Can't Have It Both Ways: ELI Coverage and Workers' Comp Exclusion

Posted on November 16, 2008 by Sara Thorpe

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.

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Insurer Burned By Insured's Waiver of Right To Payment Credit

Posted on November 16, 2008 by Sara Thorpe

 

The Ninth Circuit, applying California law, issued a decision which charts new territory on the handling of workers’ compensation claims, and announces an approach contrary to enforceability of voluntary payment provisions in insurance policies. In Travelers Prop. Cas. v. Conoco Phillips Co., __ F.3d __ (9th Cir. 2008) [08 CDOS 13285], the Ninth Circuit affirmed a judgment of the district court for ConocoPhillips Co., holding its predecessor-in-interest, Tosco Corporation, did not breach a workers’ compensation policy issued by Travelers Property Casualty Co. when Tosco waived the right to a statutory credit against future workers’ compensation benefits without Travelers’ consent in settling civil claims arising out of a refinery fire. The Ninth Circuit found the policy language at issue was clear and unambiguous and Tosco’s waiver did not force Travelers to make excess payments in violation of the policy’s excess payments clause or constitute a breach of the policy’s voluntary payments clause.

The dispute arose after several workers were killed or injured during a fire at a Tosco refinery. One injured worker and the estate of a deceased worker filed civil actions against Tosco in addition to claims for workers’ compensation benefits and for augmented penalties before the California Workers’ Compensation Appeals Board (“WCAB”). Tosco opted to settle the civil actions and agreed, without Travelers’ consent, to waive the statutory right to a credit against future workers’ compensation benefits provided by California Labor Code section 3600(b).

 

The WCAB awarded death and workers’ compensation benefits to the claimants covered by Travelers’ policy. Travelers petitioned the WCAB pursuant to Section 3600(b) for a credit in the amount of the settlement against any future benefits Travelers would have to pay. The WCAB denied the petition because Tosco had waived Travelers’ right to the credit under Section 3600(b). Travelers filed a lawsuit alleging Tosco breached the policy by waiving Travelers’ right to the statutory credit without its consent. The district court ruled for Tosco and against Travelers on cross-motions for summary judgment.

Travelers, which had paid $1.4 million in benefits and anticipated paying $2.1 million more in future benefits, argued Tosco breached the policy’s excess payments and voluntary payments clauses. The excess payments clause provided Tosco was “responsible for any payments in excess of the benefits regularly provided by the workers compensation law….” Travelers argued Tosco’s waiver of the credit provided by Section 3600(b) and failure to reimburse Travelers for the amount of the credit was a breach of the excess payments clause because benefits “regularly provided” by the workers compensation law would be offset by the right to a credit under Section 3600(b). Tosco’s waiver forced Travelers to make “excess” payments since the workers’ compensation benefits Travelers was paying and would continue to pay would have been reduced by the amount of the settlement but for Tosco’s waiver.

The Ninth Circuit disagreed, holding Travelers was not making “excess” payments since the payments were “regularly provided” workers’ compensation benefits. The court reasoned that while the amount of the benefits might have been reduced due by the settlement had the credit not been waived, the waiver did not increase the workers’ compensation benefits beyond those “regularly provided” by law. Noting that the WCAB held an employer has the authority to waive a compensation carrier’s right to a credit under Section 3600(b), such credits are not always included when calculating “regular” benefits.

Travelers also argued Tosco’s waiver breached the policy’s “voluntary payments” clause which provided the insured could not “voluntarily make payments, assume obligations or incur expenses, except at [Tosco’s] own cost.” Travelers argued Tosco’s waiver was a voluntary act that assumed an obligation to pay workers’ compensation benefits despite the statutory right to a credit for the settlement. The court disagreed and held the voluntary payments provision did not apply to a “non-monetary requirement simply to refrain from doing something.” Thus, the court found the policy did not require Tosco to refrain from waiving Travelers’ right to a credit under Section 3600(b) and, thus, Tosco’s waiver did not breach the policy.
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