Thomas v. Southside Contractors, Inc.

• Decision Date: 29 November 1976
• Docket Number: No. 76--165,No. 1,76--165,1
• Citation: 543 S.W.2d 917,260 Ark. 694
• Parties: Coy THOMAS, Appellant, v. SOUTHSIDE CONTRACTORS, INC., et al., Appellees
• Court: Arkansas Supreme Court

Page 917

543 S.W.2d 917

260 Ark. 694

Coy THOMAS, Appellant, v. SOUTHSIDE CONTRACTORS, INC., et al., Appellees.

No. 76--165.

Supreme Court of Arkansas, Division No. 1.

Nov. 29, 1976.

Rehearing Denied Jan. 10, 1977.

Keith Rutledge, Batesville, for appellant.

Harkey, Walmsley & Belew, Batesville, for Walters Construction Co. and Millers Mutual Ins. Co.

Bennett & Purtle, Batesville, for Southside Contractors, Inc.

Laser Sharp, Haley, Young & Boswell, Little Rock, for Northwestern National Ins. Co.

GEORGE ROSE SMITH, Justice.

The appellant, Coy Thomas, is the claimant in this workmen's compensation case. At the time of his injury he was drilling rock with a jackhammer, in the process of excavating a trench for the installation of a sewer line to serve a residence that was being built. Walters Construction Company was the prime contractor for the residential project. Southside Contractors, Inc., the appellant's employer, was the subcontractor for the installation of the sewer line. Thomas's claim for compensation is asserted both against the prime contractor and its insurance carrier and against the subcontractor and its insurance carrier. The Commission denied the claim altogether, finding (a) that the subcontractor's insurer had canceled its policy before the accident, and (b) that the claimant is estopped to assert liability on the part of the prime contractor. Upon this appeal Thomas challenges both findings.

There is substantial evidence to support the Commission's finding that the subcontractor's coverage had been canceled before the claimant was injured. The risk had been assigned to the subcontractor's insurer pursuant to Ark.Stat.Ann. § 81--1309(b) (Repl.1960). That insurer, owing to its inability to obtain an audit of the subcontractor's payroll, applied to the Commission for cancellation of the policy. The Commission, acting under Section 81-- 1309(d), notified the subcontractor that its policy would be canceled if the Commission 'does not hear from you within ten days from the date of this letter.' There was no reply to that letter. Despite some uncertainty about the date of cancellation, the Commission was justified in finding that the policy had been canceled. Upon this point the subcontractor's local insurance agent testified that he discussed the proposed cancellation with the president of the subcontractor, a corporation, who said: 'I guess we will have to get along without it.'

A more difficult question is presented with respect to the liability of the prime contractor and its insurer. The statute provides that when a subcontractor fails to obtain compensation insurance, the prime contractor shall be liable for compensation to the employees of the subcontractor. Section 81--1306. Despite that section of the statute the Commission denied Thomas's claim, on the ground that he had dealt with the prime contractor, Walters Construction Company, as an independent contractor and that he was estopped to say that he had no part in the cancellation of Southside's compensation coverage.

We state the facts most favorably to the Commission's decision. For some time before the claimant Thomas joined the concern there had been a partnership of three or four men engaged in work involving excavations. Thomas bought out one of the partners by contributing a truck for which Thomas had paid $1,000. In January, 1971, when there were three partners, the business was incorporated upon a lawyer's recommendation and under his supervision.

Paul James was the presidnet of the company, with Thomas being designated as vice-president. The three principals, manifestly in good faith, continued to conduct the business pretty much as a partnership, though some corporate records were kept. Excavation contracts were made orally, without formality. Here is an excerpt from the testimony of Paul James:

Q. Dealing with the decision-making process, is it not true, Paul, that the three members of the Board of Directors, yourself and Gary and Coy, somebody approaches you or Gary or Coy about doing a job, you all meet and say all right here is the job whose (sic) is going to handle it--how much are we going to get for it--right?

A. Right.

Q. And you all say, well, Coy why don't you handle this one, and the next one, Paul, you take this one--it was a joint decision by the members of the Board of Directors?

A. That is right.

James, as president of the company, was responsible for keeping the records and for obtaining workmen's compensation insurance. His home was the company's only office. Coy Thomas received take-home pay of $115 a week, paid by the company's check. Taxes and Social Security contributions were withheld. The company furnished the tools and materials that Thomas and his crew used in their work. Apparently the company never made enough money to distribute any profits before Thomas was injured.

Southside's compensation coverage was canceled as of May 6, 1973. At about that same time Henry Walters, the owner of the prime contracting company, approached Thomas about the sewer-line subcontract, because Thomas had been highly recommended to Walters as a very competent person in that field. The oral contract was made according to Southside's usual practice. Thomas discussed it with his associates, who approved the job for the proposed price of $1,100. Walters testified that he thought he was dealing solely with Thomas. Thomas brought his own crew to the job and worked with them, as foreman, until he was hurt. Walters said he knew nothing about Southside...