Opinion ID: 2659283
Heading Depth: 1
Heading Rank: 5

Heading: Claim Against UPS

Text: The heirs alternatively seek UIM coverage from UPS, theorizing that it is selfinsured. In Utah, companies that insure themselves can limit UIM coverage upon satisfaction of certain requirements. See id. § 31A-22-305.3(c). The heirs claim that UPS did not satisfy these requirements, creating a duty to pay UIM benefits as a “selfinsurer.” On this claim, UPS sought summary judgment on two grounds: (1) the remedy in the workers’ compensation statute provided the exclusive remedy to Mr. Christoffersen (and, indirectly, to his heirs); and (2) UPS is not considered a “self-insurer” under Utah law. The district court agreed with UPS that the workers’ compensation statute provided the sole remedy; as a result, the court did not expressly decide whether UPS was a “selfinsurer” under Utah law. We agree with the outcome, but rely on the issue that the district court declined to explicitly address. In doing so, we conclude that UPS was not a “self-insurer” under Utah law. The threshold issue is whether self-insured status involves a matter of law or fact. Though UPS sought summary judgment on this ground, it agrees with the heirs that selfinsurer status involves a factual issue. But we are not bound by the parties’ characterization because the underlying question—whether self-insurer status is a question of law or fact—is itself a question of law. See, e.g., Koch v. U.S. Dep’t of Interior, 47 F.3d 1015, 1018 (10th Cir. 1995) (“While this court will honor stipulations 16 regarding factual issues, ‘[i]t is well-settled that a court is not bound by stipulations of the parties as to questions of law.’”) (quoting Dimidowich v. Bell & Howell, 803 F.2d 1473, 1477 n.1 (9th Cir. 1986)). We hold, as a matter of law, that self-insurer status constitutes a legal question because it turns on statutory interpretation. See Thomas v. Metro. Life Ins. Co., 631 F.3d 1153, 1160 (10th Cir. 2011) (statutory interpretation involves a matter of law). Accordingly, we disregard the parties’ characterization of the issue as factual; instead, we hold as a matter of law that UPS is not considered a “self-insurer” under Utah law. UPS cannot be considered both a self-insurer and an insured. Because the heirs cannot recover when UPS is considered an insured, they seek to recharacterize the company as its own insurer. This characterization cannot be squared with Utah’s laws governing UIM coverage or self-insurers. As noted above, UPS had an insurance policy with Liberty Mutual. One could regard UPS as a self-insured only by disregarding this reality. The heirs rely on the fact that UPS’s retention and policy limit were both $5 million. This feature meant that as long as UPS remained solvent, it would pay any claims by its employees. Policies with this feature are called “fronting policies.” See 1 New Appleman on Insurance Law Library Edition, § 1.09[4] (Jeffrey E. Thomas ed.) (LexisNexis 2013). These policies are sometimes viewed as a form of “self-insurance” because the insured pays claims as long as it remains solvent. See id. The heirs latch 17 onto this characterization and regard UPS as a self-insurer because its policy was a classic “fronting policy.” But this argument ignores the reality that under Utah law, Liberty Mutual remains an “insurer” and UPS does not fit the statutory definition of a “self-insurer.” As noted above, the nature of the policy required UPS to pay claims as long as it remained solvent. But Utah law defines “insurance,” and that definition includes the UPS policy regardless of who paid the claims. Under Utah law, the term “insurance” means: (1) “an arrangement, contract, or plan for the transfer of a risk or risks from one or more persons to one or more other persons,” or (2) “an arrangement, contract, or plan for the distribution of a risk or risks among a group of persons that includes the person seeking to distribute that person’s risk.” Utah Code Ann. § 31A-1-301(82)(a) (2007 supp.). This definition includes “contracts of guaranty or suretyship entered into by the guarantor or surety as a business and not as merely incidental to a business transaction.” Id. § 31A-1-301(82)(b)(ii). UPS’s fronting policy with Liberty Mutual fits this definition: It is an arrangement for the distribution of a risk between Liberty Mutual and UPS, the entity seeking to distribute that risk. Though the policy could also be characterized as a suretyship contract, this characterization is consistent with the statutory definition of “insurance.” See id. Therefore, UPS’s policy qualifies as “insurance” under Utah law. See Croft v. Old Rep. Ins. Co., 618 S.E.2d 909, 915 (S.C. 2005) (stating that a fronting 18 policy does not make the policyholder a self-insurer under the state UIM law because the legislature “has not defined such policies as a form of self-insurance”). A company cannot have insurance with another entity and be considered a selfinsurer, for statuses as an “insured” and “self-insurer” are mutually exclusive. See State Farm