Colony Insurance Company v. Jackson et al

Filing 71

FINDINGS OF FACT AND CONCLUSIONS OF LAW by Judge Terence Kern (vah, Chambers)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OKLAHOMA
COLONY INSURANCE COMPANY,
Plaintiff,
vs.
DALE JACKSON, individually,
JAMIE JACKSON, individually,
JAMES HUNT, individually,
ERNIE JACKSON, individually,
J.C. & SONS WASTE
MANAGEMENT, INC.,
Defendants.

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Case No. 09-CV-780-TCK-TLW

FINDINGS OF FACT AND CONCLUSIONS OF LAW
The above-styled declaratory judgment action was tried to the Court without a jury on
January 19, 2011. Plaintiff Colony Insurance Company (“Colony”), which seeks a declaration of
non-coverage under an insurance policy, appeared through counsel. Defendants Dale and Jamie
Jackson appeared through counsel. Defendants James Hunt (“Hunt”), Ernie Jackson (“Ernie”), &
J.C. & Sons Waste Management, Inc. (“J.C.”) never appeared in this litigation and are in default.1
After considering the testimony and exhibits admitted at trial, the Court enters the following
Findings of Fact and Conclusions of Law in accordance with Federal Rule of Civil Procedure 52:

1

Defendant Ernie Jackson testified at trial as a witness. The Court had certain concerns
about Defendant Ernie Jackson’s rights to participate in the trial as a party. The Court has
satisfied itself that proper procedure was employed and that judgment may be entered against all
non-appearing Defendants. (See Docs. 65, 67-70.)

Findings of Fact:2
1.

At relevant times, J.C. was a waste management company in the business of picking up,

hauling away, and dumping trash. Ernie was the President and Vice-President of J.C. Ernie ran the
company and did all hiring and firing for J.C. Ernie’s wife, Mary Jackson (“Mary”), was the
Secretary/Treasurer of J.C. Mary completed office tasks, such as processing payroll, billing clients,
and maintaining client lists.
2.

J.C. serviced clients in Pawhuska, Pryor, Ponca City, and Barnsdall, Oklahoma, as well as

other surrounding towns. J.C.’s clients included Indian reservation complexes, commercial
businesses, and some residences.
3.

The Indian complexes and commercial businesses served by J.C. had commercial containers.

Many of the residential customers were rural farmers who had “two-yard containers.” At least some
of J.C.’s customers did not set their trash out on a given day for collection. Thus, there was more
variation in collection times than typical trash collection that takes place in urban, residential areas.
4.

J.C. owned at least two trash trucks, which were stored in Pawhuska, Oklahoma, in a

warehouse owned by J.C. J.C. paid for fuel, oil, maintenance, taxes, and insurance on the trash
trucks.
5.

J.C. hired individuals to collect trash using J.C.’s trucks (“collectors”). In addition to

collecting and dumping trash, collectors were responsible for establishing the trash route in a given
area. Ernie generally permitted collectors to establish the route and pick-up times for a given area.

2

Admitted facts 1-7 in the Pretrial Order (Doc. 52) relating to jurisdiction and venue are
incorporated herein by reference. Any findings of fact that are conclusions of law should be
construed accordingly.
2

For any new customers of J.C., Ernie sent a collector to “set the contract up” so that the collector
could meet the new customer and establish a pick-up time.
6.

Ernie granted his collectors freedom in deciding when and how they would complete their

route. Typically, the routes were completed by two collectors, so that one could drive while the
other collected the trash. Generally, collectors picked up a trash truck from J.C.’s building and
returned it when the route was complete. There were instances when the trucks were returned as late
as 2:00 am.
7.

Dale, Ernie’s nephew, was hired by J.C. as a collector. There is no evidence in the record

of Dale’s starting date of employment or an approximate period of time he worked for J.C. In
proposed Findings of Fact and Conclusions of Law submitted after trial, Dale stated that he “worked
for about 6 months,” (see Doc. 66 at 10), but did not cite any record testimony or exhibit in support
of this assertion.
8.

