Journey Operating v. Zurich, No. 2009-CA-000279-WC (2009): An ALJ has the authority under KRS 342.125 to reopen a claim for the very purpose of finding the facts and formulating remedies to protect the verity of the proceeding.

Patrick Jeffers and William Bell were employees of Myers Completion, Inc. (Myers), a Tennessee corporation providing general maintenance for oil and gas wells, which was contracted by Journey Operating, LLC (Journey), a Kentucky corporation, to perform services on a well in Kentucky. Tragically, Jeffers and Bell died in a work-related accident while on the Kentucky job.  Myers’ insurer, Zurich American Insurance Company (Zurich), paid benefits to the decedents’ estates under Tennessee workers’ compensation law.

The decedents’ widows also sought benefits under Kentucky workers’ compensation law and filed their Kentucky claim against Myers and its insurer Zurich, as well as Journey and its workers’ compensation insurer, arguing potential liability against Journey as an up-the-ladder employer under KRS 342.610(2)(b) .

The ALJ found Kentucky benefits payable and agreed that Zurich’s policy did not provide for benefits under Kentucky law.  The ALJ, however, found Journey liable per KRS 342.610(2)(b), but granted it a credit for any benefits paid under the Tennessee (Zurich) policy.

Thereafter, Zurich terminated payment of benefits in reliance upon an election of remedies doctrine. Journey moved to reopen the Kentucky claim alleging fraud per KRS 342.125. The ALJ allowed the reopening, found Zurich’s actions amounted to constructive fraud, ordered it to reinstate benefits and reiterated Journey’s entitlement to a credit for any benefits Zurich paid or would pay. Zurich appealed to the Workers’ Compensation Board alleging the ALJ had neither the authority to reopen nor jurisdiction to decide the issues raised. The Board agreed with Zurich and reversed the ALJ, noting  that the matter was a mere dispute between the two insurers and, therefore, jurisdiction lay with Circuit Court.

The Court of Appeals disagreed with the Board, noting that the fraud issue qualified the claim as much more than a mere dispute between two insurers.  It effectively held that Zurich waived any right to contest its responsibility for continued payment of benefits under Tennessee law because it failed to object to the ALJ’s original ruling which “clearly considered and affirmed Zurich’s ongoing liability under Tennessee law.” As for Zenith’s challenge of the ALJ’s jurisdiction and authority on reopening, the Court unanimously held the ALJ had the inherent power to utilize and appropriately did utilize statutory authority (KRS 342.125) to correct what she deemed was fraudulent conduct.

Commentary: Were this merely a claim involving a “settling up” between insurers as claimed by Zurich and the Worker’s Compensation Board, or had it even been a mundane reopening under KRS 342.125, the court might have ruled differently and the decision would not likely have been published. Instead, it was the differentiating aspect of a fraud allegation and the ALJ’s actions, as the court put it, “to protect the integrity of the proceeding” which compelled a contrary result and publication of the decision.

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