Eighth Circuit Properly Slaps Down Insurer for Charging Premium Not Owed

Audit Including Seamen Excluded from Workers’ Compensation Policy not Appropriate

LM Insurance Corporation sued Dubuque Barge and Fleeting Service Company, d/b/a Newt Marine Service (“Newt Marine”), for breach of contract alleging Newt Marine wrongfully refused to pay premiums owed under three separate workers’ compensation insurance policies. Both parties moved for summary judgment. The district court granted Newt Marine’s motion and denied LM Insurance’s motion, concluding the premiums LM Insurance sought from Newt Marine were not merited by the terms of the polices. In LM Insurance Corporation v. Dubuque Barge and Fleeting Service Company, doing business as Newt Marine Service, No. 19-1647, the United States Court of Appeals For the Eighth Circuit (July 20, 2020) was called upon to resolve the dispute.

BACKGROUND

Newt Marine is an Iowa marine construction company that conducts most of its work on a floating dredge barge and plant on the Mississippi River. Through Iowa’s assigned risk plan, LM Insurance issued Newt Marine three successive one-year workers’ compensation insurance policies starting in May 2013. Each policy included the same premium terms. Newt Marine pays an up-front, estimated premium. Then, following an audit, LM Insurance calculates the final premium. If the final premium exceeds the initial estimated premium, Newt Marine must pay the difference.

Each policy also included the same coverage exclusion. Coverage did not extend to bodily injuries to “a master or member of the crew of any vessel,” otherwise known as “seamen” under the Jones Act, 46 U.S.C. § 30104. This exclusion exists because “seamen” have a private right of action against their employers for personal injuries and, according to the Iowa Supreme Court, that private right of action deprives Iowa’s workers’ compensation commission of subject matter jurisdiction to award benefits to seamen employees. [Harvey’s Casino v. Isenhour, 724 N.W.2d 705, 709 (Iowa 2006).]

Even though the workers’ compensation policies issued by LM Insurance excluded Newt Marine’s seamen employees from coverage, LM Insurance charged Newt Marine a premium for their coverage by including all seamen employees in its final premium calculations. Since they are excluded by the terms of the policy, seamen are not engaged in “work covered by [the] policy” and Newt Marine refused to pay the additional premium based on the earnings of seamen.

ANALYSIS

LM Insurance sued Newt Marine claiming it was in breach of contract for refusing to pay premiums allegedly owed. Since the construction of an insurance contract and the interpretation of its language are matters of law for the court.

Under Iowa law, the intent of the parties, as determined by the language of the policy, controls the court’s interpretation of an insurance policy. The premiums LM Insurance seeks in this lawsuit are based entirely on remuneration paid or payable to Newt Marine’s seamen employees during the three consecutive policy terms.

Remuneration for those employees is not encompassed by the policy. When read together, it is clear that language encompasses remuneration for employees engaged in covered work or remuneration for nonemployees, like independent contractors, engaged in covered work.

The Eighth Circuit concluded that remuneration for Newt Marine’s seamen employees is not encompassed by the policy because Newt Marine’s seamen, although employees, do not engage in covered work. Despite LM Insurance’s arguments to the contrary even though Newt Marine’s employee seamen are, of course, employees, they are not employees of the workers’ compensation policy. The charged premiums were not merited by the language of the policies.

The possibility that Newt Marine may, during the policy period, reclassify a seaman employee as an employee engaged in covered work does not suddenly implicate the policy and make all of the seamen covered employees. In the event of reclassification, the reclassified employee’s remuneration would be encompassed by the part of the policy dealing with employees and LM Insurance’s audit at the conclusion of each policy period could appropriately account for any such reclassifications.

Because the premiums LM Insurance charged to Newt Marine were not merited, Newt Marine did not breach its obligations under the workers’ compensation insurance policies by refusing to pay.

ZALMA OPINION

Since workers’ compensation insurance is based upon the remuneration of covered employees LM Insurance over-charged Newt Marine by assuming, since the seamen could be reclassified as employees, that they were all reclassified. They were not and the premium charged at audit was improper and violated the terms and conditions of the policy issued by LM.


© 2020 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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