Court of Appeals of Kentucky.
KENTUCKY EMPLOYERS’ MUTUAL INSURANCE, Appellant
v.
Shelby Lee DECKER; Shelby Lee Decker, d/b/a Shelby Lee Decker Trucking; Ragland’s Quarry and/or Scotty’s Contracting & Stone, LLC; Hon. Chris Davis, Administrative Law Judge; and Workers’ Compensation Board, Appellees.
No. 2009-CA-002060-WC.
June 11, 2010.
Petition for Review of a Decision of the Workers’ Compensation Board, Action No. WC-08-00410.
Stephen B. Lee, Owensboro, KY, for appellant.
Before CAPERTON and CLAYTON, Judges; BUCKINGHAM, Senior Judge.
Senior Judge David C. Buckingham sitting as Special Judge by assignment of the Chief Justice pursuant to Section 110(5)(b) of the Kentucky Constitution and Kentucky Revised Statutes (KRS) 21.580.
OPINION
CLAYTON, Judge.
Kentucky Employers’ Mutual Insurance (“KEMI”) petitions us to review an opinion of the Workers’ Compensation Board (“Board”) entered October 7, 2009, reversing the portion of the Administrative Law Judge’s (“ALJ”) opinion, holding that Shelby Lee Decker was not covered by a workers’ compensation policy purchased by him in October 2006. With regard to the February 26, 2009 opinion of the ALJ, the Board affirmed in part, reversed in part, and remanded to the ALJ. For the reasons stated herein, we affirm the Board’s decision.
FACTUAL AND PROCEDURAL BACKGROUND
Beginning in January 1999, Shelby Lee Decker hauled rock and lime for Ragland’s Quarry (now Scotty’s Contracting & Stone, LLC). He was a one-man trucking operation and owned his dump truck but he was not incorporated or a member of a limited partnership. Starting in 2006, Scotty’s Contracting & Stone, LLC (“Scotty’s”) mandated that its contract haulers procure both liability and workers’ compensation coverage. Although these haulers were considered to be independent contractors by Scotty’s, it knew that it might have potential workers’ compensation liability for the haulers and their employees under KRS 342.700(2), which delineates the so-called “up-the-ladder” liability.
Scotty’s made arrangements for its haulers to acquire insurance by hosting a meeting for them with a representative of Scotty’s insurance agency, Curneal & Hignite Insurance Company (“Curneal & Hignite”). Decker attended this meeting. He testified that the agent, who met with the drivers, knew that most of the drivers had only one truck and were the sole drivers of their trucks. After Decker relayed the relevant information to the agent, the paperwork was filled out for him. Then, the Curneal & Hignite representative forwarded Decker’s application to KEMI where it was received and approved. Decker maintains that he believed the workers’ compensation policy covered him, never said that he did not want coverage, and was unaware that the policy supposedly excluded him from coverage as a business owner.
In October 2007, Decker received a mail audit about the policy. Decker testified that he took it to Scotty’s and asked it what it meant. A secretary at Scotty’s filled it out for him and mailed it to KEMI. Further, he stated that he received $300 or $400 back from the insurance company. He understood the rebate was because he had no accidents during the first year he was insured. Decker paid KEMI approximately $800 for the first year of workers’ compensation coverage and approximately $745 to renew his workers’ compensation policy for the second year of coverage.
On November 9, 2007, Decker had a delivery to make for Scotty’s. According to Decker, Scotty’s required all drivers to clean off their trucks and tarp their loads before making a delivery. As he was preparing his truck, he fell off and shattered his hip in three places. Thereafter, Decker was required to undergo surgery for the placement of a steel plate and six screws in his broken hip. To date, he has not been able to work and receives Social Security disability benefits. Decker was also forced to sell his truck to pay bills.
On May 20, 2008, the ALJ sustained KEMI’s motion to bifurcate the issues. The ALJ initially determined whether Decker was excluded from coverage under the workers’ compensation policy. The issues to be addressed at the first hearing were whether Decker was an independent contractor, whether he had workers’ compensation coverage, and whether KEMI workers’ compensation policy was applicable.
The hearing was held on March 24, 2009, with the ALJ’s opinion issued on May 5, 2009. The ALJ determined that Decker was not covered by the KEMI policy and that Decker was an independent contractor. The ALJ found that Decker had been required, as a condition of his work with Scotty’s, to obtain workers’ compensation insurance for employees. Additionally, the ALJ determined that Decker elected not to be individually covered. The ALJ concluded that the policy issued by KEMI was unambiguous and clearly excluded Decker from coverage since he was a business owner. Further, the ALJ determined that Decker was an independent contractor of Scotty’s and, therefore, not entitled to workers’ compensation through its policy. He dismissed the claim against Scotty’s.
