Opinion ID: 2551511
Heading Depth: 2
Heading Rank: 2

Heading: The Claim at Issue

Text: In May 1999, Paul David Wheeler allegedly suffered an on-the-job injury in Alabama while employed by M & D Power, which is a member of the AGCSF. Wheeler, a resident of Florida when he was injured, filed a workers' compensation claim against M & D Power. Eventually, the AGCSF's payments for Wheeler's workers' compensation claim exceeded $400,000. The AGCSF notified the Reinsurance Trust Fund that it had been required to make payments in excess of its self-insured retention. [9] In May 2002, Kelly, as administrator of the Reinsurance Trust Fund and on behalf of AGCSF, filed a claim with Reliance, and, in light of Reliance's insolvency, with the AIGA. In June 2004, after realizing that Wheeler was a resident of Florida when he was injured and that he still resided in Florida, the AIGA sent the claim file to the Florida Workers' Compensation Insurance Guaranty Association (the FWCIGA), [10] along with a letter that stated, in part: This insured claims that they have exceeded their $400,000.00 Self Insured Retention on this claim. There is a question regarding coverage as there appears to be an issue of Reinsurance? The insured will continue this claimant's weekly temporary total disability benefits through and including July 4, 2004. Your contact with the insured is Don Jones[, the administrator of the AGCSF].... Mr. Jones asked that he be contacted immediately to discuss who will be handling this claim file for the [FWCIGA][;] he needs to notify the previous handlers so that they may contact the claimant to advise him of what has taken place with his file. ... Also, [enclosed] is a folder that Mr. Jones provided with Certificates of Reinsurance for the years of 1999 and 2000. I spoke with Reliance's Ken Parker today and he asked that you contact him regarding coverage issues. Although the letter elsewhere refers to M & D Power as the insured in regard to Wheeler's claim, the foregoing language clearly is referring to the AGCSF as the insured which had exceeded its $400,000 self-insured retention. In a letter dated June 21, 2004, to the AGCSF, the FWCIGA rejected its claim, stating: After completing a review of the claim file, I contacted Mr. Kenneth Parker of Reliance National, via email. Mr. Parker informed me that the insured, Alabama Reinsurance Trust Fund, was assumed reinsurance. As a result of this information, I proceeded to discuss the claim further with our Director of Claims, Bob Groves. After my discussions with Mr. Groves, it is our position that we will be unable to provide coverage for this claim under our statute ( [Fla. Stat. § ] 631.904), as it specifically excludes reinsurance. [11] Neither the AIGA, which had forwarded the claim to the FWCIGA, nor the Reinsurance Trust Fund nor the AGCSF filed a judicial proceeding to contest the FWCIGA's denial of the claim. [12] Instead, the AGCSF requested that the AIGA pay the claim. In a letter dated July 2, 2004, counsel for the AGCSF informed counsel for the AIGA as follows: As we discussed in our conversation last month, my client, [the AGCSF,] has filed a claim with [the AIGA]. It is my understanding that [the AIGA] has determined that [the AGCSF]'s claim does not fall within the definition of `covered claim.' This letter is intended to explain [the AGCSF]'s position regarding this coverage question. The letter continued by discussing the AGCSF's position that the Reliance policy was direct insurance, not reinsurance, and that it was covered under the provisions of the Guaranty Act. The AGCSF contended that neither it nor the Reinsurance Trust Fund could be considered insurers under the exclusion language found in § 27-43-5(4). After it did not receive an acceptable response from the AIGA, the AGCSF sued the AIGA in the Montgomery Circuit Court. The AGCSF alleged that the AIGA had refused to pay a covered claim under the Guaranty Act. It requested that the trial court enter a judgment declaring the rights, duties, and liabilities of the parties under the Reliance policy and that it award the AGCSF a judgment for the amounts owed to [the AGCSF] in this matter with interests and costs. The AIGA filed an answer denying that the AGCSF's claim was a covered claim under the Guaranty Act. The AGCSF filed a motion for a summary judgment, evidentiary materials is support of its motion, and a brief in support thereof, including the affidavits quoted above. The AGCSF asserted that [t]he dispute between the parties in this case appears to be whether Reliance's insurance policy constituted `direct