Dale had previously worked for the City of Pawhuska as a trash collector and had some

experience in this area.
9.

J.C. paid Dale $9.00/hour for collecting trash, and he was paid based upon how many hours

he worked. Dale was always paid by check, which read “contract labor” at the bottom. J.C. did not
withhold any taxes or benefits from Dale’s earnings. Occasionally, Dale would mow the lawn
outside J.C.’s business, for which he was paid $50.00 per job.
10.

J.C. and Dale did not enter into a written contract. No written contract was entered into

evidence, and the Court does not find credible Dale and Ernie’s testimony regarding a written
contract that was allegedly lost.

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11.

J.C., by and through Ernie, did enter into a verbal contract with Dale, whereby J.C. and Dale

agreed that Dale was an independent contractor. J.C. and Dale both had an actual belief that Dale
was an independent contractor. Ernie told Dale that he needed to provide his own workers’
compensation insurance. Dale did not purchase his own workers’ compensation insurance. The
Court finds no evidence that Dale and Ernie colluded for purposes of litigation and finds that both
parties had an actual understanding that Dale was an independent contractor for J.C. Although they
are relatives, Dale and Ernie have not spoken since litigation was first filed in state court regarding
this accident.
12.

While he was a collector, Dale also marketed himself and was hired to complete carpentry,

lawn care, and handyman jobs. If Dale had one of these types of jobs, he could choose not to haul
trash that day.
13.

Dale learned the location of J.C.’s clients in a particular city or area from other collectors

who had completed that route. Although Mary kept a master client list at J.C.’s office, Dale did not
receive a set route, a client list, or any other written or verbal instructions from Ernie or Mary as to
how or when a given route was to be completed.
14.

Dale always collected trash in J.C.’s trucks. Dale provided his own gloves and occasionally

brought his own shovel or rake. Dale used his personal cell phone and was not provided a cell
phone by J.C.
15.

Dale’s work hours and work days fluctuated. Dale did not always dump the trash after

collecting and decided whether to dump or not depending on the day.
16.

On November 27, 2007, Dale was the passenger in one of J.C.’s trash trucks being driven

by another collector, Defendant Hunt. Dale and Hunt had completed the Ponca City route and were

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traveling to a mechanic, who was to perform maintenance on J.C.’s trash truck. While driving to
the mechanic, Dale and Hunt were in an accident, and Dale suffered injuries.
17.

J.C.’s trash trucks were insured by Colony pursuant to Commercial Lines policy BA3568033

(“Policy”). Section II(B)(3) of the Policy (“Workers Compensation Exclusion”) contains an
exclusion for any obligation for which J.C., or J.C.’s workers’ compensation insurer,3 “may be held
liable under any workers’ compensation . . . law.”
18.

Section II(B)(4)(a) of the Policy (“Employee Exclusion”) contains an exclusion for bodily

injury to “an ‘employee’ of J.C. arising out of and in the course of (1) [e]mployment by [J.C.] or (2)
[p]erforming the duties related to the conduct of [J.C.’s] business.”
19.

Section II(B)(5) of the Policy contains an exclusion (“Fellow Employee Exclusion”) for

bodily injury to “any fellow ‘employee’ of [J.C.] arising out of and in the course of the fellow
‘employee’s’ employment or while performing duties related to the conduct of [J.C.’s] business.”
Conclusions of Law:4
1.

The Workers’ Compensation Exclusion is a standard “ISO”5 provision intended to be

compatible with a state’s workers’ compensation laws and to “prevent the payment of double
premiums and the need for unnecessary coverage by insurers.” See Brown v. Ind. Ins. Co., 184

3

Because he believed collectors were independent contractors, J.C. did not have a
workers’ compensation insurer.
4

Any conclusions of law that are findings of fact should be construed accordingly.

5

ISO is an abbreviation for Insurance Services Offices, Inc. ISO is a national insurance
policy drafting organization that develops standard policy forms and files them with each state’s
insurance regulators. See French v. Assurance Co. of Am., 448 F.3d 693, 697 & n.1 (4th Cir.
2006).
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S.W.3d 528, 532 (Ky. 2006) (internal quotations omitted) (explaining the nature and purpose of an
identical provision in insurance contract).
2.