Then, Decker filed an appeal with the Board rather than a petition for reconsideration. On October 7, 2009, the Board affirmed the ALJ’s decision in part and reversed in part. The Board affirmed the portion of the decision that found Decker was an independent contractor for Scotty’s. The Board, however, reversed as a matter of law the portion of the ALJ’s opinion that held Decker was not covered by the KEMI policy, which he had purchased. The Board reasoned that the KEMI policy provided coverage to Decker as well as any employee he might hire. KEMI appeals from that decision.
On appeal, KEMI states that the primary issue is whether the Board exceeded its authority and its scope of review in reversing a portion of the ALJ’s decision. It argues that the power and authority of the ALJ and the Board are defined by statute. Because Decker did not file a petition for reconsideration, KEMI maintains that, according to KRS 342.285(1), the findings of the ALJ are conclusive and binding on all questions of fact. Consequently, KEMI contends that in order to reverse the decision of the ALJ, it must be shown that there is no substantial evidence of probative value to support the ALJ’s decision. It then goes on to outline the facts that provided substantial evidence for the ALJ’s opinion.
Conversely, Decker adopts the decision of the Board as its own. He strenuously claims that KEMI cannot charge Decker $1,600 for workers’ compensation insurance and, as soon as he is injured, inform him that he never had any coverage. Moreover, Decker believes that the appeal is frivolous and requests attorney fees under KRS 342.310.
In addition to KEMI’s and Decker’s briefs, Scotty’s filed an appellee brief. It reminds us that the Board affirmed the portion of the ALJ’s decision wherein Decker was found to be an independent contractor for Scotty’s rather than an employee. Scotty’s maintains that this issue is res judicata. The Board in its opinion affirmed that portion of the ALJ’s opinion, which found Decker to be an independent contractor. And KEMI does not dispute the ALJ or the Board’s decision that Decker was an independent contractor for Scotty’s. Therefore, this issue is not under review.
STANDARD OF REVIEW
When reviewing one of the Board’s decisions, this Court will only reverse the Board’s decision when it has overlooked or misconstrued controlling law or so flagrantly erred in evaluating the evidence that it has caused gross injustice. Western Baptist Hosp. v. Kelly, 827 S.W.2d 685, 687-88 (Ky.1992). “It is well settled that a reviewing [body] may not substitute its judgment for that of [an administrative] board as a finder of fact.” Paramount Foods, Inc., v. Burkhardt, 695 S.W.2d 418, 421 (Ky.1985); KRS 342.285. “The substantial evidence test pertains [only] to questions of fact, not questions of law[.]” Brown By and Through Brown v. Young Women’s Christian Ass’n., 729 S.W.2d 190, 192 (Ky.App.1987). “An erroneous application of the law by an administrative board or by the circuit court is clearly reviewable by this Court. Also, where an administrative body has misapplied the legal effect of the facts, courts are not bound to accept the legal conclusions of the administrative body.” Abuzant v. Shelter Ins. Co., 977 S.W.2d 259, 260-61(Ky.App.1998).
ANALYSIS
It is undisputed that Decker failed to file a petition for reconsideration. Hence, based on KRS 342.285(1), the ALJ’s opinion and order “shall be conclusive and binding as to all questions of fact[.]” KEMI is correct in this proposition. But contrary to KEMI assertion that the Board overstepped its authority by considering the issue of Decker’s coverage under the KEMI policy, we note that the Board is not bound by the ALJ’s rulings on the law. In fact, not only is the Board not bound by the ALJ’s rulings of law, but also it is not bound by the ALJ’s rulings on questions regarding application of the law to the facts. Brown, 729 S.W.2d at 190. Further support for the Board’s authority in cases where a petition for reconsideration is not filed but the issue is legal is found in Brasch-Barry General Contractors v. Jones, 175 S.W.3d 81, 83 (Ky.2005). Therein, the Kentucky Supreme Court stated:
Pursuant to our interpretation of KRS 342.285 and the plain language contained therein, issues regarding questions of law need not be preserved pursuant to a petition for reconsideration, but rather, may be appealed directly to the Board.
