Tazco, Inc. v. Director, Office of Workers Compensation Programs, U.S. Dept. of Labor

• Decision Date: 08 February 1990
• Docket Number: No. 89-3230,89-3230
• Citation: 895 F.2d 949
• Parties: TAZCO, INCORPORATED; Old Republic Insurance Company, Petitioners, v. DIRECTOR, OFFICE OF WORKERS COMPENSATION PROGRAM, UNITED STATES DEPARTMENT OF LABOR; Franklin Osborne, Respondents.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 949

895 F.2d 949

TAZCO, INCORPORATED; Old Republic Insurance Company, Petitioners, v. DIRECTOR, OFFICE OF WORKERS COMPENSATION PROGRAM, UNITED STATES DEPARTMENT OF LABOR; Franklin Osborne, Respondents.

No. 89-3230.

United States Court of Appeals Fourth Circuit.

Argued Oct. 31, 1989.

Decided Feb. 8, 1990.

Mark E. Solomons (Richard L. Rennert, Arter & Hadden, Washington, D.C., on brief), for petitioners.

Michael John Denney, Counsel for Appellate Litigation (Robert P. Davis, Sol. of Labor, New York City, Donald S. Shire, Associate Sol. for Black Lung Benefits, U.S. Dept. of Labor, Washington, D.C., on brief), for respondents.

Before ERVIN, Chief Judge, WILKINSON, Circuit Judge, and YOUNG, Senior District Judge for the District of Maryland, sitting by designation.

WILKINSON, Circuit Judge:

The issue before us is whether a default award on a claim for black lung benefits entered by the Department of Labor against a coal mine operator may stand, where the insurance carrier liable for the claim received no notice of the pending adjudication. The Benefits Review Board held that the Department of Labor was only required to notify the responsible operator because the operator and the carrier are one entity for the purpose of notification.

We reverse.

I.

On June 7, 1979, Franklin Osborne filed a claim for black lung benefits under the Black Lung Benefits Act, as amended, 30 U.S.C. Secs. 901-945 (1982). The applicable claims procedures are found in certain incorporated provisions of the Longshore and Harbor Workers' Compensation Act, as amended, 33 U.S.C. Secs. 901-950 (1982 & Supp. V 1987), as incorporated by 30 U.S.C. Sec. 932. The details of the claims procedures, including rules governing insurance contracts, are contained in regulations promulgated pursuant to the Black Lung Benefits Act by the Secretary of Labor. See 20 C.F.R. Secs. 725.1-726.213 (1989).

The Department of Labor ("DOL") issued a Notice of Initial Finding on May 21, 1980, indicating that Osborne had become totally disabled as of August 15, 1979, and identifying Tazco, Inc. as the operator potentially liable for the benefits. See 20 C.F.R. Secs. 725.410, 725.412. It required Tazco to except to the determination within 30 days or be deemed to have accepted the initial finding of entitlement and to have waived its right to contest the claim, absent good cause shown. See 20 C.F.R. Sec. 725.413. The Notice was sent to Tazco, but not to its insurance carrier, Old Republic Insurance Company. On July 2, 1980, the Department issued a default award of benefits in light of Tazco's failure to respond to the May 21 order.

Upon notification of the default award, Tazco contacted Old Republic, which on July 10, 1980, filed an answer on behalf of Tazco and itself controverting the claim. Old Republic also filed a motion contesting the default award on the ground that adequate notice had not been originally provided. The administrative law judge found that Tazco's reliance on the carrier to controvert the claim did not constitute good cause for its lack of timeliness and that the regulations do not require notification of the carrier. See 20 C.F.R. Secs. 725.412-13. The ALJ declined to entertain a due process challenge to the regulations on the grounds that the issue was beyond his jurisdiction. On August 25, 1987, the Benefits Review Board affirmed the decision of the ALJ. The Board denied Old Republic's request for reconsideration on January 3, 1989. This appeal followed.

II.

We cannot accept the view of respondents that the insurance carrier is not entitled to separate notice of a claim if the coal mine operator has been notified. In "any proceeding which is to be accorded finality," due process requires that all interested parties receive notice "reasonably calculated, under all the circumstances, to apprise [them] of the pendency of the action and afford them an opportunity to present their objections." Mullane v. Central Hanover Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 657, 94 L.Ed. 865 (1950). Failure to afford notice to an interested party violates "the most rudimentary demands of due process of law." Peralta v. Heights Medical Center Inc., 485 U.S. 80, 84, 108 S.Ct. 896, 899, 99 L.Ed.2d 75 (1988), quoting Armstrong v. Manzo, 380 U.S. 545, 550, 85 S.Ct. 1187, 1190, 14 L.Ed.2d 62 (1965). This court has found the guarantees of notice and an opportunity to be heard to be "[p]aramount among [constitutional] rights." Eakins v. Reed, 710 F.2d 184, 187 (4th Cir.1983).

