Chase Chemical Co. v. Hartford Accident & Indemnity Co.

• Decision Date: 17 August 1984
• Citation: 205 Cal.Rptr. 469,159 Cal.App.3d 229
• Court: California Court of Appeals Court of Appeals
• Parties: CHASE CHEMICAL COMPANY, INC., Cross-Complainant and Appellant, v. The HARTFORD ACC. & INDEM. CO., Cross-Defendant and Respondent. B001430.

Page 469

205 Cal.Rptr. 469

159 Cal.App.3d 229

CHASE CHEMICAL COMPANY, INC., Cross-Complainant and Appellant, v. The HARTFORD ACC. & INDEM. CO., Cross-Defendant and Respondent.

B001430.

Court of Appeal, Second District, Division 4, California.

Aug. 17, 1984.

McCashin & Portugal, James P. McCashin, II, and Jon N. Manzanares, Los Angeles, for cross-complainant and appellant.

Schell & Delamer, Fred B. Belanger, Kenneth B. Prindle and Michael L. Amaro, Los Angeles, for cross-defendant and respondent.

McCLOSKY, Acting Presiding Justice.

Chase Chemical Company, Inc. (Chase) appeals from the February 24, 1983, order of dismissal as to Hartford Insurance Group dba Hartford Accident and Indemnity Company (Hartford) after Hartford's demurrer to Chase's second amended cross-complaint was sustained without leave to amend.

The following issues are presented for resolution:

1. Does Labor Code section 3864 ¹ bar Chase's second amended cross-complaint for "comparative contribution" against Hartford?

2. Did Chase state a valid cause of action against Hartford for comparative indemnity stemming from Hartford's aggravation of plaintiff's initial work-related injuries?

3. Did Chase in its second amended cross-complaint state any cause of action against Hartford?

FACTS

Maureen Baile and Susan Jensen (plaintiffs) brought an action for personal injuries negligence and products liability against third parties Unique Industries, Inc. and Chase for injuries that they had sustained while using a certain degreasing machine.

Chase filed its answer to plaintiffs' complaint and filed a cross-complaint for indemnity, comparative contribution and offset of workers' compensation benefits against, among others, Data Con, Inc. (Data Con), plaintiffs' employer, and Hartford, Data Con's workers' compensation insurance carrier.

On April 6, 1982, Hartford demurred to Chase's cross-complaint on the grounds that Chase's causes of action for indemnity and contribution were barred by section 3864 and that Hartford owed no duty of care to plaintiffs.

On April 19, 1982, the trial court sustained Hartford's demurrer on the ground that the pleading did not state facts sufficient to constitute a cause of action. (Code Civ.Proc., § 430.10, subd. (e).) Leave to amend was granted.

After two more unsuccessful attempts by Chase to state causes of action for comparative indemnity or offset of workers' compensation benefits against Data Con and Hartford, the trial court sustained Hartford's demurrer to Chase's second amended cross-complaint without leave to amend. In its second amended cross-complaint, Chase had attempted to set forth a cause of action for what it calls "comparative contribution" ² or proportional offset of workers' compensation benefits.

In sustaining Hartford's demurrer without leave to amend, the trial court found that Chase "could not sue plaintiff's [sic ] employer directly, in the absence of an allegation of a written agreement to indemnify (Lab.Code, § 3864). Clearly, then, it cannot sue the employer's insurance carrier for the same conduct." The trial court further declared that, assuming the second amended cross-complaint stated a cause of action for fraud by Data Con against plaintiffs, no "case called to the Court's attention goes so far as to allow someone in the shoes of cross-complainant, a materialman, to assert any rights relating from that fraud which manifestly was not directed against it."

On February 24, 1983, an order dismissing Chase's second amended cross-complaint as to Hartford was entered. This appeal followed. Chase and Hartford are the only parties to this appeal.

DISCUSSION

When an employee is injured in the course of employment, the resolution of any claims that he has against his employer who is acting as such, is governed by the Workers' Compensation Act. (§ 3200, et seq.) Thereunder, an employer's liability for compensation benefits exists without regard to fault (§ 3600), and, with certain limited exceptions, the right to recover workers' compensation benefits under section 3600 is the employee's exclusive remedy against his employer. (§§ 3601, 3602.)

By virtue of section 3852, an industrially injured employee retains his right to sue "any person other than the employer" for damages proximately resulting from the injury sustained in the course of employment.

With regard to indemnity, section 3864 provides: "If an action as provided in this chapter prosecuted by the employee, the employer, or both jointly against the third person results in judgment against such third person, or settlement by such third person, the employer shall have no liability to reimburse or hold such third person harmless on such judgment or settlement in absence of a written agreement so to do executed prior to the injury."