With regard to whether the issue reviewed by the Board was a legal one, we again find guidance from the Kentucky Supreme Court. The Court explained in Whittaker v. Reeder, 30 S.W.3d 138 (Ky.2000), that it is the Board’s province on appeal to ensure that ALJ decisions are in conformity with Chapter 342 (the Workers’ Compensation Act) and that such determinations constitute questions of law and not fact. Id. at 144. Here, we deem that the issue of whether Decker was covered under the workers’ compensation purchased by him is a legal one, and as such, the Board did not overstep its authority when it reviewed this issue as a legal one. And, we too, review the matter as a question of law.
The coverage of business owners under the workers’ compensation act is found in KRS 342.012.
(1) For the purposes of this chapter, an owner or owners of a business, including qualified partners of a partnership owning a business, or qualified members of a limited liability company, whether or not employing any other person to perform a service for hire, shall be included within the meaning of the term employee if the owner, owners, qualified partners, or qualified members of a limited liability company elect to come under the provisions of this chapter and provide the insurance required thereunder. Nothing in this section shall be construed to limit the responsibilities of the owners, partners, or members of a limited liability company to provide coverage for their employees, nonqualified partners, or nonqualified members, if any, required under this chapter.
In other words, if Decker elected to be covered under this policy as an employee or as a business owner, according to statutory provisions, he is covered. Our review reveals that, as a matter of law, Decker did elect to come under the provisions of this chapter and be covered as an employee under the KEMI workers’ compensation policy. We concur with the Board’s assessment of the situation.
Here, the facts are undisputed-Decker deliberately and undeniably purchased workers’ compensation insurance for his business and, thus, for himself. He was the sole owner and employee of a one-man trucking business. It is unreasonable to assume that Decker would pay substantial premiums to KEMI in exchange for nothing. Moreover, Scotty’s is disingenuous to insist that Decker comply with a statutory obligation to provide workers’ compensation coverage for his employees when they knew that he was one-person operation.
Obviously, as the Board noted in its decision, there is a disconnect between the on-site Curneal & Hignite Insurance agents’ version of events and the Curneal & Hignite agent who transmitted Decker’s policy to KEMI. But it is undeniable that the agent who transmitted the application to KEMI never spoke to Decker. The agents at Scotty’s meeting for the haulers did not transmit the application to KEMI. Decker cannot be held accountable for the insurance agency’s failure to properly handle his insurance application and endorsement. KRS 342.012(2).
Further bolstering the Board’s decision that Decker should prevail herein are the many ambiguities in the insurance policy and inconsistencies in the paperwork. The Board in its opinion extensively outlines the numerous discrepancies in the contract and the paperwork. Questions regarding the existence of ambiguity in a contract are legal in nature and, as such, we as well as the Board are authorized to review de novo the ALJ’s decision. See Cantrell Supply, Inc. v. Liberty Mut. Ins. Co., 94 S.W.3d 381 (Ky.App.2002). Given the evidence on the record in the case, we agree with the Board that Decker has demonstrated that numerous inconsistencies existed and, further, should prevail in this case on that issue. It is not necessary to address the Board’s comment that equitable estoppel must apply to this issue and we decline to do so.
Finally, and most significantly, by statute, it is required that every workers’ compensation insurance contract cover an employer’s entire liability.
Every policy or contract of workers’ compensation insurance under this chapter, issued or delivered in this state, shall cover the entire liability of the employer for compensation to each employee subject to this chapter, except as otherwise provided in KRS 216.2960, 342.020, 342.345, or 342.352.
KRS 342.375. Thus, since Decker was an employee of his operation, the workers’ compensation policy covered him. Further, the procedure for opting out of workers’ compensation coverage is explained in Kentucky Employers’ Mut. Ins. v. J & R Mining, Inc., 279 S.W.3d 513 (Ky.2009), another case involving KEMI. In J & R Mining, the Kentucky Supreme Court discussed whether an officer of a corporation is considered an employee for workers’ compensation purposes when the endorsement indicates that this person opted out. While the issue of whether a corporate officer is an employee is not pertinent in this case, the Supreme Court does explicate therein the procedure for opting out of workers’ compensation insurance. The procedure to opt out of Chapter 342’s protection is found in KRS 342.395(1) and 803 Kentucky Administrative Regulations (KAR) 25:130 Section 1. In essence, a person must file with the employer, prior to injury or occurrence of occupational disease, a written notice of rejection for all provisions of the insurance. And before an employee’s written notice of rejection shall be considered effective, the employer must file it with the Office of Workers’ Claims. With regard to endorsements, J & R Mining states “[t]he endorsement simply is not enough, by itself, to comply with KRS 342.395(1) and 803 KAR 25:130, § 1.” Id. at 515. Thus, although it is virtually impossible to discern from the evidence what Decker’s endorsement actually stated, clearly it is not relevant. Decker never opted out of workers’ compensation coverage.