The Workers’ Compensation Exclusion applies if J.C., or any workers’ compensation insurer

of J.C., may be held liable under Oklahoma law. Under Oklahoma law, independent contractors are
not entitled to workers’ compensation benefits. See Duncan v. Powers Imports, 884 P.2d 854, 857
(Okla. 1994) (holding that Oklahoma Workers’ Compensation Court correctly denied benefits where
claimant was an independent contractor rather than an employee); Fluor Eng’rs & Contractors, Inc.
v. Kessler, 561 P.2d 72, 74 (Okla. 1977) (“The first prerequisite to jurisdiction of the State
Industrial Court to award compensation is a showing that claimant was, at the time of his injury, an
employee of the respondent.”). Therefore, if Dale was an independent contractor of J.C. rather than
an employee of J.C. under Oklahoma workers’ compensation law, the Workers’ Compensation
Exclusion does not apply.6
3.

For purposes of Oklahoma workers’ compensation law, employment is a “mixed notion of

contract and status – contract, because it generally results from a consensual inception; status,
because at times it may be imposed involuntarily as a legal consequence that attaches by force of
law to the parties’ conduct.” Brown v. Burkett, 755 P.2d 650, 651 (Okla. 1988). Therefore, a
workers’ compensation claimant’s status “is to be determined not alone from the written contract
but from all the facts and circumstances adduced by the evidence.” Brewer v. Bama Pie, Inc., 390
P.2d 500, 502 (Okla. 1964) (finding that driver was employee notwithstanding language in contract
designating him as an independent contractor).
6

The parties do not dispute that, if Dale was an employee, he was acting within the
scope of his employment at the time of the accident. If and to the extent necessary, the Court
expressly finds that Dale and Hunt were acting in furtherance of J.C.’s business at the time of the
accident.
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4.

As a general rule, an independent contractor is “one who engages to perform a certain service

for another, according to his own manner, and method, and free from control and direction by his
employer in all matters connected with the performance of the service, except as to result or product
of the work.” Barfield v. Barfield, 742 P.2d 1107, 1110 (Okla. 1987). “[T]he decisive test to
determine whether one is an independent contractor or [an employee] is to ascertain whether the
employer had the right to control, or purported or attempted to control, the manner of the doing of
the work, and if he did have that right, or exercised it regardless of his right to do so, the relationship
is that of [employer/employee].” Id.
5.

The Oklahoma Supreme Court considers eleven factors in determining whether an individual

is an employee or an independent contractor, all of which apply in the context of entitlement to
workers’ compensation benefits. See Duncan, 884 P.2d at 856 n.1. These eleven factors are:
(a) the nature of the contract between the parties, whether written or oral; (b) the
degree of control which, by the agreement, the employer may exercise on the details
of the work or the independence enjoyed by the contractor or agent; (c) whether or
not the one employed is engaged in a distinct occupation or business and whether he
carries on such occupation or business for others; (d) the kind of occupation with
reference to whether, in the locality, the work is usually done under the direction of
the employer or by a specialist without supervision; (e) the skill required in the
particular occupation; (f) whether the employer or the workman supplies the
instrumentalities, tools and the place of work for the person doing the work; (g) the
length of time for which the person is employed; (h) the method of payment, whether
by the time or by the job; (I) whether or not the work is a part of the regular business
of the employer; (j) whether or not the parties believe they are creating the
relationship of master and servant; and (k) the right of either to terminate the
relationship without liability.
Id. (citing Page v. Hardy, 334 P.2d 782, 784-85 (Okla. 1958)).
6.

The first factor – the nature of the contract between J.C. and Dale – supports a finding of

independent contractor status.

The Court finds sufficient evidence of an oral contract of

employment, pursuant to which both parties believed Dale was an independent contractor. Ernie
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informed Dale that Dale was not entitled to any workers’ compensation coverage in performing
work for J.C. Dale believed he needed to obtain his own workers’ compensation coverage in order
to cover on-the-job injuries but failed to do so.
7.