insurance' and therefore, a covered claim, or `reinsurance.' Although this precise issue has never been addressed by the courts of this state, this issue has been addressed and decided by the Iowa Supreme Court in a factually similar case, Iowa Contractors Workers' Compensation Group v. Iowa Insurance Guaranty Association, 437 N.W.2d 909 ([Iowa] 1989). The AGCSF then went on to discuss the rationale and holding in Iowa Contractors Workers' Compensation Group v. Iowa Insurance Guaranty Ass'n, 437 N.W.2d 909 (Iowa 1989), see discussion infra, and cases from other jurisdictions that allegedly supported its argument that the AIGA was obligated to pay the AGCSF's claim. The AIGA opposed the AGCSF's summary-judgment motion, and it filed a cross-motion for a summary judgment. The AIGA argued that [i]t was not designed as a safety net for self-insurers like [the AGCSF]. Specifically, the AIGA asserted: First, [the AGCSF] has failed to exhaust its claim against [the FWCIGA] pursuant to Ala.Code § 27-42-12(b), which requires that it first look to the [FWCIGA] relative to this workers' compensation claim. Second, the subject certificate of reinsurance is not direct insurance and does not fall within the ambit of the protections afforded under the [Guaranty] Act. See Ala.Code § 27-42-3 (1975); [ Alabama Ins. Guar. Ass'n ] v. Pierce, 551 So.2d 310, 312-13 (Ala.1989). Finally, even if the certificate of reinsurance qualified as direct insurance, the [Guaranty] Act excludes from its protections amounts due an `insurance pool' or `insurer' such as the [Reinsurance Trust] Fund/[the AGCSF]. Ala.Code § 27-42-5(4). In part, the materials the AIGA filed in support of its cross-motion included an affidavit from Joseph C. Manus, assistant vice president for Reliance, which stated, in part, that Reliance intended for [the Reliance policy] to be a reinsurance policy and does not consider it to be a policy that provides excess workers' compensation coverage. The AIGA also filed a motion to strike a portion of Kelly's affidavit. The AIGA argued that Kelly's statement that [t]he Reliance policy agreed to reimburse each [Reinsurance Trust Fund] member[ ] when its losses had exceeded an amount called the retention level up to a specific amount which varied according to the member self-insured fund was inconsistent with the Certificate of Reinsurance which clearly shows that the reinsurer agrees to indemnify the [Reinsurance Trust Fund] rather than the particular member of the [Reinsurance Trust Fund]. In other words, the Certificate of Reinsurance agrees to reimburse the [Reinsurance Trust Fund] rather than its particular members. But see discussion, infra, concerning the parties' subsequent stipulation that Reliance had issued the Reliance policy to the three members of the [Reinsurance Trust] Fund, one of whom is the AGCSF, and that the policy provide[d] for reimbursement to the individual members of the [Reinsurance Trust] Fund. [13] The AIGA asserted that the insurance policy at issue was the best evidence of its content. The AGCSF filed a motion to strike Manus's affidavit because, it said, the affidavit did not reflect the factual basis behind his assertions, particularly whether he was employed by Reliance when it issued the Reliance policy or what involvement he had had in the negotiations concerning the Reliance policy. The AGCSF also filed a response in opposition to the AIGA's cross-motion for a summary judgment. In November 2006 the trial court entered an order granting the AGCSF's motion for a summary judgment and denying the AIGA's motion. The order states, in part: There are only a few issues that must be resolved in this case. First, in its cross-motion for summary judgment, AIGA states that this Court should not entertain this action because AGC[SF] has failed to exhaust its remedies, pursuant to § 27-42-12, Code of Alabama 1975, with the [FWCIGA]. This argument is without merit. The exhaustion of remedies doctrine applies to `administrative remedies.' Talton Communications, Corp. v. Coleman, 665 So.2d 914, 919 (Ala.1995). From the evidence before this Court, it is undisputed that AGC[SF] did pursue and exhaust its administrative remedies with [the FWCIGA] because it submitted a claim with the [the FWCIGA] and that claim was denied by [the FWCIGA]. Although AIGA argues to this Court that AGC[SF] should have pursued a lawsuit against [the FWCIGA] before filing its claim against AIGA, this Court finds that such a lawsuit would have been frivolous and one of the exceptions to the doctrine of exhaustion of remedies is where such action would