Insurance companies challenging a settlement in the Wilberg Mine disaster failed to prove bad faith in an insurance application filed before the accident, U.S. District Judge David Sam ruled Thursday afternoon.
UP&L agreed in 1987 to a $22 million settlement of claims arising from the Dec. 19, 1984, fire that killed 27 miners and mine company officials. UP&L wanted the insurers to reimburse it for the settlement, but the insurers resisted, and the utility then filed suit in federal court.Judge David Sam reaffirmed his order of April 21, ruling the UP&L and Emery Mining Corp. insurers were bound by terms of the electric utility's settlement with the families of 27 miners killed in the Dec. 19, 1984, underground fire.
Thursday's ruling came at the end of a hearing in which lawyers for insurance companies questioned an insurance application filed in 1984 by Emery Mining Co., which managed the mine for UP&L. The insurers asserted that workman's compensation is the remedy under Utah law for such claims.
But refusal by the insurance carriers to challenge the settlement when it was being negotiated with family members suing UP&L "served as a waiver of their rights to the asserted defenses," Sam said.
The companies had claimed they should be allowed to contest the claimed extent and validity of the liability coverage during a scheduled February 1990 trial on UP&L's suit to force payment on insurance policies.
Workman's compensation awards relatively small payments for injuries or deaths on the job, to be paid by a special fund set up by company contributions.
At the time the insurance application was signed, there were actually two claims pending against UP&L that were not based on workman's compensation, said Michael P. Zaccheo, a lawyer representing International Insurance Co, which provided umbrella insurance coverage.
He said UP&L told its lawyers not to raise a defense; that it was exempt from large claims because of the statutory employer statute. That was done because if UP&L had raised the defense, "it would destroy the facade of the independence of Emery," Zaccheo said.
Under the workman's compensation law, a statutory employer could include a company that has some influence on an operation, even if it is not the direct employer.
Whether Emery was an independent entity was important to the Public Service Commission, according to the insurers, as many more millions of dollars might be lost to the utility if Emery wasn't independent.
Emery's independence might have a bearing with the PSC on such matters as pass-through coal costs, said Barbara K. Berrett, representing Federal Insurance Co., the primary insurer.
She said UP&L had indicated grave concerns about the impact that raising the employer defense would have on the PSC.
"It's just critical that we're allowed to go into this aspect" of the controversy during the trial of the suit, she said.
Stephen B. Nebeker, speaking for UP&L, said UP&L told the insurers for Emery Mining Co. that the utility intended to assert the "employer" defense, but only as a bargaining tactic. It did not mean to press the defense in court, he said.
That's because if the judge ruled against the defense, the company would be left without a defense, and this could boost the settlement costs.
After the insurers were informed of this, Nebeker said, "No one, your honor, ever wrote to us and said, `Assert that statutory employer defense . . . .'
"It was better to use it as a bargaining tool than it was to take it to hearing."
This week, the Utah Supreme Court "held that the statutory employer defense does not exist any more in Utah," he said. So if the defense had been asserted, it would have been shot down eventually anyway.
Meanwhile, UP&L economists calculated that settlement might cost as much as $27 million. So the company decided to settle.
Another issue is whether the settlement included any punitive damages.
UP&L claims a payment of punitive damages was not part of the settlement, said Nebeker. "If the insurance companies thought it was, they had a duty to come forward and object to it."
Carman E. Kip, representing Twin City Fire Insurance Co., said insurers have a right to know if punitive damages were covered, because they were not in Twin City's policy and it has no requirement to pay them.
Sam ruled in UP&L's favor on the main question Thursday, saying there was no misrepresentation concerning the insurance application. But he left unresolved the debate over punitive damages.
UP&L will have 10 days to show there were no punitive damages, while the insurers will have another 10 days to object to UP&L's showing.