Ferguson v. Hospital Corp. Intern., Ltd.

• Decision Date: 26 August 1985
• Docket Number: No. 84-2455,84-2455
• Citation: 769 F.2d 268
• Parties: Deborah FERGUSON, Kathleen Rabjohns, and Michael Rabjohns, Plaintiffs-Appellees, v. HOSPITAL CORPORATION INTERNATIONAL, LTD., Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 268

769 F.2d 268

Deborah FERGUSON, Kathleen Rabjohns, and Michael Rabjohns, Plaintiffs-Appellees, v. HOSPITAL CORPORATION INTERNATIONAL, LTD., Defendant-Appellant.

No. 84-2455.

United States Court of Appeals, Fifth Circuit.

Aug. 26, 1985.

E.D. Vickery, John M. Elsley, Houston, Tex., for defendant-appellant.

W. James Kronzer, Houston, Tex., Judson Francis, Dallas, Tex., Richard Harrison, Sherman, Tex., for plaintiffs-appellees.

Appeal from the United States District Court for the Eastern District of Texas.

Before RUBIN, WILLIAMS and DAVIS, Circuit Judges.

JERRE S. WILLIAMS, Circuit Judge.

Two nurses who were injured while on assignment in Saudi Arabia brought this negligence action against their employer. The employer argues that the Texas Workers' Compensation Act (the "Act") is the nurses' exclusive remedy. Prior to the accident, the employer failed to comply with any of the notice provisions of the Act. The district court denied summary judgment for the employer on grounds that the employer was not a subscriber under the Act because of failure to provide notice of compensation coverage to the employees prior to their accident.

I. FACTS

Hospital Corporation International, Ltd. ("HCI"), a subcontractor of the Morrison-Knudsen Saudia Arabia consortium, was operating medical facilities at the Khalid Military City Project in Saudi Arabia. HCI was in need of several nurses to work at the medical facilities for short periods of time on temporary assignments. HCI contacted nurses in the United States at hospitals of the Hospital Corporation of America ("HCA"). ¹ Deborah Ferguson and Kathleen Rabjohns, nurses at the Plano General Hospital in Plano, Texas, agreed to take temporary assignments in Saudi Arabia for HCI. Ferguson and Rabjohns worked under a visa in Saudi Arabia for the term of their assignments. On July 5, 1980, while being driven from the Military City to the airport to return to the United States, the nurses were injured in an automobile accident. ²

Following their accident, and prior to filing their common law damages actions, Ferguson and Rabjohns filed claims for compensation with the Texas Industrial Accident Board (the "Board") on January 2, 1981. They were subsequently paid some compensation benefits under a policy held by HCI. At approximately the time of filing their claims with the Board, both Ferguson and Rabjohns received oral and written notice that HCI had provided for payment of compensation benefits for injuries which they had sustained in Saudi Arabia.

In October 1981, the nurses separately filed common law actions for damages. In each of these cases, HCI filed a Rule 12(b)(6) motion to dismiss on the ground that it was a subscriber under the Act and that Ferguson and Rabjohns therefore had no right of action at common law. The two actions were later consolidated by order of the district court. The 12(b)(6) motion was considered as one for summary judgment pursuant to Fed.R.Civ.Pro. 12(c).

The district court made the following findings: (1) HCI was not a "subscriber" under the Act by virtue of its failure to provide plaintiffs with pre-injury notice of its compensation coverage, (2) Ferguson and Rabjohns did not waive their right to common law damages by failure to notify HCI of that intent within five days of HCI's notice to them that HCI had compensation coverage; and (3) the fact that the plaintiffs accepted some payments from HCI did not constitute an election of remedies. For these reasons, the court concluded that workers' compensation was not plaintiffs' exclusive remedy and that they could proceed with their common law damages action. ³ The district court certified the denial of summary judgment for the defendant to this Court for immediate appeal by order of May 23, 1984, finding pursuant to 28 U.S.C. Sec. 1292(b) that there existed a controlling question of law as to which there was substantial ground for difference of opinion.

II. HCI'S FAILURE TO PROVIDE PRE-INJURY NOTICE

We face an issue which is unsettled under Texas law. We must decide what effect the failure of an employer to provide notice in compliance with the Workers' Compensation Act has upon an employer's right to claim immunity from personal injury liability. Although the Act prescribes certain notice requirements, the statute is silent as to the effect the failure to provide notice has upon an employee's common law action for damages.