be futile. Gadsden v. Entrekin, 387 So.2d 829, 833 (Ala.1980). A `covered claim' under both the Florida and Alabama statutes does not include `any amount due any reinsurer, insurer, insurance pool, or underwriting association.' However, the difference between Florida's and Alabama's statutes is that Florida's statute specifically defines an `insurer' as `an insurance carrier or self-insurance fund,' [Fla. Stat. Ann.] § 631.904(5), and Alabama's statute does not define the term `insurer' but its definition of `member insurer' does not include a self-insurance fund. AGC[SF] has done all it had to do to seek recovery from the [FWCIGA] and thus, has satisfied the requirements of § 27-42-12. Second, the real dispute between the parties appears to be whether the Reliance policy constitutes `direct insurance' because it is an excess workers compensation policy, or `reinsurance.' In support of its motion for summary judgment, AGC[SF] has submitted the affidavit of Boyd Kelly, the administrator of the [Reinsurance Trust Fund]. Kelly stated in his affidavit that `In 1998, the [Reinsurance Trust Fund], acting as a broker for its members, sought to secure an insurance policy for its members with Reliance National Indemnity Company for the purpose of providing excess coverage above the self insured retention levels maintained by each member.` In response, AIGA submitted the affidavit of Joseph C. Manus, an Assistant Vice-President for Reliance. In his affidavit, Manus stated that Reliance intended that the policy at issue in this case was reinsurance and not excess insurance. Although Mr. Manus states in his affidavit that he has personal knowledge of the matters contained in his affidavit, he does not state what role he played, if any, at the time this policy was issued. In contrast, Mr. Kelly does relate his intimate knowledge of the events surrounding the securing of the Reliance policy. Although, the policy itself uses the term `reinsurance,' this Court must interpret a policy of insurance according to its substance and not its form. Baker v. Eufaula Concrete Co., 557 So.2d 1228 (Ala.1990); Lavender v. Ball, 267 Ala. 104, 100 So.2d 331 (1958); Moncrief v. Donohoe, 892 So.2d 379 (Ala.Civ.App. 2003); Birmingham News Co., Inc. v. Chamblee, 617 So.2d 689 (Ala.Civ.App. 1993). `[I]t is settled that the nature of a contract is to be determined by the terms and conditions of the contract itself and not by the name given to it. It is not a question of what the parties call a contract, but what they put in the contract, because the law regards substance and not form.' McGuire v. Andre, 259 Ala. 109, 115, 65 So.2d 185, 190 (1953). (Emphasis added.) The trial court then discussed the Iowa Supreme Court's decision in Iowa Contractors, concluding that the Reliance policy was not a reinsurance policy. The trial court concluded that neither the Reinsurance Trust Fund nor the AGCSF were insurers and, accordingly, that the AGCSF's claim was a covered claim under the Guaranty Act. It directed the AIGA to pay all claims submitted by AGC[SF] pursuant to the Reliance policy at issue in this case. The trial court did not specify the amount of damages due the AGCSF from the AIGA, however. The AIGA appealed, and this Court remanded the case to the trial court for a determination as to damages and for the entry of a final judgment. On remand, the parties stipulated that the AGCSF had made workers' compensation benefit payments to or on behalf of Wheeler in the amount of $907,734.96, that the AGCSF was responsible for paying $400,000 of that amount as self-insured retention, and that the terms of the Reliance policy required Reliance to reimburse the AGCSF for the remaining $507,734.96. [14] They further stipulated that Reliance had issued the Reliance policy to the three members of the [Reinsurance Trust] Fund, one of whom is the AGCSF, and that the policy provide[d] for reimbursement to the individual members of the [Reinsurance Trust] Fund for `loss paid or payable as a result of: ... Compensation and other benefit payments required of the Reassured [Insured] by the Workers Compensation Law of any state ...'. Nonetheless, the AIGA maintained its position that AGCSF's claim was not a covered claim under the Guaranty Act. After conducting a hearing on remand and considering the parties' stipulations, the trial court entered a judgment against the AIGA and in favor of the AGCSF in the amount of $507,734.96. The court directed the AIGA to pay all future claims submitted by the AGCSF concerning Wheeler, up to the $1,000,000 limit of the Reliance policy of insurance.