Mut. Auto. Ins. Co. v. Du Page Cnty., 955 N.E.2d 67, 75 (Ill. App. Ct. 2011) (“[S]elf-insurance does not involve an insurer and an insured, because they are one and the same.”); see also Am. Nurses Ass’n v. Passaic Gen. Hosp., 471 A.2d 66, 70 (N.J. Sup. Ct. App. Div. 1984) (stating that under “the weight of authority,” “self-insurance and insurance are mutually exclusive concepts”), rev’d in part on other grounds, 484 A.2d 670 (N.J. 1984); Universal Underwriters Ins. Co. v. Marriott Homes, Inc., 238 So. 2d 730, 732 (Ala. 1970) (stating that self-insurance “is actually the antithesis of insurance as that term is commonly used”). Because the Liberty Mutual policy is considered “insurance” under Utah law, UPS cannot be regarded as a “self-insurer.” The term “self-insurance” has a specific meaning under Utah law. The term refers to an arrangement in which a company provides for spreading its own risks through a systematic plan. Utah Code Ann. § 31A-1-301(148) (2007 supp.). For companies that self-insure vehicles, the contents of the plan must satisfy certain requirements. For example, owners and operators must maintain “security” on vehicles that are driven. Utah Code Ann. § 41-12a-301(2)(a) (2007 supp.). The security can consist of a “certificate” of self-funded coverage. Id. § 41-12a-103(9)(d) (2005). This certificate 19 requires registration with the State and satisfaction of statutory requirements involving the number of vehicles, financial strength, and the making of a deposit. Id. § 41-12a407(1) (2005). In the summary-judgment record, the heirs did not present evidence that UPS was registered as a self-insurer. As a result, we conclude that UPS’s fronting policy with Liberty Mutual did not constitute self-insurance. See White v. Ins. Co. of the State of Pa., 405 F.3d 455, 458 (6th Cir. 2005) (holding that a fronting policy did not qualify as selfinsurance because the employer had not satisfied Ohio’s statutory requirements for selfinsurer status); Croft v. Old Rep. Ins. Co., 618 S.E.2d 909, 917 (S.C. 2005) (holding that a fronting policy did not transform the company into a self-insurer, requiring an offer of UIM coverage, because the company did not file proof of financial responsibility as required under state law). The heirs make three arguments to support their characterization of UPS as a selfinsurer: (1) as a categorical matter, fronting policies are considered a form of selfinsurance under Tenth Circuit precedent; (2) UPS’s fronting policy does not qualify as insurance because it involved no real transfer of risk; and (3) UPS represented itself as a “self-insured” with the Securities and Exchange Commission. We reject each argument. The heirs’ first argument relies on Air Liquide America Corp. v. Continental Casualty Co., 217 F.3d 1272 (10th Cir. 2000). There, we described a fronting policy as “a form of self-insurance, under which [the insured] is responsible for its own losses and 20 [the insurer] acts merely as a surety that [the insured] will be able to pay any judgment covered under the policy.” Id. at 1274. The statement is dictum. The issue in Air Liquide was not whether the fronting policy constituted self-insurance, but whether it qualified as “other insurance” under the terms of a second policy. Our passing reference to the fronting policy as “a form of selfinsurance” had no bearing on that issue, for we were simply describing fronting policies as self-insurance in a colloquial sense. Indeed, self-insurance is often “a term of colloquial currency rather than of precise legal meaning.” 43 Am. Jur. 2d Insurance § 18 (2013). Because the meaning of “self-insurance” varies from state to state, the question is not whether fronting policies are categorically considered self-insurance, but whether a particular fronting policy qualifies as self-insurance under the laws of a particular state. Air Liquide is not to the contrary. The heirs’ second argument is that UPS’s fronting policy does not qualify as insurance because it involved no real transfer of risk. We disagree. UPS may have retained the bulk of its risk under the policy, but some risk was transferred to Liberty Mutual because it would have to pay a claim if UPS became insolvent. See Croft v. Old Rep. Ins. Co., 618 S.E.2d 909, 915 (S.C. 2005). Finally, the heirs argue that UPS identified itself as a “self-insurer” to the Securities and Exchange Commission. This argument does not advance the inquiry under Utah law. Regardless of whether UPS was a “self-insurer” for purposes of federal 21 reporting requirements, we must decide whether the arrangement fits the Utah legislature’s definition of a “self-insurer.” We conclude it does not. But, however we answer the question, it is hard to imagine how UPS’s characterization to the SEC would bear on an issue of Utah law. Rejecting each argument, we conclude that UPS is not a “self-insurer” under Utah law. And without status as a self-insurer, UPS cannot incur liability under Utah Code Ann. § 31A-22-305.3(c) (2007 supp.). Thus, we affirm the award of summary judgment to UPS.