In the instant case, a default award was entered on the claim for black lung benefits before Old Republic was notified that adjudication of the claim was even pending. The insurer had no opportunity to decide whether to "appear or default, acquiesce or contest," Mullane, 339 U.S. at 314, 70 S.Ct. at 657, because it first learned of the claim after entry of judgment. The law disfavors default judgments as a general matter, see Augusta Fiberglass Coatings, Inc. v. Fodor Contracting Corp., 843 F.2d 808, 811 (4th Cir.1988), and especially where, as here, the defaulting party was in no way remiss in its response to the claim. Within eight days of receiving notification of the default award, Old Republic filed an answer controverting the claim on behalf of Tazco and itself. Old Republic also filed a "Motion to Permit Filing Notice of Contest" on the ground that it had never been notified of any claim. The carrier was, however, denied any opportunity for a hearing on the merits of the claim or on the issue of whether lack of notice constituted good cause for its failure to respond earlier. ¹ 1]

We reject respondents' theory that notice provided to the operator may constitutionally be "imputed" to the carrier. If, as the Director argues, the carrier is not allowed to assert defenses unavailable to the operator, then the corollary is that it must be allowed to assert the defenses that are available, for which it will need notice. The DOL may not avoid its responsibility to afford due process by assuming that employers will notify their insurance carriers. We recognize, of course, that many contracts of insurance contemplate notification of the insurer by the insured. This fact, however, in no way displaces the due process obligation of the government to notify private parties of public proceedings which will subject them to liability under the law. The government will not be lightly heard to argue that due process may be made to depend upon the intermediate actions of third parties, especially those whose status is uncertain and whose effective obligations may be ended once their premiums are paid. Imputed notice in such cases may be but a legal fiction; in practice, imputed notice may result in no notice at all. By contrast, the constitution requires notice that is more than a "mere gesture." Mullane, 339 U.S. at 315, 70 S.Ct. at 657. Respondents fail to explain their failure simply to notify Old Republic directly, the method that would be employed by one who was "desirous of actually informing" the party liable for the claim. Id.

III.

Respondents concede that Old Republic is a party in interest. The Secretary's own regulations include the insurance carrier in the list of parties that are entitled to participate in the adjudication of a claim for benefits. See 20 C.F.R. Sec. 725.360. In addition, claims provisions incorporated by reference into the Black Lung Benefits Act track the requirements of due process by providing for notification of the employer and "any other person ... whom the deputy commissioner considers an interested party." 33 U.S.C. Sec. 919(b). The regulatory notice provisions also contemplate that the carrier will be notified because they allow both the operator and the carrier to specify a designated agent to receive notice on their behalf. See 20 C.F.R. Sec. 725.413(c). Construed together, the statute and regulations clearly require that the insurance carrier receive notice of a claim for which it is potentially liable. See Warner Coal Co. v. Director, Office Workers' Compensation Programs, Dep't of Labor, 804 F.2d 346, 346-47 (6th Cir.1986). See also United States Casualty Co. v. Taylor, 64 F.2d 521, 525 (4th Cir.1933) (statutory scheme contemplates the right of the carrier to be heard in opposition to any claim).

The regulations properly identify the insurance carrier as a party in interest for the simple reason that the carrier takes on all the employer's responsibilities in connection with insured claims. ² Once the carrier has reported the issuance of the policy, as mandated by the regulations, the insurer is fully liable for the obligations of the operator. See 20 C.F.R. Secs. 726.208-10. The carrier is required to discharge the statutory and regulatory duties imposed on the employer, thus stepping into its shoes. See 33 U.S.C. Sec. 935; 20 C.F.R. Sec. 726.207. See also Chapman v. Hoage, 296 U.S. 526, 528, 56 S.Ct. 333, 334, 80 L.Ed. 370 (1936); Pennsylvania Nat'l Mut. Casualty Ins. Co. v. Spence, 591 F.2d 985, 987 (4th Cir.1979). Moreover, unlike an indemnification policy, the Black Lung Benefits scheme contemplates that the insurer, as a party may be liable in the original claims proceeding. See Caudill Constr. Co. v. Abner, 878 F.2d 179, 181 (6th Cir.1989); Warner Coal, 804...