Alabama Ins. Guar. Ass'n v. Magic City Trucking Service, Inc.

• Decision Date: 26 May 1989
• Citation: 547 So.2d 849
• Parties: ALABAMA INSURANCE GUARANTY ASSOCIATION v. MAGIC CITY TRUCKING SERVICE, INC. MAGIC CITY TRUCKING SERVICE, INC. v. ALABAMA INSURANCE GUARANTY ASSOCIATION. Joe CORONA and Mary Corona v. ALABAMA INSURANCE GUARANTY ASSOCIATION. 87-1321, 87-1348 and 87-1388.
• Court: Alabama Supreme Court

Page 849

547 So.2d 849

ALABAMA INSURANCE GUARANTY ASSOCIATION v. MAGIC CITY TRUCKING SERVICE, INC.

MAGIC CITY TRUCKING SERVICE, INC. v. ALABAMA INSURANCE GUARANTY ASSOCIATION.

Joe CORONA and Mary Corona v. ALABAMA INSURANCE GUARANTY ASSOCIATION.

87-1321, 87-1348 and 87-1388.

Supreme Court of Alabama.

May 26, 1989.

Rehearing Denied June 23, 1989.

Karon O. Bowdre and Richard E. Smith of Rives & Peterson, Birmingham, for appellant/cross-appellee.

Kearney Dee Hutsler III and William J. Baxley, Birmingham, for appellants Joe Corona and Mary Corona.

Rodney A. Max and W. James Ellison of Najjar, Denaburg, Meyerson, Zarzaur, Max, Wright & Schwartz, Birmingham, for appellee/cross-appellant.

SHORES, Justice.

These appeals present a coverage question under the Alabama Insurance Guaranty Association Act (Code 1975, § 27-42-1 et seq.). They involve a dispute concerning the obligations owed by the Alabama Insurance Guaranty Association to Magic City Trucking Company ("Magic City"). Magic City has two claims against the Guaranty Association due to the insolvency of both its primary and its excess liability policy carriers.

Joe and Mary Corona sued Magic City in the Circuit Court of Jefferson County in January 1983 for personal injuries suffered in an accident with one of Magic City's trucks on September 7, 1982. At that time, Magic City had primary liability coverage with Commercial Standard Insurance Company ("Commercial Standard") and excess coverage with Integrity Insurance Company ("Integrity"). Intitially, Commercial Standard undertook the defense of this suit, but both Commercial Standard and Integrity were adjudicated insolvent in 1985. Magic City then presented this claim to the Guaranty Association, which assumed the defense of the lawsuit brought by the Coronas.

Commercial Union Insurance Company ("Commercial Union") is the workmen's compensation carrier for Joe Corona's employer. Commercial Union has paid $162,039.94 in benefits to Mr. Corona as a result of this accident.

Magic City filed a declaratory judgment action against the Guaranty Association and the Coronas on February 23, 1988. Magic City sought a declaration that the Guaranty Association was responsible for the benefit of claimants (the Coronas) in the amount of $150,000.00 for primary coverage and $150,000.00 for excess coverage; these figures constitute the full extent of statutory coverage under the Commercial Standard and Integrity policies. The Guaranty Association answered, taking the position that the prior payment of worker's compensation benefits to Joe Corona, which exceeded its $150,000.00 limits, offset its monetary obligation under the Commercial Standard policy and that the Integrity excess coverage policy did not require it to "drop down" and provide primary coverage until the policy limits under the original primary coverage ($1,000,000) had been paid on this claim.

Magic City, further, sought injunctive relief, requesting that the Coronas be enjoined from prosecuting their tort claims until this action had been adjudicated. An injunction was granted, which has since expired.

The matter was submitted to the trial court on briefs and joint stipulation of facts to determine these issues: (1) whether the Alabama Insurance Guaranty Association Act (Code 1975, §§ 27-42-1 et seq.) permits the Guaranty Association to reduce its obligation on the primary policy (issued by Commercial Standard) by the amount of workmen's compensation benefits paid to the claimant and (2) whether under the language of the Integrity excess liability policy the Guaranty Association is required to "drop down" and provide primary coverage to Magic City. The trial court issued a final judgment on June 24, 1988, which held:

"ONE: The Guaranty Association has no greater obligation under the Integrity policy than Integrity would have had, if it had remained solvent.

"TWO: Although an employer's obligations under the Workmen's Compensation statutes are often insured, workmen's compensation benefits are not insurance benefits, and thus, the Guaranty Association is not entitled to reduce its obligation to a policy holder or claimant by the amount paid to such person as workmen's compensation benefits.

"THREE: The language of the excess policy issued by Integrity does not require it to drop down and provide primary coverage to Magic City due to the insolvency of the primary insurance carrier."

