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MONTCOAL, W.Va.—The company that owns the West Virginia coal mine where at least 25 miners were killed last week is largely self-insured for the risks associated with the explosion.
In its annual report filed last month with the Securities and Exchange Commission, Richmond, Va.-based Massey Energy Co. said—despite the inherent risks associated with coal mining, including fires and explosions—it does not have business interruption insurance. It also self-insures its underground mining equipment, Massey said.
A spokesman for the West Virginia Insurance Commission said Massey's Performance Coal Co. subsidiary, which operates the Upper Big Branch-South mine where the explosion happened, is a qualified self-insured company in the state and self-insures its workers compensation risks.
At least 25 miners died and two were injured in the April 5 coal mine explosion in West Virginia; the search for four others continued Friday.
Although the cause of the explosion is under investigation, reports noted that most of the miners were in an area where longwall cutting was taking place. The technique uses a large grinder to extract coal, resulting in large amounts of coal dust and methane, both of which are explosive.
The U.S. Department of Labor's Mine Safety and Health Administration is investigating the incident.
Overall, insurance experts say it's not unusual for a large coal mining operation to self-insure a majority of its risk given the expense of insuring coal mines, especially underground coal mines.
“If you look at Massey's peer group...their use of self-insurance is not atypical,” said Ken Sloan, national mining practice leader for Marsh Inc. in Knoxville, Tenn. “The mining industry, and the coal mining industry particularly, does typically self-insure a lot of their exposures.”
How large the financial toll the explosion will have on the self-insured energy giant—the fourth-largest U.S. coal company—remains to be seen. Massey reported $497.2 million in 2009 earnings before interest, taxes, depreciation and amortization on produced coal revenues of $2.32 billion.
Massey Energy did not return calls seeking comment.
In a research update last week, Standard & Poor's Corp. estimated that lost production impact on Massey's 2010 EBITDA could reach $50 million. Massey's liquidity of about $550 million, however, should be “sufficient to meet the near-term cash outlay associated with the accident,” S&P said, but uncertainty exists regarding its workers comp liability and potential lawsuits.
Surviving family are eligible for workers comp death benefits equal to two-thirds of a miner's average weekly wage, up to a maximum of $2,940 a month, said a spokesman for the West Virginia Insurance Commission. A spouse is eligible for the benefits until death or remarrying. Children are eligible until they reach age 18 and 25 if they are college students.
Massey could face claims beyond those falling under workers comp, though, especially if survivors are able to use safety-related violations as a basis for suing the company outside the workers comp system, experts say.
Several questions already have been raised about the mine's safety record, which includes 124 violations this year as of April 5, and 53 assessed civil penalties amounting to $188,769, MSHA records show. In 2009, the mine had 515 violations and $897,325 in civil penalties.
Under West Virginia's workers comp law, employers can be sued in civil court if it is determined that they “deliberately intended” to expose workers to an unsafe act or condition (see box). Such claims are known as “Mandolidis,” so named for the 1978 West Virginia Supreme Court of Appeals ruling in Mandolidis vs. Elkins Industries Inc. that said “deliberate intention” could be satisfied by proof of willful, wanton and reckless misconduct.
Given West Virginia's leniency in allowing suits outside the comp system, experts say Mandolidis suits are possible against Massey, which sources say self-insures its commercial general liability exposures up to an excess layer.
“If a mine disaster happened in Pennsylvania...it's almost impossible for an employee to sue his employer,” said Ron Parry, a senior vp and account executive on several coal mining accounts for Aon Risk Services in Pittsburgh. “That is not the situation in West Virginia and in other states.” While some states require employees to give up their workers comp benefits to bring a third-party action, “In West Virginia, you've got nothing to lose. You don't have to give up your workers compensation,” he said.
Rusty Ellis, a vp with Hull & Co., a Hurricane, W.Va.-based wholesale subsidiary of Brown & Brown Inc., which has several coal mining clients, said Mandolidis claims could be filed against Massey, but cautioned against reading too much into safety citations against the mine, which he said are commonplace.
“It's not uncommon for any coal mine to get five to six violations every month. And for somebody like Massey that has 50 or so locations, it's possible they get 20 to 30 a month,” Mr. Ellis said, noting that a “great deal” of citations tend to be general “housekeeping” violations.
On its Web site, Massey says safety is its No. 1 priority and Massey CEO Don Blankenship told CNN last week that he would “take great exception to the fact that someone would claim Massey's mines aren't generally safer than competitor mines.”
At least one West Virginia personal injury attorney said it's too soon to say whether Massey will face further litigation.
For civil claims to prevail, it would have to be established that Massey had actual knowledge of an unsafe working condition at the mine and that it violated state or federal mining regulations, said Stephen P. New, a solo practitioner based in Beckley, W.Va., who has handled several coal mine personal injury cases. Those two elements are the hardest to prove of five elements required under the state's workers comp law, he said.
“Obviously if the regulatory agency comes in and issues a ton of citations, those cases get a little easier,” Mr. New said. But he said it still is too early “to be able to tell a client whether you believe you can...survive summary judgment” in this particular incident, he said.
Sources say most mining operations purchase what is known as Mandolidis or “broad form” coverage. Massey most likely has such coverage within its excess casualty program, they note.
Under West Virginia's workers compensation law, employers can be sued in civil court if they “deliberately intended” to expose workers to an unsafe act or condition. For employees or surviving family members to prevail, they must prove:
■ A specific unsafe working condition existed in the workplace, which presented a high degree of risk and a strong probability of serious injury or death;
■ The employer, prior to the injury, had actual knowledge of a specific unsafe working condition and the high degree of risk;
■ The specific unsafe working condition violated state or federal safety laws, rules or regulations or commonly accepted and well-known industry safety standards;
■ Notwithstanding the first three elements, the employer thereafter intentionally exposed an employee to the specific unsafe working condition;
■ The employee suffered serious compensable injury or compensable death.
Source: West Virginia Code