Lastly, we consider Decker’s request for attorney fees under KRS 342.310. Decker’s counsel considers this appeal to be a frivolous one. We recognize that workers’ compensation is a fertile ground for frivolous appeals, but we note that in this particular case that the ALJ ruled differently than the Board. Therefore, given that two administrative bodies for workers’ compensation disagreed, we do not find that KEMI’s appeal is frivolous and refrain from awarding attorney fees.
For the foregoing reasons, the opinion of the Workers’ Compensation Board is affirmed.
ALL CONCUR.
x) V � nx��0qy) between the underlying issues and state law/policy, and whether federal common or statutory law dictates a resolution of the declaratory action. See id. at 1331; see also Lexington Ins. Co. v. Rolison, 434 F.Supp.2d 1228, 1238-44 (S.D.Ala.2006) (applying Ameritas guideposts in context of declaratory judgment action filed by insurer where putative insured had filed state court action against insurer based on large money judgment against insured after insurer failed to defend insured).
These considerations have been echoed by other appellate courts. See, e.g., Government Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1225 (9th Cir.1998) (federal court “should discourage litigants from filing declaratory actions as a means of forum shopping; and it should avoid duplicative litigation”); Mitcheson v. Harris, 955 F.2d 235, 237-39 (4th Cir.1992) (citing as reasons to dismiss declaratory actions the philosophy of judicial federalism, as well as pragmatic concerns of efficiency and comity).
Upon careful analysis of the Ameritas factors, the Court concludes that they militate strongly in favor of denying Dial’s Motion to Dismiss. With regard to “the strength of the state’s interest in having the issues raised in the federal declaratory action decided in the state courts,” Ameritas, 411 F.3d at 1331, that interest is weak here, given that the presiding judge in the Clarke County action expressly deferred to a federal court’s resolution of those issues by granting the stay requested by Progressive. Surely, he would not have done so if there were a compelling state interest in having Alabama courts decide these issues. As for “whether the judgment in the federal declaratory action would settle the controversy,” id., it certainly could. If this Court were to determine that Dial was an employee of E & K and Kidd and that his complained-of injuries were suffered in the course of that employment, that determination could be conclusive as to both this federal declaratory action (in that Progressive’s policy exclusion would bar coverage) and the Clarke County action (in that E & K and Kidd’s immunity defense would be meritorious and Dial would be limited to worker’s compensation remedies). Moreover, it cannot seriously be disputed that “the federal declaratory action would serve a useful purpose in clarifying the legal relations at issue,” id., so as to favor denial of Wilton/Brillhart abstention. The parties obviously require clarification as to Dial’s employment status, and this action would decide just that.
The parties’ briefs omit any discussion of Ameritas principles; instead, Progressive focuses its opposition exclusively on arguments that this action and the Clarke County action do not share common issues and that Dial’s Motion to Dismiss is untimely. Neither of those objections is persuasive. To be sure, there is some question as to whether the Clarke County action technically qualifies as a parallel state action for Wilton/Brillhart purposes. See, e.g., State Farm Fire and Cas. Co. v. Knight, 2010 WL 551262,(S.D.Ala. Feb. 11, 2010) (collecting cases as to what constitutes “parallel state court action” in Wilton/Brillhart abstention context). But notwithstanding Progressive’s stubborn insistence to the contrary, it is absolutely clear that the question of whether Dial was an employee or independent contractor (which is the centerpiece of this declaratory judgment action) has been joined in, and is integral to, the Clarke County action. In the state court action, E & K and Kidd have expressly pleaded immunity as a defense. If Dial was their employee, then E & K and Kidd would enjoy immunity from his claims for injuries sustained in the course of his employment, as a matter of Alabama law. See, e.g., Parker v. Thyssen Min. Const., Inc., 428 So.2d 615, 617 (Ala.1983) (“It is well-settled that an action brought under our Workmen’s Compensation Act is the exclusive remedy in situations where the employee sues his employer for injury in the course of his employment.”); Slagle v. Reynolds Metals Co., 344 So.2d 1216, 1217 (Ala.1977) (workers’ compensation act “[w]ithout question … provides immunity for an employer for injuries arising out of and in the course of employment”). Thus, both this declaratory judgment action and the Clarke County action confront precisely the same question, to-wit: Dial’s status as an employee or independent contractor.