The Guaranty Association, on August 2, 1988, appealed that portion of the court's order holding that the Guaranty Association was not entitled to reduce its obligation under the Commercial Standard policy by the workmen's compensation payments to Mr. Corona. Magic City cross-appealed on August 10, 1988. Joe and Mary Corona cross-appealed on August 15, 1988.

I.

We first address the question of whether the trial court erred in holding that the workmen's compensation benefits paid to Joe Corona were not insurance benefits and thus precluding the Guaranty Association from reducing its obligations under the Commercial Standard policy. In ruling that the Guaranty Association could not reduce its statutory obligation by the amount of workmen's compensation paid to Joe Corona, the trial court stated:

"The Alabama Workmen's Compensation Act is found in Section 25-5-1 et seq., Code of Alabama 1975. While it is perhaps common to equate 'workmen's compensation benefits' with workmen's compensation insurance, the two phrases are not synonymous and, in fact, employers are given an option under Section 25-5-8 to secure the obligation of the payment of compensation either by insuring the risks or by proof of financial ability to pay such compensation directly as the obligations arise. It is, therefore, the opinion of the court that workmen's compensation benefits which are paid to a policy holder or claimant do not fall within the provisions of Section 27-42-12 which reduce the amount payable by the Guaranty Association when recovery is made under an insurance policy." (R. 89)

The Guaranty Association is a nonprofit organization created by the Alabama Insurance Guaranty Association Act (the "Act"). Code 1975, § 27-42-1 et seq. Many states have passed laws creating such insurance guaranty associations, and although the state acts differ somewhat, they tend to have the same basic concepts. Annot., 30 A.L.R. 4th 1110, 1114 (1984). The Guaranty Association is funded by its members and handles claims of policyholders or claimants who are residents of Alabama involving insurance carriers licensed to transact business in Alabama. Code 1975, § 27-42-5. The Act is applicable to all kinds of direct insurance, "except life, annuities, disability, accident and health, title, surety, credit mortgage guaranty and ocean marine insurance." Code 1975, § 27-42-3.

Covered claims are defined by the Act as follows:

"(4) COVERED CLAIM. An unpaid claim, including one of unearned premiums, which arises out of and is within the coverage and not in excess of the applicable limits of an insurance policy to which this chapter applies issued by an insurer, if such insurer becomes an insolvent insurer after January 1, 1981 and (i) the claimant or insured is a resident of this state at the time of the insured event; or (ii) the property from which the claim arises is permanently located in this state. 'Covered claim' shall not include any amount due any reinsurer, insurance pool, or underwriting association, as subrogation recoveries or otherwise."

Code 1975, § 27-42-5(4).

The Act also provides for non-duplication of recovery, in § 27-42-12, which in pertinent part states:

"(a) Any person having a claim against an insurer under any provision in an insurance policy other than a policy of an insolvent insurer which is also a covered claim, shall be required to exhaust first his rights under such policy. Any amount payable on a covered claim under this chapter shall be reduced by the amount of any recovery under such insurance policy."

We must determine whether the workmen's compensation payments to Joe Corona fall within the exception of § 27-42-3 so as not to be subject to the non-duplication provisions of § 27-42-12.

The Supreme Court of Louisiana addressed this question in Senac v. Sandefer, 418 So.2d 543 (La.1982). Louisiana has a non-duplication statute almost identical to § 27-42-12 (the only difference being the use of the word "part" where Alabama uses the word "chapter"). The plaintiff, Senac, was injured in an automobile accident while operating his employer's delivery truck. He sued the other driver for damages based on medical expenses, pain and suffering, and loss of wages. The defendant's insurer was declared insolvent and its obligations were assumed by the Louisiana Insurance Guaranty Association. A stipulation was entered into by the parties as to general damages. The question before the Louisiana Supreme Court was whether the Guaranty Association was entitled to offset the stipulated general damages due to plaintiff by the amount paid to him in workmen's compensation benefits.

The Louisiana court reasoned that workmen's compensation is social legislation passed for the joint benefit of labor and management:

"In order that this end might be accomplished, the Legislature provided for sacrifices to be made by both the employer and the employee. The employee was required to waive the right granted him under the general law, Article 2315 of the Civil Code, in consideration of receiving a fixed percentage of his wages during the period of his disability. The employer, on the other hand, was deprived of the defenses afforded to him by the general law and he was assured that, in case any of his employees were injured, they would be entitled to no more than the amount stipulated in the statute as compensation during the period of disability."

418 So.2d at 545, quoting Atchison v. May, 201 La. 1003, 10 So.2d 785 at 788 (1942). However, the same quid pro quo arrangement is not present in the...