Under the Act, an employer must provide employees with notice that the employer has provided for payment of compensation for their injuries. Tex.Civ.Stat.Ann. art. 8308 Secs. 19, 20 (Vernon 1967). Additionally, an employer's compensation insurer is required to notify the Industrial Accident Board that the insurer has provided compensation coverage for the employer. Tex.Civ.Stat.Ann. art. 8308 Sec. 18a(a). Finally, the filing of notice with the Board constitutes constructive notice to the employees for purposes of satisfying art. 8308 Secs. 19, 20. Tex.Civ.Stat.Ann. art. 8306 Sec. 3(c). None of these three notice requirements had been met prior to the time the appellees filed their claims with the Board. ⁴

HCI alleges that the failure to provide proper notices under these provisions was mere inadvertance, and that the appellees seek to take advantage of HCI's technical failure to comply with the notice requirements. HCI argues that in any event, such failure to provide notice does not affect its right to claim the benefit of the Act's exclusive remedy. On the other hand, appellees contend that the failure to provide proper notice was intentional, and that HCI sought by failing to comply with the Act to preserve the voluntary nature of its insurance policy separate from the requirements of the Act.

We emphasize, however, that whether HCI's failure to provide notice was intentional or inadvertent is not the relevant inquiry here. Instead, our focus in considering lack of notice is upon the purpose served by requiring that such notice be provided, and not a subjective probing into the reasons why HCI did not comply with the notice provisions.

To understand the significance of the notice provisions in the Act, we refer first to the initial enactment of the workers' compensation scheme in Texas in 1913. ⁵ Adopting a system of compensation for injured employees without reference to fault was at that time a revolutionary concept. But the relinquishment of the long prevailing right to common law damages was accepted as a legitimate sacrifice for ensuring that all injured employees would be compensated.

The enactment of the workers' compensation law initially raised concerns about the possible constitutional implications of denying an injured worker the previously available common law damages remedy. Shortly after enactment of the Act, an employee of Texas Power & Light Co., Charlie Middleton, was injured, and brought an action for common law damages. Middleton refused to accept compensation under his employer's compensation policy, challenging the constitutionality of the Act on grounds that the denial of a common law action for damages was a deprivation of property without due process of law, in violation of the Fourteenth Amendment. When the Texas Supreme Court upheld the constitutionality of the Act in Middleton v. Texas Power & Light Co., 108 Tex. 96, 185 S.W. 556 (Tex.1916), Middleton took his claim to the United States Supreme Court.

In 1917, before the Supreme Court decided Middleton's case, the Texas legislature enacted amendments to the Act which evidenced its continued concern with the constitutionality of the workers' compensation scheme. First, the 1917 amendments provided that employers were to give notice in writing to their employees that the employers were subscribers under the Act. Tex.Civ.Stat.Ann. art. 8308 Secs. 19, 20. Courts construed this requirement strictly, holding that employees had to be given actual notice of their employer's subscriber status in order for notice to be effective. Bailey v. Texas Indemnity Ins. Co., 14 S.W.2d 798, 801 (Tex.Comm.App.1929); Producer's Oil Co. v. Daniels, 112 Tex. 45, 244 S.W. 117 (Tex.Comm.App.1922). George W. Armstrong Co. v. Adair, 112 Tex. 439, 247 S.W. 848, 852 (Tex.Comm.App.1923). The 1917 amendments also allowed an employee the opportunity to retain his rights to common law damages if he notified his employer of that intention within five days of receiving the employer's actual notice of an existing compensation plan. Tex.Civ.Stat.Ann. art. 8306 Sec. 3a. By enacting stringent notice requirements and preserving the employee's option to retain a common law right of action, the Texas legislature made clear its intention to provide all assurances that the workers' compensation scheme would not abridge employees' constitutional rights.

Prior and subsequent to these amendments, several courts addressed the question of failure to provide employees with notice, specifically holding that such failure vitiated the employer's subscriber status. The seminal case was Kampmann v. Cross, 194 S.W. 437 (Tex.Civ.App.--San Antonio, 1917 writ ref'd). Kampmann characterized the relationship among employer, employee and insurer as a contractual one whereby the parties became bound under the Act through mutual acceptance of the compensation scheme. Kampmann reasoned that acceptance hinged on proper notice, and that an employee without proper notice of the employer's compensation plan could not be deemed to have accepted workers' compensation in lieu of any common law right to damages. Therefore, an employer who failed to provide an employee with proper notice was not a subscriber under the Act. This rationale was accepted by all courts that subsequently considered the notice issue. See, e.g., Farmers' Petroleum Co. v. Shelton, 202 S.W. 194 (Tex.Civ.App.--Beaumont, 1918 writ ref'd); Holland v. Stuckey, 282 S.W. 951 (Tex.Civ.App.--Fort Worth, 1926 writ ref'd); Rice v. Garrett, 194 S.W. 667 (Tex.Civ.App.--Amarillo, 1917...