Finally – California Appellate Court Addresses Miceli Issue

Finally – California Appellate Court Addresses Miceli Issue

In March of 2003, the W.C.A.B. issued its first en banc decision in the Miceli v Jacuzzi case holding the policy of a special employer was “other insurance” for purposes of Insurance Code 1063.1 thereby subjecting the special employer’s carrier to liability for workers’ compensation benefits in the event the general employer’s carrier became insolvent (which seemed to be a regular event back then).  The principle beneficiary of this holding was the California Insurance Guarantee Association (C.I.G.A.) who would otherwise have had to pay the benefits owed by the insolvent carrier (in this case Reliance Ins).  Thereafter the case wound its way up the appellate ladder, ultimately being reversed by the Court of Appeal, which in an unusual move, reversed its initial decision upholding the W.C.A.B.  The Insurance and self-insured employer communities were initially elated with the reversal only to have the Supreme Court order the decision unpublished, thereby removing the case as legally citable authority.  While the W.C.A.B. issued its second en banc decision in May of 2006 finding the coverage by the general employer to not be other insurance, that decision was specifically at the direction of the Appellate court and by direction of the W.C.A.B., not citable as authority other than in that specific case.  An order of consolidation for all of the “Miceli cases” with similar issues was dissolved and each case was to be determined on its own merits.

Many of us assumed that within a fairly short period of time some definitive decision would issue, either from the W.C.A.B. or an appellate court addressing the “other insurance” aspects of this issue as there continued to be a large volume of cases with the identical issue.  While there has been a fairly steady stream of writ denied decisions, all holding in C.I.G.A.’s favor on the issue, we have been waiting for an appellate decision that provided some legally significant authority on the topic.

Under the rubric of “Be careful what you ask for, you may get it” we now have such a decision in Fireman’s Fund v W.C.A.B. (C.I.G.A.) providing a (quasi) definitive answer to the “other insurance” question firmly in C.I.G.A.’s favor.  Even this case required the Supreme Court to direct the Court of Appeal to hear the issue or else the case also would have fallen into the wasteland of writ denied cases again depriving employers, carriers and even C.I.G.A., substantive legal authority.

In this case the special employer, Rocket Science Labs insured by Fireman’s Fund, provided employees for a film production project.  Payday Inc, contracted to be the employer providing all benefits including workers’ compensation coverage unfortunately through, you guessed it, Reliance National Indemnity Co.  Upon Reliance becoming insolvent; C.I.G.A. sought to have Rocket Science Labs coverage through Fireman’s Fund declared other insurance with joint and several liability for benefits thereby relieving C.I.G.A. of any liability under Ins Code 1063.1(c)(9).  The W.C.A.B. denied Fireman’s Fund/Rocket Science Labs request for dismissal and the case continued up the appellate ladder on the special employer’s arguments:

“…that they have no liability and should be dismissed because Payday obtained workers' compensation coverage from Reliance pursuant to the agreement with Rocket Science as contemplated by Labor Code section 3602, subdivision (d). Petitioners also contend that they intended that employees like Colamaria would be covered by the workers' compensation policy provided by Reliance, and not Fireman's Fund, under section 3602, subdivision (d)…”

The Court of Appeal was unimpressed with either the legal arguments or the evidence presented by the petitioners:

“We conclude that Payday and Rocket Science are jointly and severally liable employers to employees like Colamaria for workers' compensation, and that the liability of Rocket Science and Fireman's Fund is not extinguished by compliance with section 3602, subdivision (d).  Section 3602, subdivision (d) expressly provides that complying employers shall not be subject to civil, criminal, or other penalties or tort liability, which does not include employer joint and several liability for workers' compensation.  Section 3602, subdivision (d) also does not preclude Rocket Science from having applicable workers' compensation coverage under the Fireman's Fund policy.  We also conclude that coverage under the Fireman's Fund policy is clear and unlimited without the statutory exclusion for employees like Colamaria (the injured employee), and that the policy provisions control….” (added by author)

The appellate court rejected petitioner’s arguments there was an agreement that Payday’s coverage would be the exclusive workers’ compensation resource for any injured employees.  The Court noted there was not actual evidence presented of such an agreement and refused to infer from Rocket Science’s compliance with Labor Code § 3602(d) created such an agreement. The Court agreed compliance with Labor Code § 3602 could shift liability to Payday but did not extinguish the joint and several liability relationship, just the designation of which coverage was primary.  The Court interpreted the legislative history of 3602 as intending to avoid civil and criminal sanctions for failing to provide coverage, not joint and several liability and further noted the permissive language in the code making the provisions optional, not mandatory.

The Court affirmed the W.C.A.B. holding remanded the case to the W.C.A.B. for further action, presumably dismissal of C.I.G.A. and imposition of liability on Fireman’s Fund.

Commentary:

Astute observers will note the use of “quasi” definitive in the third paragraph above.  This language is used because there appears to be some, but not much leeway, in the potential results of this case depending on a differing fact pattern than this case presented.  Both the W.C.A.B. and the Appellate Court noted the lack of any evidence of a specific intent to exclude employees under the special employer’s policy.  There is at least an implication that such information might be relevant to the issue of the parties’ intent to create such an exclusion.  While it was clear the intent was for Payday to provide coverage, the evidence for an intent to exclude from the Fireman’s Fund policy required an inference to be drawn from compliance with Labor Code § 3602, an inference both the W.C.A.B. and the Appellate Court rejected.

The question then arises what would happen if there were such specific evidence?  Both the W.C.A.B. and Appeals Court noted a lack of endorsements that might affect the scope of coverage:

“…coverage language of the Fireman's Fund policy is clear, explicit, broad and unqualified by an exclusionary endorsement, and because the policy is unambiguous there is no need to go outside its provisions to interpret coverage and intent.  As CIGA contends, it is well settled that a standard workers' compensation policy without any limiting endorsements covers all employees of the employer…”

One of the arguments that convinced the appellate court in Miceli to reverse its decision was the inability of the parties to obtain approval of an endorsement for such an exclusion.  It is likely that no such endorsement exists and during the period before carriers where dropping like flies, no one considered the need for such an endorsement.  While the Court’s decision appears to leave open a potential doorway to provide evidence there was a specific provision or agreement to exclude coverage, it seems likely that at the time most of the policies where this issue is now coming up (pre-insolvency), there were no efforts to tailor a policy with such a provision as the need was unrecognized.

From a legal perspective, there might be a glimmer of hope to present a fact pattern where an appellate court might rule against C.I.G.A. on the joint/several liability issue, it just seems unlikely that the fact pattern actually exists in the real world setting.

© Copyright 2010 Richard M. Jacobsmeyer. All rights reserved. Reprinted with permission.