Northwinds Abatement, Inc. v. Employers Ins. of Wausau
| Decision Date | 05 December 1995 |
| Docket Number | No. 94-20954,94-20954 |
| Citation | 69 F.3d 1304 |
| Parties | NORTHWINDS ABATEMENT, INC., Plaintiff-Appellant, v. EMPLOYERS INSURANCE OF WAUSAU, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Thomas W. McQuage, Greer Herz & Adams, Galveston, TX, for plaintiff-appellant.
Gary E. Hill, Evelyn T. Ailts, David K. Cobb, Phillips & Akers, Houston, TX, for defendant-appellee.
Appeal from the United States District Court for the Southern District of Texas.
Before KING, DeMOSS and STEWART, Circuit Judges.
Northwinds Abatement, Inc. ("Northwinds"), initially brought this action in state district court against Employers Insurance of Wausau ("Wausau"), alleging several theories of recovery for damages resulting from actions taken by Wausau as the servicing company for Northwinds's workers' compensation insurance policy. Wausau removed the action to federal district court. The district court granted summary judgment to Wausau on all claims. Northwinds appeals. We affirm in part and reverse in part the court's order granting summary judgment and remand with instructions that the case be held in abeyance until relevant administrative procedures are completed.
Northwinds is a corporation in the business of asbestos abatement remediation and removal work. Northwinds applied for workers' compensation insurance through the Texas Workers' Compensation Insurance Facility ("the Facility"). 1 The Facility is a nonprofit unincorporated association of insurers created by statute. Tex.Ins.Code Ann. art. 5.76-2, Sec. 2.01. One of the stated purposes of the Facility is to provide insurance coverage for employers who are unable to obtain insurance in the voluntary market. Id. Sec. 4.01. Specifically, the Facility provides such coverage through the Texas Workers' Compensation Employers' Rejected Risk Fund ("the Fund"). Id.
When the Facility determines that an employer is entitled to insurance through the Fund, the Facility calculates the employer's deposit premium and, upon payment, designates a "servicing company" to issue the policy. Id. Sec. 4.02(b). The servicing company may be an insurer that is a member of the Facility, an insurer that is not a member of the Facility, or a non-insurer. Id. Sec. 4.08(a), (d). The servicing company contracts with the Facility to issue policies evidencing the insurance coverage provided by the Fund and to service the risk. Id. Sec. 1.01(15). While the servicing company is the issuer of the policy, the Facility itself is the insurer. See id. Sec. 4.02(b); Maintenance, Inc. v. ITT Hartford Group, Inc., 895 S.W.2d 816, 819 (Tex.App.--Texarkana 1995, writ denied). The undertaking of the policy is in turn reinsured by all members of the Facility; that is, the members of the Facility collectively reinsure each policy issued through the Facility. Tex.Ins.Code Ann. art 5.76-2, Sec. 4.02(b). Each member's share of the reinsurance liability is based on the relative amount of premiums on insurance written by the member during the preceding year. Id. Therefore, the servicing company that issues the policy is not liable under the policy as the primary insurer. Rather, if the servicing company is a member of the Facility, its liability under the policy is limited to its usual share of the reinsurance liability; if the servicing company is not a member of the Facility, it is not liable under the policy at all. Id.
Notwithstanding the servicing company's limited liability under the policy, it still performs many of the traditional functions of an insurer. Besides issuing the policy, the servicing company is also responsible for, inter alia, investigating, reporting, and paying claims, inspecting risks for classification purposes, and conducting legal support as required by the policy. Id. Sec. 4.08(c). The coverage itself, however, comes from the Fund, which is separate from the state treasury and has its own investment policy. Id. Sec. 2.07.
Wausau, a member of the Facility, was designated as the servicing company for Northwinds's workers' compensation insurance policy. On April 30, 1993, Northwinds filed suit against Wausau in state district court in Harris County, Texas. Wausau timely removed the case to the United States District Court for the Southern District of Texas based on diversity of citizenship under 28 U.S.C. Sec. 1441. Northwinds did not seek remand.
In its complaint, Northwinds alleged that Wausau mishandled four workers' compensation claims during calendar year 1991. Specifically, Northwinds asserted that these claims were fraudulent, but that Wausau paid the claims without investigating them. As a result of these improper payments, Northwinds alleged that its premiums for workers' compensation coverage increased and its coverage was ultimately cancelled. Further, Northwinds claimed that the improper payments caused its experience modifier rate ("EMR") to exceed 1.0, thereby impeding its ability to compete for asbestos abatement contracts because many customers will not accept bids from a contractor with such a high EMR.