As for Progressive’s alternative argument that the Motion to Dismiss is time-barred because it postdated Dial’s answer, this contention is soundly refuted by the text of Rule 12 and interpretive case law. See, e.g., Rule 12(h)(2), Fed.R.Civ.P. (defense of failure to state a claim on which relief can be granted may be raised in a pleading, by motion under Rule 12(c), or at trial); Vanzant v. Washington Metropolitan Area Transit Authority, 557 F.Supp.2d 113, 116 n. 1 (D.D.C.2008) (“as a defendant may move for failure to state a claim at any time before the end of trial, and as the plaintiff has had ample notice as well as an opportunity to respond, the court cannot discern any prejudice in considering the argument on the merits”). The Motion to Dismiss is not untimely.
Dial recognizes as much when he admits in his reply brief that “if this case proceeds and Progressive obtains a judgment from this Court that there is no insurance coverage because Mr. Dial was an employee at the time of the accident, such a ruling will collaterally estop Mr. Dial from further litigating that issue in the state court action.” (Doc. 50, at 3.)
Continuing on with the Ameritas guideposts, there is no indication in the record, and Dial does not argue, that this federal declaratory action is the product of improper “procedural fencing,” id. In fact, Progressive was not even a party to the Clarke County action when it filed the declaratory judgment action in federal court, and believed it could not join that state court action as an active litigant because it was furnishing a defense to E & K and Kidd therein. To Progressive, filing a declaratory judgment action was not an exercise in strategic maneuvering, but appeared to be its only means of being heard at all. Further, it is quite plain that the question of “whether the use of a declaratory action would increase the friction between our federal and state courts and improperly encroach on state jurisdiction,” id., must be answered in the negative here. Far from resenting or opposing federal encroachment, the Clarke County judge invited it by voluntarily stepping aside to allow this District Court to perform the heavy lifting. As for the next Ameritas guidepost, there is no “alternative remedy that is better or more effective,” id. If this Court were to abstain from hearing Progressive’s declaratory action, the result would be an awkward and unproductive stalemate. Both the federal and state courts would be deferring to each other with no one stepping forward to decide the issues joined in both cases. Additionally, the Court perceives no basis for concluding that the Clarke County court is “in a better position to evaluate [the underlying] factual issues than is the federal court,” id., so this guidepost cannot support abstention, either. Finally, while there may be a “nexus between the underlying factual and legal issues and state law and/or public policy,” id., that linkage is not so profound as to outweigh the other guideposts in this case, all of which point against abstention.
In short, after considering all of the relevant facts and circumstances, and paying special attention to the Ameritas guideposts, the Court concludes that it would not be appropriate to exercise its discretion under the Declaratory Judgment Act to abstain from hearing Progressive’s claims because of the pendency of parallel proceedings in state court. The essential point is this: The state court has clearly and unambiguously signaled that it wants the federal court to decide the insurance coverage issues raised by Progressive’s Complaint, even where those issues overlap or duplicate claims and defenses presented in the Clarke County action. The state court having ruled that Dial’s claims against Kidd and E & K will be stayed until this federal declaratory action is concluded, it would be the height of folly for this Court to volley the ball back across the net to the Clarke County court, effectively saying, “No, after you. I insist.” Such a game of “hot potato” would benefit no one. For all of these reasons, the Court will not exercise its discretion under Wilton/Brillhart principles to abstain from hearing Progressive’s declaratory action because of the pendency of related state court litigation. Accordingly, Dial’s Motion to Dismiss (doc. 41) is denied. This action will proceed at this time.
III. Dial’s Objections to the Report and Recommendation.
The remaining legal issue ripe for disposition at this time concerns Dial’s objections to the Report and Recommendation. As noted supra, the Magistrate Judge has recommended that a default be entered against E & K because that defendant “has failed to comply with the Court’s directive to secure counsel” and has wrongly assumed “that financial hardship somehow relieves it of the obligation to defend this action.” (Doc. 39, at 3-4.)
