While not a new development, this case is a reminder that logic and common sense prevail in evaluating coverage, even in the face of tragedy. The California Court of Appeal for the Fourth Appellate District affirmed an order granting summary judgment in favor of an insurer in an action for breach of the duties to defend and indemnify under a policy’s Employer Liability Insurance (ELI) coverage, holding the underlying claim was within the scope of the workers’ compensation exclusion because it was covered by the workers’ compensation law and the insured did not assert any exceptions applied to the statute. Power Fabricating Inc. v. State Comp. Ins. Fund (2008) __ Cal.App.4th __ [08 CDOS 13719].
This claim arose out of a fatal electrocution in the course of employment. State Compensation Fund issued insurance to Power Fabricating Inc., which afforded coverage for workers’ compensation and ELI coverage. State Fund paid workers’ compensation benefits to the deceased employee’s widow. However, the widow also sued Power and a related entity, Power Temporary Systems, Inc. (“PTSI”). Power tendered the suit to State Fund which denied coverage. Power then sued State Fund for breach of contract. The trial court granted summary judgment for State Fund.
On appeal, Power argued summary judgment was inappropriate because there was a disputed issue of fact as to whether Power, PTSI, or a joint venture of the two entities, was the deceased’s employer at the time of the accident. Power contended ELI coverage would apply if the deceased was an employee of the joint venture and was injured by Power’s negligent acts or Power’s employee but injured by acts of the joint venture for which Power was derivatively liable. The court disagreed, holding that ELI coverage only applied to injury arising out of or in the course of employment by the insured. To the extent the joint venture, as an entity distinct from either Power or PTSI, employed the deceased, the ELI coverage would not apply in the first instance. The court held Power could not invoke coverage under the ELI provisions, which required employment by an insured, but then attempt to avoid application of the worker’s compensation exclusion on the theory a non-insured entity was actually the employer.
The court also rejected Power’s second argument, holding the workers’ compensation exclusion would apply to Power’s derivative liability for the joint venture. The complaint alleged only Power, not PTSI, was negligent, eliminating any risk of derivative liability. Even if that risk existed, Power’s derivative liability did not fall within any exception to the workers’ compensation law.
