Solis v. Home Ins. Co.

• Decision Date: 27 January 2012
• Docket Number: Case No. 10–cv–572–SM.
• Parties: Hilda SOLIS, Secretary, United States Department of Labor, Plaintiff v. The HOME INSURANCE COMPANY and Roger A. Sevigny, New Hampshire Insurance Commissioner, as Liquidator of the Home Insurance Company, Defendants.
• Court: U.S. District Court — District of New Hampshire

848 F.Supp.2d 91

2012 DNH 020

Hilda SOLIS, Secretary, United States Department of Labor, Plaintiff

v.The HOME INSURANCE COMPANY and Roger A. Sevigny, New Hampshire Insurance Commissioner, as Liquidator of the Home Insurance Company, Defendants.

Case No. 10–cv–572–SM.

United States District Court, D. New Hampshire.

Jan. 27, 2012.

Kyle Forsyth, U.S. Dept. of Justice—Com'l Litigation, Washington, DC, for Plaintiff.

Eric A. Smith, J. David Leslie, Rackemann Sawyer & Brewster, Boston, MA, J. Christopher Marshall, NH Attorney General's

Office, Department of Justice, Concord, NH, for Defendants.

ORDER

STEVEN J. McAULIFFE, District Judge.

The Home Insurance Company (“Home”) was declared insolvent in 2003 by the New Hampshire Superior court, which ordered its liquidation and appointed the New Hampshire Commissioner of Insurance as liquidator. During the subsequent insolvency proceeding, the United States Department of Labor (“DOL”) filed a proof of claim seeking over $2.6 million in assessments allegedly owed by Home to a “Special Fund” administered by DOL pursuant to the Longshore and Harbor Workers' Compensation Act, 33 U.S.C. §§ 901–50 (the “Longshore Act”). Applying state law—which establishes the priority in which payments from the assets of liquidated insurers are to be made—the Liquidator assigned DOL's claim to priority Class III. Home's assets are generally thought to be insufficient to cover Class III claims, so it is unlikely that DOL will recover anything substantial. The Department of Labor brought this suit against Home and Roger A. Sevigny, New Hampshire's Insurance Commissioner and Liquidator of Home, seeking a declaration that the Longshore Act preempts the state's priority-setting statute. Before the court is DOL's motion for summary judgment (document no. 29).

Standard of Review

When ruling on a motion for summary judgment, the court must “view the entire record in the light most hospitable to the party opposing summary judgment, indulging all reasonable inferences in that party's favor.” Griggs–Ryan v. Smith, 904 F.2d 112, 115 (1st Cir.1990). Summary judgment is appropriate when the record reveals “no genuine dispute as to any material fact and ... the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “[A] federal preemption ruling” involves “a pure question of law.” United States v. Rhode Island Insurers' Insolvency Fund, 80 F.3d 616, 619 (1st Cir.1996) (hereinafter “RIIIF ”).

Background

The material facts are not in dispute.

I. Procedural History

The New Hampshire Superior Court (Merrimack County) declared Home insolvent and ordered its liquidation on June 13, 2003. The Liquidator (Sevigny) is “vested ... with the title to all of the property, contracts and rights of action and all of the books and records of [Home].” N.H.Rev.Stat. Ann. (“RSA”) § 402–C:21. The Liquidator must review each claim filed in Home's liquidation, and determine whether the claim should be allowed, in what amount, and at what priority class level. After doing so, the Liquidator presents his findings to the superior court in the form of recommended action for the court's approval. RSA 402–C:45.

The DOL filed a proof of claim and an amended proof of claim in 2003 and 2005, respectively, for assessments totaling $2,672,527 that Home allegedly owes to DOL under the Longshore Act for the period between 2000–2004 (collectively the “claim”). In October 2010, the Liquidator issued a notice of redetermination, which allowed DOL's claim in full. Pursuant to New Hampshire's priority statute (RSA 402–C:44), however, the Liquidator assigned DOL's claim a Class III priority. He also rejected DOL's argument that state priority law does not apply because it is preempted by the Longshore Act.

Unhappy with the Liquidator's decision, DOL filed this federal declaratory judgmentaction to press the preemption issue. It also asserted, on alternative state law grounds, that its claim against Home's assets is entitled to either a Class I or Class II priority. The superior court stayed the liquidation proceedings with respect to the DOL's claim pending the outcome of this case. This court denied the defendants' motion to dismiss DOL's federal preemption cause of action, but granted, under Wilton v. Seven Falls Co., 515 U.S. 277, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995), their motion to dismiss the state law claims. See Document No. 40. In addition, the Guaranty Funds were allowed to intervene to protect their rights as Class II claimants.¹Id.