The complaint sought relief under several theories of recovery: breach of an insurer's duty of good faith and fair dealing, the Texas Deceptive Trade Practices Act, certain provisions of the Texas Insurance Code, breach of fiduciary duty, negligence, gross negligence unfair settlement practice, affirmative misrepresentation, and breach of contract. The complaint prayed for the recovery of $15 million in actual damages, $60 million in exemplary damages or $45 million in statutory treble damages, attorneys' fees, interest, and costs.
On August 18, 1994, Wausau filed a Rule 12(b)(1) motion to dismiss for lack of jurisdiction on the grounds that Northwinds had failed to exhaust its administrative remedies through the Facility and the Texas Department of Insurance. The district court denied this motion, finding that the doctrine of exhaustion of administrative remedies did not apply in this case.
Wausau then filed a motion for summary judgment, contending that it was not liable to Northwinds under any theory because it was only a servicing company for the Facility and not Northwinds's insurer. The district court granted this motion, relying principally on an opinion by the Texas Court of Appeals that dealt with this precise issue, Maintenance, Inc. v. ITT Hartford Group, Inc., No. 06-94-00046-CV, 1994 WL 575769 (Tex.App.--Texarkana Oct. 21, 1994) (). In that case, an employer insured through the Risk Pool, the Facility's predecessor, sued the designated servicing company on its policy. Specifically, the employer alleged that the servicing company's mishandling of workers' compensation claims caused its EMR to rise to the point where it could no longer afford workers' compensation insurance. The employer sought recovery for breach of the duty of good faith and fair dealing and violations of the Texas Deceptive Trade Practices Act. The court apparently held that the servicing company was not liable under any of these theories because the servicing company was not the employer's insurer and because the servicing company did not otherwise have a contractual relationship with the employer. 2 Relying on this holding, the district court granted Wausau's summary judgment motion as to all claims. Northwinds timely appealed.
On appeal, Wausau renews its challenge to the jurisdiction of the district court. We must address such a challenge upon proper suggestion. Silver Star Enters., Inc. v. M/V Saramacca, 19 F.3d 1008, 1013 n. 6 (5th Cir.1994); Sarmiento v. Texas Bd. of Veterinary Medical Examiners, 939 F.2d 1242, 1245 (5th Cir.1991). The essence of Wausau's argument is that the statute creating the Facility provides for administrative remedies for employers that are exclusive of remedies such as the kind sought by Northwinds, and that Northwinds was required to exhaust those remedies before seeking redress in a judicial forum.
Wausau argues that Tex.Ins.Code Ann. art. 5.76-2 provides exclusive administrative remedies for employers. First, the statute grants authority for the creation of exclusive procedures for employers to secure and maintain insurance. Section 2.04(a) states:
Subject to the approval of the [State Board of Insurance ("the Board") ], the facility may adopt, amend and repeal bylaws, rules, and regulations necessary to implement this article.
Section 2.05(b) then provides:
After the rules adopted under Section 2.04 of this article have been approved by the board, the procedures and remedies established under this article shall be the exclusive procedure for any applicant to the facility to secure or maintain the insurance available under this article.
Second, the statute creates both general and particularized procedures through which employers may contest acts and decisions of the Facility. Section 2.08 establishes a general grievance procedure:
(a) An applicant for insurance, an insured, or an insurer aggrieved by an act or decision of the facility may appeal to the board not later than the 30th day after the affected party had actual notice that the act occurred or the decision was made ....
(d) A decision of the board under this section is subject to judicial review in the manner provided in the Administrative Procedure and Texas Register Act....
The Texas Administrative Code expressly establishes a procedure for appeals to the Board. Tex.Admin.Code tit. 28, Sec. 1.51(b). The Texas Government Code provides for the procedures for judicial review of the Board's decision. Tex.Gov't Code Ann. Secs. 2001.171-.178. Specific cases of fraud and violations of the Insurance Code are referred to the Texas Workers' Compensation Commission ("the Commission") under Sec. 2.05(d) of the statute:
The facility shall refer all cases of suspected fraud and violations of this code relating to workers' compensation insurance...
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