United States District Court, E.D. Tennessee, Knoxville
Insurance Company brings this action against the Countrywide
defendants asserting claims for declaratory judgment, asking
the court to declare the rights and other legal relations of
the parties regarding policies of workers' compensation
insurance issued to the Countrywide defendants by Riverport,
as well as for breach of contract and rescission. Riverport
contends Countrywide obtained policies from SUNZ Insurance
Company effective during the policy periods of
Riverport's assigned risk policies in many of the same
states. Riverport also asks the court to declare and
adjudicate the rights and obligations of the parties with
respect to the Riverport and SUNZ insurance policies.
Countrywide filed a counterclaim asserting that Riverport
mishandled and denied claims in bad faith and in breach of
is a carrier that provides workers' compensation
insurance policies in the residual markets for Tennessee,
Indiana, Arkansas and Iowa. Residual markets exist to provide
employers, who are unable to secure workers' compensation
coverage on the voluntary market, with a means for insuring
their operations through a designated carrier. These residual
markets are established by statute and the states'
insurance commissioners are given authority to administer the
state has its own detailed statutory and regulatory framework
governing its respective assigned risk market. The states
have similar requirements and procedures for determining
employer eligibility in their assigned risk markets. When an
employer first seeks coverage in the assigned risk market, it
must submit an application to the state's workers'
compensation insurance plan administrator. The plan
administrator determines whether the employer is eligible to
obtain a workers' compensation policy through the
assigned risk market and binds coverage. Once a policy of
workers'compensation insurance has been issued, the
policy may not be cancelled by the carrier unless or until
all of the statutory and regulatory requirements for
cancellation have been met. Each state's statutory and
regulatory framework includes mandatory dispute resolution
processes and procedures designed to facilitate efficient
resolution of disputes between employers and insurers.
claims involve disputes over whether the operations of the
Countrywide defendants in each state were properly classified
under each state's underwriting rules so proper premiums
were paid. Riverport contends that the workers'
compensation policies should be cancelled because
Countrywide's operations should have been classified as
those of a professional employer organization under its
policy underwriting rules. Riverport further states the
policies should have been issued as multiple coordinated
policies in the assigned risk pool markets and premiums
charged accordingly. Riverport contends Countrywide's
failure to properly classify its clients resulted in
materially increased risks of loss as well as insufficient
premiums being collected for the policies.
contends that by filing this action without exhausting the
administrative remedies available in the individual states,
Riverport is attempting to circumvent the regulatory
framework in each state. Countrywide asks the court to
dismiss Riverport's claims based on Riverport's
failure to exhaust its administrative remedies provided in
the individual states. Countrywide further asks the court to
dismiss Riverport's claim seeking rescission and
cancellation of the workers' compensation policies
Riverport issued to Countrywide on the grounds the requested
relief is contrary to the applicable law in each state.
moves to dismiss Countrywide's counterclaims and
affirmative defenses because Countrywide has failed to
exhaust its administrative remedies concerning any alleged
improper handling of claims by Riverport, cancellation of the
policies of insurance, and disputes regarding the premiums to
be paid for workers' compensation insurance.
Standard of Review
Riverport and Countrywide have filed competing motions,
arguing that the other party has failed to exhaust mandatory
administrative remedies prior to bringing its claims in
federal court. A motion to dismiss for failure to exhaust
administrative remedies is a factual attack on the
court's subject matter jurisdiction. Ohio Nat'l
Life Ins. Co. v. United States, 922 F.2d 320, 325
(6th Cir. 1990); see also Valley Mechanical
Inc. v. BB&T Ins. Servs. Inc., 2014 WL 2871475 at *2
(E.D.Tenn Jun. 24, 2014). In analyzing factual attacks, the
court must weight conflicting evidence and determine whether
subject matter jurisdiction exists. Id. Here,
subject matter jurisdiction is alleged based on diversity of
citizenship. As such, the court must determine if a
party's failure to exhaust administrative remedies
prevents the court from exercising jurisdiction over the
claims. Id. at 3.
in the applicable states, disputes under the workers'
compensation insurance plan must exhaust two levels of
administrative review: first, review by the Plan
Administrator; and, second, review of the Plan
Administrator's decision by the state's Insurance
Commissioner. The Tennessee legislature has provided detailed
rules for contesting workers' compensation insurance
premiums. The relevant statute mandates that every insurer
and rate service organization shall provide reasonable means
whereby any person aggrieved by the application of its rating
system may be heard on written request to review the manner
in which the rating system has been applied in connection
with the insurance afforded. Tenn. Code Ann. §
56-5-309(b). If the insurer fails to grant or reject the
request within thirty (30) days, the applicant may proceed in
the same manner as if the application had been rejected.
Id. Any party affected by the action of the insurer
on the request may, within thirty (30) days after written
notice of the action, appeal to the Commissioner who, after a
hearing may affirm, modify or reverse the action.
Id. Each policy state has established the same
framework. See Iowa Code §§ 515A.9 and
4-A-10-b(a); Ark. Code §§ 23-67-219(3)(B)(i)-(iii)
and 054-00-054; and Ind. Code § 27-7-2-20.3(c)(2) and
Ind. WCIP Art. VIII.
to § 56-5-309(d), the Tennessee Department of Commerce
and Insurance promulgates administrative rules to implement
§ 309(b). The rules prescribe the procedures for
requesting a rate review or audit and for appealing any
decision. See Tenn. Comp. R. & Regs.
0780-1-82-.05 and 0780-1-82-.06. The rules also provide that
a party aggrieved ...