Fair v. KORHUMEL STEEL AND ALUMINUM COMPANY, INC.

• Decision Date: 30 January 1973
• Docket Number: No. 72-1421.,72-1421.
• Citation: 473 F.2d 703
• Parties: Bernard D. FAIR, Jr., Appellant, v. KORHUMEL STEEL AND ALUMINUM COMPANY, INC., Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

473 F.2d 703 (1973)

Bernard D. FAIR, Jr., Appellant, v. KORHUMEL STEEL AND ALUMINUM COMPANY, INC., Appellee.

No. 72-1421.

United States Court of Appeals, Fourth Circuit.

Argued October 5, 1972.

Decided January 30, 1973.

Rehearing Denied March 15, 1973.

Jeremy C. McCamic, Wheeling, W. Va. (McCamic & McCamic, Wheeling, W. Va., on brief), for appellant.

Thomas B. Miller, Wheeling, W. Va. (Schmidt, Laas, Schrader & Miller, Wheeling, W. Va., on brief), for appellee.

Before BRYAN, Senior Circuit Judge, and CRAVEN and BUTZNER, Circuit Judges.

CRAVEN, Circuit Judge:

This is an appeal from the dismissal of Appellant Fair's common law negligence claim for damages against his employer, Korhumel Steel & Aluminum Company, Inc. As we read the district judge's oral opinion, he reasoned that since Fair had not proved Korhumel guilty of fraud but, instead, of "sloppy" procedures in attempting to qualify under the West Virginia Workmen's Compensation law, coverage resulted that would bar the negligence action. Applying West Virginia law, as we must in this diversity jurisdiction case, we conclude that fraudulent motivation is not the test. Because the undisputed facts show that Korhumel literally did nothing to bring itself within the Act, and there was no waiver by Fair of his negligence claim, we reverse and remand for a trial of the negligence action.

Fair was injured on March 22, 1967, while employed by Korhumel in its plant in West Virginia. An award totaling $2,832 was approved by the West Virginia Workmen's Compensation Commission, and this amount was paid to Fair. The award was directed to be paid by:

National Steel Corporation Korhumel Steel & Aluminum Company Division 2424 Oakton Street Evanston, Illinois

There was then no such thing as Korhumel Steel & Aluminum Company Division of National Steel.

Fair subsequently filed suit in district court against Korhumel alleging a common law tort action in negligence for his injuries. Korhumel asserted as defenses (1) its election and qualification to accept and participate in the scheme of the West Virginia Workmen's Compensation Act, and (2) Fair's waiver of any common law right by his prior acceptance of the compensation award.

The West Virginia Workmen's Compensation Act provides that statutory compensation is the exclusive remedy available to an injured employee where his employer has elected to come within the Act's coverage and has "complied fully" with the statutory scheme, including current payment of premiums. W.Va.Code Ann. § 23-2-6 (1966). The statute clearly sets out the steps necessary to obtain coverage. The first requirement, in the case of a foreign corporation (Korhumel was incorporated under the laws of Illinois), is the filing by the employer of a certificate showing that it has qualified to do business in West Virginia. The statute provides in part: "No application of such foreign corporation employer shall be accepted by the commissioner until such certificate is filed . . . ." W.Va.Code Ann. § 23-2-1 (1966). Although Korhumel qualified to do business in West Virginia on November 20, 1964, no such certificate was ever furnished the Commissioner.

Unless qualified as a self-insurer (about which more later), an employer is required to make a deposit and pay periodic premiums into a workmen's compensation fund in order to qualify. W.Va.Code Ann. § 23-2-5 (1966). Any personal injury claim by an employee against his employer is paid out of this fund. The amount of these periodic premiums is determined by the Commissioner, and it is based upon a percentage of the employer's payroll and varies with the type of work and degree of risk. The Act further provides that failure to pay the specified premiums or make the required deposit automatically terminates the employer's participation in the fund and deprives it of any protection afforded by the Act. W.Va.Code Ann. §§ 23-2-5, 23-2-8 (1966). Korhumel never made a deposit nor paid any premiums into the fund. Neither did it submit quarterly payroll reports—also required by the Act.

