United States: California Insurance Guarantee Association v. Workers' Compensation Appeals Board

(Agreement to Apportion Liability Among Multiple Insurers Does Not Terminate Joint and Several Liability)

In California Insurance Guarantee Association v. Workers' Compensation Appeals Board, 245 Cal. App. 4th 1021 (2016), the California Second District Court of Appeal annulled the decision of the Workers' Compensation Appeals Board ("Appeals Board") denying California Insurance Guarantee Association's ("CIGA") motion to be dismissed from workers' compensation cases based on Insurance Code section 1063.1.

Care West Pegasus Modesto ("Care West") and Ullico Casualty Company ("Ullico") entered into a compromise and release agreement with a workers' compensation claimant. Both Care West and Ullico insured the employer during the period of the injury, under successive policies. The agreement provided for a specific payment to the claimant, and stipulated that the two insurers would "pay, adjust, or litigate all liens of record," sharing equally med-legal charges, and allocating 52% liability for treatment charges to Care West and 48% of liability to Ullico. The workers' compensation administrative law judge approved the compromise and release.

Ullico later became insolvent and was liquidated. Pursuant to Insurance Code section 1063.1, CIGA assumed liability for its covered claims. CIGA filed a petition for dismissal from the workers' compensation cases, arguing the lien claims were excluded under Section 1063.1(c)(9), "which prohibits CIGA from paying any 'claim to the extent it is covered by any other insurance.'" CIGA argued that Care West was jointly and severally liable for the claims arising out of the claimant's injury and, thus, Care West's coverage constitutes "other insurance" covering 100% of the claims, notwithstanding the compromise and release agreement. Care West objected to this motion, arguing that Care West was only responsible for 50% of the med-legal charges, and 52% of remaining medical charges – entailing CIGA was liable for the remaining apportionments of liability.

The administrative law judge denied CIGA's petition, finding the agreement operated as a final judgment apportioning liability, which was binding on CIGA as the successor to Ullico. CIGA then petitioned for reconsideration from the Appeals Board. The judge recommended denial of the petition, and the Appeals Board denied the petition. The Appeals Board held that the agreement divided liability between the two insurers, rendering such liability no longer joint and several. The Appeals Board considered the apportionment to be res judicata, and not subject to relitigation. The Court of Appeals initially denied CIGA's writ petition. The California Supreme Court granted review, and remanded to the Court of Appeals with directions to grant the petition, which the Court did. In answering the petition, Care West claimed the compromise and release was a final judgment that rendered the insurers' liability no longer joint and several, and the judgment may not be relitigated.

The Court of Appeal framed the issue, and its decision, as such:

The facts are undisputed, as is most of the law. The issue is whether the insurers' agreement apportioning liability, and the WCJ's [administrative law judge] approval of that agreement, rendered the insurers' liability no longer joint and several. We conclude it did not.

Section 4 of article XIV of the California Constitution empowers the Legislature to "create . . . and enforce a complete system of workers' compensation" by placing a liability on employers "to compensate . . . their workers for injury or disability . . . incurred or sustained . . . in the course of their employment, irrespective of the fault of any party." "A complete system of workers' compensation includes . . . full provision for such medical, surgical, hospital and other remedial treatment as is requisite to cure and relieve from the effects of such injury . . . ." (Cal. Const., art. XIV, § 4.) Labor Code section 4600 implements this direction by providing that an employer is liable for medical expenses that are "reasonably required to cure or relieve the injured worker from the effects of his or her injury." (Lab. Code, § 4600, subd. (a).)

The obligation imposed upon an employer by Labor Code section 4600 is joint and several. [Citation] If two or more insurers provide workers' compensation coverage during the statutory period of liability for a cumulative injury, they are jointly and severally liable for claims arising from that injury. [Citations]

When two or more insurers are jointly and severally liable for workers' compensation benefits and one of them becomes insolvent, the policy issued by the solvent insurer constitutes "other insurance" for purposes of Insurance Code section 1063.1, subdivision (c)(9), which excludes the benefits from coverage by CIGA. [Citations]

Here, it is undisputed Care West and Ullico were jointly and severally liable for lien claims relating to [the claimant's] injury. Therefore, Care West's insurance constitutes "other insurance" for purposes of CIGA's mandated statutes, and lien claims relating to [the claimant's] injury cannot be covered claims.

The Court of Appeal rejected the Appeals Board's argument that the apportionment of liability "effectively terminated joint and several liability," noting this "argument reflects a basic misunderstanding of the nature of 'several' liability, which is not, strictly speaking, a rule of liability at all—it is a rule of joinder." The Court quoted the California Supreme Court's decision in DKN Holdings, LLC v. Farber, 61 Cal 4th 813, 820 (2015) noting that, "to ameliorate the harshness of the common law's compulsory joinder rule . . . [t]he typical solution was to convert 'joint' obligations into 'joint and several' obligations . . . allow[ing] individual promisors to be sued for enforcement of a contract without joining all copromisors." Any apportionment among multiple insurers "is of no moment to the worker or lien claimant and can have no effect on obligations owed them."

The Court of Appeal determined Care West and Ullico's liabilities "remained joint and several even after settlement and apportionment," noting that the "[t]he contribution and reimbursement provisions would have been meaningless in the absence of joint and several liability" while agreeing that the compromise and release "ha[s] the same force and effect as an award made after a hearing."

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