II. The State Liquidation Statute and Priority Provision

The New Hampshire Insurer Liquidation Act, RSA 402–C (“Liquidation Act”), provides a comprehensive statutory framework governing the rehabilitation or liquidation of troubled insurance companies. Under the Act, the assets of an insolvent insurer are distributed to claimants, as allowed by the liquidator “[u]nder the direction of the [state] court,” and in accordance with statutory priorities. RSA 402–C:46, I. Those priorities are set out in RSA 402–C:44 (the “state priority law”), which establishes ten priority classes. The first three classes are relevant to DOL's claim in this case. Id. Class I includes the “costs and expenses of administration” of the insolvent insurer's estate. Id. Class II claims are “Policy Related Claims,” including “claims of the New Hampshire Insurance Guaranty Association, the New Hampshire Life and Health Insurance Guaranty Association and any similar organization in another state.” Id. Class III claims are “Claims of the Federal Government.” Id. Every claim in a given priority class must be paid in full (or adequate funds retained for payment in full) before any payment is made on claims of the next lower class. Id.

III. The Federal Longshore ActA. Generally

DOL's claim against the assets of Home arises from assessments DOL levied against Home pursuant to the Longshore Act. The Longshore Act creates “an extensive workers' compensation program that protects longshore and other specific classes of workers whose injuries occur upon navigable waters of the United States or adjoining facilities like piers and dry docks.” Reich v. Bath Iron Works Corp., 42 F.3d 74, 75 (1st Cir.1994) (citing 33 U.S.C. § 903(a)). The Longshore Act is similar to workers' compensation programs “provided by many states for non-maritime workers.” B.S. Costello, Inc. v. Meagher, 867 F.2d 722, 723 (1st Cir.1989). It “establishes benefits to workers without regard to the employer's fault, but, at the same time, it eliminates common law tort liability and limits the employer's liability to predictable amounts.” Id. The purpose of the Longshore Act, therefore, is “to afford expeditious relief to injured workers while distributing their economic losses on to industry and the consuming public.” Id.

The Longshore Act sets the amount and duration of compensation payments it requires employers to make to their injured employees. Employers must “secure the payment of compensation” either (1) through a contract with an insurance carrier or (2) by qualifying as a self-insurer with the DOL. 33 U.S.C. § 932(a). Insurance carriers must receive authorization from the Secretary before they can insure the “payment of ... compensation,” id., and must disclose to the Secretary a “full and complete statement of [their] financial condition.” 20 C.F.R. § 703.102. In deciding whether to authorize an insurance carrier to provide insurance under the Longshore Act, the Secretary may consider the recommendation of “any State authority having supervision over carriers or over workmen's compensation.” 33 U.S.C. § 932(b). The Secretary may suspend or revoke its authorization for good cause shown. Id.

Because “employees' claims will ... commonly be handled by an insurance carrier, the [Longshore Act] facilitates claim administration by allowing the Secretary of Labor to substitute the carrier for the employer for purposes of administrative proceedings and orders.” B.S. Costello, 867 F.2d at 724. Nevertheless, and “notwithstanding the important role carved out for insurance carriers,” employers remain liable for compensation despite any insurance. Id.

B. The Special Fund: § 944

Section 944 of the Longshore Act creates a “Special Fund” of money held in trust and administered by DOL. 33 U.S.C. § 944(a). The Special Fund operates primarily (1) to provide to “second injury” workers compensation beyond that which employers are required to provide (33 U.S.C. § 908), and (2) to provide compensation to workers in the event of employer insolvency (33 U.S.C. § 918). See33 U.S.C. § 944(I). Section 944 authorizes the Secretary to fund the Special Fund through annual assessments on self-insured employers and insurance carriers. See 33 U.S.C. § 944(c)(2). ²

(1) Second Injury Payments from the Special Fund

Employer liability for worker compensation under the Longshore Act is limited in cases of “second injury,” that is, where a partially disabled worker suffers a work-related injury that increases her disability. Under such circumstances, the employer is usually liable only for 104 weeks of compensation payments. 33 U.S.C. § 908(f)(1); 20 C.F.R. 702.145(b) (2010). After that period, liability for payments shifts to the Special Fund. 33 U.S.C. § 908(f); Reich, 42 F.3d at 77 (Section 944 “mak[es] the special fund, and not the employer, liable ... for so-called ‘second injury’ compensation payments”).

Shifting liability to the Special Fund is meant “to encourage employers to hire workers who have a previous partial permanent disability.” Reich, 42 F.3d at 77. “For various reasons, employers feared that such a worker who suffered a new disability might impose extra liability on the employer where the first injury contributed to the severity of the second; a good example is the loss of an eye by a worker already blind in one eye.” Id. (emphasis in original).

(2) Payments from the Special Fund in the Event of Employer Insolvency

The Secretary may also, in her discretion,...