Failure to pay premiums as herein provided or to make the quarterly payroll reports required by the commissioner shall deprive the employer so delinquent of the benefits and protection afforded by this chapter, and shall automatically terminate the election of such employer to pay into the workmen\'s compensation fund as herein provided, and such employer shall be liable to his employees as provided in section eight of this article . . .

W.Va.Code Ann. § 23-2-5 (1966).

An employer can become a "self-insurer," however, and obtain coverage without paying premiums. W.Va.Code Ann. § 23-2-9 (1966). When an employer is designated a self-insurer, the amount of an award to an injured employee is determined by the Commission, but the award is actually paid by the employer. In order to become a self-insurer, the Act requires a finding of fact by the Commissioner that the employer is of sufficient financial responsibility. Additionally, the employer is required to post an acceptable bond with the Commissioner. W.Va.Code Ann. § 23-2-9 (1966). Korhumel never sought a determination by the Commissioner of its financial responsibility, and none was ever made. Neither did Korhumel post a bond in its corporate name.

Despite 100 percent failure to comply with the Act—either on a premium paying basis or as a self-insurer—Korhumel insists that sufficient steps toward enrollment were taken on its behalf by another company, National Steel Corporation. It appears that a Mr. Cramer, an employee of National Steel, Weirton Division, did contact the Commissioner in regard to qualifying Korhumel for coverage. The record is silent as to whether Korhumel ever authorized National Steel or Mr. Cramer to act for it. Mr. Cramer represented to the Commissioner that Korhumel was a "division" of National Steel, but the record does not support the representation. Indeed, even on appeal counsel are yet unable to disclose to us what, if any, relationship existed between Korhumel and National at the time of injury. All we know is that National Steel was a Delaware corporation and Korhumel was an entirely separate Illinois corporation. Under this misrepresentation, Korhumel was listed in 1965 as being included within the coverage of the existing workmen's compensation account for National Steel. As a result of this erroneous listing, Korhumel gained these advantages: (1) it escaped payment of 90 percent of the premiums required of a company not a self-insurer; (2) even the 10 percent was paid at a K-6 classification rate (apparently National's correct classification) of 70 cents rather than at the E-10 rate of $1.05, which would have been applied by the Commissioner if he had known Korhumel was a separate corporation and not a division of National; and (3) it escaped posting of the initial deposit required by law.

While mindful that the West Virginia Act should not be viewed with an overly technical eye, Mains v. J. E. Harris Co., 119 W.Va. 730, 197 S.E. 10 (1938), we find here such complete noncompliance by Korhumel as to require reversal of the order of the district court dismissing Fair's common law action. Neither an employee nor an agent of Korhumel ever contacted the Workmen's Compensation Commission. The only persons who had any correspondence with the Commissioner were employees of National Steel. The record discloses no agency relationship. Entirely through the unauthorized acts of others, Korhumel was included within the National Steel account as a "division" of that corporation, although it was not. On these facts it is clear that Korhumel failed to obtain coverage and is precluded from now raising the Act as a bar to Fair's negligence action. To hold otherwise would require that we accord self-insured status to a corporation that has never shown that it has sufficient assets to protect its employees and has posted no bond—contrary to the letter and spirit of the West Virginia Workmen's Compensation law. Or, alternatively, such a holding would require that we accord participating status to a corporation that has never directly or indirectly paid the initial deposit, and for whose benefit there was paid (apparently by National) only ten percent of premiums due, and even those at a cheaper rate than applicable to Korhumel.

These defaults are not technical. They go to the heart of the statute—the public policy of assuring that employees will be protected.

Our Brother Bryan assumes that Korhumel's failure to qualify under the Act never "jeopardized even slightly Fair's security." It is this viewpoint which divides the court.

One of the purposes of the Workmen's Compensation law is indeed to assure indemnification. To allow an employer to elect after an accident whether there is workmen's compensation coverage can diminish that assurance. For the reasons previously stated—that Korhumel did nothing to bring itself within the Act—it could have successfully resisted coverage under the Act.

In this particular case there were presumably sufficient corporate assets to make it profitable for Korhumel to prefer compensation coverage. But it is not always so. For example, in December 1972 there were press reports that 21 employees were killed at the Weirton Steel complex in West Virginia. Multiple claims could well exceed corporate assets, which is...