The second factor – the right to exercise control over the details of the work – is a factor

entitled to great weight and has been deemed the “decisive” factor under Oklahoma law. Barfield
v. Barfield, 742 P.2d at 1110; Brewer, 390 P.2d at 502. The second factor weighs against a finding
of independent contractor status because, at all times, J.C., by and through Ernie or Mary, had the
right to control the work performed by Dale. Although Ernie and Dale testified that J.C. allowed
collectors to exercise significant discretion in determining when and how to complete their
collection routes, the proper question is whether J.C. retained the right to control these details of the
work, not whether it actually did exercise such control. See White Stag Mf’g Co. v. Mace, 556 P.2d
997, 997 (Okla. 1976) (“The test is not whether the employer did in fact control . . . but whether
taking into account the circumstances and the work, the employer had the right to direct and control
him in the performance of his work.”), overruled on other grounds by State ex. rel. Macy v. Four
Thousand Two Hundred Sixty Dollars, 925 P.2d 50, 52 (Okla. 1996). Based on the testimony
presented and all circumstances regarding the work setting and relationship between J.C. and its
collectors, the Court finds that J.C. could remove the collectors’ discretion at any given time, dictate
their route, and dictate their collection methods and times. Importantly, J.C. could also take away
or restrict use of the trash trucks, rendering it impossible for the collectors to complete the work at
all. For example, specific to this accident, J.C. could have directed Hunt and Dale to forego
maintenance on the truck, obviating the purpose of their trip. In short, although J.C. allowed Dale
and other collectors a certain level of discretion and flexibility in collecting the trash, collectors were

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not hired to perform their work “free from control and direction” by J.C. Instead, all tasks
completed by collectors were subject to control and direction by J.C., should it have elected to
exercise such control as to any detail of the work.
The Court finds Plaintiff’s Exhibit 13, which is an agreement between J.C. and Hunt dated
June 13, 2008, relevant to J.C.’s treatment of collectors, including Dale. Although this agreement
describes Hunt as “contract labor” and instructs Hunt that “[J.C.] does not carry insurance you carry
your own,” it is also entitled an “Employee Confidential Agreement” and uses the term “employee”
throughout. More importantly, it discusses J.C.’s right to control details of Hunt’s work, such as
Hunt’s obligation to bring any “personnel issues to the main office” and to refrain from using the
company-issued cell phone for personal reasons. This agreement is therefore distinguishable from
some type of “Independent Distributor Agreement” or other document reflecting a clear attempt by
an employer to establish an independent contractor relationship. Cf. Duncan v. Powers Imports, 884
P.2d 854, 854 (Okla. 1994) (finding that express, written agreement entitled “Independent
Distributor Agreement” weighed in favor of finding independent contractor status). In the Court’s
view, J.C.’s contract with Hunt supports a finding of employee status because it reveals J.C.’s right
to control the collectors and J.C.’s requiring collectors to follow general rules of conduct and
confidentiality established by J.C. while completing its work.
8.

The third factor – whether or not Dale was engaged in a distinct occupation or business and

whether he carried on such business for others – weighs against a finding of independent contractor
status. Dale did not own a trash truck, did not own a trash-hauling business, and did not complete
trash-hauling tasks for any other company at the time of his employment with J.C.

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9.

The fourth and fifth factors – whether the work is usually done under the direction of the

employer or by a specialist without supervision and the skill required in the particular occupation
– weigh against a finding of independent contractor status. The type of work at issue – trash
collecting – is typically done under the direction of an employer and does not require particularized
specialized skills or knowledge.
10.

The sixth factor – whether the employer or the workman supplies the instrumentalities, tools

and the place of work for the person doing the work – weighs against a finding of independent
contractor status. The most important tool is the trash truck, which is owned by J.C. While Dale
did supply his own gloves and other small tools, the work could not be effectively completed
without the trash truck provided by J.C.
11.

The seventh factor – the length of time for which the person is employed – is neutral because

neither party submitted evidence in this regard.
12.