From review of the court file, it is absolutely clear that (i) E & K disregarded the Magistrate Judge’s specific directive that it retain counsel in this action; (ii) E & K never filed an answer or other responsive pleading, despite being served with process more than a year ago; and (iii) E & K exhibited unwillingness to defend against or participate in this action, instead proffering vague protestations that it does not know why its insurance carrier sued it and it does not have any money. The conclusion that E & K has no intention of defending itself in these proceedings is underscored by its failure to object to the Report and Recommendation recommending that it be defaulted. There is ample authority for the proposition that entry of default against E & K would be an appropriate sanction under these circumstances. See, e.g., Equity Lifestyle Properties, Inc. v. Florida Mowing and Landscape Service, Inc., 556 F.3d 1232, 1240 (11th Cir.2009) (“A district court need not tolerate defiance of reasonable orders.”); Eagle Hosp. Physicians, LLC v. SRG Consulting, Inc., 561 F.3d 1298, 1306 (11th Cir.2009) (“A court may impose sanctions for litigation misconduct under its inherent power.”); In re Knight, 833 F.2d 1515, 1516 (11th Cir.1987) (“Where a party offers no good reason for the late filing of its answer, entry of default judgment against that party is appropriate.”); Atlantic Recording Corp. v. Ellison, 506 F.Supp.2d 1022, 1025-26 (S.D.Ala.2007) (“While modern courts do not favor default judgments, they are certainly appropriate when the adversary process has been halted because of an essentially unresponsive party.”) (citation omitted).
Faced with unmistakable evidence of noncompliance with court directives by its recalcitrant co-defendant, Dial nevertheless objects to the Report and Recommendation. Interestingly, Dial makes no pretense of justifying or excusing E & K’s behavior, and does not maintain that the sanction of default is impermissible in these circumstances. Instead, Dial’s sole objection is that, if E & K “is not interested in defending against Progressive’s suit, defendant Dial should be permitted to litigate the coverage issues.” (Doc. 44, at 2.) The timing and posture of this argument are perplexing. After all, the Report and Recommendation did not purport to adjudicate Dial’s rights as a defendant joined in this declaratory judgment action since its inception. (See doc. 1.) The Magistrate Judge offered no opinions as to whether Dial is or is not entitled to be heard on the coverage issues presented in Progressive’s Complaint. Furthermore, Dial identifies no authority for the proposition that entry of a default against E & K would somehow compromise or impair Dial’s ability to litigate the insurance coverage issues. By all appearances, if indeed Dial has a right to be heard on the coverage issues presented in this matter, that right is distinct from and independent of E & K’s status in the lawsuit, and would therefore survive any default entered against E & K. Certainly, Dial’s Objections do not identify any contrary authority. The net result is that it is difficult to perceive-and Dial has failed to explain-how E & K’s default would affect him at all vis a vis coverage issues.
The parties’ briefs on this subject focus on the Eleventh Circuit’s decision in Mt. Hawley Ins. Co. v. Sandy Lake Properties, Inc., 425 F.3d 1308 (11th Cir.2005). The Mt. Hawley panel addressed the right of a third-party claimant to intervene in a declaratory judgment action between insurer and insured. Mt. Hawley involved a specific, narrow application of Rules 24(a)(2) and 24(b), Fed.R.Civ.P. By contrast, Dial is not attempting to intervene here. He does not have to intervene, because Progressive named him as a defendant at the outset of this case. As such, whether Dial could or could not meet the prerequisites of Rule 24 to intervene had Progressive not named him as a defendant is not a helpful inquiry. More generally, Progressive’s current position that Dial has a “purely speculative” interest in the insurance policy at issue, such that he has no standing to litigate coverage issues, cannot readily be reconciled with Progressive’s decision to name Dial as a defendant in this declaratory judgment action in the first place. (Doc. 49, at 7.) If Progressive believes that Dial has no cognizable legal right to be heard on the insurance coverage issues raised in the Complaint, then why did Progressive invite Dial to the party by suing him?
Simply put, Dial has not come forward with any persuasive reason why the Court should excuse E & K’s pattern of disregarding court orders and refusing to participate in this litigation. Nor has Dial demonstrated that its ability to litigate coverage issues will be diminished or destroyed if a default is entered against E & K. The Court finds that the Report and Recommendation is well-taken, that the severe sanction of default is appropriate given the circumstances presented here, and that lesser sanctions would be inadequate. Accordingly, the Report and Recommendation (doc. 39) is adopted as the opinion of this Court. Dial’s Statement of Objection (doc. 44) is overruled, and default is hereby entered against defendant E & K Trucking, Inc., based on its failure to comply with judicial directives to secure counsel, as well as its total lack of participation in this lawsuit.
