In Travelers Prop. Cas. Co. of Am. v. Workers' Comp. Appeals Bd., 40 Cal.App.5th 728 (2019), the Court of Appeal annulled the Workers' Compensation Appeals Board's ("WCAB") opinion, finding that the policy of a special employer's solvent insurer does not constitute "other insurance" within the meaning of Insurance Code section 1063.1(c)(9), when the insurer of the general employer becomes insolvent.
Insurance Code section 11663 provides that, as between insurers of general and special employers, it is the general employer's insurer that is liable for injuries to special employees. Labor Code section 3602(d) further provides that a special employer may enter into an agreement with a general employer under which the general employer agrees to obtain, and does obtain, workers' compensation coverage for the special employees.
General employer StaffChex, Inc. ("StaffChex") and special employer Jessie Lord Bakery, LLC ("Jessie Lord") entered a labor and service agreement in December 2008 providing that, in exchange for payments at a markup for StaffChex employees, StaffChex would pay all wages to the employees and all workers' compensation insurance. The labor agreement was not signed by the parties, but was initialed and amended by handwritten notations. StaffChex and Jessie Lord performed the terms of the agreement, including StaffChex obtaining workers' compensation coverage with insurer Ullico Casualty Company ("Ullico") for employees assigned to Jessie Lord.
Jessie Lord obtained workers' compensation for its own employees through Travelers Property Casualty Company of America ("Travelers"). The policy contained an endorsement excluding coverage for any liability Jessie Lord may have as the special employer of an employee who was not on Jessie Lord's payroll at the time of the injury, so long as Jessie Lord had entered a valid and enforceable agreement pursuant to Labor Code section 3602(d) that the general employer will secure workers' compensation coverage for the special employees, and the general employer has obtained such coverage. The endorsement also provided:
"y signature below, you affirm that, with respect to any employee who is also the employee of a general employer, (1) you have entered into a valid and enforceable agreement pursuant to Labor Code Section 3602(d) with the employee's general employer under which the general employer agrees to secure the payment of compensation for such employee and (2) the general employer has obtained workers' compensation coverage for the employee."
The space provided for Jessie Lord's signature was blank; however, the terms of the endorsement did not provide that it was invalid without a signature.
On May 30, 2013, Ullico was liquidated and the California Insurance Guarantee Association ("CIGA") took over administering Ullico's claims. CIGA is statutorily authorized to pay "covered claims" of an insolvent insurer. "Covered claims" do not include claims to the extent that they are covered by any other insurance.
On August 3, 2011, Jose Luis Mastache, an employee of StaffChex, was injured while working as a pallet handler at Jessie Lord. In administering Mastache's workers' compensation claim, CIGA petitioned the WCAB to join Jessie Lord and Travelers as party defendants, arguing that, since Jessie Lord was the special employer and had workers' compensation coverage through Travelers, the Travelers policy constituted "other insurance" which relieved CIGA of liability for the claim. The question was submitted to arbitration. The arbitrator rejected CIGA's argument, finding that Travelers did not constitute "other insurance" available to Mastache, even though the endorsement excluding coverage for special employees on the Travelers policy was not signed. The arbitrator also found there was no joint and several liability between Jessie Lord and StaffChex.
WCAB granted CIGA's request for reconsideration of the arbitrator's decision and reversed, finding that the Travelers policy provided coverage for Mastache on grounds that the arbitrator had erred in determining that: (1) an agreement between a general employer and a special employer could eliminate joint and several liability for their joint employees, and (2) the Travelers policy excluded certain employees based on an endorsement that did not comply with the Insurance Commissioner's regulations in effect at the time the policy was issued. WCAB found that, because Jessie Lord and StaffChex remained joint and severally liable, when StaffChex's insurer became insolvent, Jessie Lord's insurer was responsible for the claim unless the policy excluded coverage.
At the time the Travelers policy was written, WCAB rules required a written affirmation by the special employer that insurance had been obtained for special employees by the general employer. WCAB found that the endorsement on the Travelers policy did not satisfy this requirement because it was not signed, therefore concluding that the Travelers policy did not exclude coverage for special employees. Consequently, Travelers constituted "other insurance" relieving CIGA of liability for Mastache's claim.
The Court of Appeal granted Travelers' petition for a writ of review. The appellate court concluded the WCAB's decision was unreasonable and inequitable on grounds that Jessie Lord and StaffChex were sophisticated parties who had created a relationship with the sole purpose of complying with the existing statutes and regulations ensuring there was workers' compensation insurance coverage for special employees, there was no dispute the parties had performed the terms of their agreement, and the parties had been functioning under this contract structure for three years at the time Mastache was injured.
The regulation in effect in 2011 required an affirmation "in writing" that insurance had been obtained for the special employees. Surely, the contract between Jessie Lord and StaffChex, which required the latter to procure insurance for special employees, qualifies as a "writing." But this is not the only writing that exists. The contract between Jessie Lord and Travelers included the specific representation that Jessie Lord had entered into a contract with the general employer under which the latter would insure the special employees. This too was a writing. Both writings were supported by the Ullico policy, which was the insurance policy required by both writings. Although the Ullico policy is not in the record, no one has argued that the Ullico policy would not have covered Mastache's injury. Indeed, CIGA began administering Mastache's claim.
. . .
Nullifying a three-sided, sophisticated contractual structure, under which all three parties performed their obligations in good faith over the absence of a signature on an endorsement to a contract disregards reality and is inequitable.
The court further reasoned that the WCAB regulation only required affirmance in writing; there was no requirement that a special employer sign the policy endorsement for it to be valid. As the language of the endorsement did not provide that it was invalid if a countersignature was not included, and the parties fully performed the contracts despite the lack of signature on the endorsement for three years, it was clear that,
[t]he signature was not an essential part of the endorsement. What was important was that Jessie Lord would do all things necessary and appropriate to ensure that StaffChex had covered the special employees, not whether Jessie Lord had countersigned an endorsement.
As the court found that the Travelers policy effectively excluded coverage for special employees, it did not constitute "other insurance" within the meaning of Insurance Code section 1063.1(c)(9) and Mastache's injury constituted a "covered claim" for which CIGA was responsible.
In reaching its decision, the appellate court distinguished a prior appellate decision in which the court had concluded that a special employer's insurance constituted "other insurance" when the general employer's insurer became insolvent, Fireman's Fund Ins. Co. v. Workers' Comp. Appeals Bd., 189 Cal.App.4th 101 (2010) ("Colamaria").
Colamaria does not stand for the proposition that, as between joint employers, when one employer's insurer becomes insolvent, the other employer's insurer becomes fully liable. The result in the Colamaria opinion was the lack of an exclusion within the special employer's insurance policy of coverage for special employees. The facts of Colamaria are undeniably distinct from Mastache's claim because Travelers and Jessie Lord obtained an endorsement for the express purpose of excluding employees like Mastache from coverage under the Travelers policy.
Because the WCAB's written affirmation requirement was satisfied by the labor agreement between StaffChex and Jessie Lord, the Travelers policy did not constitute "other insurance" even though the exclusionary endorsement was not signed, and CIGA was liable to provide coverage for Mastache's claim.
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