The eighth factor – whether the method of payment is by the time or by the job – weighs

against a finding of independent contractor status. Dale was paid an hourly rate of $9.00 per hour
for his trash-hauling work and was paid in accordance with how many hours he worked.7 While
Ernie testified that Dale was paid by the job and the record reflects some $50.00 payments to Dale,
these were payments for lawn mowing and not trash collection.
13.

The ninth factor – whether or not the work is a part of the regular business of the employer

– weighs against a finding of independent contractor status. J.C.’s business was trash collection, and

7

In finding that Dale was paid by the hour, the Court has given little weight to Plaintiff’s
Exhibit 8, which is an unsigned memorandum regarding Dale’s being paid $720.00 every two
weeks. The Court’s conclusion is based primarily on Dale’s testimony.
10

Dale’s primary duty was trash collection. Further, the accident occurred en route to taking the trash
truck in for maintenance, which is in furtherance of the trash collection business.
14.

The tenth factor – whether or not the parties believe they are creating the relationship of

master and servant – weighs in favor of independent contractor status. See supra Conclusion of Law
No. 6.
15.

The eleventh factor – the right of either party to terminate the relationship without liability

– weighs against a finding of independent contractor status. Ernie had the right to fire Dale at any
time, and Dale had the right to quit at any time. See Brewer, 390 P.2d at 502 (“An employee may
quit or be summarily discharged but an independent contractor remains under a legal obligation to
complete his undertaking.”).
16.

In sum, two factors weigh in favor of independent contractor status, and the rest weigh

against independent contractor status. The two factors that weigh in favor of independent contractor
status – the nature of the contract and the parties’ actual beliefs – both stemmed from Ernie’s
opinion that Dale was an independent contractor and Ernie informing Dale that he was an
independent contractor.
The other relevant factors – which examine the actual relationship and work setting rather
than the parties’ beliefs or labels – indicate an employer/employee relationship. Under these
circumstances, the two factors weighing in favor of independent contractor status are of limited
weight. As argued by Colony and for obvious policy reasons, an employer’s declaration of
independent contractor status does not make it so. Even a good-faith belief by an employer of
independent contractor status, which is then communicated to his workers, is not dispositive. In this
case, the other factors examining the reality of the relationship tip decidedly in favor of employee

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status. Therefore, considering all relevant factors, the Court concludes that the relationship between
J.C. and Dale was that of an employer and employee.
17.

Of the many Oklahoma cases discussing whether an individual is an employee or

independent contractor for purposes of workers’ compensation benefits, two are most critical to the
Court’s decision. In Brewer v. Bama Pie, Incorporated, 390 P.2d 500 (1964), the parties had a
written contract designating that a delivery driver (“driver”) would “purchase” the company-owned
truck from the company by making weekly payments from his compensation as a driver and assume
the risk of damage to the truck. The Oklahoma Supreme Court held that the driver was nonetheless
an employee because, inter alia, the company still had the authority to dictate the price of the
product, change the route, or terminate the driver’s services altogether without incurring liability.
Id. at 502. This case is similar in that J.C. had the right to exercise control over Dale’s work, rescind
all contracts with customers on Dale’s route, and terminate Dale at any time. Further, J.C. owned
the trash truck, with no special buy-back or other situation attempting to make Dale the eventual
owner of the vehicle. The only distinguishing facts in this case are that Dale had more discretion
than the driver in Bama as to whether, when, and in what manner to complete his route. However,
as explained above, the critical question is the right to control, which the Court concludes that J.C.
retained at all relevant times.
18.