Notwithstanding the parties’ briefing on the subject, there has been no motion that would place before the Court the issue of Dial’s standing to litigate coverage issues with Progressive in this action. Dial is a named defendant who has filed an answer. The claims joined between Progressive and Dial herein will proceed. In the absence of a proper motion and full briefing, the Court will not embark on a tangent here by rendering opinions as to a collateral issue raised by the parties in the context of objections to a Report and Recommendation that was entirely silent on the subject of Dial’s rights (or lack thereof) to litigate the insurance coverage issues.0
0. Should either party see fit to file such a motion, it may be helpful for them to address Dial’s beneficiary status vis a vis the policy as a listed driver operating an insured vehicle. It may also be beneficial for the parties to consider and apply authorities under Alabama law concerning direct actions between third-party judgment creditors and insurers. See, e.g., Knox v. Western World Ins. Co., 893 So.2d 321, 323 (Ala.2004) (injured third party lacks standing to bring declaratory judgment action against insurer until final judgment has been entered against insured, because Alabama law forbids injured third party “from bringing a direct action against an insurer until such time as there is an unpaid judgment against the insured”); Maness v. Alabama Farm Bureau Mut. Cas. Ins. Co., 416 So.2d 979, 981 (Ala.1982) (“Once an injured party has recovered a judgment against the insured, the injured party may compel the insurer to pay the judgment.”). Also, even cursory review of applicable case law reveals circumstances in which Alabama courts have grappled with the question of the impact of an insured’s default in a declaratory judgment action on an injured party’s rights against the insurer. See generally Casualty Reciprocal Exchange v. Wallace, 189 So.2d 861, 864 (Ala.1966) (characterizing as “manifestly unsound” insurer’s argument “that a decree pro confesso rendered against an insured in a declaratory judgment suit brought by the insurer cuts off all rights of the injured parties”). It is not the place of a federal court to instruct the parties on how to go about litigating their cases. However, from these and other strands of case law, the Court is confident that the non-defaulted parties to this action will be able to devise appropriate strategies for how this case (and the parallel action in state court) should proceed.
IV. Conclusion.
For all of the foregoing reasons, it is hereby ordered as follows:
1. Defendant George Dial’s Motion to Dismiss (doc. 41) is denied.
2. The Clerk’s Entry of Default (doc. 12) dated February 18, 2009 is set aside as to defendant E & K Trucking, Inc., inasmuch as it is now clear that E & K was subject to the protections of the automatic stay in bankruptcy pursuant to 11 U.S.C. § 362 at that time.
3. Defendant Willie Kidd remains in default, and the Clerk’s Entry of Default (doc. 12) remains in full force and effect against him.
4. Defendant George Dial’s Statement of Objection (doc. 44) is overruled, and the Report and Recommendation (doc. 39) entered by the Magistrate Judge is adopted as the opinion of this Court. Default is hereby entered against defendant E & K Trucking, Inc. for the reasons stated supra.
5. In light of the pendency of Progressive’s claims for declaratory judgment against defendant Dial, with such claims involving the same coverage issues joined against the defaulted defendants, no default judgment will be entered against E & K or Kidd until those remaining claims have been resolved. See generally Gulf Coast Fans, Inc. v. Midwest Electronics Importers, Inc., 740 F.2d 1499, 1512 (11th Cir.1984) (“even when defendants are similarly situated, but not jointly liable, judgment should not be entered against a defaulting defendant if the other defendant prevails on the merits”). At that time, the Court will entertain any properly filed motion for default judgment by Progressive, and such motion must specify with particularity the form of default judgment sought.
6. The Clerk’s Office is directed to mail a copy of this Order to E & K and Kidd at the following address: 86 Kidd Road, Lower Peachtree, AL 36571. The defaulting defendants are cautioned that, in light of their defaulted status, they are not entitled to, and will not receive, further notice of these proceedings, absent prompt affirmative steps on their part to set aside the default against them pursuant to Rule 55(b), Fed.R.Civ.P.
7. The Clerk’s Office is directed to refer this matter to the Magistrate Judge for entry of a Rule 16(b) Scheduling Order, inasmuch as a Rule 26(f) Report (doc. 36) was filed on April 1, 2010.
DONE and ORDERED.
