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Travelers Property Casualty Insurance Co. of America v. Jet Midwest Technik, Inc.

United States Court of Appeals, Eighth Circuit

July 31, 2018

Travelers Property Casualty Insurance Company of America, A Connecticut Stock Insurance Company Plaintiff- Appellant
Jet Midwest Technik, Inc., A Missouri Corporation Defendant-Appellee

          Submitted: April 11, 2018

          Appeal from United States District Court for the Western District of Missouri - St. Joseph

          Before COLLOTON, SHEPHERD, and STRAS, Circuit Judges.


         This case involves a workers' compensation insurance carrier that brought a breach-of-contract action to recover unpaid insurance premiums. The district court dismissed the action, concluding that the insurer, before bringing a collection suit, first had to exhaust its administrative remedies. Because we conclude that the administrative procedures available to the insurer were too informal to require exhaustion under then-applicable Missouri law, we reverse and remand for further proceedings.


         To benefit workers injured on the job, Missouri requires employers to purchase workers' compensation insurance. See Mo. Rev. Stat. § 287.060. Some employers cannot buy insurance on the open market, so Missouri supplements the open market with a residual market. See id. § 287.896. The Missouri Department of Insurance establishes the rules and rates for the residual market. See id. It assigns code classifications to different types of work depending on the potential risk of injury. Cf. Travelers Indem. Co. v. Int'l Nutrition, Inc., 734 N.W.2d 719, 722 (Neb. 2007) (describing Nebraska's similar assigned-risk program). The assignment of these codes is the key component in determining an employer's rates.

         When an employer buys a policy on the residual market, it pays an estimated premium upfront. The insurer then calculates the exact amount due from the employer at the end of the term based on the amount of work performed by employees in each of the various code classifications. If the employer's payroll involves more high-risk work than initially estimated, its actual premium at the end of the term will be higher than its estimated premium, so it will owe more to the insurer. When an insurer and employer disagree about the classification of work, they can resolve their dispute before an administrative panel, Missouri's Workers' Compensation Determinations Review Board (the "Board"), which has the power to modify code-classification determinations. See Mo. Rev. Stat. § 287.335(2). Missouri law additionally provides a right to appeal the Board's decision to the Director of the Missouri Department of Insurance (the "Director"), who may also correct erroneous code-classification determinations. Id.

         This dispute involves a workers' compensation policy sold by Travelers Property Casualty Insurance Company of America to Jet Midwest Technik, Inc. on Missouri's residual market. During the policy term, Travelers disputed some of the code classifications in Jet Midwest's policy application and demanded a higher premium. It did so based on an audit that allegedly revealed that Jet Midwest, which paints commercial-sized aircraft, had failed to accurately report some of its work. In particular, Travelers believed that Jet Midwest underreported the time its employees spent painting metal structures over two stories in height, which is in a higher risk category than the code classification assigned to the work by Jet Midwest.

         Jet Midwest refused to pay the higher premium, prompting Travelers to cancel the policy. Travelers then issued a final bill, which Jet Midwest has paid only in part. Jet Midwest has vigorously disputed its responsibility for the remainder and filed an application with the Board to resolve the parties' code-classification dispute. The Board agreed with Travelers that Jet Midwest had misclassified some of the tasks it had workers perform, but not to the extent that Travelers had thought. The Board advised the parties that they could appeal the decision, but neither did so.

         Travelers instead filed this lawsuit against Jet Midwest, invoking diversity jurisdiction and alleging state-law claims for breach of contract and account stated. Following discovery, the parties filed cross-motions for summary judgment. Travelers requested summary judgment on its breach-of-contract claim. Jet Midwest sought partial summary judgment precluding Travelers from relitigating the issues that the Board had already decided. The district court, for its part, adopted a different approach and dismissed the case based on Travelers' failure to fully exhaust its administrative remedies. It then denied the parties' competing summary-judgment motions as moot. Travelers argues on appeal that it had no obligation to exhaust its administrative remedies.


         At issue here is the scope of Missouri's exhaustion requirement. Missouri law requires parties to exhaust their administrative remedies in certain types of cases. See Green v. City of St. Louis, 870 S.W.2d 794, 796 (Mo. 1994). To fully exhaust, a party must complete "every step" of the administrative process. See Parker v. City of Saint Joseph, 167 S.W.3d 219, 221 (Mo.Ct.App. 2005). Failing to do so may preclude "judicial review of the [agency's] determination," although "nothing prevents" a party from raising any other claims or defenses that the agency did not resolve. Impey v. Mo. Ethics Comm'n, 442 S.W.3d 42, 48 (Mo. 2014).

         Until recently, the applicability of the exhaustion requirement depended on whether a case was "contested" or "non-contested." These terms do not mean what they seem. They describe the degree of formality of the administrative procedures available, not the vigor of the parties' disagreement or the extent to which they have actively litigated the dispute. See City of Valley Park v. Armstrong, 273 S.W.3d 504, 506 (Mo. 2009). As a class, contested cases provide the parties with "a measure of procedural formality," including "notice of the issues; oral evidence taken upon oath or affirmation and the cross-examination of witnesses; the making of a record; adherence to evidentiary rules; and written decisions including findings of fact and conclusions of law." Id. at 507 (internal quotation marks and citations omitted); see also Mo. Rev. Stat. ยง 536.010(4) (requiring a "hearing" for a case to qualify as contested). The same types of procedural protections are not available in non-contested cases; there is often no hearing or formal presentation of evidence and ...

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