The term "employer" as used in division 4, part 1, chapter 5 of the Labor Code which chapter is entitled "Subrogation of Employer" and includes sections 3852 and 3864 includes the employer's workmens' compensation carrier. (§§ 3850, subd. (b) and 3211.)

As the "alter ego" of Data Con, Hartford contends that Chase could not seek indemnity from it because no written indemnity agreement between Data Con and Chase ever existed. Chase, on the other hand, argues that section 3864 does not apply when an employer's liability is not limited by the Workers' Compensation Act.

"The purpose of Labor Code section 3864, enacted in 1959, was to eliminate the employer's liability for implied indemnity in the absence of a written agreement, because implied indemnity imposed a greater burden on the employer than was contemplated under the workers' compensation system." (Val's Painting & Drywall, Inc. v. Allstate Ins. Co. (1975) 53 Cal.App.3d 576, 584, 126 Cal.Rptr. 267.)

It is a well established principle of jurisprudence, that when the reason for a rule does not apply, the rule itself should not apply. To the extent that an employer's (including insurer's) liability is not limited by the workers' compensation scheme, this principle is applicable.

In Johns-Manville Products Corp. v. Superior Court (1980) 27 Cal.3d 465, 165 Cal.Rptr. 858, 612 P.2d 948, our state Supreme Court recognized an exception to the general rule that an employee's sole recourse against his employer is to be found in the workers' compensation scheme. The court held "that while the workers' compensation law bars the employee's action at law for his initial injury, a cause of action may exist for aggravation of the disease because of the employer's fraudulent concealment of the condition and its cause." (Id., at p. 469, 165 Cal.Rptr. 858, 612 P.2d 948.) That is so because in so doing, the employer has stepped outside its Workers' Compensation Act protected role as an employer. ³

Hence, if an employee sues his employer at law for aggravation of his initial injuries because of his employer's fraudulent concealment of the existence of the condition and its cause and connection with employment, then, since the employer has stepped outside of that protected role as an employer, a third party is entitled to such indemnity from the employer for such aggravation without regard to the lack of existence of a written indemnity agreement for those damages proximately caused by the aggravation.

With regard to the initial injury which remains governed by the Workers' Compensation system, section 3864 still applies. Therefore, in the absence of a written indemnity agreement executed between the employer and the third party prior to the injury, that third party may not successfully seek indemnity from the employer or its compensation carrier for the employee's initial injury. (See Johns-Manville Products Corp. v. Superior Court, supra, 27 Cal.3d 465, 165 Cal.Rptr. 858, 612 P.2d 948; Unruh v. Truck Insurance Exchange (1972) 7 Cal.3d 616, 102 Cal.Rptr. 815, 498 P.2d 1063 and Alameda Tank Co. v. Starkist Foods, Inc. (1980) 103 Cal.App.3d 428, 162 Cal.Rptr. 924.)

The next question to be decided is whether an employee can bring a common law action for damages against the employer's workers' compensation insurer for aggravation of industrial injuries due to that insurer's fraudulent concealment of the injury and its cause.

We hold that the rule of Johns-Manville should be applied to recognize a cause of action at law against an employer's workers' compensation insurer for aggravation of the employee's injuries where the insurer's fraudulent concealment constitutes a breach of its duty to disclose. In so fraudulently concealing, the insurer steps outside of its protected role as an employer and subjects itself to an action at law. It, therefore, necessarily follows that any such tort liability on the part of the workers' compensation insurer cannot be established by derivative or vicarious liability principles but must be alleged and proven to be the act of that insurer apart from any tortious conduct on the part of the actual employer.

"Labor Code section 3850 protects insurance carriers from liability as 'third parties' by defining 'employer' to include the employer's workers' compensation insurer. Carriers thus retain immunity in most instances from civil liability under section 3852 as the 'alter ego' of the employer." (Droz v. Pacific National Insurance Co. (1982) 138 Cal.App.3d 181, 183, 188 Cal.Rptr. 10.)

Under the authority of Unruh v. Truck Insurance Exchange (1972) 7 Cal.3d 616, 102 Cal.Rptr. 815, 498 P.2d 1063, we conclude that an insurer who with a duty to disclose, fraudulently conceals from an employee the existence of an injury and its cause forfeits its "alter ego" status and may be sued at law by that employee or by a third party defendant because "such conduct goes beyond the normal role of an insurer in a compensation scheme intended to protect the worker." (Id., at p. 630, 102 Cal.Rptr. 815, 498 P.2d 1063.)

Consequently, we further hold that a third party may bring an action for comparative indemnity against such insurer in the...