In C&H Transportation Company v. McLaughlin, 434 P.2d 229 (Okla. 1967), the purported

employer (“company”) owned and operated large trucks for the hauling of oil-field equipment.
Some of its customers occasionally needed to quickly transport a small item. To accommodate this,
the company made arrangements with the purported employee (“driver”). The driver owned his own
truck, was on 24-hour call, was required to advise the company where he could be located, was

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occasionally called directly by the company’s customers, and was paid by the mile. For the three
years prior to his injury, the driver’s only job was hauling for the company, although he was not
required to limit his activities. The company did not make withholdings from the driver’s earnings.
The Court first acknowledged that the driver being paid by the mile, furnishing his own vehicle, and
paying his own taxes weighed in favor of independent contractor status. Id. at 233. However, the
Oklahoma Supreme Court held that the driver was an employee because, inter alia, (1) the company
had the right to terminate him at any time, (2) the driver did not do hauling for others, (3) only the
company would be liable for any delayed or damaged delivery being made by the driver, and (4) the
company had a right to tell the driver whether to go, where to go, and when to go, even where
customers called the driver directly and the company did not actually exercise this right. Id. at 23334. Similar to Dale, the driver had significant freedom in that customers called him directly, and
he made the delivery by his chosen route. However, like J.C., the company at all times had the right
to tell the driver whether and how to complete a certain task, resulting in an employer/employee
relationship. The fact that J.C. owns the trash truck makes this an even stronger case for
employer/employee status than that present in McLaughlin.
19.

Oklahoma cases finding independent contractor status are distinguishable from this case in

at least three important respects – namely, the existence of a clear and unambiguous written
agreement, the contractor’s provision of his own vehicle and equipment, and payment on a per-job
or commission basis. See Duncan, 884 P.2d at 856-57 (under “Independent Distributor Agreement,”
sales person was allowed to sell company’s products during any hours, to set his own prices, was
“free of control” from company, chose his sales area, provided his own vehicle, and was paid solely
on a commission basis); Express Bus, Inc. v. Okla. Employment Sec. Comm’n, 157 P.3d 1180, (Okla.

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Civ. App. 2007) (under “Independent Contractor Agreement,” driver made deliveries of school
buses from factories in Oklahoma to locations throughout U.S., driver supplied all materials, tools,
and equipment required to make the deliveries, driver had a particular license and was free to do
work for other entities, and driver was paid on a per-job basis depending on the miles driven);8
Sawin v. Neace, 97 P.2d 27, 31 (Okla. 1939) (holding that Sears delivery person who provided his
own truck was independent contractor where Sears, although it controlled goods in the truck, had
no right to control the manner of driving the truck or repairs on the truck).
20.

Because Dale was J.C.’s employee for purposes of Oklahoma workers’ compensation law,

the Workers’ Compensation Exclusion applies. Although Dale was a passenger in a trash truck
covered by the Policy at the time of the accident, Dale is not covered by the Policy because J.C. or
its insurer, had an insurance policy been purchased, may be held liable for such injuries under
Oklahoma workers’ compensation law.
21.

J.C.’s failure to carry workers’ compensation insurance – and Dale’s failure to recover any

workers’ compensation benefits – does not prevent application of the Workers’ Compensation
Exclusion. Johnson v. Marciniak, 231 F. Supp. 2d 958, 959-60 (D.N.D. 2002) (holding that
identical workers’ compensation exclusion precluded coverage, regardless of whether any workers’
compensation benefits are actually paid to the injured party) (explaining that an employer/insured
“should not be rewarded for failure to obey workers compensation law” and that if employer would
have obtained workers’ compensation insurance, any tort claim against it for an employee’s on the
8

Express Bus provides at least some support for Dale’s position because the court
discussed the driver’s ability to decline delivery offers, choose delivery routes, and make driving
decisions. See id. at 1184. Dale also had a degree of freedom in the manner of completing his
trash-hauling activities. He also could decline to complete a route that day in order to work as a
handyman. However, the distinctions discussed above are important ones, and the weight of
factors in this case weighs in favor of employee status.
14

job injury would have been barred); Brown, 184 S.W.3d at 534-35 (“Every jurisdiction that has
considered this issue has held that a “workers’ compensation” exclusion in a policy of commercial
automobile or CGL insurance . . . precludes coverage when the insured employer is exposed to tort
liability solely because of its failure to procure a policy of workers’ compensation insurance.”).
22.

The Court does not reach the questions of whether the Employee Exclusion or Fellow

Employee Exclusion also apply to preclude coverage.

SO ORDERED this 27th day of May, 2011.

___________________________________
TERENCE C. KERN
United States District Judge

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