cross-Motion for Summary Judgment. A Memorandum in Response to Liberty Mutual's Cross-Motion for Summary Judgment was filed by KAT on December 29, 1993, and Liberty Mutual filed a Reply Memorandum in support of its Cross-Motion for Summary Judgment on January 18, 1994.

The undisputed facts of this case, as set forth by the parties, are as follows: KAT is a trucking company, incorporated under the laws of the State of Indiana and operating under interstate motor carrier operating authority issued by the Interstate Commerce Commission. KAT operates a terminal and office facility in Chesterton, Indiana, from which it conducts all trucking operations, including, but not limited to, dispatching activities, training and safety programs, billing and collection matters, and maintenance and refueling of trucks. During the policy periods in question, each of KAT's truck drivers operated out of and were paid from the Chesterton, Indiana location. Liberty Mutual is a Massachusetts corporation authorized to sell insurance in the State of Indiana.

In 1987, KAT, through its insurance agent, Valparaiso First Insurance Company, applied for a worker's compensation insurance policy through the Indiana Compensation Rating Bureau ("ICRB") pursuant to Indiana Code section 27-7-2-28. Under this statute, an employer that has had three rejections in the voluntary worker's compensation insurance market is eligible for worker's compensation coverage through the assigned risk pool, which is also known as the "involuntary insurance market". The assigned risk pool consists of all Indiana insurers authorized to provide worker's compensation insurance. After an employer's application with the ICRB is received, the administrator of Indiana's assigned risk pool assigns one of the ICRB's serving carrier members to provide the applicant with worker's compensation insurance at the initial premium rate fixed by the board. See Ind.Code Ann. § 27-7-2-29 (West 1993).

Following KAT's application in 1987, the ICRB assigned Liberty Mutual to provide KAT with worker's compensation insurance coverage. A worker's compensation insurance policy was subsequently issued to KAT by Liberty Mutual for the time period from July 1, 1987 to July 1, 1988. KAT paid the premiums due during this initial policy period. The policy was thereafter renewed on an annual basis on July 1, 1988, July 1, 1989, and July 1, 1990.

After the renewal policy ended on July 1, 1991, Liberty Mutual conducted a final audit and computed additional premiums for KAT's worker's compensation insurance policy. See Ind.Code Ann. § 27-7-2-33 (West 1993). These additional premiums were based on an experience modification factor reflected in Liberty Mutual's final audit report. The experience modification factor provides a rating for each employer participating in the assigned risk plan based upon a combination of the number of claims filed by an employer's employees and the amount of each claim that is paid or expected to be paid. The resulting experience modification factor therefore takes into consideration the loss associated with a particular employer, based on an audit of that employer's prior worker's compensation claims history.

The audit and adjustment of the experience modification rating by Liberty Mutual resulted in the calculation of premiums owed by KAT in the amount of $95,441.00. KAT's premiums in the previous four years had been approximately $30,000 per year. KAT indicates that upon notification of the new premiums due, KAT contacted Liberty Mutual and expressed its concern that the experience modification factor did not accurately reflect its true losses for the 1990 to 1991 policy period.

The affidavit of John Contella, a premium accountant with Liberty Mutual, states that Liberty Mutual's policy regarding premium disputes by its insureds is to provide the insured with supporting documentation and afford the insured a reasonable opportunity to review the documentation. The insured may then contact Liberty Mutual in writing to explain why it believes the premium is incorrect. Liberty Mutual then reviews the manner in which the premium was calculated and determines whether or not the premium was property calculated. The affidavit of John Contella states that, upon notification by KAT that the premium had been incorrectly computed, this procedure was followed. The communication between the two parties, pertinent to the resolution of this dispute, is as follows:

After KAT's initial complaint regarding the premium increase, Liberty Mutual responded, on October 10, 1991, by sending copies of the final audit and the earned premium statement to KAT. On November 4, 1991, Mr. Richard Moldstad, safety manager for KAT, responded to Liberty Mutual's information by sending a letter to John Contella. The letter indicated that although KAT was in agreement with the audit findings, KAT was also concerned with how it could have been placed on the "blended rating plan" as assigned by Liberty Mutual. KAT enclosed a check in the amount of $15,906.83, and indicated that it would make five more such payments over the next five months to satisfy the premium payment. KAT subsequently made its second, and last installment payment on or about December 4, 1991. In December 1991, Liberty Mutual had the remaining amount due on the premium turned over for collection to its collection agent, United Mercantile Agencies, and informed KAT of this change.

On February 10, 1992, Mr. Gregory Feary, attorney for KAT, sent a letter to Mr. Donald Axman, the director of adjustment service at United Mercantile Agencies, informing him that KAT disputed the amount of premiums owed Liberty Mutual on its worker's compensation insurance policy. The letter stated that KAT was considering filing a formal complaint, but currently was reviewing its files and hoped to resolve the matter without having to resort to litigation. On April 21, 1992, Mr. Axman forwarded to Mr. Feary further supporting documentation requested by KAT. On June 17, 1992, KAT, through counsel, again informed Liberty Mutual of its disagreement with the premiums computed due to Liberty Mutual. KAT again requested further information. The next day Robert Graves, assistant vice-president of United Mercantile Agencies, wrote the president of KAT informing that Liberty Mutual did not recognize the dispute and would initiate litigation to recover the premiums it considered due and owing. Not until July 9, 1993, did Liberty Mutual finally take action by filing its Complaint in this Court to collect premiums that it alleges are owed by KAT for its worker's compensation insurance policy from July 1, 1990 to July 1, 1991.

DISCUSSION

KAT's Motion to Dismiss or, in the Alternative, to Stay Pending Administrative Proceedings

Subject Matter Jurisdiction

Pursuant to Federal Rule of Civil Procedure 12(b)(1), KAT claims that this action should be dismissed for lack of subject matter jurisdiction because Liberty Mutual has failed to exhaust its administrative remedy pursuant to Indiana Code section 27-7-2-20.3. KAT contends that Liberty Mutual's claim is subject to the exclusive jurisdiction of the ICRB. This contention is flawed. A district court has original jurisdiction over "all civil actions arising under the Constitution, laws, or treaties of the United States," 28 U.S.C. § 1331, and over actions involving diversity of citizenship pursuant to 28 U.S.C. section 1332. Liberty Mutual's Complaint asserts subject matter jurisdiction based upon diversity of citizenship. The requirements for diversity jurisdiction, set forth in 28 U.S.C. section 1332, read in pertinent part:

(a) The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $50,000, exclusive of interest and costs and is between —
(1) Citizens of different States;
* * * * * *

Liberty Mutual brought this action in diversity by alleging that the parties are citizens of different states and that the amount in controversy is in excess of $50,000. KAT does not contest these assertions. Rather, citing Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), KAT argues that Indiana law is applicable to this dispute, and...

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